Helping clients navigate student loan servicer issues can be a challenging time drag. It's important to understand the the core essentials before diving into help. Making sure you have the appropriate authorizations and knowledge can make a big difference.Student loan servicers are private companies contracted by the federal government to manage borrowers’ accounts, process monthly payments, manage enrollment in alternative repayment plans, and communicate directly with borrowers, including borrowers in distress.
In 2015 the Consumer Financial Protection Bureau released a report on student loan servicers, that was less stellar. A few of the highlights from the report include:
- Some servicers discouraged the use of alternative repayment plans, including income-driven repayment plans. A number of comments described how some borrowers went into default because they were unable to obtain an alternative repayment plan.
- Also, some practices resulted in borrower payment shock, lost benefits, and increased interest charges for those enrolled in the plans suggested by the loan servicer.
- General customer service problems attempting to resolve servicer created errors.
- Difficulty working with the servicer to take steps to resolve default.
- Experienced difficulties with payment processing and loan transfer practices.
Many of the public comments described how these practices were causing problems with payment processing, increased interest charges, and late fees. All of these contributed to confusion on the part of the student loan borrower.
Some loan servicers agree about the problem
Loan servicers often agree that the complexity of student loan programs is a contributor to these problems.
While the report highlighted the challenges borrowers face when dealing with their loan servicers, it did little to provide any guidance as to what borrowers can do to help have a better experience. One approach is to find a qualified financial advisor who can help navigate the student loan maze and work on a larger, comprehensive plan that deals with student debt and their financial goals.
The role of the financial professional and student loan repayment
Financial professionals who are helping borrowers with loan repayment strategies need to be aware of the challenges facing their clients. The following are a few examples of ways a financial advisor can work with their clients to improve outcomes when interacting with student loan servicers.
Student Loan Basics
When advisors are helping clients they want to ensure that they are familiar with different loan types, payment plans, and the various loan statuses. Borrowers are often unfamiliar with the difference between a Federal Family Education Loan (FFEL) or a Direct Loan, or a Stafford loan. It’s best practice to take inventory of the loans a borrower has and have a basic understanding of the differences between them.
Knowing the rules of the road will help to set expectations of possible outcomes. Understanding what should happen is also important in ensuring the loan servicers are correctly applying the rules and regulations in place. Most of the issues with servicers could be solved with a better understanding of the basics of student debt.
A great place to learn about student debt and how to properly advise clients is the CSLP course.
Student Loan Forms
There are a number of forms that are required to be completed for a host of student loan related requests. Many of these forms require specific supporting documentation for processing. There are forms to request an economic hardship deferment, select an extended repayment plan, or verify that you are on active duty in the military.
Specifically, income-driven repayment plan requests need to be completed with care and need to be accompanied by very specific supporting information that can vary depending upon how forms are completed. Having access to the most recent forms and understanding what supporting documentation is needed to accompany the forms will decrease the chances of servicer error.
All these forms and instructions on how to complete them can be found as a resource to the CSLP course.
It’s important to keep a record of interaction with a client’s loans servicer as well as all forms and supporting documents provided. This record can come in very handy if a grievance needs to be made with the student loan ombudsman. Furthermore, when servicers make mistakes in processing applications and forms or calculating payments, having a record of what was provided can help you identify and troubleshoot the problems.
Third Party Authorizations
While not promoted by the services as much as it should be, there are forms that can allow for third party authorization on student loan borrowers accounts. Without these forms in place, the loan servicers are not allowed to communicate about the borrower's records with anyone other than the borrowers. By having authorization on an account an advisor can call on their client's behalf to troubleshoot issues that may arise. The authorization doesn’t allow the third party to make any changes to the account (repayment plan, request forbearance/deferment, etc) but can be very handy as a knowledgeable advisor can more easily troubleshoot issues for resolution.
Without a Third Party Authorization form on file, advisors would have to call with their clients or rely on their clients to communicate with the loan servicers effectively. These forms are available in the resource sections of the CSLP course.
While general calls to a client’s loan servicer can get some answers and help to troubleshoot problems, it’s not always sufficient to resolve an issue. Keep in mind that “loan counselors” are call center employees that experience high turnover with a wide range of experience and training. It’s fairly common for the over the phone counselors to inaccurately advise borrowers or provide incomplete information.
While slower, written correspondence is handled by a different department in the servicing companies and receives a higher level of care. If a problem cannot be resolved or identified through a call to the loan servicer, it’s best to make the make your request and ask for a response in writing.
The CSLP course material has sample templates for communications with loans servicers.
One of the biggest pieces of advice we can give to an advisor who is helping student loan borrowers is to be aware of the fact that most borrowers have had a poor experience with their servicer. While a trained advisor can help ease the stress of the interactions, issues may continue to surface.
The list above are just a few of the tips and hints that can help borrowers have a better engagement with their servicer, but even when the borrower does everything right, there can still be errors and challenges.
Get our Financial Advisor Guide to Student Loans and the Advising Process
Find out more about how you can avoid critical mistakes and liability. Get our guide to the student loan market and how you can address it through the knowledge gained in the CSLP Course.