Tips to Avoid Student Loan Repayment Traps

I previously wrote a series of blogs addressing issues with student loan debt.  As previously mentioned, student loan debt has now surpassed a trillion dollars in this country.  Now the Consumer Financial Protection Bureau has filed a lawsuit against one of the nation’s largest student loan servicers, Navient.  In the suit CFPB has alleged that Navient mishandled student loan payments, hid information critical to a successful repayment of student loan debts and complicated the procedure for releasing co-signers from the debts.  The New York Times opined that the lawsuit alleges abuses by Navient eerily similar abuses in the mortgage lending industry that led to the Great Recession.

Given that the government watchdog, CFPB, has found student loan servicing abuses significant enough to initiate litigation, it is a good time to review tips for avoiding student loan repayment pitfalls.  The New York Times has recently published an article with some extremely valuable tips in this regard.

Know How Much You Owe and To Whom You Owe It

Is your loan a federally guaranteed student loan handled by the US Department of Education yet serviced by an entity such as Navient or Great Lakes Educational Loan Services Inc.? Is it instead a private student loan?  This is important information to be aware of.  If you are unsure of the answer to these questions, the place to start is the National Student Loan Data System which is a central database for federally insured student loans maintained by the United States Department of Education.  The information regarding your student loans in this database can be accessed by either visiting the System’s website, https://www.nslds.ed.gov, or calling 1-800-4fed-aid.

Determine Whether You May Qualify for an Income Driven Repayment Plan

Your student loan servicer is obligated to assist you in determining whether any of the income driven repayment plans can help make your student loan debt more affordable.  But just like Navient, your servicer may not do a good job advising you of all of the possible repayment plans for which you may qualify.  So ask!  The Department of Education has a payment estimate tool you can use to educate yourself before talking to your servicer.   Also put your requests for information regarding income driven repayment plans in writing, either through a messaging system available through the servicer’s system or simply a letter mailed to the servicer.  The advice received when the request is in writing is likely to be more standardized and accurate than if you are simply talking to a representative by phone at a call center.

Stay Enrolled!

Generally if you qualify for and enter into an income driven repayment plan you must re-qualify each year.  If you fail to do so, the repayment plan may be cancelled and your loan payments may thereafter increase.

Request a Forbearance Only If You Have To

A forbearance is a request to reduce or stop your payments for a limited amount of time.  The problem with a forbearance is that interest continues to accrue on the outstanding balance during the time you have been relieved from making payments on the student loan (unless you are still enrolled in school and for most loans interest does not accrue during such forbearance periods). According the New York Times article, student loan servicers have to spend more time with customers in reference to an income driven repayment request than a forbearance request.  As a result customer service representatives are apt to push a forbearance request simply because it takes less time to complete.

Be Aware When Dropping a Co Signer

An interesting note that I was not aware of until I read the New York Times article is that student loan borrowers with co-signers on their debt can request the co-signer be released from the obligation once timely repayment of the debt has been established. So if you have a co-signer you would like released from your legal obligation, contact your servicer with this request after establishing timely payments for consecutive months.  But beware.  One of the abuses Navient has been charged with is resetting the clock back to zero (for consecutive payments) for borrowers who pay ahead on their student loan and then skip future months, even with the servicer’s permission.  If you are looking to have your co-signer released from liability the best rule is to make the required number of consecutive payments each month on the due date.

Keep a Watch on Your Credit

If you have entered into an income driven repayment plan with your student loan servicer and are paying your monthly payments on time, check your credit regularly to insure your student loan servicer is reporting this correctly to the credit reporting bureaus.  Don’t simply trust that the servicer is doing this – verify!  You are entitled to a free credit report each year from each of the three credit bureaus, Equifax, Experian and Transunion.  It’s best to request your credit reports in writing, rather than an online request, in order to avoid committing to an arbitration agreement.   You can also check Credit Karma to see if your account is showing in good standing.

Unlike filing for bankruptcy, applying for and receiving a plan for addressing student loan debt can be done without the help of an attorney.  However, the road to achieving this goal is still difficult to travel.  If you would like the assistance of an attorney to help you navigate this terrain, please contact one of our locations nearest you in Alabama, Mississippi or Tennessee for a free, confidential consultation.