For many, the recent creation of the Revised Pay As You Earn Repayment Plan has been welcome news.  Instead of making payments at 15% of ones income under the IBR plan, payments can now be lowered to 10%.

However, this step forward has come with a number of headaches.  I’ve heard from a number of different borrowers about excessively long waits for REPAYE processing with MyFedLoan, and my own experience has exposed a number of issues with their system and very nearly cost me thousands of dollars.

The Process

Borrowers who want to sign up for the new REPAYE plan submit paperwork indicating their interest in the plan along income verification.  The steps are identical to signing up for PAYE or IBR.

This should be a very simple and fast process.  Borrowers are able to have their information sent directly from the IRS to their loan servicer, such as myfedloan.  At this point myfedloan has all the information they need to calculate payments.  The process could easily be automated and should take minutes… not months.

The Reality

The problem is that myfedloan and other servicers take forever processing this information and calculating payments.

As a result of these delays, many borrowers are placed in an “administrative forbearance”.  By the time the new payment plan is put into place, months have gone by.

The Problem

For any borrower who gets placed in an “administrative forbearance”, the process is costing them money.  Even though the borrower can’t make payments according to their new payment plan, interest is still accruing.  This is especially problematic for borrowers who are working on student loan forgiveness.  Each month without a payment is a missed opportunity and another month that is getting added to the end of your forgiveness calendar.

In my case the timing of this administrative forbearance could not have been worse.  When you are on this administrative forbearance, myfedloan reports an incredibly high monthly payment to the credit agencies.  For some reason, the default number reported is according to the 10-year repayment plan.  When I applied for a mortgage, my application was an automatic denial due to incredibly high minimum payments on student loans that do not reflect my actual obligations.

Calling myfedloan to get accurate information reported to the credit agencies just caused more headaches…

Getting things fixed

For starters, I do applaud the people at myfedloan that I worked with.  These individuals have no say in the process and are stuck dealing with it every day.

The biggest issue ended up being getting a bill issued.  As part of the transition from IBR to PAYE, an interest payment is required, and a borrower is allowed to opt for a payment as low as $5.  In early May I called to complain about the administrative forbearance and to get accurate information sent to the credit bureaus.  Myfedloan could not do anything because they were waiting on the bill for $5 to post.  There was not a single person in the building who could accelerate the process at all.

Missing out on record low interest rates because myfedloan took months to process simple paperwork and refused to release accurate information to the credit bureaus was a huge frustration to say the least.  I got lucky because I could the very end of the mortgage lock window, but many other borrowers may not be as lucky.

How things should be

President Obama has already suggested that income driven payments be the “default” payment plan for most borrowers.  If this can be done across the board, then it certainly should be able to be done for the people who request it.

Because the application and determination of eligibility is purely a question of math, process should be automated or at the very least accelerated.  The evaluation doesn’t require reading essays or doing any research.  Myfedloan simply needs your income and student loan balance.  Then it just comes down to the math.

Until it is fixed, the current issues will undoubtedly cost borrowers money… the only question is how much.