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.