March 24, 2019

Sloppy Accounting and Payment Processing Plague Private Student Loan Servicers

failure to apply extra student loan paymentIn the United States about 79% of student loans are either issued by the U.S. Department of Education or guaranteed by this agency. The remaining 21% are issued by private lenders 1  There was $157.8 billion of outstanding private student loans in Fiscal Year 2009]. Private student loans exist because federally issued or guaranteed loans have caps. For example, a direct federal loan (called a Stafford loan) has a cap of $2,000 per year for families who earn more than current income limits 2. If you attend an expensive private college, there may not be enough federal student loans (which can include Perkins and Plus loans as well) available to you and your only option will be private student loan lenders.

Unfortunately, private student loans do not include many of the borrower protection regulations that apply to government student loans. For example, if you go into default with your government issued or guaranteed student loans, you have unique options to cure that default and restructure your loans into a new payment plan based on your income.

In the case of a private student loan, if you go into default, you have no right to cure that default and you could find yourself facing lawsuits and wage garnishment.

In my student loan law practice, therefore, I have fewer options to offer my clients who are struggling with private student loans. There are some options, however – including Fair Debt Collection Practice Act violation suits, statutes of limitation and even bankruptcy.

Another option can involving challenging the accounting methods of the private student loan lender. The Consumer Finanical Protection Bureau recently released a report about private student loans and one of the biggest complaints filed by private student loan borrowers had to do with how the loan servicer applied extra payments submitted by borrowers. For example, if you have three loans with different interest rates managed by one private student loan servicer, extra “principal” payments will not necessarily be applied to the highest interest rate loan.

The CFPB recommends that you submit specific directions to your loan servicer about how you want extra payments applied. Perhaps you want to retire high interest rate loans first. Perhaps you want to eliminate the loan with the lowest balance to improve your credit score.

The CFPB also reports that some private loan processors have poor accounting practices, slow payment processing and issues with account transfers. If any of this sloppiness costs you extra money, you may have a claim for damages.  You can also file a complaint with the CFPB ombudsman.

So, if your student loans are private, it makes sense to read your statements carefully. If you suspect that your servicer’s sloppy accounting is costing you money, a law firm like mine may be able to help.

  1. According to the U.S. Department of Education, the projected amount of outstanding federally issued or guaranteed student loans for Fiscal Year 2011 is  $745.5 billion.   About 8% of outstanding federal student loans are currently in default.
  2. Read more about the borrowing amount caps here.
Jonathan Ginsberg

Jonathan Ginsberg

Attorney at Law at Ginsberg Law Offices
Jonathan Ginsberg has served the Atlanta area community as a personal bankruptcy and student loan debt management lawyer for over 25 years. Contact Jonathan for straight answers to difficult debt problems.
Jonathan Ginsberg
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Jonathan Ginsberg

Jonathan Ginsberg has served the Atlanta area community as a personal bankruptcy and student loan debt management lawyer for over 25 years. Contact Jonathan for straight answers to difficult debt problems.

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