Newspaper article Charleston Gazette Mail

How College Loans Firms Avoid Your Extra Principal Payments

Newspaper article Charleston Gazette Mail

How College Loans Firms Avoid Your Extra Principal Payments

Article excerpt

You're throwing as much money as you can scrape together at your student loans, sending in a few extra dollars on top of the automatic withdrawals to pay down the debt a little faster. But a month later, you log into your account only to find that those additional payments made no difference toward your principal balance.

What gives?

It turns out that the company handling your loans actually lowered the next month's amount due - without telling you - and extended your repayment period, applying the extra money you sent in toward future payments instead of paying down the principal immediately.

This sort of mishap is becoming a common complaint among student loan borrowers, according to the Consumer Financial Protection Bureau (CFPB).

The bureau is concerned that student loan servicers, the middlemen who collect and apply payments, are making it difficult for people to get rid of their debt.

"There's been a strong focus on servicing breakdowns impacting struggling borrowers and failing consumers seeking to access affordable repayment plans, CFPB student loan ombudsman Seth Frotman said. "We are seeing that problematic practices are more far- reaching and impacting consumers across the board.

Servicers can reset loan repayment schedules and cause a borrower's monthly payment to rise or fall, a practice known as redisclosure of repayment terms. This can happen when loans are transferred from one servicer to another, or when the company makes changes to its computer systems. More than 10 million student loan borrowers have had their accounts moved from one company to another since 2013, according to the CFPB.

"In the past decade, student loan debt has ballooned into a $1.3 trillion crisis, said Frotman, who wrote a blog on the subject Monday. "At the same time, companies have legacy infrastructure and servicing systems that may not have been updated or evaluated with the necessary consumer focus. …

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