For a number of years, we have been writing about the problems facing borrowers trying to consolidate their loans out of default and into Income Based Repayment (IBR). The Department of Education was placing borrowers in ICR even if they selected IBR as their preferred payment plan.
In May, the Department said that the problem was fixed and for our clients, this appeared to be true. Our clients were finally being placed into IBR (although we have heard that others were still having issues). That was until last month and Ms. H’s consolidation.
Ms. H applied to consolidate her federal student loans with Direct Loans in August. As part of her consolidation application, Ms. H selected IBR. In late October, she received a summary sheet from Direct Loans. The summary sheet confirmed that her loans were in IBR and that her payment amount was estimated to be $0 per month.
Then in November, Ms. H received a letter from Sallie Mae indicating that her consolidation was finalized and her loans were transferred to Sallie Mae for servicing. Unfortunately, the letter also stated that she was in the standard repayment plan and that her monthly amount would be $75.66 per month.
Several phone calls, a stern letter, and lots of documentation later, the problem has been solved and Ms. H is again in IBR. However, without legal assistance, the outcome may have been very different.
The Department of Education is in the process of transferring many of its Direct Loan borrowers to the new federal loan servicers (see here for an up to date list of servicers). We fear that for many borrowers on IBR, like Ms. H, this transfer is going to be less than smooth. Are you on the IBR payment plan and recently had your Direct loans transferred to a different servicer? Please let us know your experiences.