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Student Loan Servicer Fraud

The Consumer Financial Protection Bureau (CFPB) released a report detailing how companies servicing student loans and mortgages engaged in fraudulent and illegal practices by tricking their consumers into paying higher fees, inflating minimum payments due, making illegal debt collection calls, or charging unlawful late fees. Other illegal activities included misrepresenting information on borrowers' online statements or failing to provide accurate record information for borrower's tax purposes.

Generally, student loan borrowers can deduct up to $2,500 from their tax filings if they provide proper and adequate proof that the funds went towards higher education. The CFPB's found that some servicers required borrowers to provide additional documentation that was both unnecessary and ultimately impeded borrowers from receiving tax benefits. Such actions have produced dire consequences for borrowers who lost up to $2,500 in tax deductions.

It is common practice for a borrower's account to include different and separate types of student loans. Servicers are required to sort through them on a monthly basis so that the payment on each type of loan is satisfied. The CFPB have found that servicers were lazy in performing this task, and they allocated payments evenly across all loans. For some borrowers, these servicers' sloppy and irresponsible mistakes meant that none of their loans' minimum payment amounts were being met. Not meeting minimum payments caused not only hefty late fees, but also delinquency for the borrowers. Moreover, some servicers included interest that had accrued on deferred loans in the minimum payment amount, which caused borrowers to pay more than they should.

The CFPB urges borrowers to constantly check and be updated on their account statuses so that they can monitor abuse and the mishandling of their loan payments. As a borrower, you have the right to ask your servicer for loan statements showing your entire history of payments. It is important to keep copies of those statements and generally any piece of communication with your loan servicer. You should also contact them if you have any questions or issues. It is always best to address them before you incur any sort of fee. If you do find that your loan servicers are mishandling your loan payments or account, and you cannot resolve the issue through negotiation, you can file a complaint with CFPB.

Sources:

http://www.reuters.com/article/2014/10/28/us-usa-financial-regulation-cfpb-idUSKBN0IH24E20141028

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