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Gail MarksJarvis: Federal student loan servicing still a problem, GAO report says

McClatchy-Tribune Information Services

June 20, 2016

When you canít afford to pay your federal student loans, what should you do?

Call your loan servicer and explain your predicament. The name of your servicer is on your bill, giving you information about what you owe and how payments are collected. If the servicer behaves correctly, the person you get on the phone should explain the options available if you canít pay and tell you if you qualify.

But often that process doesnít go as it should. Borrowers have trouble reaching their servicers, and too often the people on the other end of the phone arenít very helpful, according to government studies. Even worse, some of the servicers have pushed borrowers to pay when they are in fact entitled to temporary relief.

The result has been that too many people have ended up defaulting on their loans, and the government has missed the chance to eventually get borrowers back on track. Since the Direct Loan Program is federal, taxpayers ultimately take the hit if borrowers donít pay back their loans.

At the end of 2015, 19.7 percent of student loan borrowers were considered delinquent by the Department of Education. In other words, either because the borrowers couldnít pay, didnít want to pay, or were mixed up about what to do, they were more than 30 days behind on their student loan payments.

Although the delinquency rate has been improving with a better job market, and the department has responded to criticism about the student loan program, a May U.S. Government Accountability Office study says the servicers ó under contract with the government ó still are not being watched well, and that complaints arenít being tracked. Borrowers are having trouble getting information they need over the phone.

The report concludes that if borrowers arenít able to obtain the information they need to manage their loans, then they will be "more at risk for delinquency or default."

In past government reports, research has identified failures such as servicers requiring payments even when borrowers should have been allowed a grace period of six months after graduation. During that time, graduates arenít required to pay their loans because they still are securing jobs and getting their feet on the ground.

The reports also have noted that the government contracts with servicers have rewarded them for putting pressure on borrowers to pay rather than explaining programs that cut payments when people are out of jobs or in low-paying jobs. In 2015, the GAO calculated that half of people making student loan payments would have qualified to pay less, but only 13 percent knew to ask or press the matter.

The Education Department, amid criticism, has beefed up efforts to steer more borrowers into payments they can afford, and last year reported a 48 percent increase in borrowers making use of a program that provides affordable payments. Itís called "income-based repayment." Nearly 4.6 million people recently had monthly payments reduced temporarily because their jobs havenít been paying enough to cover the normal payment.

But with the GAO still noting concerns, borrowers should ask the right questions for relief.

To understand if you will qualify to get your payments reduced based on your income, see the governmentís income-based repayment information at studentaid.ed.gov. Try this calculator to see how a reduction based on your income will help you each month.

Note that the help only is provided for federal loans, not private loans from banks or other lenders. And even if you qualify for help with federal loans such as Stafford Loans, you donít avoid paying back the government forever. When your pay goes up, so will your monthly payments. If you still owe money after 20 years, you may be forgiven.

Also, note that if you work in public service jobs, you can get your loans forgiven. If you work in state, local or federal government, consider breaks given to everyone from nurses, elderly aids, librarians and teachers to police and the military.

And beware of refinancing federal loans. If you lose a job, or end up with financial troubles, you wonít get help from private lenders.