FedLoan Servicing – The Worst Student Loan Servicer

Note: This article was originally published in August 2010, as part of my drama with student loan debt. It has been updated over the years, and continually receives a lot of comments and feedback regarding FedLoan and their practices. We love to hear your experiences, so please share them in the comments below.

What Is FedLoan Servicing (PHEAA)?

FedLoan Servicing is a student loan servicing company contracted by the Department of Education to handle their student loans. What this means is that they take care of all the servicing and customer service stuff for the loans - like processing payments, sending statements, handling questions and concerns, and more.

FedLoan is one of the largest student loan servicing companies, and they handle ALL Public Service Loan Forgiveness applications.

However, in 2021, they announced they would stop servicing Federal student loans. What that means for borrowers is still to-be-seen.

It's important to note, when dealing with them, you are most likely speaking to a low-wage call center worker that has no vested interest in your well being or your financial security. As such, you need to educate yourself on your student loans, know your options, and push the conversation in the direction you know is correct.

Check out our Ultimate Guide To Student Loan Debt for guidance.

The Start of My FedLoan Servicing Drama

FedLoan started off poorly in the fact that I had to re-sign-up for all of the direct debit and online statements that I already had setup with the Dept. of Education.

To make matters worse, there is a lag time of approximately two billing cycles before my direct debit would kick-in. Also, my student loan qualifies for an interest rate reduction if I sign-up for online statements. Well, I lost the reduction, and had to re-gain it after the transfer.

Taking advantage of these programs is the best way to pay off student loans faster. It's frustrating that they can't transfer these loans without losing these programs. It wasn't my fault the loans were transferred and I certainly didn't request it!

In fact, there is no way for a borrower to transfer their loans to a different servicer. Only in certain circumstances with your loans transfer.

FedLoan Servicing Delinquent Notice

Next, after FedLoan confirmed to me that my direct debit was processed and I have a confirmation letter stating this, their payment system does NOT process my payment.

I log-on to my account, and there are big notices saying "DELINQUENT!" I call FedLoan, and the clerk is completely ignorant and rude, and refuses to answer any of my questions. I call back, and speak to another clerk, who tells me that FedLoan has all kinds of problems with their payment systems, and that this happens all the time.

I finally have to get her manager on the phone, who basically admits this without actually admitting it, and fixes all my problems. 

Let me just say that this was a stressful day. The last thing I wanted was for my student loan lender to mess up my credit report.

FedLoan Payment Processing and Direct Debit

Finally, I had a payment pending for 2 weeks before it was credited to my account. If FedLoan is a loan servicer, then why won't it process my payment! Furthermore, they have a pay-ahead program, which they call a safety net, but it really makes it difficult and confusing. 

For example, if you have direct debit on your account, you would expect your payment to be withdrawn each month. Say it is $200. Well, if you make a stand-alone payment of $200, expecting to pay down more on your loan, your direct debit will not go through, since you already paid the minimum.

Therefore, you really didn't make an extra payment. You then have to manually make another student loan payment. How ridiculous. My mortgage debits my account the same each month. If I make an extra payment, it makes no difference!

Note: If you're trying to qualify for Public Service Loan Forgiveness, NEVER go into pay ahead status. Pay Ahead Status Can Prevent Loan Forgiveness.

Fedloan's business practices are shameful, and what makes them worse is that they are contracted by the United States Department of Education!

My Experience With FedLoan And Pay Ahead Status

I didn't realize that this "pay ahead" status existed when I first started making payments, but it does - and it's annoying.

My original loan amount was $13,700, at 6.55%, and had a 10 year standard repayment schedule. The original payment amount was $175.33. As with all my loans, I setup automatic payments to ensure that I always paid the minimum each month, and then I could pay additional as I had the money.

As I mentioned above, if you made an additional payment that was in excess of the minimum payment, the auto debit would not got through – thus causing double work. They had an option to opt out of this, and the auto-debit would go through each month no matter what, and I finally (after several calls and certified letters), was able to get them to do.

Well…it still is not happening, but now my payments really don't make sense.

Here is a breakdown of my last few payments:

• 8/5/10 – Extra $290 Payment
• 8/14/10 – No Automatic Debit
• 9/7/10 – Extra $465 Payment
• 9/14/10 – $175.33 Auto-Debit
• 10/11/10 – Extra $500 Payment
• 10/14/10 – $174.91 Auto-Debit
• 11/10/10 – Extra $1,000 Payment
• 11/14/10 – No Auto-Debit

So, not only is the auto-debit on going through sometimes, now my monthly payment has gone down to $174.91 due to this pay ahead status!

My loan is a straight amortization over 10 years, there should not be any changes to the monthly payment regardless of how much has been paid. Then, it only auto-debited 2 of the last 4 months, even though every month had an extra payment made.

The Bottom Line:  If you want to make an extra payment on an individual loan at FedLoan, you need to go online to their website and do it manually. Check out this post on making an extra FedLoan payment.

Be Aware of Potential Credit Problems Due to FedLoan

Remember, FedLoan is a loan servicer, and so they WILL report any delinquencies or other issues on your account to the credit bureaus (Equifax, Transunion, Experian).  That can seriously impact your credit score.

What's worse is that they could be reporting false information, because the error was FedLoan's and not yours.  Realize that if FedLoan is telling you your loan is delinquent  they may have also told the credit reporting agencies, and that will harm your credit score.

That's why I urge you to check your credit score!  I recommend you use a free service like Credit Karma to simply check you score.  They only give you one credit score, but that's enough to know if something is wrong.  Plus, Credit Karma is truly free (you may have seen their commercials on TV).  

The last thing you want is your credit score hurting your job prospects or even worse, get you fired!

Get Professional Help

If you’re struggling with FedLoan and are looking for professional help, there are a few options to get help with your student loans.

As annoying as it sounds, the first thing you should do is contact your loan servicer (FedLoan). While they may be difficult to deal with, they are paid by the government to help you with your student loan debt. 

Remember, you can also do many things with your student loans by yourself at StudentLoans.gov. This includes consolidating your loans and applying for income-driven repayment plans.

Third, you can pay a third party company for help. Make sure you understand what you're getting when you do this.

If you're not quite sure where to start or what to do, consider hiring a CFA to help you with your student loans. We recommend The Student Loan Planner to help you put together a solid financial plan for your student loan debt. Check out The Student Loan Planner here.

Get Away From FedLoan

Finally, if you are able to, you should look at refinancing or consolidating student loans with a lender other than FedLoan Servicing. You can do this in a variety of ways, but I would recommend starting with Credible. Credible is a “Kayak for student loans,” meaning you fill out one simple form and receive offers from multiple lenders on a single dashboard. Credible only works with high quality private lenders, who will be a lot easier for you to work with than FedLoan.

Plus, College Investor readers will get up to a $1,000 bonus when they refinance with Credible!

Don't believe how easy it is? Just fill out this form in less than 2 minutes and see your options: Credible Refinancing.

Remember, though, to understand when it makes sense to refinance your student loans.

You can also check out our list of the 10 Best Places To Refinance Your Student Loans.

My Student Loan Refinancing Plan

My plan was simple – I could roll my student loan into a new refinanced student loan, which currently has a rate of anywhere from 0.9% to 2.9% (Note: interest rates are higher now, with the lowest we've seen being around 1.95% at First Republic). Why do this? First, I want to get away from FedLoan.

Second, it could save me a bit of money on the remaining balance on my loan.

To actually execute the plan, I used Credible to shop around for different loan rates and found this.:

FedLoan Student Loan
$10,000 at 6.55% for 68 months
Payment: $176.00/mo
Total Interest over Life of Loan: $1,997.33
Total Interest After Tax Deduction: $1,397.91

Option #1
$10,000 at 0.9% for 36 months
Payment: $281.65/mo
Total Interest over Life of Loan: $139.36

Option #2
$10,000 at 1.9% for 48 months
Payment: $216.52/mo
Total Interest over Life of Loan: $392.72

Option 3
$10,000 at 2.9% for 60 months
Payment: $179.24/mo
Total Interest over Life of Loan: $754.57

As you can see from the options, Option #1 is definitely the cheapest over time, but it requires the highest monthly payment. The interesting option is Option #3, which has a very similar payment to our current loan payment, but the interest over the life of the loan is so much less, and it is paid off sooner that the current student loan.

I would recommend starting with Credible. Credible is a “Kayak for student loans,” meaning you fill out one simple form and receive offers from multiple lenders on a single dashboard. Plus, College Investor readers get a $200 bonus for refinancing with them.

Final Thoughts

Dealing with your student loans can be stressful, challenging, and annoying. When dealing with any company, it's important that you follow up, document your conversations, and stay on top of your money.

If you're not organized financially, it can be hard to know what is happening with your loans. A good starting point is tracking all your bank accounts and loans with Personal Capital. This free tool allows you to monitor everything - for free!

Continue The Conversation

We recently launched our Student Loan Forums. Are you have trouble with FedLoan or another loan servicing company? Stop by and share your story and interact with other members of the community who may be going through the same thing.

Thanks for following along!  If you're looking for issues with NelNet Student Loan Servicing, check out our post on NelNet Student Loan Servicing Problems.

Note: This post was edited to clarify the payment practices. There is a lot of misunderstanding surround this program.