In 2017 the government commenced a lawsuit against servicing giant Navient. In its response to the government Navient stated; “[a] servicer’s role is to collect payments owed by borrowers. In that role, the servicer acts in the lender’s interest [primarily the lender is the federal government] and there is no expectation that the servicer will act in the interest of the consumer.” There we have it, in plain English, Navient, the largest student loan servicer clearly stated that it does not believe it has any obligation to think about the consumer or make any decisions with respect to what is beneficial to the consumer.
Knowing that the servicer solely cares about collecting payments, here are three lies servicer will tell you regarding your payments:
If you can’t make your payment, just put the loan in forbearance.
Forbearance is a last resort for student loans. The reason why; it’s profit making for the servicer. At the end of the forbearance the interest is capitalized, which means it is added to the principal balance. For example if a borrower owes $20,000.00 and puts the loan in forbearance for 12 months, if the interest rate is 5%, in one year the interest that accrues on that loan is $1000.00 so at the end of the forbearance the servicer will now calculate a monthly payment based upon a principal balance of $21,000 at 5% interest instead of the original principal balance of $20,000.00.
If a borrower is struggling to make their monthly payments a better option is getting on an income driven repayment plan because during an income driven repayment plan interest accrues but is not capitalized.
Bankruptcy won’t help you with your student loans
Student loans are rarely discharged in bankruptcy; but that doesn’t mean bankruptcy cannot help with your student loans. First, you will be represented by an attorney while going through the bankruptcy process; negotiating and entering into a repayment plan with your servicer while under bankruptcy protection typically cuts off any game playing servicers attempt because they know there is a judge they would have to answer to if they do not act in the consumer’s best interest. Second, if all of your other debt is cleared leaving you only with your student loans, more than likely your budget will be able to handle an affordable payment and your student loan debt will not longer be a source of stress.
You should refinance your student loans
Refinancing your student loans converts them to a purely private loan. Although the interest rate may be reduced, converting federal student loan debt to private student loan debt means that all of the protections and programs afforded to borrowers by the government are no longer available. This means that if the worst happens and a borrower suffers a job loss, gets hurt and goes on short term disability, or suffers from some other event that would make it difficult to continue to pay the given monthly payment, the options available are limited and in the sole control of the lender. As we learned at the beginning of this article, servicers and lenders are solely concerned with collecting payments for the purpose of creating a profit; therefore, the options will be limited and unhelpful.