By Willy Staley  Updated on Tue Apr 24, 2012

Here’s Why Your Student Loans are Messed Up

 
Heres Why Your Student Loans are Messed Up

Erik Abderhalden / Flickr source

ProPublica reports that, as millions of federal student loans migrate to new non-profit servicers, many students have experienced disruptions in their loan payments. Some have seen their payments go up without explanation, hurting their monthly budget, while other have seen their payments drop, leaving them on the hook for higher interest payments down the road. It appears that not only are these new non-profit servicers prone to error, they’re frustratingly opaque. Not only can borrowers not figure out what’s going on, none of the servicers offered any real explanation to ProPublica as to what is going on.

The reason that millions of student loans are migrating to new non-profit servicers is because of a provision of the Health Care and Education Reconciliation Act of 2010, which “shifted the government away from backing loans by private lenders…and toward loaning directly to students.” According to ProPublica, “the nonprofit student loan companies won a carve-out to ensure they’d get in on the business of servicing the direct federal loans.” This has led to some hiccups.

Borrower Karen Mahnk said she logged into the Department of Education’s student loan website in October and saw that her loan balance — which typically hovered around $100,000 — was suddenly zero. When she called around, her servicer told her that she had been put in an administrative forbearance. That didn’t sit well with Mahnk, who said she didn’t want to put off her payments and certainly didn’t want to rack up additional interest. She said she called again and talked to someone else, who assured her the opposite — there was no record of forbearance.

And so she has been forcing through payments, although her servicer is not asking for them. That must have been quite a disappointment, too see one’s unmanageable debt wiped away momentarily due to a clerical or computer error, and then find out that, not only is it not gone, but also your servicer is going to be making your life more difficult. Millions more loans will be making this migration in the coming months. The next one could be yours.

Read the full story at ProPublica.

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