Heads up on interest accrual payments!

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I completed service in August and was approved to have 100% of the interest that accrued on my student loans, which were in forbearance during service, paid by AmeriCorps.  As soon as I could, I submitted the request and according to myamericorps the payment was accepted.  I then used my ed award to pay several of my monthly payments while I got resituated after service. 

When I got my 1098 E from Direct Loans, the amount of interest paid did not seem to be right and I began to do some research.  Direct Loans says they have a policy that the interest accrual payment has to be paid BEFORE the end of the forbearance period, which for most of us would be before your end of service.  Direct Loans, having not had the payment, rolled that interest into my principal amount and then used the payment from AmeriCorps to pay several months ahead in regular payments. 

As nearly all recent student loans are handled by Direct Loans, and as many AmeriCorps members will elect to place these loans into forbearance for the length of their term, this could/should be an issue for more than just me.  After MUCH run around and seriously crappy customer service from Direct Loans, they admitted that their system had been down sometime in September/October and that it may have delayed processing of AmeriCorps voucher and that maybe that had caused the problem.  They sent my account on for review to have the intended interest payment applied to interest.  They won't however adjust my 1098E for 2011, so I'll get taxed for the income of the payment but won't be elligible for the student loan interest tax credit.

Has anyone run into this?  Direct Loans should not have accepted the interest payment if they weren't able to apply it to interest, according to VMSU.  That would essentially be upping my ed award as opposed to having the interest payment plus an ed award.

Not the same problem, but I submitted an interest payment using my education award before my capitalization date, during the time when their "system was down" and they swore it would be retroactive. Then later, they claimed they couldn't do that so my giant interest payment just has me paid up until august of next year. It's so crummy. I wrote a formal letter to the Dept of Ed (who Direct Loans claimed was the only place that could fix this matter) and I haven't heard ANYTHING from them.

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Have you contacted the FSA Ombudsman's office? It can take time, but ACS ("Direct Loans Servicing Center") had been literally refusing to apply my Segal award to my loan for over 4 months, and they helped a lot in forcing ACS to do their job. It took a few weeks, but they managed to get the job done. If they can't help you, they may be able to direct you to someone who can.
After that, you might try Dept Ed's OIG and your Attorney General.

The most important thing to do is to explain yourself as clearly and in as much detail in the initial request, which is done by a web form. It will make your first conversation with them go very easily.
I hope you can get everything fixed. Those two weeks in October have really screwed up the finances of a lot of people for many months to come! I hope this, among other things, spells a death sentence for ACS's relationship with the government!

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