Consumer Watchdog: Student Loan Servicers Are Triggering Unnecessary Fees

Student loan companies sometimes process payments in a way that increases fees and interest charges, the Consumer Financial Protection Bureau says.

In a new report analyzing a year’s worth of consumer complaints — 3,800 of them — about student loan lenders and servicers, the CFPB found problems both for consumers who were paying ahead and for those who were struggling to stay current. Among them:

  • When consumers submit a larger-than-minimum payment to a servicer managing multiple loans, the servicer may split the excess across the loans instead of prioritizing the one with the highest interest rate.
  • Similarly, when a consumer submits a partial payment that doesn’t cover the minimum due for multiple loans, the servicer may split it across the loans, resulting in multiple late fees and credit dings.
  • Loans are sometimes shuffled between different servicers, which is confusing to consumers — especially when they “experience lost paperwork, processing errors that result in late fees, and interruptions of routine communication, such as billing statements.” It can also mean a change of policies, interest rates and payment amounts.
  • Consumers who submit a payment before the due date are sometimes charged a late fee because of the time it takes to process payments. It can take up to 10 days for a payment to post to a loan account.
  • Payment history is sometimes not available online for payments made over the phone or by mail.
  • Payoff balances are sometimes inaccurate, resulting in accounts that consumers believed were paid in full being sent to debt collection.

To help consumers ensure that servicers handle their extra payments appropriately, the CFPB offered a sample letter to send them that explains how the money should be applied.

“Your student loan servicer should listen to your instructions about which loan your additional payment goes toward when you submit your payment,” the CFPB says. “You’ll want to be sure your servicer responds to your request so you know if you need to send additional instructions.”

The CFPB also has a Web tool to help consumers figure out the best way to tackle loans, and of course you can file a complaint that informs reports like this one.

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