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Tips and Expert Advice for Protecting Yourself from Unfair Financial Aid Servicing
Student loan debt has ballooned over the last decade, with more and more students relying on loans to tackle the ever-rising costs of higher education. Whether taking out federal or private loans, borrowers must rely on loan servicers to act as the middlemen between lending companies and themselves. But far too often, loan servicers are getting heat for illegal, unethical and unfair behaviors toward their customers. The Consumer Financial Protection Bureau reported a 325 percent year-on-year increase in student loan complaints between the periods of January and March. The following guide includes details about predatory lending habits, illegal behaviors and student rights and responsibilities.
How to Find a Credible Student Loan Provider
Loan servicers are intermediaries between loan companies and student borrowers, working to ensure that each side holds up their end of the bargain.
When picking a loan servicer, think of it as starting a long-term relationship. Most students spend at least 10 years paying off college debt, so it's worth taking time to find a good fit before signing on the dotted line.
A good loan servicer will work with students to ensure payments are made in a timely fashion and that the loan remains in good standing. The problem is that some loan servicers have a rightfully-gained bad reputation. Loan servicers without students' best interests in mind can cause frustration, withhold valuable information about loan options, and ultimately cost the student thousands of additional dollars in interest fees or unnecessary loan add-ons.
Finding a trustworthy loan servicer takes time and research, so start the process early to avoid issues down the road.
Important Loan Servicer Traits
Important Loan Servicer Traits
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Servicer will provide details of loan repayment options.
A good loan servicer can and will provide information to borrowers who want to understand their options for paying back student debt. While many withhold these details and instead try to convince borrowers to enter deferment or forbearance, these are typically the type of servicers who are more concerned about profit than serving customers well.
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Servicer offers transparency.
Student loans are confusing, and most borrowers don't have time to learn the ins and outs. Loan servicers, on the other hand, spend their days working with student loans. Those who offer transparency can help students find payment plans that work best for their current stage of life.
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Servicer steers borrowers away from bad decisions.
Sometimes borrowers get overwhelmed and they may skip a few payments or ignore their loans. A good loan servicer will work with these borrowers to help manage their anxieties about debt and find a winning solution.
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Servicer can certify loan forgiveness requests.
In the case of borrowers working as qualified teachers, public servants or healthcare professionals, loan servicers can help them determine which loans are eligible for forgiveness programs and make sure they're on track to receive those benefits.
Find Reputable Loan Servicers
Find Reputable Loan Servicers
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Consumer Affairs
This consumer protection organization provides an annual ranking of the best and worst loan servicers in America.
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Consumer Financial Protection Bureau's Consumer Complaint Database
The CFPB maintains an up-to-date database of loan servicers that have received complaints against them.
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Loan Comparison Services
Companies like Credible allow student borrowers to compare and contrast lending offers to find the best interest rates, customer reviews and track records. Enter terms such as "compare student loans" into your search engine to find sites offering this service.
Tips for Co-signers
Tips for Co-signers
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Have an honest conversation
More students are seeking private loans due to federal lending limits, and the majority don't have enough credit history to do so without a co-signer. Before co-signing on any student loan, discuss the process clearly and unemotionally to set expectations.
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Understand repayment plans
If a student defaults on his or her loan, the co-signer is also on the hook for payments. If no payments are made, the credit scores of both signers can be lowered, so it's important for co-signers to understand their options if the loan goes into default.
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Research co-signer release programs
Once a borrower has met certain requirements (such as making a series of on-time payments or demonstrating a steady income), many loan servicers allow co-signers to be released from responsibility for the loan.
Resources
Resources
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Choosing a Lender
FinAid provides a number of helpful tips to avoiding the pitfalls of predatory loan servicers.
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Is Your Student Loan Servicer Ruining Your Credit?
Forbes takes a look at the ways unsavory loan servicer behaviors can cause lasting damage to a borrower's credit report.
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Loan Servicer Overview
The Department of Education offers a range of helpful details and resources for students considering their loan options.
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Scoring Student Loan Services
The CFPB takes a look at the country's four largest loan servicers and analyzes their annual servicer performance reports.
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Student Loan Services: Who are they and what do they do?
This introductory guide helps borrowers get a better sense of who loan servicers are and how they can help or hurt them.
What Does an Unscrupulous Student Loan Servicer Look Like?
Like any other industry, student loan services can sometimes have bad players. The range of practices can lie on the spectrum between merely frustrating to downright against the law, making it important for student borrowers to know their rights and responsibilities.
| MYTH | FACT | |
|---|---|---|
| ILLEGAL | If I'm behind on my student loan payments, loan servicers are allowed to call me countless times at all hours of the day and night. | Loan servicers are only allowed to call between 8:00 a.m. and 9:00 p.m. during weekdays. These calls must also not be used to intimidate, abuse, or harass student borrowers. |
| Student loan servicers have the right to share my personal details with third parties if I'm in default. | No matter the status of a student borrower's loan, loan servicers are prohibited from sharing their information publicly. The only arena where loan servicers can report delinquent behavior is in a credit report. | |
| Loan servicers are allowed to make threats, such as taking away my car, trying to have children removed from the home, garnishing wages, or having me arrested. | Under no circumstances can loan servicers make threats to student borrowers, and to do so is a direct violation of the law. While lending companies may file a lawsuit to receive unpaid funds, any consequences would be decided by the court, not the loan servicer. | |
| UNETHICAL | As long as they don't lie, loan servicers don't have to be transparent when it comes to different payment options to suit individual borrower's needs. | According to the Consumer Financial Protection Bureau, that's not the case. Loan servicing giant Navient is currently being sued for misleading students about their ability to use income-driven repayment plans and instead steering them toward forbearance. |
| It's okay for loan servicers not to disclose other helpful information that students will need in order to stay on top of payments and payment plans. It's up to me to ask. | As part of the same CFPB lawsuit, the bureau claims that Navient failed to disclose or tried to obscure information about renewal requirements for borrowers using long-term repayment plans. If the plan isn't renewed, students can see an immediate and sharp increase of their monthly payments. | |
| There's nothing I can do if my loan servicer allocates payments on multiple loans in such a way to incur late fees and delinquency on each of them. | If a student borrower has multiple loans and makes a less-than-full payment, unethical loan servicers will take that payment and divide it amongst all of the loans, therefore making each payment incomplete, and subsequently late and/or delinquent | |
| UNPROFESSIONAL | It's not the responsibility of the loan servicer to provide tax information to borrowers. I need to figure it out myself. | False. Student loan servicers are supposed to provide access to details of interest payments made throughout the year which can typically be written off. Failure to provide this information results in students being unable to write off up to $2,500 in annual student loan interest. |
| Since all loan servicers are impossible to get in touch with, I just need to get used to waiting on hold for hours and speaking to untrained staff. | Like any other area of business, consumers calling or emailing with questions about their loan shouldn't have to deal with absurd wait times. They also shouldn't have to contend with staff who don't know the ins and outs of loan servicing and provide misinformation. | |
| Active members of the military and veterans aren't entitled to any special services or support when it comes to paying back their student loans. | Under the Servicemembers Civil Relief Act , it is unprofessional and unethical for loan servicers to withhold details about benefits or require them to fill out additional paperwork when the SCRA already spells out what must be granted to them. |
Getting Ahead of Any Problems: How to Be Responsible When Repaying Your Loans
| DO | DON'T |
|---|---|
| Practice discipline in staying on top of monthly payments, no matter how busy life gets. If it's too much to remember each month, consider auto-payments. | Let payments fall behind. In addition to incurring late fees and interest penalties, these indiscretions can show up on credit reports and cause problems for years. |
| Create a budget that allows for not only monthly payments, but also additional payments to rid yourself of the debt more quickly. | Veer off course when it comes to spending. Make a plan to save a certain amount of money out of each paycheck, and only use those funds for their intended purpose. |
| Consider the credit of yourself and any co-signers of private loans. | Forget that while, ensuring you maintain good credit is important, your behavior in regards to these loans also affects the credit of your co-signer. If you forget to or can't make payments, their credit score will be lowered. |
| Remember that you have options when loan servicers aren't holding up their end of the bargain. | Refrain from contacting groups such as the Federal Student Aid Ombudsman Group or the Consumer Financial Protection Bureau to receive support. |
When it comes to paying off student loans, borrowers need to understand their options and their rights. By taking time to research all the different facets of loan repayment, they can often do so more effectively and efficiently.
Federal Student Loan Forgiveness
The U.S. Department of Education will forgive full or partial amounts of student loan debt, provided borrowers meet a few narrow requirements. The Public Service Loan Forgiveness Program applies to individuals with Direct Loans who work in governmental or nonprofit organizations on a full-time basis. After making 120 monthly payments, they are eligible to have the remainder of their loan debt forgiven. Forgiveness is also available to teachers who commit to spending five full-time years working in an approved elementary or secondary school that serves low-income families. At the end of five years, borrowers are eligible for up to $17,500 of loan forgiveness.
Consolidation
Borrowers with multiple loans are eligible to consolidate them into a single payment and fixed interest rate. For federal loans, the new fixed rate is the weighted average of the existing interest rates, which is then rounded up to the nearest 1/8th of one percentage point. Private loan interest rates vary, but consolidated rates are typically lower than the initial percentage.
Refinancing
The process of refinancing involves working with a bank or other lending agency to pay off existing student debt with a new loan that has new terms and interest rates. Borrowers can use refinancing for both federal and private loans.
Income-based Options
Graduates with loan debt that is high in proportion to their current income often qualify for income-based repayment plans. In this scheme, loan servicers review income and expenses and then create a monthly payment that is a manageable percentage of that number.
Forbearance or Deferment
These options make it possible for borrowers to cease payments for a set amount of time if they are out of work or otherwise unable to make monthly payments. While deferment may allow graduates to be exempt from interest payments under certain loan types, they are always responsible for accrued interest under forbearance.
Student Loan Repayment Resources
Consumer Financial Protection Bureau A whole section of the CFPB's website is devoted to helping borrowers understand their options for repayment and their rights in relation to loan servicers.
Creating a Budget The Department of Education helps students create and manage budgets that make it easier to pay off student loan debt quickly.
Federal Student Aid Ombudsman Group This organization, which operates within the Department of Education, helps borrowers resolve disputes about federal loans.
How to Repay Your Loans The U.S. Department of Education provides an exhaustive section of their website related to the different types of loan repayment plans available.
Loan Repayment Options The National Health Service Corps provides information on loan repayment plans for healthcare providers, some of whom can earn up to $50,000 toward loan forgiveness.
National Student Loan Data System The NSLDS allows students to see all of the loans they hold, as well as the names and contact details of their loan servicers.
Responsible Borrowing The federal student aid office provides an informative video on responsible borrowing practice for prospective students considering their options.
Student Loan Borrower Assistance Created by the National Consumer Law Center, this nonprofit focuses on being a resource for borrowers and their families.
Addressing a Suspected Problem
When student loan servicers aren't behaving as they should, borrowers who understand their rights are able to respond swiftly and effectively. Don't get caught up in the haze of never-ending phone calls and website mazes; instead, use these tips and resources to find resolve quickly.
Keep good records.
Regardless of whether or not borrowers are currently experiencing loan servicing problems, they should keep impeccable records. Examples include details about when and how payments were made, how they were made, and any communications with loan servicer representatives.
Try to work it out with the servicer first.
Organizations like the Consumer Financial Protection Bureau (CFPB) and the Federal Student Aid Ombudsman Group (FSAOG) are seen as last lines of defense, so if students suspect issues, they should first try to speak directly with the servicer. State the suspected problem and try to find resolve; if they aren't willing to accommodate, move up the chain of command.
File a complaint.
Complaints about federal student loans should be addressed to the FSAOG, while those about private loans need to be sent to the CFPB. Both groups have online complaint forms to make it easy for borrowers to state the issue and present evidence.
Decide how to proceed.
Once a complaint has been lodged, these independent protection bureaus work with both servicers and borrowers to find a solution. Examples include income-based repayment plans, consolidation, or refinancing. It may also be that loan servicers refund unfair interest charges based on faulty record-keeping on their end. Go in with a realistic sense of what is possible and provide clear examples of how the issue can be cleared up.
Resources For Student Loan Rights
5 Years Later, 5 Facts You Need to Know About the Student Debt Crisis Learn about what's happened during the student debt crisis, and how the current administration plans to address these concerns.
Borrower Rights and Responsibilities Many colleges and universities, such as Wright State University, offer financial aid counseling for students looking to understand the full scope of what they've taken on.
Consumer Protection for Student Loans Offered by the Federal Deposit Insurance Corporation, this handy guide provides examples of consumer protections available to those with student loans.
Credit and Your Consumer Rights Debt.org offers information on a borrower's right to financial privacy, regardless of whether or not their loan payments are up to date.
Navient Borrowers: How to Protect You Consumer Rights Borrowers looking to learn more about the lawsuits filed against Navient by the CFPB will find all this and more in this helpful compendium.
Tips for Student Loan Borrowers The CFPB offers these helpful ideas for student borrowers seeking help in resolving issues with their loans.
What Student Loan Borrowers Need to Know NerdWallet provides the scoop on the recent Navient lawsuit.
Your Federal Student Loan Borrower Rights & Responsibilities The National Student Loan Project makes available this helpful list of things borrowers should keep in mind.
Expert Q & A
Kevin Ladd is the chief operating officer of Scholarships.com, a free college scholarship search and financial aid information website. Founded in 1998, Scholarships.com has aided millions of students over nearly two decades in learning about, applying for and winning scholarships to help fund their education.
How can I evaluate whether a student loan servicer operates fairly before I receive a loan from them?
When a student is considering their college funding options, how can they go about ensuring they aren't left in debt for decades after?
What are a few things students need to understand fully before signing for any loan?
Interest rates, payment schedule, and estimated payments, both dollar amount and duration. Visit the Federal Trade Commission's website with questions you have after reading the terms and conditions. Consult financial aid officers, people you know with student loans, and others who can speak to the process.
Where can students turn if they notice problems with their student loan account?
There are several websites and organizations to help you determine whether you are a victim of predatory lending and/or loan fraud, which can sometimes even result in identity theft. A quick search of the internet should provide you with some direction, but my advice is mostly preventive in nature. If you believe you have been scammed or defrauded, you should report the offending entity to the Federal Trade Commission and/or the Internet Crime Complaint Center . If you are uncertain of whether the terms of the loan you took out are questionable or possibly predatory in nature, you may want to first discuss this with a representative from the lending institution and perhaps research them a bit more; see whether others are also complaining of similar issues.