The following is a guest post by Paul Smith. Paul is an attorney with an interest in personal finance. He blogs at insideconsumerfinance.blogspot.com.
Like most of our generation, I have student loans. In my case, it is a federal consolidation loan I took out after having graduated from law school five years in an effort to simplify the ten plus loans I had from the three years I had been in school. Several years ago, I started making regular monthly overpayments on my loans to wipe them out sooner than the 30 year term.
I had heard horror stories from some of my friends about mistakes that had been made by their servicer when they attempted to make more than the required minimum payments on their federal student loans. At the time, my loans were serviced by the U.S. Department of Education itself (they would later be transferred to a state student loan authority for servicing as part of a large scale transfer process which began several years ago when the Department was inundated with way more loans than it could possibly service) and the DOE’s procedure was that when you made an extra payment outside of your normal required monthly payment, they would just apply it to the next month’s payment rather than automatically applying it directly to the principal. Once you had made the payment, then you would have to send an email to the DOE requesting that the payments be applied directly to principal rather than credited towards your next required monthly payment. I began doing this but after several months started to have problems when I periodically checked my loan account on the DOE’s website. Instead of being applied to principal, my “due date” kept showing up as further and further in the future and my principal was not being reduced at all even though I had been sending multiple emails requesting that the extra payments be applied directly to principal every time that I made a payment. I tried calling the DOE’s main customer service center numerous times and was told more than five times that the accounting department was working on it and that my account information would reflect the correct figures in 7-10 business days. I kept calling and calling but to no avail; the message I kept receiving was that the accounting department was working on it and the figures would be corrected in 7-10 business days.
Finally, completely exasperated, I happened to be poking around on the DOE’s website and came across a page for the Federal Student Loan Ombudsman. Turns out that I had stumbled across exactly what I needed-a resource that exists for the sole purpose of assisting federal student loan borrowers who are having problems related to the servicing of their loans. The website had a form for you to fill out giving your contact information and describing the specific problem you were having. Not expecting any response, I filled out the form and pressed submit.
To my surprise, two weeks later I received a call from someone at the Ombudsman’s office to discuss my problem in greater detail. The representative was very friendly and assured me that she would do everything in her power to assist me in resolving my issues. After about a month, she was able to resolve all of my problems with the misapplication of my extra payments and my account balance was finally corrected.
Fast forward a year and I began having similar issues with the state student loan authority that was now servicing my loans; they completely failed to apply my overpayments to the principal of my loans, instead simply pushing the due date for my monthly required payments further and further into the future. This servicer had a payment process that was similar to that employed by the DOE; you made a payment and then afterwards had to send an email requesting that the extra payment be applied directly to principal. I did this for months without incident but then started noticing the same problem, despite the fact that I was making the extra payments the balance on my loan when I logged onto the servicer’s website kept reflecting the same amount every time I checked it. I tried the same route, contacting the general customer service number multiple times over a month or so and received the same answer as before-our accounting department is working to straighten out the issues and the corrected numbers will be appearing on the website in 7-10 business days. Well, this never ended up happening so, in frustration, I asked one of the general customer service representatives whether there was anyone else I could speak to. She directed me to the Loan Resolution department at my servicer, and they were eventually able to sort out the issue. Like the Ombudman, the Loan Resolution group serves as an advocate for borrowers who are having problems related to the servicing of their loans
However, the state student loan authority that is now servicing my loan also committed a second mistake in processing up my application to be placed on an Income Based Repayment plan. For those of you who are unfamiliar with IBR, it was specifically provided for several years ago in legislation passed by Congress. The way IBR works is that, if you meet certain income and outstanding loan balance criteria, then your monthly loan payment will be capped at a given percentage of your income.
In my case, I filled out my application to be placed on IBR and received a letter back indicating that they would not process my application until after my previous IBR plan had expired. They also said that I needed to make several payments at the standard repayment plan rates, which were much higher than my currently monthly IBR rate at the time, before I could have my new IBR amount determined. Knowing this was incorrect, I again called the Loan Resolution group at the servicer and was able to get my application processed before my current plan had expired.
These stories are intended to highlight the fact that there are resources out there for borrowers that many of us don’t even realize exist. Now, typically the Ombudsman will require you to attempt to work your problems out through the DOE first, so give the regular customer service line one chance to fix it and then ask for a supervisor, which my mother taught me and I have always found to work well in the customer service setting. If the general customer service supervisor cannot satisfactorily resolve your issues, then ask if there is a loan resolution group at your servicer. If not, then contact the Federal Student Loan Ombudsman.
Make sure to have all documentation of your dispute handy when contacting the Ombudsman, as the more detailed information you can give them the easier it will be for them to assist you in resolving your issues. I also highly recommend taking notes every time you speak with your servicer-including taking down the time you called, the name of the representative you spoke with and the substance of what they told you. I have found this to be a very valuable practice when it comes to working out issues related to both student loans and other issues as well. The Ombudsman makes the same recommendation and also provides other tips for using in resolving issues with your student loans.
***Photo courtesy of https://www.flickr.com/photos/barkbud/4257136773/in/
