Borrowers of federal student loans are frequently encouraged by lenders to sign up for automatic payments. Doing so may seem like a smart idea because borrowers often receive a little cheaper interest rate in exchange and don’t have to worry about skipping payments.
However, a recent report from the Consumer Financial Protection Bureau suggests that the choice may backfire in a lending market beset by consumer abuses.
Unfortunately, CFPB Student Loan Ombudsman Julia Barnard told CNBC that autopay problems were among the most common, fundamental, and significant servicer issues that we observed this year. These mistakes are totally unacceptable and quite expensive.
According to Barnard, there have been instances where borrowers have had funds taken out of their bank accounts even though they never agreed to autopay. Other autopay users were charged more than once in a single month or saw inaccurate amounts deducted.
Last year, CNBC reported on a lady who was charged $2,074 per month for student loans, even though her plan called for a monthly payment of zero dollars. She was concerned that she wouldn’t be able to pay her mortgage after that sudden debit.
One borrower reported to the CFPB in March that, despite only owing $1,048 in student loan debt, their servicer had deducted $6,897 from their account.
According to Barnard, borrowers have informed the CFPB that these mistakes have made it difficult or impossible for them to pay for necessities like food, healthcare, and housing.
What borrowers can do about autopay errors
Higher education expert Mark Kantrowitz advises consumers to continue making automatic payments on their student loans despite the problems some borrowers face.
“It’s one of the only ways to get a discount on interest rates,” he said. Usually, the savings amount to 0.25%.
They are also less likely to be late with payments, he added.
However, some low-income borrowers might choose to skip those perks to avoid being overcharged, according to experts.
According to Kantrowitz, there are precautions you can take to guard against inaccurate billing.
To be informed anytime a debit exceeds a specific amount, you can set up an alert with your bank. You may use that alert to verify that the debit was made correctly each month and to keep track of your payment history, which can be particularly useful for individuals pursuing loan forgiveness, if you put that amount slightly below what your student loan bill should be, according to Kantrowitz.
According to Kantrowitz, you should get in touch with your loan service provider right away and request a refund if they deduct the incorrect amount from your bank account. Additionally, he advised you to ask your servicer to pay for any late costs resulting from overdrafts or failed checks.
Regretfully, borrowers who were unable to receive a prompt return have complained to the CFPB, according to Barnard.
According to her, there have been cases where borrowers have had to wait months or even years to get their money back because of autopay mistakes.
She advises debtors to contact their bank regarding the erroneous payment as a result.
If the borrower contacts the borrower within 10 business days of the amount being deducted, the borrower’s bank institution may be able to promptly correct errors in autopay amounts, she said.
You can use the Education Department’s feedback system at Studentaid.gov/feedback to lodge a complaint if you encounter difficulties with your service provider. The Federal Student Aid Ombudsman is another person to whom issues can be reported. “Kantrowitz said.”
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