Ready for a shock? Seven million Americans are currently in default on their student loans. A whopping 40% of student borrowers aren't making any payments at all. That can have far-reaching consequences on your credit history and your life. Federal student loans generally don't appear on your credit report—unless they're in default, and that's going to put a serious drag on your credit for years to come. One way to avoid getting into that kind of hot water is working with your student loan servicer—in many cases, that's FedLoanServicing (or PHEAA), one of the largest servicers of federal student loans.
Remember: Your student loans can't be discharged in bankruptcy. Unless you qualify for a federal student loan forgiveness program, you will have to pay them—even if it's over many, many years through an alternative repayment program. The sooner you get started doing that, the better.
What is FedLoan servicing?
When you take out a student loan, your loan gets assigned to a servicer. This company doesn't hold your loans, but they're basically in charge of everything related to the processing of the loan. That's who's sending you the bills in the mail.
All told, there are 10 different student loan servicers approved by and working with the U.S. Department of Education, including FedLoan Servicing, CornerStone, GSMR, Great Lakes Educational Loan Services, and MOHELA, among others. What's more, your loan might get transferred between one servicer and another at some point during your repayment schedule.
Any time you need to talk to someone about your payment schedule, repayment plans, consolidation, or loan forgiveness options—or even if you just need counseling on how to best manage your payments—you should start by talking to your loan servicer.
That's why it's important that you know who your servicer is and how to contact them. Staying in touch with your student loan servicer is especially important if you're having trouble making payments.
How can your loan servicer help?
As you can see above, lots of Americans have trouble making their student loan payments. This is especially true when you first get out of school. You might not get a job right away, and even if you do, that job might not be paying you enough to cover your rent, bills, and student loan repayments.
Fortunately, if you call your loan servicer, they can help you to stay on track, even when you can't make a payment. That's a lot better than defaulting on your loan, which can impact your credit score, lead to seized assets, or even end with your servicer confiscating your tax refund in extreme cases.
Some options at your disposal include:
- Income-based repayment: This program caps your payments at either 10% or 20% of your discretionary income.
- Forbearance: Your payments are delayed, usually for a year, but they still gather interest.
- Deferment: Your payments are delayed, usually for a year, but they do not gather interest.
The federal government has a website designed to help you figure out which repayment plan is best for you. Just answer a few questions, and then you'll have a sense of your options when you call your student loan servicer.
How do you pay down your loans faster?
On the other hand, once you've been working for a few years and you're more established in your career, you might want to do the opposite—to pay down more than you're required to on your loans just to get them out of the way and avoid paying all that interest.
If you want to pay down your loans more aggressively, you need to specify which of your loans you want your extra payment to go to, otherwise they're evenly distributed across all your loans. You want to pay down the highest-interest loans first, then move your way down the line. You'll need to talk to someone at your student loan servicer about that.
Another option is student loan forgiveness for public service. Again, you need to talk to your servicer about how to comply with the terms of this program—you don't just get the benefits automatically. It requires some legwork on your part.
Bottom line? Know who your student loan servicer is and how to contact them. That's as important as knowing who to call when you lose a credit card or your power goes out.