Doctored Money Blog

Beware: Erroneous or Misleading Advice from Loan Servicers

Recent Examples of Inaccurate Advice

We at DOCTORED MONEY recently gave financial presentations to the incoming housestaff at two large hospitals/universities. A big focus of the lecture was on strategies to optimize PSLF. In the days following the orientation, many new interns told us in person and via email that they were “rebuffed” when calling their loan servicers to initiate changes to their account. For example, one new resident called to get information about loan consolidation with the intent to consolidate loans in order to eliminate the grace period, and thus be able to make PSLF-qualifying payments immediately. He was told however, that there was no benefit to consolidation, and he should wait until the grace period ends to do anything. He wrote, “I feel like after my conversation with this loan officer, she was definitely hiding something.” 

While it's true that there is not necessarily a direct benefit to a federal consolidation loan on say, overall interest rate, there can indeed be many benefits to consolidating. These include simplifying the number of outstanding loans, making loans such as Perkins loans eligible for PSLF, and of course eliminating the grace period. In this case, the specific reason to consolidate was precisely in order to eliminate the grace period. Thus the advice to “wait until the grace period ends” is not appropriate, and appears to be a stalling tactic. Consolidating the loan and aiming for PSLF would have moved the loan to a new servicer, and likely would have lost this company some revenue from servicing fees. This may explain the advice to either wait or to do nothing.


An On Going Problem

Loan servicers have been accused of “systematically and illegally” failing borrowers and it appears this is continuing to occur despite active lawsuits. It seems that this misinformation (whether intentional or not) is still being given to physician borrowers and is widespread.  See this blog post by Ben White who shares a similar example as ours.


What to do?

The obvious point here is that you need to do your homework and learn the rules. You cannot rely on your loan servicer to give you accurate information, due to their obvious conflict of interest. Know what you want to do in advance and then ask your servicer to enact it. Or, in the case of consolidating and choosing a payment plan, just bypass them entirely by initiating the process here. Your contact with your loan servicers should be to ensure compliance and to follow-up on your requests, rather than to seek advice. It's very unfortunate that this is the case.