Use these six tips to repay your student loans. They address issues that recently surfaced about student loan servicers.
The lawsuit by the Consumer Financial Protection Bureau against Navient, a large student loan servicer, highligted several features that federal student loan borrowers should know.
Navient’s response to the CFPB’s lawsuit tellingly says they have absolutely no duty to provide you with information on how best to repay your loans. They aren’t looking out for your best interests despite their advertising to the contrary.
And a recent investigation into National Collegiate Trusts by the New York Attorney General shines an unflattering light on the collection practices of private student loan lenders. The practices they highlight have occurred after student loans have supposedly been sold to a new servicer.
These tips help you protect yourself as you repay your student loans.
1. Forbearance Helps You with Short-Term Issues
Federal student loans are eligible for forbearance. Forbearance means the lender lets you skip a few payments while you figure out the temporary hardship. Forbearance can help if you are having short-term trouble. It is not a long-term solution.
Temporary hardships include unexpected job losses or large medical bills. Interest still accumulates during the forbearance period. In some instances the interest is added to the outstanding principal (“capitalized”). You will then pay interest on top of interest once you re-start your payments.
Apply for forbearance only if you have short-term trouble repaying your federal loans. Use an income-driven repayment plan for longer-term issues.
2. Income-Driven Repayment Plans are a Long-Term Solution
Use an income-driven repayment plan if you are struggling to repay your student loans because they take up such a big part of your income. These plans vary your repayment amount based on your income.
Unfortunately there are four income driven plans. This guide can help you navigate which plan is best for you.
There are pros and cons to each plan so take time to understand the requirements of the plan you choose.
3. Recertify Income-Driven Plan Eligibility Every Year
You must recertify your income each year if you are in an income-driven repayment plan. Bad things can happen if you don’t recertify such as an increase in your payment or late fees.
Recertifying is your responsibility. It would be nice if your loan servicer let you know when to recertify but they often do not. Mark your calendar each year so you don’t miss the deadline to recertify your eligibility.
4. Use Loan Servicer’s Secure Communications System
Use your loan servicer’s secure messaging system to communicate about your loans.
Rohit Chopra, the former student loan ombudsman for the Consumer Financial Protection Bureau, suggests that doing so creates a paper trail. In addition, you get answers that have been vetted by upper level folks.
Although calling is often easier, doing so doesn’t create the trail nor are you guaranteed a correct answer.
Print out the emails and keep an ongoing file of each of your loans. This ongoing trail will help you correct any mistakes if your loans are sold to another servicer. It is when loans are transferred to new servicers where problems occur.
5. Pay Using Loan Servicer’s Payment System
Use the loan servicer’s payment system if you prepay some of your principal balance. But do so in a separate payment.
Loan servicers often will spread the payment out over all of your outstanding loans if you include extra money in your regular payment.
By making a separate payment you can direct how the servicer will apply it to your outstanding loans.
I used to recommend that you send a separate check with a letter telling the the servicer how to apply the extra payment. But they don’t necessarily read the letter anymore given the automation they use to process payments. So use their payment system to direct how you want your extra payment to be applied.
6. Double Check and Get Your Credit Reports
Always double-check that your loan servicer is applying your payments correctly.
It is a fact of life that people don’t do what they say they are going to do. It is not fair, but that is the way it is. So double-check. And if what you were expecting wasn’t done use their secure messaging system to complain.
You can also get your credit reports on an annual basis. Check that the loan servicer has reported the information correctly to the three credit bureaus especially if you’ve prepaid your loans.
Use annual credit report.com to check get your free credit reports.
You are on your own to repay student loans. Use these tips to protect yourself when you deal with your loan servicer.