Student loan servicers are pulling incorrect payments from borrowers' bank accounts But a new report shows the decision can backfire
Lenders often encourage federal student loan borrowers to sign up for automatic payments
Lenders often encourage federal student loan borrowers to enroll in automatic payments. It can seem like a good idea to do so: Borrowers don't need to worry about missing a payment and often get a slightly lower interest rate in exchange.
However, the decision can backfire in a lending space plagued by consumer abuses, according to a new report by the Consumer Financial Protection Bureau.
"Unfortunately, autopay errors were one of the most widespread, basic and consequential servicer errors we saw this year," CFPB Student Loan Ombudsman Julia Barnard told CNBC. "These errors are incredibly costly and completely unacceptable."
In some cases, borrowers had money pulled from their bank accounts despite never consenting to autopay, Barnard said. Other autopay users saw incorrect amounts taken or were charged multiple times in the same month.
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CNBC wrote last year about a woman who was supposed to have a $0 monthly student loan payment under the plan she was enrolled in, but was charged $2,074 one month. After that unexpected debit, she worried she wouldn't be able to pay her mortgage.
In March, one borrower told the CFPB that their student loan servicer took $6,897 from their account when they only owed $1,048.
"Borrowers have told the CFPB that these errors have made it hard or impossible for them to cover basic needs like food, medical care and rent," Barnard said.
What borrowers can do about autopay errors
Despite the issues some student loan borrowers experience, higher education expert Mark Kantrowitz recommends that people remain enrolled in the automatic payments.
After all, it's one of the only ways to get an interest rate discount, he said. The savings is typically 0.25%.
In addition, he said, "they are less likely to be late with a payment."
But some borrowers on a tight budget may prefer to forgo those benefits to make sure they're not overcharged, experts said.
There are steps you can take to protect yourself from incorrect billing, Kantrowitz said.
You can set up an alert with your bank and get notified whenever a debit occurs over a certain amount. If you set that amount a little under what your student loan bill should be, you can use that alert to check that the debit was correct each month and also have a record of your payment history, which can be especially helpful to those working toward loan forgiveness, Kantrowitz said.
If your loan service takes the wrong amount from your bank account, you should immediately contact the servicer and demand a refund, Kantrowitz said. You should also ask your servicer to cover any late fees from bounced checks or an overdraft, he said.
Unfortunately, Barnard says, the CFPB has heard from borrowers who weren't able to get a timely refund.
"We've seen instances where borrowers have waited months or even years to receive a refund related to autopay errors," she said.
As a result, she also suggests borrowers reach out to their bank about the incorrect payment.
"The borrowers' financial institution may be able to quickly resolve errors in autopay amounts," she said, so long as the borrower notifies them within 10 business days of the amount being debited.
If you run into a wall with your servicer, you can file a complaint with the Education Department's feedback system at Studentaid.gov/feedback. Problems can also be reported to the Federal Student Aid's Ombudsman, Kantrowitz said.
This story originally appeared on: CNBC - Author:Annie Nova
