3 Ways Your Student Loan Servicer Could Screw You in Forgiveness Program

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Public service loan forgiveness
Chris Hanks talks with Jamie Chilton, a USF career consultant to the College of Engineering, inside Career Services at the University of South Florida in Tampa, Fla. Tina Russell/The Penny Hoarder

The first student loan borrowers whose remaining debt will disappear thanks to the Public Service Loan Forgiveness program are nearing the end of their decade long commitment.

As of 2016, more than 500,000 people were signed up for the program, and 62% earned less than $50,000 a year working public service jobs. That means many depend on the program to ease the burden of their student loans.

But many borrowers who thought their debt obligations would soon be gone could end up owing thousands more than they expected because of problems with their loan servicers, according to a Consumer Financial Protection Bureau report.

How Public Service Loan Forgiveness was Supposed to Work

The Public Service Loan Forgiveness program began in 2007 to encourage college graduates to consider careers in public service, which tend to pay less than private sector jobs.

It allows students to finance the education required to work in public service fields like teaching, law enforcement or public health without worrying about mountains of debt.

Borrowers agree to work in public service or for a nonprofit for at least 10 years while making income-driven payments. After those 10 years, their remaining federal student debt will be forgiven. For the first class of enrollees, that decade ends in October.

Those who are already on track for loan forgiveness still qualify to have the slates wiped clean, although the new budget proposed by the Trump administration could put the program on the chopping block for future graduates.

But as graduates enrolled in the program come closer to eliminating their remaining debt, they are running into problems, according to the CFPB.

3 Common Complaints About the Public Service Loan Forgiveness Program

Between March 2016 and February 2017, the CFPB received about 7,500 complaints about private student loans and another 2,200 complaints about debt collection on private and federal student loans.

The CFPB mined those complaints for the most pressing concerns about the companies servicing loans enrolled in the Public Service Loan Forgiveness program.

Here are the three most common issues the CFPB highlighted:

1. False or Incomplete Information From Servicers About Loan Forgiveness Eligibility

Borrowers told the CFPB they routinely received incomplete or inaccurate information regarding their eligibility for the Public Service Loan Forgiveness program.

That lack of reliable information can mean years of additional payments for some borrowers.

“For example, one borrower reported that his servicer failed to tell him he needed to consolidate his loans to be on track for loan forgiveness until after he left the military, which meant that none of his military service would count,” according to the CFPB.

2. Delays and Errors Force Borrowers to Miss Out on Qualifying Payments

To participate in income-driven repayment, borrowers enrolled in the Public Service Loan Forgiveness program must submit updated income and household information each year.

Despite submitting the necessary paperwork on time, borrowers reported processing delays and errors that resulted in their servicers putting them in forbearance — which then prevents them from making the payments that will eventually qualify them for forgiveness.

3. Unexplained Job Certification Problems

Finally, borrowers told the CFPB that servicers denied the certification paperwork necessary to prove they are working in a public service field without explanation, even when the borrower was working in a field that should have qualified.

On paper, that denial makes it look like those borrowers are not living up to the required 10 years of public service. Any payments submitted in that time won’t count toward the 120 on-time payments needed before loans can be forgiven.

“Some borrowers reported they believe they are fulfilling the program’s requirements, yet wrongly receive denials from servicers when trying to track their progress,” the CFPB reported. “Borrowers also complain that they do not know how to take action to correct a mistake because their servicer does not explain the denial.”

What You Need to Do if This is Happening to You

The CFPB also listed some tips to help borrowers navigate the process, even when their servicers drop the ball.

First, the CFPB suggests making sure you have the right types of loans. Only federal direct loans qualify for forgiveness. If you have any other loan type, you may be able to consolidate your loans.

You’ll also want to make sure you have the right student loan repayment program. While extended repayment plans don’t qualify, income-driven repayment plans do. Additionally, income-driven plans could make your payments are low as $0 a month.

Finally, the CFPB reminds borrowers to submit an employer certification form to prove you are working at an eligible job and keep every bit of paperwork you submit. It would be a mistake to trust your servicer to keep track of that for you.

Desiree Stennett (@desi_stennett) is a staff writer at The Penny Hoarder.

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