Unfair Student Loan Practices

The student loan market has exploded in the last 15 years, increasing from $600 billion in 2006 to $1.2 trillion in 2016 to a whopping $1.52 trillion as of July 2019. Whether you're a student at a private or public college, odds are that you have student loans. Student loans are managed and repaid through a loan servicing company. Loan servicers such as Navient, Great Lakes, and NelNet serve as a critical link between lenders and borrowers.

Unfortunately, students and new grads often bear the cost of mistakes by loan servicers ranging from administrative error to outright illegal activities such as harassment. Many student loan borrowers may not even realize that they're paying more than they should or have recourse in certain situations.

This guide will enable you to:

• Identify your loan servicer
• Learn how to spot red flags for unfair practices
• Contact your loan servicer most effectively
• Report unfair practices

When the Consumer Finance Protection Bureau (CFPB) partnered with the Department of Education and the Treasury to learn more about student loan servicing practices, they received tens of thousands of comments submitted from the public on potential solutions to improve service delivery. Among the many complaints emerged some themes, including:

• Surprise fees, damaged credit, lost loan records and repayment benefits resulting from loan servicer transfers
• Falling into default or a debt cycle as a direct result of poor customer service and lack of error resolution
• Non-disclosure of and non-facilitation of borrower benefits
• Predatory practices of so-called debt relief companies that target low-income and vulnerable borrowers

The first step in managing your loan is determining your loan service provider. A student loan service provider is a private company that's contracted to handle the billing and other issues related to your student loans. Loan servicing companies handle loan repayment processing, consolidation, and repayment options. The Department of Education has a team of companies that provide loan services around the country. Your student loan servicer can change if the Department of Education transfers it to another company and your monthly payment may change as a result.

To find out who current your loan servicer is, use the Department of Education's National Student Loan Data System (NSLDS). The site allows you to retrieve your loan information from the central student aid database. You'll need your Federal Student AID ID and password:

• If you filled out the FAFSA and have logged into a federal student aid website any time after May 10, 2015, you should have an active FSA ID and password.
• If you forgot your username or password, NSLDS allows you to retrieve either via security questions or via e-mail.
• If you no longer have an FSA ID and password, you can create one here.

Your loan servicer should work with you to help you repay your loan, from processing your payments on-time to answering questions when they arise. Knowing what unfair practices look like and your options for responding helps you be proactive. As in any relationship, unfair practices are red flags that signal it's time to take action.

The Federal Trade Commission (FTC) protects consumer interests and works to prevent what they define as harassment or abusive behavior. They work to prevent harassment such as obscene or profane language, threatening violence, calling consumers repeatedly or at unreasonable hours, misrepresenting a consumer's legal rights, disclosing a consumer's personal affairs to third parties, and obtaining information about a consumer through false pretenses.

You may not know you're experiencing harassment, but watch for any of these signs:

• Receiving phone calls before 8 a.m. or after 9 p.m.
• Violating playground rules a.k.a. swearing, name-calling
• Calling you at work if you've asked them not to
• Calling you if they know you've retained a lawyer to handle your debt
• Calling multiple times in a row
• Threatening your arrest

Illegal practices may be more evident when you've fallen behind or your loan is in default. The Fair Debt Collection Act was passed in 1977, to help protect consumers from abusive debt collection practices. The FDCA establishes basic guidelines for how companies can interact with you when you owe them money. The Act prevents abusive behaviors like using foul language, misrepresenting themselves, communicating about your personal information with a third party, or reporting false information on your credit report. You're protected from these types of debt collection actions under the law and should report violations to the FTC via their online form.

Inaccurate Billing Statements

Inaccurate billing statements suggest that your loan serving company is charging you the wrong amount. To verify your payment history, current repayment plan, and other details of your loan, visit NSLDS. Ask your loan servicer to provide you with a complete history of billing statements related to your loan, and compare that against your own payment records, repayment plan guidelines, and original loan contract.

Conflicting Repayment Information

Some student loan borrowers have reported conflicting repayment information, such as confusion regarding due dates, amounts, or even which repayment plans are available to them. Start by visiting Finaid.gov to learn more about general repayment options. Ask your loan servicer to provide you with a copy of your options in writing, along with estimates on monthly payments.

Incorrect Payment Processing

Your loan servicer is responsible for handling payment processing. This includes posting payments and late fees, how payments are allocated to your loan, and overseeing billing and loan payoffs. When payments are processed incorrectly, it can lead to late fees, the inability to participate in forgiveness programs, and more. If you suspect incorrect payment processing, access your payment history at the NSLDS website and collect copies of all your.

Unexpected Inflation of Minimum Payments

If your minimum payments increase unexpectedly, it's important to determine why. Some student loan payers 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 student payments is that the Department of Education changed the company servicing your loan. The new servicer may have a different repayment schedule and inflation of minimum payment may be one result. Contact your new loan servicer immediately if this is the case to establish a minimum payment you will be able to meet consistently.

Unexpected Inflation of Interest Rate

There are two types of interest on student loans: fixed and variable. A fixed-rate loan has a set interest rate for the life the loan, making it easy to predict what your payment will be each month. Variable rate interest loans, however, are tied to the federal rates. Federal loans issued before 2006, as well as private loans, may have variable rates. When the government raises interest rates, your interest rate and payment may increase as a result.

Unexpected Loan in Default

If you've made all your loan payments on time but find that your loan is in default, you may have been the victim of an auto-default clause. Many co-signed loans contain a clause that states if a co-signer dies or goes bankrupt that a loan will go into default - regardless if you're in good standing or continuing to make payments. It's also possible that your payments have been applied incorrectly. Gather information such as your original loan contract and evidence of payments before contacting your loan servicer.

Withholding Cancellation Information

In certain circumstances, student loans may be cancelled. Examples include when the student loan holder is totally and completely disabled, dies, in situations of school closure, and (rarely) if student loans are discharged in bankruptcy. Your loan servicing provider should discuss these options with the person liable for the loan (whether you or your parents), and whether circumstance has made you applicable for cancellation. Loan forgiveness programs are also available, ranging from teacher loan forgiveness to medical professional forgiveness. For more information, visit MoneyGeek's Student Loan Forgiveness and Cancellation Guide..

If you suspect or recognize that there's a problem with your student loan, take the appropriate steps to resolve it. There are a number of different options, from gathering information to filing a lawsuit.

The onus isn't on you to keep your loan servicer in check, but there are preventive measures you can take to mitigate or even avoid these abusive practices.

Co-signing a student loan may enable your child or grandchild to pursue their educational dreams. But before you put your credit on the line, it's important to consider how this may impact your long-term finances. Some 90% of private student loans are co-signed. Yet, it seems that an equal 90% of requests to release co-signers from the arrangement were denied.

Before co-signing a loan, consider:

• Co-signing a loan is the same as taking full responsibility for the loan yourself. If the student is unable or unwilling to pay, ask yourself if you can cover the payments or pay off the balance without damaging your credit.
• Terms the lender provides for putting a loan into automatic default. In some cases, if your co-signer dies or files bankruptcy a loan may default even if you're willing and able to continue making payments. Avoid co-signing loans with automatic default clauses.
• Many lenders are under no obligation to communicate with co-signers, even when the primary borrower falls behind on payments. Before signing, find out the communications practices that a lender has for co-signers and how to get more information when you need it.