Unemployment or underemployment does not have to get in the way of repayment of federal student loans, regardless of the size of the loan balance. Income-driven repayment plans mean that nearly all federal borrowers should be able to avoid delinquencies and defaults.

Recent data from the Department of Education shows that the default rate is on the decline, but with over 1 in 10 borrowers defaulting on their loans, the default rate is much higher than necessary.

What if I can’t afford my student loan bill?

One of the mistakes many borrowers make is that they assume they have to pay the amount due on their monthly student loan bill. This is a reasonable assumption. Typically, when any statement comes in the mail, that is the amount you owe, and there is little room for negotiation.

Federal student loans are much different. For most borrowers, the monthly bill is calculated to pay off your student loans in ten years. This is called the standard repayment plan. The standard repayment plan is also the most expensive option.

The federal government has several repayment plans in place that allow borrowers to pay what they can afford rather than what they owe. These income-driven repayment plans can often result in monthly payments of $0. Borrowers are expected to pay as little as 10% of their discretionary income towards their student loans. Best of all, if you make payments under an income-driven repayment plan for 20 to 25 years, any remaining student loan balance can be forgiven. If you work for the government or a non-profit, the balance can potentially be wiped away after ten years of payments.

I don’t even know who to pay

Loans transferring between federal student loan servicers can make things difficult. Fortunately, there is a fairly easy way to track down the people responsible for collecting your student loan bills. (These are also the companies tasked with answering your student loan questions and helping you manage your balance.)

If you don’t know who you should be talking to or who you should be paying, visit the Department of Education’s Federal Student Loan Database. In this database, you will be able to learn the type of loans you have, the balance, interest rate, and loan servicer contact information.

What if my loan servicer won’t work with me?

The quality of federal student loan servicing can be pretty low. Their customer service representatives are underpaid and poorly trained to help people navigate their federal loans. Unfortunately, you are stuck working with them.

However, there are a couple of tricks that you can use to make sure things go as smoothly as possible. First, do your homework before calling. Research the plan you want and investigate the questions that you have. Second, if you are not getting the help you want from the person you are talking to, call back again later. Within each federal loan servicer office, there are good people, and there are bad people. If you get the chance to talk to someone very helpful, try to get their information so that you can directly contact them next time you have an issue or question.

One helpful tool from the Department of Education is the Federal Student Loan Repayment Estimator. This tool gives borrowers an estimation of their monthly payments on all of the various federal repayment plans. This resource can provide a starting point for discussions with loan servicers.

What if my loans are already delinquent or in default?

Fixing a delinquent loan can normally be addressed by calling your loan servicer. If you are behind and cannot afford payments, they will help you get things fixed so that you can make payments based upon your income rather than what you owe.

Fixing a loan in default can take a bit more work. Loans can get out of a default status through consolidation or rehabilitation. The National Consumer Law Center has a nice summary of the two routes to getting loans out of default. The Department of Education also has some detailed information on the process of getting out of default.

Is being in default a big deal?

Being in default causes many different issues. In your daily life, you can be constantly annoyed with collection phone calls. Your finances will take a beating because being in default will destroy your credit score. Your loan balance will grow quickly due to late fees and interest, making your situation worse with each passing day.

Because the loans are owned by the federal government and not a private company, there are also many powers that the government has to collect your debt. The National Consumer Law Center has a nice explanation of the things the government can do to collect your student debt.

Bottom Line

Being in default sucks. However, even if you have no income, there are ways to keep your debt current and under control.

The post No Excuse To Be Deliquent Or In Default On Your Federal Student Loans appeared first on The Student Loan Sherpa.

This month I logged on and saw something disturbing, I was delinquent.

After confirming that there were sufficient funds in my bank account, I sent MyFedLoan an email. I was concerned about preventing this issue from happening again and worried it could negatively impact my credit score even though it was 100% not at fault.

The First Email to MyFedLoan

I sent the following email when I noted the issue:

My account is set up to direct debit the monthly payment each month. It has been set up this way for at least six months. When I logged in today it indicated that my account was 1 day past due and delinquent. I have several questions:

1) Why has the money not been pulled from my bank account for this month?

2) Will this trigger a negative credit reporting that will need to be corrected?

3) Do I need to change the auto-debit settings?

The First MyFedLoan Response

Three days later, I received the following response from MyFedLoan:

Your payment was received on December 10, 2017, which was a Sunday. Unfortunately, payments can’t be processed on weekends or holidays. If your due date falls on a weekend or holiday, we will process your payment the following business day. Though your payment may take 2-3 business days to go through, it will always post effective for your due date. Please note that your account will reflect as delinquent until the payment has been posted.  We report monthly to each nationwide consumer reporting agency, so a temporary delinquency of only a few days will not negatively affect your credit report.

I was relieved to learn that there would not be any negative consequences to this “delinquency” but still concerned over what I deem to be a flaw in their system. At no point should a borrower who is enrolled in auto-debit and making payments be told they are delinquent. If there is even a chance that this reports in a delinquency report, it is an issue.

The Second Email to MyFedLoan

With my concerns now shifted to others who might get an erroneously reported delinquency just because their auto-debit date fell on a Sunday, I asked the following:

When you say you report monthly, does that mean all of your credit reporting for all customers happens on the same day? My concern is that if the day of the month you report happens to be the 11th, then my report might indicate that I was delinquent. Is this possible?

The Second MyFedLoan Response

MyFedLoan responded by stating:

We report every account on the last day of every month. You will not be reported as delinquent.

Lessons from my “Deliquency”

Emails have value – This interaction is a good example of why I encourage borrowers to communicate with their lenders via email. If I look at my credit report next month and I see a delinquency reported by MyFedLoan, I’ll be in an excellent position to dispute the issue. I’ll have an email chain to show the credit agency and I’ll have proof to MyFedLoan that any errors reported were mistakes that need to be corrected.

Make MyFedLoan happy by the end of the month – The policy to report the status of all customers on the last day of the month is valuable information to have. If you have an issue with your account status early in the month, it means there is plenty of time to get things resolved. If the calendar says it is the 28th and an issue arises, you need to contact MyFedLoan as soon as possible.

MyFedLoan is sloppy – Whoever programmed the MyFedLoan system should not have set up the account to read delinquent on the days following auto-debits set for a Sunday. Further, once this issue was identified, their system should have been fixed. If I log on the following Monday, it would be far more appropriate for the account to read “payment processing”. This issue wasted my time and the time of MyFedLoan employees. Every time they get a call or an email about this issue more time is wasted.

The post MyFedLoan Mistakenly Says I’m Delinquent appeared first on The Student Loan Sherpa.