What Is A Student Loan Servicer?
When you take out a student loan, the money is backed by the federal government and comes from a bank. The entity that actually lends the money is called the “originator” of the loan. A loan originator often doesn’t want the hassle of tracking and collecting your payments. Instead, it will hire a third party loan servicer to manage your account.
In addition to sending bills and collecting payments, loan servicers also handle other aspects of the student loan process. For example, the loan servicer is responsible for determining how much you owe each month and for enrolling you in various student loan repayment programs. In other words, the servicer is far more than a go-between to connect you and the originator. It has control over most aspects of your debt.
CFPB Report On Loan Servicer Errors
Student loan servicers have been subject to increased scrutiny lately in an attempt to ease the burden of student debt and help troubled borrowers. After thousands of complaints about student loan debt servicing practices, the CFPB opened an inquiry into the issue in May. At the end of September, the Bureau published its Student Loan Servicing Report. The report highlights how illegal and poorly-designed collection practices contribute to the difficulty of repaying student loans. Many borrowers complained that their debt servicers failed to respond to their inquiries and requests and made repayment more complicated and difficult. The report also disclosed errors on thousands of accounts.
Student loan accounts are particularly vulnerable to errors when they’re transferred between loan servicers, which happens regularly. In its report, the CFPB noted one instance in which more than 2 million accounts were transferred, after which 500,000 were found to have errors.
One student loan servicer in particular is now under investigation by the CFPB – Xerox Education Services.
Xerox’s Student Loan Business
When you think of Xerox, you probably think of printing and copy stores. You may know that they provide software and IT services to businesses as well. Since 2009, however, they’ve also been involved in student loan servicing. That year, Xerox acquired ACS Education Services, a student loan servicer. It now does business as Xerox Education Services.
Xerox Education Services specializes in loans made through the Federal Family Education Loan (FFEL) program, including PLUS and Stafford loans. These programs no longer exist for new borrowers, but many old borrowers are still repaying FFEL loans. In addition to its FFEL loans, Xerox had a contract with the Department of Education to manage more than $140 billion in other student loans until 2013 – this contract was reportedly not renewed due to accounts being “improperly handled” by Xerox. It currently services $30 billion in student debt.
The Xerox Investigation
In 2014, Xerox disclosed to the government that it had found errors in its student loan accounts dating back to 2006 – this was the first time the errors were revealed. These errors included overcharging borrowers and failing to give credit for payments that were made. As a result of this admission and the findings in its Student Loan Servicing Report, the CFPB has opened an investigation into Xerox Education Services and is working with the company to create a remediation plan.
This investigation doesn’t just affect Xerox – it also affects the originators of the loans. When banks use loan servicers, they are still liable for the servicer’s actions and may face fines and other penalties. Xerox’s loan portfolio came mostly from Wells Fargo and Chase. Chase disclosed the investigation into Xerox’s practices in its quarterly report and the Wall Street Journal reports that Wells Fargo is also under investigation.
What Does This Mean For Borrowers?
If your loan is serviced by Xerox, it may mean that your account has been mishandled or contains errors. Xerox plans to alert all affected borrowers as soon as possible in order to rectify the mistakes. That may mean refunding money if you were overcharged or changing the status of your account if you were placed into default by mistake. It is not yet clear how widespread the problem is or how many accounts are affected.
Even if you have a different loan servicer, there may be errors on your account. The CFPB report focused on the loan servicing industry as a whole and revealed issues with many servicers. That means there may be more investigations and more remediation on the way as the CFPB investigates the problems it outlined in its report.
Finally, account errors aren’t the only problem reported by the CFPB. Loan servicers are also using illegal and aggressive tactics to force borrowers into making payments. Those tactics may push borrowers into default or pressure them into making bad financial decisions. It remains to be seen what, if any, compensation will be available to the victims of illegal collection practices.
The CFPB report is a good thing for borrowers – it highlights abuses in the industry and is a step toward making the whole loan servicing process more fair and transparent. Unfortunately, that’s small comfort for those who have been affected by illegal or sloppy practices.
Is Your Account Affected?
Whether you’ve received formal notice from your loan servicer or not, you should take action as soon as possible to ensure that your account is free of errors. The best thing you can do is be proactive about your account. Check it regularly for inaccuracies and to ensure that you receive credit for any payments you make. If you believe there is a problem with your account, contact your loan servicer immediately to address the issue. If you wait too long, your account may fall into default. That can happen even if the mistake isn’t your fault and can cause long-term problems.
Once your account is accurate, you’ll have to follow up with the credit bureaus to ensure that inaccurate information is not unfairly hurting your credit score. While you can and should ask your loan servicer to report the corrected information to the credit bureaus, that often isn’t enough. You’ll need to check in with the bureaus regularly to ensure that your credit report is updated with the correct information.
As mentioned above, account errors are not the only concern. If you believe you’ve been the victim of illegal collection practices, you should contact an attorney as soon as possible to learn about your rights and options. You may be entitled to compensation.
We Can Help
Unfortunately, overcharging borrowers and wrongfully reporting their accounts as unpaid can have serious financial consequences. Paying back student loans is hard enough – more than 1 in 4 borrowers are struggling to make their payments. In combination with illegal loan servicing practices, that can make it nearly impossible to make your payments.
If you’re worried about your student loan debt or your servicer has used illegal collection practices, we can help. Contact us today for a free consultation to learn more about how we can help you with your student loans and other debts and about the laws that protect you from debt collectors.