FedLoan Lawsuit: How To Change Your Loan Servicer?

paying off student loans

Loan servicers deal with the billing and other administrative issues for student loans. They act on behalf of the government or a private company. If a borrower faces problems regarding repayment or needs further advice, loan servicers are the first to help.

If you ever wanted to apply for Public Service Loan Forgiveness (PSLF), the chances are high that you heard about FedLoan Servicing. This is the loan servicer dealing with the PSLF program. 

Although FedLoan deals with billions worth of loans, they sometimes face lawsuits against their operations. This is because not all borrowers receive the service they expect from the loan servicer, which becomes a base for lawsuits. 

In this guide, we will discuss previous lawsuits FedLoan faced. Besides, we will note how to change loan servicers if borrowers are not satisfied with the service.

The FedLoan Lawsuit of 2017

In 2017, the Massachusetts Attorney General started an investigation against FedLoan Servicing. The base of this lawsuit, allegedly, was the poor customer service FedLoan Servicing provided to customers.

Among federal loan servicers, FedLoan Servicing has a notorious place. The loan portfolio of its parent company, called Pennsylvania Higher Education Agency, is worth more than $420 billion. 

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Source: Inquirer

The Incorrect Processing of Payments

Many issues caused this lawsuit, but the Public Service Loan Forgiveness was one of the most important ones. The PSLF requires borrowers to make an initial 120 payments. If these 120 payments are made on time, in total amount, and under an Income-Driven Repayment plan, the borrower receives loan forgiveness for the remaining debt balance. 

Allegedly, FedLoan Servicing employees incorrectly processed some payments. Unfortunately, it means many borrowers made non-qualifying payments for forgiveness. As a result, they lost months of progress for the PSLF program.

Wrong Recommendations

Another cause for the lawsuit claimed misleading activities of the loan servicer. The lawsuit involves cases where the loan servicer recommended borrowers in financial challenges a temporary solution-forbearance. During the forbearance period, interest continues to accrue, and the borrower faces higher debt when the forbearance is ended. 

Instead, moving to an Income-Driven repayment could help such borrowers. Income-driven repayment uses income as a base for monthly payments, which makes it affordable. Allegedly, the loan servicer failed to support the borrowers effectively.

TEACH Grant Failure

TEACH grant is financial aid provided to people serving as teachers. The awardees of this grant do not need to repay the grant as long as they remain eligible for the grant. However, they are required to provide employment certification to prove their current work status. 

The lawsuit claimed that the FedLoan Servicing employees made errors while processing employment certifications. Hence, awardees lost their eligibility. 

What Happened as a Result of the 2017 Lawsuit?

As a result of the lawsuit, FedLoan Servicing and the Attorney General settled. Based on the settlement, every borrower could request a review of their accounts to ensure there are no errors. If FedLoan caused a mistake, it was responsible for fixing the issue. If not fixed, the loan servicer would have compensated the borrower. 

The settlement benefited around 250,000 borrowers and specifically people who lost access to TEACH grants.

However, it should be noted that FedLoan Servicing neither admitted nor denied any wrongdoing. 

The FedLoan Lawsuit of 2019

Unfortunately, the 2017 settlement was not the end of the story. In 2019, the New York Attorney General started an investigation against FedLoan Servicing. The claims of this lawsuit were similar to those in 2017. 

The main issue revolved around the Public Service Loan Forgiveness. Only 900 cases out of 90000 applications were successful, which created questions about the operations of the loan servicer. They claimed that FedLoan Servicing did not process payments correctly, which is why many borrowers got rejections for forgiveness. 

What was the Result?

The loan servicer again did not accept any wrongdoing. Moreover, the spokespeople mentioned that they are ready to discuss the issue with the Attorney General for settlement. They also added that the lawsuit had no merit. 

Meanwhile, a third-party audit from the Government Accountability Office claimed that the PSLF issues were not due to the loan servicer. Instead, the Education Department did not provide clear guidelines for the loan servicer. Hence, loan servicer employees were obliged to interpret the rules, which led to confusion. 

How to Avoid Loan Servicer Errors?

If you feel worried about your loan servicer’s operations after this guide, you have to take several steps.

1. Change Your Loan Servicer

One of the best ways that allow changing loan servicer is student loan refinancing. Refinancing happens when borrowers get a new loan to cover the existing loan. As you get a new source of funding, you deal with a different lender/loan servicer. 

If you have federal loans, think twice before refinancing. Refinancing can make you ineligible for loan forgiveness and other student aid programs. 

There might not be another option to change the loan servicer, but you can ensure your loan servicer works properly with the following steps. 

2. Get Familiar with the Processes

An individual should not rely entirely on loan servicer’s employees in important matters like student debt. Only knowledgeable borrowers can confirm whether the loan servicer provides the right service/advice or not.

Hence, it is recommended to get familiar with the student aid programs. If you are receiving student loans, read about their types, application issues, requirements. For forgiveness program application, first clearly understand the eligibility conditions. Once you are armed with information, contact the loan servicer to discuss your options. 

3. Keep Copies of Your Records

Even if the loan servicers or any other party make a mistake, the borrowers can still demand justice. Whether through a lawsuit or a complaint, it might be possible to fix the problem. However, you will be required to prove what went wrong.

Therefore, make sure you keep any documentation and communication evidence. For example, when you make a payment, keep bills and other related documents. Try to communicate with the employees through written methods so that you can record any misleading information. 

In Short…

FedLoan Servicing is a considerable loan servicer dealing with billions worth of student debt. This organization deals with billing and administrative issues, especially for borrowers interested in Public Service Loan Forgiveness.

Although it has a vast scope of service, FedLoan Servicing faced allegations against its operations from time to time. Just like Navient lawsuits, the lawsuits against FedLoan Servicing in 2017 and 2019 claimed similar faults, including wrong processing of payments, improper documentation, and misleading the borrowers in need of help. 

The loan servicer did not admit any wrongdoing. However, it is still advisable not to rely solely on loan servicers and take action to avoid such problems. 

  1. First, if you are not satisfied with the loan servicer, you can consider changing it. The best way to change loan servicers is through loan refinancing. Yet, federal loan borrowers can lose access to federal benefits if they refinance the debt. 
  2. Next, borrowers should keep any evidence regarding the payments and communications with the loan servicer’s employees. If an error happens in the future, these documents will help the borrowers to solve the issue. 
  3. Lastly, knowledge is power. Try to get familiar with the student aid programs and details of how they work. In this way, the borrowers can avoid being victims of faulty operations and unsuitable recommendations.