FedLoan Servicing Cost Us $20,000

Raise your hand if you've been personally victimized by FedLoan Servicing. If you had student loans with them (before FedLoan loans transferred to MOHELA), you're not going to be too surprised to hear how FedLoan Servicing totally screwed us over.

Stuffing hundred-dollar bills in the toaster basically summarizes our experience with them. I'll start with our story of misfortune and then I'll give you some details on the problems my clients and friends had with FedLoan payment and customer service (before their loans transferred to MOHELA).

FedLoan servicing should not have been handling Public Service Loan Forgiveness

Maybe you have an experience of your own to share. Please share it in the comments at the end of the article. I'd love to compare what I've been seeing in this business with your experiences.

To be honest, the best part of this FedLoan blog post is the comments. You'll see you've not been alone in these experiences and will see other common FedLoan complaints.

Frankly, it's outrageous that the government gave FedLoan a monopoly on servicing borrowers looking for higher education assistance with the PSLF program. Thankfully, FedLoan fired themselves and handed over their student loan borrowers to MOHELA. Fingers crossed that MOHELA will outperform the lackluster services that FedLoan had to offer.

FedLoan enters the picture after my discovery of a promising loan forgiveness program in 2015

When I met my beautiful girlfriend (now wife), Christine, and we started getting more serious, we had the money talk. She let me know that she had six figures of medical school debt. Maybe you were the one who delivered the, “I have a lot of debt,” line instead of being on the listening end like I was. My reaction was basically just, “Ok let's figure out how to save money paying this back.” I viewed it as my debt too, because I was looking to spend the rest of my life with her.

Maybe when you graduated school or found out your partner had student loans, your first thought was the same as mine. We'd just pay it down super fast and get out of debt, but then I found out about the PSLF program. In that moment, all my Dave Ramsey/Suze Orman conventional wisdom just went straight out the window.

We thought we'd found the solution to our six figure debt

Christine could finish her training, work for a few more years at a not-for-profit hospital, and get whatever student debt she had left over wiped away tax-free. SO COOL! I learned that we had to submit this PSLF form to the government, so I helped her fill it out. We mailed it into this place called FedLoan Servicing, eagerly awaiting the good news that we would save tens of thousands on our debt.

FedLoan Servicing got involved and torpedoed us

So now the fun stuff, seeing how much money we lost because of them.

If you're like me, you had no idea that submitting the certification form for the loan forgiveness program would forcibly transfer us to FedLoan. We felt ok with Nelnet, our previous servicer. We thought that we would receive an answer directly from the federal government about our education assistance. However, when we opened the letter, it was FedLoan Servicing that answered us instead.

Quick backstory. Christine had consolidated her loans in 2012. She had made payments for three years at that point on income-based repayment, so we were expecting to see 36 credits towards the 120 needed for loan forgiveness and go out on the town to celebrate.

Somehow FedLoan lost years of payments, oopsy daisy!

Then we opened the letter and looked at the first page. We flipped through the document that they sent us, and half the loans said about three years of credit, as we expected.

We kept flipping through the other pages and our mouths dropped. The other half of her loans only had one month of credit towards PSLF.

Of course, we tried to get in touch with them and figure out what happened. By and large, they were completely useless.

We're pretty sure that FedLoan lost the payment history on 50% of her $124,000 in debt when the loans transferred over from Nelnet. That means the awesome loan forgiveness benefit literally evaporated before our eyes. It's not just us though. There's a bunch of lawyers suing FedLoan right now because of their shoddy accounting practices.

Need help with your student loans? Hire Us

How do I calculate that $20,000 cost thanks to FedLoan?

To analyze our debt situation, I built a spreadsheet that's the flagship tool for Student Loan Planner®, the handy free student loan calculator. You can get it for free by clicking on the button below or entering your email at the bottom of the post. Without getting too deep in the weeds, our cost under PSLF for the $124,000 we owed would have been about $108,000.

We found a pretty good student loan refinancing deal for a 2.2% five-year variable rate that we figured would cost us about $128,000 because we were going to pay it off in a couple years. Hence, the difference between those two strategies was about $20,000.

Thanks to FedLoan Servicing, we abandoned PSLF. If we had to start over working toward PSLF at one-month credit's on half her loans, we would pay a 6.8% interest rate for 10 years and get no forgiveness. She was almost out of training by the time we figured out that we needed to submit the loan forgiveness forms. Our window of making small monthly payments that would count toward PSLF had closed.

FedLoan Servicing problems my clients have dealt with

One of the reasons I felt like it was fair to share our loan servicing story is because I know that it's not an isolated issue. After all, I've spoken with hundreds of clients about their student loan strategies.

Here's a sampling of problems inflicted by FedLoan customer service:

A FedLoan agent told me to put down that I can't reasonably access my spouse's income. That's not true, so I feel like I'm committing fraud.

Honestly, I am still fighting FedLoan to be consistent in honoring and publishing months paid across all of my loans. I have concern for them trying to scrap my existing credit if I make any waves

I transferred all my loans over from Nelnet and there are supposed to be 36 months of credit towards PSLF. Instead they aren't showing any at all!

FedLoan is telling me I have to make a huge payment on the Standard 10 year plan before they'll let me recertify for IBR. Can't I pay $5 on a one month forbearance?

That time I heard a FedLoan compliment

Remember, I've spoken with a large number of borrowers who had loans with FedLoan Servicing. I've heard positive feedback one time.

The compliment? “The rep was unusually helpful and nice.” Hardly a ringing endorsement for the company.

What FedLoan Servicing problems have you dealt with?

I've heard and seen all kinds of horror stories with FedLoan Servicing. Can you one-up me with your story? Post it in the comments.

Maybe you've:

• Had a rep tell you that you were on a payment plan that you actually weren't even on (I've seen this one a lot)
• Called them a dozen times to accomplish a basic loan consolidation
• Been put on forbearance or deferment when you could've been on an income-driven repayment plan
• Asked the same question multiple times to different reps and gotten a different answer each time

What I'm really looking for is if you can top our story of losing out on $20,000 thanks to the folks at FedLoan. Let's compare our misery. Remember you can also (and should) submit complaints about your FedLoan customer service experiences with the Federal Student Loan Aid Ombudsman's Group office.

Call this FedLoan phone number if you're still having major problems

Fortunately, there is a phone number you can call regarding chronic FedLoan issues. The company has a FedLoan Ombudsman hotline. If you have issues with payment count, forbearance, or anything that the phone reps are clueless about, call the FedLoan phone number 717-720-7605.

Some of my clients and readers report having their complaint fixed in two weeks when they call the FedLoan Ombudsman line instead of the usual six months when they had called the generic phone number. To the extent that there's a FedLoan VIP contact, this is it.

If your PSLF payment count is wrong, involve your congressperson or senator's office

There's actually an amazing hack that many of our readers have had success with when their PSLF payment count is incorrect.

Instead of waiting one year for the manual review process, they instead contact the constituent services group of their US Representative or Senator (preferably both).

The constituent services office supports citizens when they have problems with governmental services or programs. Certainly mismanaged student loans for the PSLF program qualify.

You simply need to email or call this office specifically. They will ask you to detail what you want them to do, which is to reach out to FedLoan and request that they expedite your payment count review. For some readers, their PSLF payment count was updated after a couple weeks when they had previously been waiting for almost a year!

However, now that MOHELA has taken over all loans previously handled by FedLoan, it's uncertain if these steps and contact phone numbers are still going to be operable moving forward.

How to get rid of your current loan servicer

While it's true that you're assigned a student loan servicer based on the school and program you attended, it's not true that you can't get rid of your current loan servicer.

Like anything, there are pros and cons that you need to carefully consider.

The two best ways to get rid of your current loan servicer are either:

1. Consolidate your federal student loans through studentaid.gov. You'll need to specifically check the box next to a different loan servicer's name. Unless you're going for the PSLF program, we recommend Great Lakes Student Loan Servicing. We surveyed hundreds of our readers, and they scored a 3.8 out of 5 stars (FedLoan was 2.7 out of 5).
2. Refinance your student loans. You only want to do this if loan forgiveness is out of the question. If you refinance, you can't take it back. Dumping your current loan servicer is definitely not worth losing out on all kinds of federal benefits and protections unless you're positive you will be paying down the debt rapidly. If you refinance, your loans are sent to a new servicer, one that more likely has better customer service.

Consolidating student loans to dump MOHELA

The best time to consolidate student loans is immediately following graduation. The usual grace period is six months until you begin repayment.

By consolidating, you can start payments in only two months, which gets you credit toward loan forgiveness more quickly. Also, you'll benefit from interest subsidies more rapidly if you're on the REPAYE plan.

The downside to consolidating is that you lose any credit you've built up toward loan forgiveness because you're creating a brand new loan. So, if you've paid for several years already on an income-driven plan, think twice before consolidating.

If you plan to receive PSLF, you're going to want to stay at MOHELA. The tracking MOHELA performs toward your required 120 months of credit is worth the pain of dealing with a backlogged loan servicer (Imagine trying to prove it years later – you don't want to try!)

However, if you're positive you will use the 20- to 25-year forgiveness options or refinance eventually, then you might as well take advantage of the student loan consolidation loophole. Consolidation is the one time you get to choose who handles your student loans.

It's the number one opportunity to get rid of a lousy loan servicer like (previously) FedLoan, now MOHELA.

Refinancing student loans away from MOHELA

Many people abandoning PSLF are making huge mistakes. Whenever I present a student loan plan to someone and the projected savings are in the six figures, it's usually because they were thinking about ditching PSLF.

If you work for a private-sector employer, you don't qualify for PSLF.

If the ratio of your student debt divided by your income (debt-to-income ratio, or DTI) is above 1.5 and will be for a while, you need to think long and hard before refinancing.

However, if you

• Work in the private sector AND
• Your debt to income ratio is below 1.5 (meaning you owe $150,000 and earn more than $100,000 annually, for example), then
• You should refinance. You can take our quiz to make sure you assess your situation correctly.

The main benefit is getting a lower interest rate and picking up a cash-back bonus.

However, a huge fringe benefit is that the new owner of your student loan wants payments collected by an organization that's not utterly incompetent.

That means you will have your loans transferred once and for all to a servicer that actually cares.

Like I said, just make totally sure that refinancing is definitely what you should be doing as your overall strategy first.

Thank you to FedLoan for inspiring me to found Student Loan Planner®

Our experience with FedLoan was so bad, I thought there had to be a better way to get expert help on student debt.

Moreover, I felt like graduate professionals with the highest debt loads receive extremely bad service that costs them a ton of money in unnecessary student loan payments.

So, after helping my wife analyze her loans, I helped some of our friends, and the student loan calculator I built went viral. That's why I'm writing to you today. I do flat-fee consultations to solve student loan confusion over how to save the most money paying back student debt.

If you're not sure you're managing your loans in the best way, we can help

If you're on IBR, ICR, filing taxes separately, have private loans with rates over 8%, not maxing out your retirement accounts, or not saving for the tax penalty of private-sector loan forgiveness, check out our consult service.

Average client savings have been around $46,000 over the 10- to 25-year period the loans will be around. We've consulted on more student debt than anyone else in the country. The more complex your situation, the more we can help.

Hopefully one day all the consolidation factories promising “Biden Student Loan Forgiveness” will shut down.

Sadly, that day will only come when the Department of Education simplifies income-driven repayment. We look forward to reading your questions and stories below.