This post is from new staff writer Honey Smith.
Since I only took out Stafford loans while I was in school, I was able to consolidate almost all my student loans into a single balance through a program called the Federal Family Education Loan Program (FFELP).
After I consolidated, I was able to use a website (which I believe was maintained by the federal government) to track my loan balance and otherwise access my account. Although the interface wasn't very slick, there was lots of information at my fingertips.
My favorite feature of this website was that you could see your specific amortization schedule for every single payment plan offered. This made it very easy to see the total amount of interest you'd pay on each plan.
For graduated plans, you could also see exactly when each increase in payment would occur and by how much your payment would increase. All this information made it much easier to decide which plan would be the best fit for you.
FFELP versus Direct Loans
However, in 2010, FFELP was discontinued and replaced with the Federal Direct loan plan. This was actually a provision of the Health Care and Education Reconciliation Act of 2010 (aka “Obamacare“).
In the FFELP days, private lenders were providing loans to students, though those loans were guaranteed by the federal government. These private lenders received a subsidy for originating the loans.
The Federal Direct loan program was implemented in order to end these subsidies by cutting out the “middle man” and having the U.S. Department of Education loan directly to students. The thought was this would save the government billions of dollars that could then be used to expand the availability of various types of financial aid (mostly Pell Grants).
Recently, the government began transferring the loans to private loan servicers once the federal government had originated/disbursed them. For a list of the current servicers of federal loans, click here.
Is it me, or did the Federal Direct program just reverse things? Under FFELP, loans were originated by a private lender, but if you consolidated then your loan was serviced by the federal government. Under the Federal Direct program, your loans are originated by the federal government, but serviced by a private company. Additionally, many of these are the exact same companies that used to originate loans under FFELP.
The New Interface
The move to private servicers has meant a new web interface. As far as I can tell, all private servicers use an identical interface, so everyone with Federal Direct loans is having the same user experience with their accounts.
Note: I discovered this because although I only have one servicer now for my Federal Direct loan balance, I have accounts at several of the servicers because I'm still in their systems from my loan-origination days under FFELP.
Personally, I am not a fan of the interface associated with Federal Direct loans. It's a lot prettier than the old FFELP interface, but gives a lot less information:
- You cannot see an amortization schedule, although you can see the amounts that went to interest versus principal for payments that you have already made.
- You cannot see what your monthly responsibility would be under each of the plans.
- In the “My Payments” section, there are only two options: 1) request deferment/forbearance, and 2) “lower my payments,” which takes you to a tool that helps you enroll in the Income-Based Repayment plan (IBR).
What if I want to switch to a plan where I am paying more each month? Talking to a representative over the phone or by email, to me, is not nearly as useful as a chart that displays the amortization schedule for all of my options. It is clear from the “My Payments” section that as many people as possible are being pushed towards IBR, which is the highest-interest plan. Is that ethical?
My Monthly Payments
As the federal government farms out the servicing of accounts, they are capping the number of accounts each company services. In August, I received the following email:
As the number of Direct Loans continues to grow, Federal Student Aid has expanded their federal loan servicers to provide additional servicing capacity for the Title IV loans owned by the U.S. Department of Education. This will ensure an efficient and effective multi-servicer, borrower-centric approach to servicing. Please note that it may take up to 10 days before your new servicer has completely loaded your information to their system. Also, please be aware that if you are a borrower that was on the Direct Loan Servicing Center's Kwikpay auto debit program, that this information will be sent to your new servicer. You will shortly be receiving correspondence from your new servicer related to the transfer of your Direct Loan.
The first thing that happened was that my Kwikpay autodebit was not withdrawn on the normal date. However, I couldn't log in to see why, because I had not yet received correspondence from my new servicer with that information.
When I finally was able to log on, I discovered that my Kwikpay auto debit information had not, in fact, been migrated to my new account. I was able to enter all the information and have my August payment made within ten days of my due date.
However, the next month, my auto debit for September also did not go through. When I logged in to see why, my bank account information was all incorrect (not as in “one digit off” — as in “not even close”). How could this be possible when I had entered it only the month before and that payment went through just fine?
I took a deep breath, corrected the information, and made the September (now one-day late) payment on Saturday. The following Tuesday, I was notified that my September Kwikpay auto-debit had gone through. You know, in addition to the September payment I had made manually.
Um, what the heck?!?!
I transferred money from my savings account into my checking account to prevent an overdraft. Then I emailed my servicer to ask whether one of the payments could be applied towards the October payment since the September Kwikpay had been deducted FOUR DAYS AFTER my auto debit was authorized to go through AND after a manual payment had been made which I SPECIFICALLY FLAGGED as the September payment at the time.
As you can guess, crickets.
The system shows that payment as having been applied all to principal, which means it's being treated as an extra payment. Fortunately, due to an emergency fund as well as the fact that I'd paid off my consumer debt and hadn't allocated that toward another savings goal yet, I have the money.
On the one hand, it doesn't matter whether they apply it toward my October payment like I asked or whether my Kwikpay FINALLY goes through correctly next week (I'm waiting with bated breath, believe me). But on the other hand, the correspondence I have received saying they are dedicated to providing exceptional customer service is obviously a little inaccurate. Sigh.
What About You?
Any of you out there have Federal Direct loans? What's your experience been with the new servicers? How do you think it compares to the previous system?