Student Loan Servicers Engaged in Deceptive Practices, CFPB Finds

Loans, Student Loans
student loan servicers deceptive practices

Certain student loan servicers are engaging in deceptive practices that result in preventable late fees and impede borrowers from claiming tax deductions from their student loan payments, according to a report by the Consumer Financial Protection Bureau (CFPB).

Here’s a closer look at several of the CFPB’s most significant findings on illegal student loan servicing practices.

Manipulating payments to maximize late fees

The CFPB’s team of examiners found that student loan servicers – companies responsible for the billing of student loans – have been manipulating loan payments to increase the amount of late fees borrowers owe.

A borrower’s account often includes several separate student loans, which places the onus on the servicer to allocate monthly payments so that each separate loan’s payment schedule is satisfied. The CFPB found that certain servicers allocated payments evenly across all loans, which in some cases meant that none of the loans’ minimum payment amounts were met. As well as resulting in hefty late fees, all affected loans typically become delinquent.

[More: Student Loan Default: What It Is, What You Should Do]

Billing misrepresentations and ignored grace periods

Some servicers included interest that had accrued on deferred loans in the minimum payment amount, resulting in borrowers paying more than they should. Moreover, borrowers are typically granted a grace period when making loan repayments. If payments are made during this window of time, late fees aren’t typically charged. The CFPB found that at least one servicer ignored this common practice, charging late fees even when payments were received during the grace period.

Mishandling of tax information

Student loan borrowers can usually deduct up to $2,500 from their tax filings if they provide proper proof that the funds went toward higher education. The CFPB’s findings show that at least one servicer required borrowers to provide additional documentation that was both unnecessary and ultimately impeded borrowers from receiving tax benefits.

[More: How to Get the Student Loan Interest Deduction]

How to avoid these scenarios

In light of the CFPB’s recent findings, it’s crucial to ensure that your student loan payments aren’t being mishandled and that you have full access to your loan payment account. As a borrower, it is within your rights to ask your student loan servicer for statements showing the entire history of your payments. You should also be sure to keep copies of these payments on hand in case they need to be presented.

If you think your student loan servicer is charging unfair fees or otherwise mishandling your loan payments, you can work directly with the CFPB by filing a complaint. If the CFPB thinks that a serious issue exists, it will get in touch with your servicer and propose possible solutions.


Student loan illustration via Shutterstock.