The student loan industry has ballooned in recent years, growing from $600 billion to a staggering $1.3 trillion over the last decade. Whether you're attending a private or public college, it's likely you're a student loan borrower.
What's unfortunate is that students and new grads may end up dealing with either careless or unscrupulous lenders. Some lenders have steered students away from income-based programs that could lower their debt; instead, they push them instead into "forbearance" programs that let interest pile up while the loan is on hold, so that borrowers will have to pay off a bigger balance over time. Student loan forgiveness programs are available for some loans, but when some students try to use these options to take care of their debt, they may run into other shady companies.
Advertisements abound promising to get you into programs that qualify you for student loan forgiveness; the problem is that the ads are themselves a scam. Loan forgiveness programs "are completely free to borrowers," says Whitney Barkley of the Durham, N.C.-based Center for Responsible Lending. "You don't need to pay a third party to qualify you or help you navigate the system."
In 2015, the Consumer Finance Protection Bureau (CFPB) partnered with other agencies to investigate how student loans were being serviced. An overwhelming 30,000 comments poured in, and some troubling themes emerged. Borrowers complained about surprise fees, lost records and poor customer service that seemed designed to trap users into a cycle of debt.
The CFPB has since filed a lawsuit against Navient, the nation's largest student loan lender, to seek compensation for students it says were "systematically and illegally" cheated out of income-based repayment programs for which they were eligible.
Red flags to watch out for
Here are some ways to avoid trouble with your servicer:
Stay away from private lenders, which aren't required to follow federal loan laws. "As much as you can, stick with the Federal Student Loan program," Barkley says. Federal student loans, she says, offer income-based repayment programs, loan forgiveness programs and other options that private loans just can't compete with.
Review your loan billing statements carefully. Flag anything that looks inaccurate or suspicious. To verify your payment history and other details of your loan, visit the National Student Loan Data System (NSLDS). Ask your loan servicer to provide you with all billing statements related to your loan and compare that against your own records, repayment plan guidelines and original loan contract.
Report abuses to the Federal Trade Commission. Debt collectors don't have the right to abuse you when you've fallen behind or your loan is in default. The Fair Debt Collection Practices Act prohibits debt collectors from using nasty language, calling you at your workplace without permission or after hours, or reporting false information about you to the credit reporting bureaus. If you are being harassed by debt collections, report it to the FTC via its online form.
Look into any increase in your minimum payments. There may be a good explanation: Some borrowers are enrolled in graduated repayment programs where the minimum payments increase in "steps." You may have a variable interest rate loan that's been affected by an interest rate increase. Another possible explanation for a sudden increase in payments is a change in the company servicing your student loan.
Know your rights. Some borrowers have reported conflicting information from lenders on when payments are due, what is owed or which repayment plans they're entitled to. Visit Finaid.gov to learn about the repayment options for which you may qualify. Get a copy of your options in writing from your loan service agency, along with estimates on monthly payments. If your payments are processed incorrectly, it can lead to late fees and disqualify you from participating in forgiveness programs and more. If you believe there are errors in your payment processing, access your payment history at the NSLDS website and review your statements. Talk with an attorney if necessary.
If you've been making on-time payments but discover your loan is in default, you may have been the victim of an auto-default clause. Many private co-signed loans contain a clause that states the loan will go into default if a co-signer passes away or files for bankruptcy, regardless of if the loan is current. Another explanation could be that your payments weren't applied correctly. Access your original contract and gather evidence of your payments before reaching out to your servicer.
What to do if you suspect a problem
If there's an issue with your student loan, contact your loan servicer. Prior to your call, gather any information you'll need to verify your identity and explain the problem, including your payment dates, balance records and any notices you've received.
When calling the loan service provider, be polite but firm. Explain the problem you're having and the solution you desire. For example, you might say, "I'm calling because I made a payment on my student loan last month for $400. The check was cashed on June 1, but my record is saying that no payment was made. How can we fix this?" If you're unable to resolve your issue with your servicer, it may be time to take your complaints higher up by speaking with a supervisor.
If you have problems with a federal student loan, contact the Federal Student Aid Ombudsman Group. Its employees can assist with payment processing errors, explain interest rate questions and identify solutions to ongoing challenges. Gather the information on ombudsman's group checklist and reach out to request assistance.
Make sure any help you get on your federal student loan comes from a reputable source. "Private companies use government-like website names to make borrowers think that they are using a government site," says Barkley. "Be sure any website you are using regarding your federal student loans has a .gov URL."
If you've exhausted all your options through your servicer and the Ombsmudsman processes, you may still have other options. Debt collectors who have violated the Fair Debt Collection Practices Act can be sued either in state or small claims court.
The onus shouldn't be on you to keep your loan servicer in check. But you're the first line of defense against abuse and fraud. If you can make it harder for unscrupulous lenders to do business, you'll be doing your part to protect yourself and others.
Repay Student Debt. Consumer Financial Protection Bureau. https://www.consumerfinance.gov/paying-for-college/repay-student-debt/
How to Repay Your Loans. Federal Student Aid. https://studentaid.ed.gov/sa/repay-loans
Resolving Disputes. Federal Student Aid. https://studentaid.ed.gov/sa/repay-loans/disputes