Student Loan Borrowers Beware: How to Spot and Fix Costly Servicing Errors | Bill Clanton

Student Loan Borrowers Beware: How to Spot and Fix Costly Servicing Errors

Illustration of a student loan borrower navigating a maze filled with student loan servicing pitfalls, following signs with tips towards successful repayment.

Student Loan Borrowers Face a Maze of Servicing Problems

Are you one of the millions of student loan borrowers struggling to navigate repayment? Servicing mistakes by the companies handling your loans can cost you money and jeopardize your path to being debt-free. But knowing what errors to look out for and how to get them resolved can save you from major financial headaches. Read on to learn how to advocate for yourself and hold your student loan servicer accountable.

Common Student Loan Servicer Errors

Student loan servicers, the companies that manage your federal student loans on behalf of the Department of Education, are responsible for crucial functions like processing payments, updating your loan status, and helping you enroll in repayment plans. But servicers make mistakes that can have serious financial consequences for borrowers. Some common servicing errors include:

  • Misapplying or failing to process payments correctly
  • Putting accounts into forbearance or deferment without borrower consent
  • Providing inaccurate or incomplete information about repayment options
  • Miscalculating income for income-driven repayment plans
  • Not properly tracking progress toward loan forgiveness programs

Red flags that your servicer may have made an error include your monthly payment suddenly changing, your loan balance increasing substantially, payments not being reflected in your account, or getting conflicting information from customer service. Closely monitor your student loan billing statements, payment history, and credit report. If something doesn’t look right, don’t ignore it.

If you suspect your student loan servicer made a mistake, contact them immediately and keep detailed records of all communications. Gather any relevant documentation like payment confirmations and correspondence. Clearly explain the issue and ask what steps are needed to resolve it. You have the right to lodge a formal complaint against your servicer through the Federal Student Aid Ombudsman, Consumer Financial Protection Bureau (CFPB), and dispute it with the credit bureaus.

Ongoing issues with your servicer may also warrant switching to a new one. While you cannot choose your federal loan servicer, you can indirectly change servicers by consolidating your loans or refinancing with a private lender. However, carefully weigh the pros and cons before refinancing federal loans as you will lose certain benefits and protections.

Department of Education Loans

The Department of Education has acknowledged that servicing errors are a major issue. In March 2023, the department announced it will be closely monitoring the performance of loan servicers as 2.5 million borrowers return to repayment. Federal Student Aid head Richard Cordray warned servicers that mistakes will have consequences, with FSA prepared to hold them accountable for noncompliance.

Disruptions from the student loan payment pause have increased risks of servicing errors and confusion as borrowers transition back into active repayment. To protect yourself, make sure your contact information is up-to-date with your servicer and double-check your payment due date and monthly amount. Consider enrolling in autopay so you don’t miss payments if your billing statement is delayed.

While most recent attention has focused on federal loans, borrowers with private student loans from banks and other institutions can also encounter servicing troubles. The CFPB, in a January 2023 report, highlighted a range of private loan servicing issues, including faulty payment processing, undisclosed late fees, and lost paperwork. Pending rule changes aim to strengthen protections for private borrowers.

Your Rights as a Borrower

As a student loan borrower, you have rights under federal law and regulations. Loan servicers are supposed to provide you with clear and accurate information, properly handle payments, and process requests for help promptly. If you are struggling with payments, your servicer must inform you about options like deferment, forbearance, and income-driven repayment plans. Given the amount of student loans and the number of borrowers, everyone needs to keep a close eye on the servicers to make sure they do their jobs. 

The best way to avoid falling victim to student loan servicing errors is to be proactive. Educate yourself about how student loans work and keep on top of your loan terms and status. Get your credit reports from annualcreditreport.com on a regular basis. Reach out to your servicer if you have questions or spot any issues. By staying informed and engaged, you can prevent servicing mistakes from derailing your financial goals.

Key Takeaways:

  • Student loan servicers often make errors that can cost borrowers money if left unaddressed
  • Common servicing mistakes include mishandling payments, providing inaccurate information, and not properly tracking borrowers’ repayment progress
  • If you spot an error, contact your servicer immediately and keep detailed records of your communications
  • Ongoing problems with your servicer may warrant switching loan servicers by consolidating or refinancing
  • The Department of Education is increasing oversight of servicers to hold them accountable for mistakes as repayment restarts
  • Borrowers can protect themselves by keeping contact information current, checking statements carefully, and considering autopay enrollment
  • Knowing your rights and staying engaged with your loans can help prevent servicing issues from disrupting your finances

About The Author

Bill Clanton

Over the years my office has helped thousands of consumers who were cheated, ripped-off, and mistreated by debt collectors, credit reporting agencies, banks, credit unions, and car dealers. If you have a problem with a business being dishonest with you give me a call. I鈥檇 love to set them straight.