April 25, 2024

Student Loans: 3 Repayment Issues That Could Cost You Money & How to Avoid Them

The resumption of student loans — after a three-year hiatus and following the Supreme Court’s striking down of President Joe Biden’s forgiveness program in June — started in October for millions of borrowers.

Since then, borrowers have been facing several challenges with loan servicers, according to a new Consumer Financial Protection Bureau (CFPB) report.

These include long hold times when trying to reach their student loan servicer, experiencing significant delays in application processing times for income-driven repayment plans, and receiving inaccurate billing statements and disclosures.

“The resumption of student loan payments means that borrowers are making billions of dollars of payments each month,” CFPB director Rohit Chopra said in a press release. “If student loan companies are cutting corners or sidestepping the law, this can pose serious risks to individuals and the economy.”

Long Hold Times and Abandoned Calls

Average call wait times to speak to a live representative have risen from 12 minutes in August 2023 to over 70 minutes in October 2023, according to the report. In turn, half of all calls were abandoned, leaving borrowers unable to fix errors, get answers to questions, or enroll in an affordable repayment plan or cancellation plan.

What can you do: According to Dror Liebenthal, CEO and co-founder of Bold.org, borrowers should be aware that they may run into exceptionally long wait times if trying to call their loan servicer.

“To minimize this effect on you, make sure you start early by using the Federal Student Aid platform to find your loan servicer right away, and create your account with them,” said Liebenthal. “Make sure you’re aware of your loan’s repayment period, and keep in mind that you can contact Federal Student Aid or your school’s financial aid department to find key information about your loan.”

In addition, experts recommend not limiting yourself to one mode of communication.

“Pursue all channels of contact — phone, text, chat, email, registered mail — and keep detailed records of contact and attempted contact should you need them for future reference or to file a complaint,” said Patricia Roberts, chief operating officer at Gift of College.

Delays in Processing Income-Driven Repayment (IDR) Plan Applications

As the report noted, “Timely enrollment in an income-driven repayment plan is a critical protection for borrowers struggling to afford their federal student loan payments.”

For instance, the new Saving on a Valuable Education (SAVE) plan seeks to lower borrowers’ monthly payment amounts by tying payments to income and family size. One characteristic of the SAVE plan is that the interest is subsidized such that, if a borrower makes a full payment that does not cover the accrued interest, then the additional interest is subsidized and the borrower’s loan balance will not grow.

Yet, as of late October, servicers reported more than 1.25 million pending IDR plan applications — with more than 450,000 of those applications pending for more than 30 days with no resolution.

What you can do: Many Americans are relying on forbearance, income-based repayment plans such as SAVE to handle their student loans, per Jenny Groberg — founder of BookSmarts Accounting and Bookkeeping.

Yet, she noted that relying on anyone but yourself to repay your student loans is not a solid game plan for your student loan repayment.

“Since close to 70% of Americans already live paycheck to paycheck, borrowers need to make a budget so they have a plan as to how to make payments on their student loans,” she said. “The way to financial security and freedom is done through budgeting and by eliminating the debt in their lives, including student loans. It’s a painful process, but with focus and diligence, it’s possible to get out of debt and be on the path to financial freedom.”

Other experts echoed the sentiment, saying that dealing with delays in processing applications for student loan services like SAVE is best dealt with by taking proactive steps.

According to Peter Earle, senior research fellow at the American Institute for Economic Research, this entails ensuring all your documentation is complete and organized. Adjusting your financial planning accordingly to accommodate potential delays in loan adjustments or forgiveness.

Inaccurate Billing Information

The report found that many borrowers have received inaccurate loan disclosures or billing statements, which include billing errors and errors related to calculating IDR payment amounts.

In addition, the CFPB noted that one servicer failed to send billing statements to 2.5 million borrowers on time.

“These errors not only cause significant borrower confusion, but they may also cause harm where borrowers pay a wrongly inflated amount or are forced to expend considerable time and resources to fix servicer errors,” according to the report.

What you can do: Carefully review your statement and identify all inaccuracies and document them errors with as much detail as possible, recommended Earle.

“Reach out to your loan servicer as soon as possible and clearly explain the issue and provide evidence to support your claim,” said Earle.

In addition, if your initial contact involves a phone call or online contact, follow up with a formal letter detailing the errors. Include copies of supporting documents with at least one copy of this correspondence for your personal records.

“Finally, request that the loan servicer provide a written response or confirmation that they have received your complaint and are investigating it,” he added.

Earle also said that you should regularly check your account for any updates or changes, as the loan servicer might update your account online before you receive a formal response.

“If the issue isn’t resolved satisfactorily or if you do not receive a response within a reasonable time frame, consider escalating the issue,” he added, noting that this might involve contacting a supervisor at the loan servicing company or filing a complaint with the CFPB.

Additional Steps That Can Help

Omar Ochoa, founder of the Omar Ochoa law firm, said that while it can feel like a black hole sometimes when you’re trying to get through to someone working in student loan borrowing, using as many different contact options as possible is the best thing to do.

“People should not give up hope. If it’s just taking a while for their applications to be processed, The Biden Administration, Congress, Department of Education has all made it very clear that this is a high priority,” said Ochoa. “Borrowers should be patient and continue in the process.”

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