College of DuPage 2014 commencement ceremony. Photo courtesy of COD Newsroom/Flickr.
Staying on top of your payments is the No. 1 rule when your grace period ends and student loan repayment starts. Federal student loan servicers play a crucial role in keeping your loans current, but you might not know what these companies do or how to work with them effectively. Thats why its key to educate yourself about the student loan system so you know how to get what you need from your servicer.
Here are five reasons why understanding how your loan servicer works, and communicating regularly with the company, are your secret weapons for keeping your student loans under control.
1. Servicers collect, and keep track of, your payments.
Nearly 41 million student student loan borrowers were in repayment as of June 2015. The federal government contracts with 11 student loan servicing companies to collect and manage all those borrowers monthly payments. So when you pay your federal loan bill each month, you send it not to the government directly, but to one of these companies.
Your servicer will contact you after your first federal loan is disbursed, and its best to register for an account on its website right away. You can start keeping track of how much youve taken out and how much interest adds up while youre in school. Once you graduate, sign up for automatic monthly payments through your servicer so youre less likely to fall behind.
The four most common servicers are FedLoan Servicing, also known as PHEAA; Great Lakes Educational Loan Services, Inc.; Navient and Nelnet. There are several smaller servicers, too, including CornerStone, Granite State Management and Resources and MOHELA. (A full list is available at Federal Student Aid.)
2. Servicers help you pick the repayment plan thats right for you.
When you complete a federal loan exit counseling session your senior year of college, youll have the opportunity to pick a repayment plan, which determines the amount youre required to pay each month toward your loans. Many students arent aware of the federal governments many repayment options, so they stick with the standard repayment plan. The standard plan breaks up your total balance into 120 fixed payments over 10 years, and if you have a lot of debt it can be difficult to afford as a new grad.
Student loan servicers can help you figure out if youre eligible for one of the governments income-driven repayment plans, which tie your loan payments to your income so you never pay more than you can afford. Youll be required to fill out an application and re-certify your income every year to stay eligible. Your servicer will work with you — for free — to make sure all your documents are in order.
3. When you give servicers instructions, they customize your payments.
Once you start earning enough money to pay extra toward your loans, you might want to pay off certain loans first — like the ones with the highest interest rates, which will help you save money in the long run. Some servicers will automatically apply an extra payment across all your loans in a certain billing group, but you can call, email or write them a letter instructing them to apply an extra payment to a certain loan instead.
Federal regulations require your servicer to apply extra payments first to late fees, then to accrued interest and, finally, to the principal balance, or the original amount of the loan you took out. Contributing more than your scheduled payment will reduce both your overall balance and the interest you pay over time, so kick in a little more than you need to when you can.
4. Servicers process your requests for deferment or forbearance.
In a single 10-year repayment term, there may be periods when you cant afford your loan payment; you could lose your job, get sick or decide to join the Peace Corps. No matter what keeps you from being able to pay your bill, call your loan servicer to let it know as soon as you can. Before you start falling behind, youll have the option to apply for deferment or forbearance, temporary postponements of your payments during periods of financial difficulty.
Deferment will save you more money, since subsidized loans dont accrue interest while theyre deferred. All your federal loans will continue to accrue interest during forbearance, but its a good option for borrowers who dont qualify for deferment. Your servicer will help you determine which one youre eligible for and how to get it.
5. Servicers are your first point of contact if youre interested in loan forgiveness.
Grads who work full time for the government or for nonprofits should ask their servicers about the Public Service Loan Forgiveness program (PSLF). Make 120 on-time payments toward federal Direct Loans as a public service employee, and your remaining balance will be forgiven if youre still working in the public interest at the time of forgiveness.
To make sure youre on track to get the benefit, your servicer can help you determine whether your loans are eligible, whether youre on a qualifying repayment plan and whether youve properly filled out the Employment Certification Form. FedLoan Servicing manages the PSLF program for the government, so your loans will be transferred to that servicer if you dont already work with it.
Your servicers role is to help you. But if youre experiencing an issue with the company that youre having trouble resolving, submit a complaint to the Federal Student Aid Ombudsman Group of the US Department of Education. Before you email or call the office, first read up on what the Ombudsman Group can do, then make sure you have the background information you need by filling out the Federal Student Aid Ombudsman Information Checklist.
Keep in mind that there are always resources available to you if you need help repaying your federal loans. Instead of ignoring the problem, work with your servicer and the US Department of Education, if necessary, to get back in good standing and commit to getting out of debt.
Learn more about your individual student loan servicer:
FedLoan Servicing, also known as PHEAA
Great Lakes Educational Loan Services, Inc.
Brianna McGurran is a staff writer at NerdWallet, a personal finance website. Email: firstname.lastname@example.org. Twitter: @briannamcscribe.
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