The Consumer Financial Protection Bureau on Monday issued a warning to consumers to pay close attention to their personal information on record with student loan servicers as errors are popping up that can cost borrowers dearly.
Continue Reading Below
About 44 million Americans have student loan debt totaling $1.3 billion.
The watchdog agency said it gets thousands of complaints each year from consumers about issues with student loan servicers, which are the companies they submit payments to each month. But they are increasingly hearing about problems tied to incorrect or incomplete enrollment status information.
Enrollment status tracks whether someone is enrolled in college or university and their expected graduation date. It helps determine when someone must begin repaying their student loans and how interest is calculated. But the CFPB says bad information is costing some borrowers hundreds in additional interest charges, leading to unexpected bills, hurt credit reports and lost eligibility for other benefits.
Students typically are not required to make payments on student loans while they are in school and get a grace period after graduation before repayment is due. But errors in the reporting system — sometimes triggered by a student leaving school temporarily, reducing the number of hours or transferring schools — can create a headache.
Borrowers reported loans going into repayment status before they graduated or interest being accrued too early because of these errors. Others suffered due to a lag time in reporting, which put them behind on payments before they even knew they were due. And borrowers also complain they are unable to get the errors resolved easily.
Continue Reading Below
The CFPB points no fingers in its report but several in the student loan world say it's due to a byzantine system of reporting.
Colleges and universities are required to provide timely, accurate and complete information on enrollment status. This information is sent to a national clearinghouse, known as the National Student Loan Data System, by the school itself or more often by a third-party company. But hiccups arise and data isn't always shared in a timely fashion.
"There are a lot of players and a lot of places for it to fall apart," said Eileen O'Leary, financial aid director at Stonehill College, which has revised its own system after running into issues.
The CFPB doesn't have an exact measure of how many people are affected by enrolment status problems but it has handled over 33,000 complaints related to private and federal student loans since 2012, with 12,000 of these complaints being handled in the last year alone.
And because of the complex system, students who do run into problems often have difficulty finding out where the problem occurred, making it more challenging to fix it.
"It doesn't happen that often but for those to whom it happens it can be really devastating," said Nassirian Barmak, director of federal policy with the American Association of State Colleges and Universities, a nonprofit higher-education organization.
He says that the part of this is due to outdated systems to manage all the data.
"It used to be that student loans were sort of a footnote in the financial lives of American citizens ... now you are dealing with tens of millions of Americans owing $1.3 trillion. It's not small time dollars but the infrastructure supporting it is small time," he said. "It's very vexing when you get caught up in it and cannot correct it.
To avoid problems, the CFPB suggests consumers closely monitor their enrollment status, especially if they've recently left or returned to school. If something doesn't look right, let your servicer know. And if you run into trouble, submit a complaint to the CFPB.