Consumer Watchdog: Student Loan Servicers Are Triggering Unnecessary Fees

Photo (cc) by Images_of_Money

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.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Read Next
These Are the 3 Best Used Cars You Can Buy
These Are the 3 Best Used Cars You Can Buy

These vehicles boast reliability, safety and long-lasting value.

How to Get Rid of 6 Hard-to-Sell Things
How to Get Rid of 6 Hard-to-Sell Things

Find out where to sell, donate or recycle items — and feel good about it.

5 Ways Retirees Can Lower Their Income Taxes
5 Ways Retirees Can Lower Their Income Taxes

Here’s how to keep Uncle Sam’s mitts away from your nest egg.

This Chase Card Is Great for Groceries and Cash Back on Everything
This Chase Card Is Great for Groceries and Cash Back on Everything

You could earn more than $600 cash back in your first year just from grocery shopping.

7 Secret Departments of Amazon You Should Know About
7 Secret Departments of Amazon You Should Know About

These little-known sections of Amazon are hidden gems for deal-seekers and impulse shoppers alike.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
7 Kirkland Signature Items to Avoid at Costco
7 Kirkland Signature Items to Avoid at Costco

Even if it seems you save a bundle buying Costco’s Kirkland Signature brand products, they may not be the bargain they appear to be.

Am I Eligible for My Mother’s Social Security Benefit?
Am I Eligible for My Mother’s Social Security Benefit?

Can an adult daughter tap into her late mother’s benefit?

9 Things You’ll Never See at Costco Again
9 Things You’ll Never See at Costco Again

The warehouse store offers an enormous selection, but these products aren’t coming back.

These Major Appliances Got the Worst Reviews in 2020
These Major Appliances Got the Worst Reviews in 2020

Consumer Reports says these home products got the worst ratings from experts.

3 Ways to Get Microsoft Office for Free
3 Ways to Get Microsoft Office for Free

With a little ingenuity, you can cut Office costs to zero.

This Surprise Factor Can Raise Your Risk of Dementia
This Surprise Factor Can Raise Your Risk of Dementia

Nearly half of U.S. residents may face this threat.

Organize Your Home With These 10 Thrift Store Finds
Organize Your Home With These 10 Thrift Store Finds

Resolve to be clutter-free in 2021 with these secondhand purchases.

This Gas Station Scam Is Victimizing More Drivers
This Gas Station Scam Is Victimizing More Drivers

For the second straight year, a growing number of Americans believe they’ve fallen prey to this scam.

11 Laws You Could Be Breaking Without Knowing It
11 Laws You Could Be Breaking Without Knowing It

Seriously? Fibbing about the weather is a crime? This and other little-known legal traps await the unwary.

13 Things Seniors Can Get for Free — or Almost Free
13 Things Seniors Can Get for Free — or Almost Free

There are many ways to get cheap or free services and goods after reaching a certain age.

6 Legal Documents Retirees Need — but Don’t Have
6 Legal Documents Retirees Need — but Don’t Have

Few retirees have all of these documents that are crucial to their golden years — especially during a pandemic.

Is This Treatable Condition Causing Your High Blood Pressure?
Is This Treatable Condition Causing Your High Blood Pressure?

Researchers say too many doctors are overlooking this potential source of hypertension.

11 Generic Products You Should Buy at Costco
11 Generic Products You Should Buy at Costco

Not all generics are worthwhile, but these are among the best from Costco’s Kirkland Signature brand.

3 Cable TV Companies Hiking Prices for 2021
3 Cable TV Companies Hiking Prices for 2021

Still married to your cable company? Hold on to your wallet!

Internet Providers Can’t Charge You for This Anymore
Internet Providers Can’t Charge You for This Anymore

Starting this month, your ISP no longer can bill you for this fee.

8 Tips for Retiring Comfortably on Social Security Alone
8 Tips for Retiring Comfortably on Social Security Alone

It’s never too early to start learning how to live well while living on less.

15 Painless Ways You Can Cut Costs in 2021
15 Painless Ways You Can Cut Costs in 2021

Follow these tips to save, so you’ll have money for things that really matter.

9 Small Expenses That Are Bleeding Your Budget Dry
9 Small Expenses That Are Bleeding Your Budget Dry

Keep more of future paychecks by eliminating these budget-busting unnecessary expenses.

15 States With the Largest Homeless Populations
15 States With the Largest Homeless Populations

Some of the states with the highest rates of homelessness might surprise you.

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.