I’m not a financial advisor, I’m just here to spread some knowledge when I can. You’re welcome! 

Ya’ll know I’m here to spill all the tea on the inner workings of the student loan world, because for too long too much has been hidden and confusing. With all of these lawsuits flying around (Navient and Fed Loan are getting sued) it’s time for you to know keep an eye on what your loan servicer is doing and not doing. Below you’ll find six major things to look out for and question.

 

millennial in debt

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Loan Service Provider Isn't Supposed To Do

6 Things Your Loan Service Provider Isn’t Supposed To Do

1. Force Forbearance As The Only Option: They are absolutely not supposed to do this, and this has been the root to many of the law  suits that have come to play. Loan Servicing companies will force your hand essentially, and push forbearance as your only option when you are struggling to make payments. There has also been a great influx in “administrative forbearances” which you did not request at all. All forbearances end up doing is hurting you in the long run, whether a little bit or a lot depends on how long or how many forbearances your loan has been granted.

When you are in forbearance you do not have to make payments on your loan, and while that may sound like a great thing it is not. Interest on your loan will still continue to accrue, and your payoff date will be extended. This has been a nasty trick the loan servicing providers have been playing in order to pocket more money during the life of your loan. If your loan servicing provider only brings forbearance to the table as an option, that is a red flag and something you need to question immediately.

2. Charging you for over payment or early payoff: Loan Servicing companies (not just ones for student loans- homes and auto loan companies as well) have been known to charge you a substantial fee as “punishment” for moving closer to financial freedom. Being hit with a “early termination” fee is absurd but has been done time and time again. This is why it is so crucial to read your promissory note when you sign for a loan, and ask will you be charged extra for paying extra than the minimum payment, and will you be charged extra for paying off this loan prior to the expected date of completion.

The reason these companies have this fee in place, is because when they loan you a certain amount they expect to make money off of that loan. If you cut their expectations even by a little bit, they see that as a financial loss. Big companies never like to financially lose, so instead of congratulating you on being financially responsible, you get sacked with a fee. That is a big no no and they should not be doing it, however if it is clearly stated in your promissory note and mentioned at signing you are pretty much stuck. You can choose to refinance and re-negotiate the terms of your loan in order to avoid any early payoff fees.

3. Neglect to re-evaluate your payment plan: Student loans should never ever be put on cruise control or auto pilot. Just like you stay on top of your student loan payments, your loan servicing provider should be staying on top of your account. If you are on an income based repayment plan, your account should be re-evaluated every year. Why? Because your payments are based off of your salary. Therefore if your salary decreases or you stop working, those payments need to come all the way down down down as your income has changed.

You can’t have an income based repayment plan that doesn’t adjust to your income. Too many times a loan servicing provider will simply put you in the plan and leave you there even if your circumstances change drastically. They expect you to continue making payments based off of the salary/income you were making when you were first accepted into the payment plan. Even though my salary did end up having me removed from the income driven repayment plan (I started making too much.. as a teacher.. ha yea right) I am happy that my loan servicing provider did not have my account on set it and forget it mode.

If you don’t receive a re-evaluaton yearly, and your circumstances have drastically changed, contact your loan servicing provider and ask them to start the re-evaluation process.

4. Poor Communication About Loan Completion: Some… not all (but it really shouldn’t be any) loan servicing providers stay on auto pilot for everything. Including continuing to take out loan payments even when you are done paying off the loan. That is why you must really always stay on top of your loan documents, payments and balances because these loan companies are not out here to help you and they certainly “aint one of of your little friends”. Unfortunately they are in this business for themselves, and they are only looking out for themselves.

If you are not on auto pay, you still can wind up having issues with your loan servicing provider even after you have finished paying off that loan. Your loan servicer is supposed to notify/contact you when any of your loan balances have reached zero. Whether it is digitally, or a hard copy you should maintain all of these documents as your proof, because these companies will not updated their end accordingly and send you to collections. And when you end up in collections your credit will take a nosedive. So I warn you that even though they are supposed to properly communicate your loan completion to you, keep track of it yourself as well so that you can have  the proof you need if you ever find your self in collections for something you’ve already paid off in full.

5. Abusing Auto Payments: When I first graduated from college 8 years ago (Jesus I’m old…) I swore I would never put my loan payments on auto pay. At first it was because my mode of employment wasn’t steady yet (I was working at Dave and Busters with two degrees and a teaching license… what a time) and I didn’t want their hands in my pockets with out my say so. Now eight years later, with a much steadier cash flow I still pay my loans manually. Why?

Because the theme of this post is these hoes ain’t loyal if you haven’t figured it out just yet. Loan servicing providers will do one of two things to really mess you up and get you sacked with overdraft fees: 1) take out your money on a different day than you requested because the banks were closed on the day your payment is usually taken out 2) take out our payment early because the day your payment is scheduled for falls on the weekend. I don’t know about you, but when I set my bills to me be taken out on a certain day I want them taken out on that day because I very distinct and specific purposes for my coin. I like for my bills to be paid on the day that my direct deposit hits. This way I don’t mince thoughts and think I have money when really I don’t.

If a payment is taken out early from my account I don’t trip very much because I usually have the money to cover it (usually), however a much younger version of me would be pissed and certainly over drafted. They should not be taking payments early or moving your pay date when it suits them. I don’t care if the banks are closed, and therefore I just pay my loans manually to save myself the headache.

6. Mis-Allocate your extra payments: Loan servicing providers can be really tricky if you don’t keep an eye on them. So tricky that even when you think you’re doing the right thing they will do the wrong thing. If you are making extra payments on your loans, to help bring the principle down… first of all KUDOS to you! That’s awesome and smart and I applaud you. But… make sure that your extra loan payments are going to the principle and not to the interest. Sometimes the loan servicing providers will give you the option of where your extra money will go (also a perk of doing it manually) and sometimes they won’t. If they don’t give you an option on the internet, call them and ask if this extra payment can directly go towards the principle and that you DON’T want your due date moved forward. You only want to make extra payments when you want to… don’t let them think this is is a thing they can force you into by moving your due date forward.

With all of this information you now have I send you forth to go into the world more knowledgeable and tackle those loan servicing providers to the ground. Just kidding… don’t hurt anyone. But I do want you stay armed with knowledge and make the best decisions for your financial freedom and sanity.

Til’ the next time! 

Mel