July 17, 2017

FedLoan: What You Need to Know


You thought your student loan was with the Department of Education, but it turns out you need to pay back FedLoan. Huh? We explain all about this loan servicer below.

Here's what you might have missed when you signed up for a federal loan: In an effort to enhance customer service, the DOE uses loan servicers. They have around 9 companies they use.

A loan servicer works as the "middleman." They aren't the organization that loaned you the money. They are, however, the company that handles your repayment. They handle the administrative work for the DOE. You don't choose your loan servicer. The DOE chooses for you.

One of the more popular loan servicers is FedLoan. Read on to learn what FedLoan does and how their services may help you.

What Loan Servicing Means

First, let's look at what loan servicing means. Companies like FedLoan help you stay on top of your loans. Their only business is helping college students and graduates with their student debt.

They help you learn how much you borrowed. They may even help you learn how to pay your loans off faster.

The loan servicer takes over after your first loan disbursement. They handle things like:

What Is FedLoan?

FedLoan is part of the Pennsylvania Higher Education Assistance Agency. PHEA typically services two types of federal loans:

  • Direct: Loans funded directly by the Department of Education
  • FFELP/Indirect: Loans funded by a third party, but guaranteed by the DOE

**New guaranteed loans are no longer offered as of June 30, 2010. However, many loans are still in repayment, so the guarantee continues.

Loan guarantee: Sometimes the federal government doesn't fund a loan. They may guarantee it, though. In other words, they promise to pay back the lender if the borrower defaults. The government then pays the lender around 97% of the loan's value. The government then takes over the loan, assigning it to one of their guarantee agencies. These agencies then try to recoup the money from the defaulted loan.

What Happens If FedLoan Services Your Loan

If FedLoan services your loan, you work directly with them. You don't call the Department of Education with questions. If you have difficulty affording the payments, you call FedLoan. The same is true if you think you are eligible for loan forgiveness or an income-driven repayment plan.

You don't have to wait until your loans are in repayment to contact FedLoan. If you want to keep track of your loans while you are in school, log into their system. Here you will see your loan status, balance, and interest rates.

This is a great way to confirm that FedLoan shows you as still enrolled in school.

If you receive a statement of payment due while in school, contact FedLoan immediately. They will confirm your enrollment status. If you are enrolled, they can put your loan back into the grace period.

Once you are out of school, FedLoan offers resources to help you estimate your monthly bill. This may give you an idea of what to expect after the grace period.

The grace period for many federal student loans is 6 months after graduation. This means you don't owe any payments during that time. After the first 6 months, though, your payments become due.

They also offer other tools, such as Interest Savings Calculators. With this tool, you can see how much money you could save on interest by making payments during the grace period. Because there aren't minimum payments due during this time, you could make them as little or big as you want.

Example:

A $10,000 student loan at 4% interest rate could save the following:

  • $50/month during the grace period (6 months) saves $73.14 in interest
  • $100/month during the grace period (6 months) saves $144.68 in interest

It might not sound like a lot, but every little bit adds up.

Did You Know? The interest that accrued on your student loans while you were in school is added to your principal balance. Let's say you borrowed $10,000. You don't owe just $10,000 after your 4 years are up. Accrued interest may add $1,500 or more to the balance. Unless you have a subsidized loan, you are responsible for this interest.

Understanding Your Required Payments

Before your grace period expires, FedLoan will send you a Repayment Obligation. You can view an example by clicking "view example" here.

The document will break down the:

  • Account number
  • Loan types
  • Disbursement date
  • Starting repayment date
  • Payment amount
  • Due date of each month

It will also show you:

  • Amount of unpaid principal balance
  • Amount of accrued interest
  • Total cost of the loan with interest

Standard Repayment Plan

Unless you discuss other options with FedLoan, you'll be on the standard repayment plan. You may choose a different option during your exit counseling session prior to graduation. Don't worry if you didn't, though. You'll have other opportunities to do so with FedLoan.

The standard repayment plan is the fastest payoff plan offered for any student loan. With this plan you have fixed monthly payments. You make payments for 10 years, at which point the loan could be paid off if you make your payments on time.

Not everyone can afford the standard payment, though. If this is the case for you, get in contact with FedLoan.

They can offer you one of several repayment plan options. The right option for you depends on what you can afford. The payment plans are based on your discretionary income. This is any income that you make that is higher than 150% of the national poverty level. You may pay between 10-20% of this amount depending on your circumstances.

Many programs allow you to have payments as low as $0 if you are unemployed or don't make enough to afford payments. The following programs also allow loan forgiveness:

  • Pay as You Earn
  • Income-Based Repayment
  • Income-Contingent Repayment
  • Revised Pay as You Earn

Loan forgiveness is offered after 20 years of payments with any of these programs. Get more details on these programs here.

You may also qualify for graduated or extended repayment plans.

Graduated plans start with low payments, covering the interest only. They gradually increase as your income increases, thus covering the principal.

Extended repayment plans extend the term of the loan, helping to reduce the minimum amount due.

Both plans cost you more in interest. Ask FedLoan what the total cost of the loan is for each program. This way you can see the true cost of each program.

When Should You Contact FedLoan?

Once you know FedLoan is your loan servicer, when should you contact them?

We recommend calling them as soon as you receive your Repayment Obligation. This gives you the chance to talk to them about your options. You could view your options online, but there is something about talking to someone live. This way you can take notes and carefully evaluate your choices. A goal at some point should be to pay your student loans off as fast as possible. The longer you take to pay them off, the more interest you pay.

There are certain times when contacting FedLoan is crucial:

  • You don't understand your bill
  • Your address or contact information changed
  • You can't afford your payments
  • You need to change your due date
  • You received a bill while you were still in school

If you don't contact FedLoan, your loan automatically goes into the Standard Repayment plan. This occurs whether you can afford it or not.

If you don't make your payments, it could harm your credit. Staying in contact with your loan servicer is crucial at this point. If you can't afford any payments, you may be eligible for one of the above repayment plans.

At the very least, you may be able to put the loan in forbearance or deferment. You won't know unless you call them, though.

Set Up Online Account Access

Setting up online account access with FedLoan offers several benefits. For starters, automatic payments ensure your payments are made on time. This reduces the risk of late fees and damaged credit.

As a bonus, FedLoan offers borrowers with automatic online payments a 0.25% break on their interest rate. This might not sound like a lot, but when you compound interest on thousands of dollars every month, it adds up!

FedLoan also offers several ways to pay your loan back to help speed up the payoff process:

  • Targeted payments: This option lets you choose which loan to pay down first. If you make more than the minimum payment, you can direct the extra funds. Maybe you want to pay loans with the highest interest rate or the highest balance. The choice is yours.
  • Pay ahead: You can opt to pay more than the minimum payment each month too. This may lower the total interest you pay over the life of the loan.

Contacting FedLoan

You can contact FedLoan via phone at 800-699-2908. You can also visit their contact page for more ways to get in touch.

The Bottom Line

FedLoan services millions of student loans. Yours may be one of them.

If it is, contact them to discuss your financial situation and see which repayment plan works best for you. If you qualify for loan forgiveness somewhere down the line, FedLoan can help. Without hearing from you, though, they put you right in the standard repayment plan. This may or may not be right for you.

Look closely at your options and choose the one that helps you get out of debt sooner rather than later.

More from CreditDonkey:


How to Lower Student Loan Payments


Should I Consolidate Student Loans


Student Loan Forgiveness

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