FedLoan Servicing: Problems, Mistakes to Avoid, and Top Alternatives for Refinancing

FedLoan Servicing is one of the few federal student loan service providers, and it’s the only one that handles Public Student Loan Forgiveness. But, there is a lot of negativity surrounding FedLoan Servicing.

I’ve seen “FedLoan Servicing is literally the worst,” “FedLoan Servicing hates you,” and “rage-inducing” to describe what it feels like to deal with them.

There are also over 500 complaints about FedLoan Servicing and a 1-star rating on the Better Business Bureau. That’s despite the fact that the BBB can’t officially accept complaints or give ratings to government agencies.

And, there are a number of news stories about how it might take an entire year to get a call back from FedLoan Servicing, lawsuits, and just lots of frustrated borrowers.

That’s a lot of anger for an agency that is supposed to be helping you make payments on your student loans.

But, is there anything you can do if FedLoan Servicing is your student loan service provider?

That’s exactly what I’m going to cover today, including:

• What FedLoan Servicing is
• What FedLoan servicing does
• PSLF and FedLoan Servicing
• Other problems with FedLoan Servicing
• How these mistakes can affect you
• How to file complaints or report issues
• Alternatives to FedLoan Servicing

If FedLoan Servicing is your student loan servicer, here’s how to avoid problems and learn what your other options are.

What is FedLoan Servicing?

FedLoan Servicing is a non-profit organization run by the Pennsylvania Higher Education Assistance Agency (PHEAA). It’s one of a handful of organizations approved by the U.S. federal government to service federal student loans.

Not everyone with federal student loans will use FedLoan Servicing, and the government assigns a servicer to you after your loans are paid out or dispersed. Other servicers are Nelnet, Navient, Mohela, and Great Lakes.

What does FedLoan Servicing do?

FedLoan Servicing, like the rest of the servicers, is who you use to arrange and make your student loan payments through.

Here’s a list of what FedLoan Servicing does:

• Collects student loan payments
• Helps borrowers create a repayment strategy
• Handles deferments and forbearance
• Consolidates some loans
• Manages special programs, including PSLF and TEACH

That means you can use FedLoan Servicing to help you set up income-driven repayment plans, like Pay As You Earn (PAYE), Income-Based Repayment (IBR) and Income-Contingent Repayment (ICR). You can also set up Graduated, Extended, and Standard repayment plans.

If FedLoan Servicing is your provider, you will manage all of your filing information and payments for any of these plans through an online portal called MyFedLoan.

FedLoan Servicing is also the only provider to handle Public Student Loan Forgiveness (PSLF) and Teacher Education Assistance for College and Higher Education (TEACH). TEACH is a grant program that awards up to $4,000/year to teachers serving low-income areas.

Public Student Loan Forgiveness and FedLoan Servicing

PSLF is a government program for borrowers who are pursuing careers in public service (teachers, non-profit workers, state/municipal/federal government employees. etc.). For those workers, PSLF will forgive the remaining balance of your Federal Direct Loans after you have made 120 qualifying payments under a qualifying payment plan.

PSLF is meant to encourage people to go into these traditionally low paying fields by easing their student loan burden.

But, many of the issues with FedLoan Servicing go back to PSLF…

• It’s been alleged that FedLoan has issued non-binding letters approving and qualifying employers (you must see if your employed qualifies to apply for PSLF). There’s a lawsuit about this.
• 99% of PSLF applicants are rejected.
• Massachusetts Attorney General Maura Healy has filed a lawsuit against PHEAA accusing them of deceiving public servants in a way that caused them to lose benefits and financial assistance under both PSLF and TEACH.
• You need to make qualifying payments before you know if you actually qualify for PSLF, which can cause financial tension for many borrowers.

What can you do if you are trying to qualify for PSLF?

Even though you’ll still have to deal with FedLoan Servicing, there are a few mistakes you can avoid and ways to be proactive that will give you the best chance of qualifying.

• Fully understand the rules and qualifications of PSLF.
• Document every communication you have with FedLoan about PSLF. I’m talking emails, letters, even screenshots.
• Get on an income-driven repayment plan – payments made before an IDR plan do not count.
• Make sure you go through the annual verification process.

I can’t promise you that this is going to guarantee that you get PSLF, but these are important steps to protecting yourself during the process.

More FedLoan Servicing problems

Those PSLF issues are major. For anyone who willingly took a pay-cut to work in a field that is known for not paying well because they thought PSLF would help them (and now they aren’t), that’s a problem.

There are also a number of other issues that have made it difficult for borrowers to manage payments, get clear advice, and more.

There is a delay on Direct Debit

Direct Debit is a payment option that can help you save up to 0.25%/month on interest. The problem is that FedLoan Servicing is slow to respond, so it can take two months to apply Direct Debit to your account.

Recertifying income can take a while

If you are on an income-driven repayment plan, you’ll have to recertify your income every year. This should be a pretty quick process, but some people complain that it has taken well over a month. Misprocessing these forms is part of the lawsuit filed by the Massachuset’s attorney general.

Issues with processing changes to repayment plans

One of the issues is that FedLoan Servicing is known for being super slow at processing paperwork. Some of reported waiting months to hear that FedLoan Servicing has applied changes for IDR plans. Another issue is that they frequently ask for additional documentation, only adding to the time.

Applying overpayments

Paying more than the minimum student loan payment is awesome, and there are ways to do it that can significantly reduce the amount you pay in interest. However, some borrowers complain that FedLoan Servicing doesn’t always apply overpayments to the correct loans.

How these issues might affect you

The sad truth is that these FedLoan Servicing problems can hurt your finances even if you aren’t trying for PSLF. Here’s what I mean:

• Issues with recertifying income mean you may be kicked off an IDR plan.
• If you are trying to change your repayment plan, you may end up paying more than you can afford, it can add interest, and more.
• If any of these problems cause you to miss payments, it will be reported to a credit agency, whether it’s your fault or FedLoan’s. Your credit score is a major piece of your financial life and negative marks can follow you around for years.

What can you do about these problems and how they affect you?

The best thing is to just keep making on-time payments. Don’t get frustrated and stop paying because you think that’s going to do something. That’s only going to hurt you more.

You should also keep records of every payment you make – bank statements, email confirmations, etc. I’d also suggest that you keep an eye on your credit report (that link is for the site the Federal Trade Commission recommends using). That way if there are ever any issues, you can start rectifying them.

How to file complaints or report issues

If you have experienced any of the issues I’ve covered or ones I haven’t, you can 100% file a complaint with or against FedLoan Servicing. I’d also love to hear about your experience with FedLoan Servicing, so leave a comment below.

Before you do that, please assess the issue to see if it’s your fault. If you have neglected one of your responsibilities (like completely missing a payment), that’s unfortunately on you, not them. You can prevent this by fully understanding how your loans work and the plans you’re using to repay them.

If you have questions about how your loans and repayment plans work, here is FedLoan servicing contact information:

FedLoan Servicing
P.O. Box 69184
Harrisburg, PA 17106-9184
1-800-699-2908

If you have an issue that needs to be resolved on their end, you can do two things:

First, contact FedLoan’s credit department:

FedLoan Servicing Credit
P.O. Box 60619
Harrisburg, PA 17106-0610
1-800-699-2908

Or, check out this guide from the U.S. Department of Education on how to file and resolve disputes with your student loan servicer.

If you want to take things further, you can also:

• File a complaint with the Consumer Financial Protection Bureau
• Contact your state’s attorney general office

Alternatives to FedLoan Servicing

The unfortunate thing about your student loan service provider is that you can’t just switch to another one, like going from FedLoan to Great Lakes. The reality is that a lot of these services are having their own issues right now, so it would be difficult to find a better option.

So, if switching to a different federally approved lender isn’t an alternative, what is?

Refinancing your student loans with a private lender

This is when you work with a private lender to borrow an amount that will replace your federal student loans. Ideally, it’s at a lower rate, which is how it can save you money.

But, this alternative to FedLoan servicing isn’t an option for everyone – going to a private lender means you lose any protections offered by the federal government. It’s also very important to make sure you will be able to continue paying your balance in full every month… remember there are no IDR plans if you lose your job or take a pay cut.

And if you are trying for PSLF, do not refinance with a private lender. This completely takes you out of the federal student loan system, the party responsible for forgiving loans.

If you want to explore refinancing options, here are some of the top companies out there:

• Credible. This is a lending marketplace, and you can easily compare rates and terms from different banks. They are my #1 recommendation. And for full disclosure, I am an affiliate for Credible, but only after I met with them and learned more about what they do and how they can help my readers.
• Sofi. This refinancing marketplace doesn’t give as much weight to your credit score during qualification, although you will need to have at least a 650.
• Earnest. Similar to Sofi, and Earnest also helps you use your budget to find a refinancing option that best fits.

There are a number of other companies, but those are my top picks. They all have really similar rates and term lengths.

You can learn more about the student loan refinancing process at Refinancing Student Loans: The Ultimate Guide.

Another option is getting serious about destroying your debt

This is honestly the most effective way to just be done with your debt and any student loan service provider.

And from personal experience, paying student loan debt off quickly is one of the most liberating things I’ve ever done. It’s one less bill to pay each month, and it’s allowed me to focus my financial energies on other things… like quitting my job to run this site.

This option takes a serious amount of drive and sacrifice, but it’s so worth it.

Here are some articles that can help you find more money in your budget and the motivation you need to accelerate your student loan payoff:

• How to Stay Motivated While Paying Off Debt
• Best Side Hustles to Make an Extra $1,000-$2,000 Per Month
• How to Pay Off Debt: Step-By-Step Plan (That Actually Works)
• 7 Easy Ways to Save Money on a Tight Budget

The final word on FedLoan Servicing

I’ve been there – student loans suck. The good news is that you don’t have to live with them and FedLoan Servicing for the rest of your life. You can speed up your payoff, refinance, or maybe you’ll be one of the lucky people who finishes paying without any issues.

While you are working with FedLoan Servicing, make sure that you’re always keeping yourself educated on how your loans and repayment plans work. Also, keep track of your payments and any communication you have with them. This is a good practice for any type of loan you encounter or financial move you make in the future.