Home > Student Loans > How One Woman’s Student Loan Payment Jumped From $200 to $1,400

Comments 0 Comments

There are many reasons a monthly student loan payment might increase — but from $200 to $1,400 in a single month? That seems like cruel and unusual punishment — but that’s exactly what one consumer told federal regulators happened because of a paperwork delay.

The 600% jump sounds hard to believe, but the complaint was recently cited by the Consumer Financial Protection Bureau in a warning it issued about a particularly sinister form of what it calls “payment shock.” Ironically, it comes as the result of a program designed to make student loan repayment more affordable.

A new student loan program that began in 2012 allows low-income borrowers to apply for income-based repayment plans. These plans cap monthly payments at a percentage of the borrowers’ income, ensuring they have money left over each month for basic necessities. So long as borrowers remain in good standing, unpaid interest doesn’t end up added to the loan balance, and payments are capped at 25 or 30 years, depending on the specific program.

But to make sure borrowers’ financial situation doesn’t change, each income-based repayment plan must be recertified annually — and that’s where the trouble is. If the paperwork isn’t completed on time, the payments snap back to their original amount.

In a blog post discussing the problem, Seth Frotman of the CFPB wrote that a remarkable 57% of borrowers in a Department of Education sample missed their paperwork deadlines. Making matters worse, since loan payments are usually auto-deducted from borrowers’ checking accounts, former students hit by snapped-back payments are often unaware of the situation until there’s a gaping hole in their checking account balance, which often leads to a cascade of financial problems, including potential credit damage. (You can see how your student loans are affecting your credit scores for free on Credit.com.)

“When borrowers don’t recertify on time, their payments will snap back to the amount they would have owed under a standard 10-year repayment plan — a jump of hundreds of dollars per month, in many cases. This can be a shock to those already struggling to make these payments,” he wrote.

Why Are Deadlines Missed?

Whose fault is it when the paperwork isn’t completed on time? The CFPB has heard from consumers saying their financial institution was to blame, Frotman said.

“We’ve … heard about detours and dead ends that prevent you from keeping your payments affordable under these plans, even when you’ve filled out the required paperwork,” he wrote.

Credit.com was unable to contact the woman who complained her payments snapped from $200 to $1,400, and could not independently confirm the details of her situation, but here is what she told the CFPB. She blamed her loan servicer Navient for the screw-up:

I submitted the required documentation for the 2015 IBR repayment plan 8 weeks before the expiration of my previous IBR application, and within the time period Navient indicated. Due to Navient’s delays, my IBR application was not processed timely,” she wrote. “While waiting for them to process my application, monthly payment jumped from approximately $200 a month to $1400 a month, causing me to go into overdraft on my checking account. Navient failed to process my application timely even though my application was complete and no documentation was missing, and failed to communicate the huge increase in payment.

Nikki Lavoie, Navient spokeswoman, declined to comment about this specific complaint filed with the CFPB, but she did say that Navient strives to process renewals quickly.

“The standard is within 15 days but it is often sooner than that — to ensure that customers receive their renewal before their deadline,” Lavoie said. “We prioritize renewal recertifications nearing a deadline to help ensure a borrower’s payment doesn’t increase.”

Navient disclosed in an August filing with the Securities and Exchange Commission that is currently under investigation from the CFPB. The filing says Navient was notified by the CFPB that the agency’s office of enforcement is “considering recommending” legal action related to “disclosures and assessment of late fees and other matters.”

“The Company is committed to resolving any potential concerns,” the filing, dated Aug. 19, says.

The recertification problem is widespread, and not limited to any one loan servicer. According to Department of Education research, hundreds of thousands of students failed to recertify on time last year. Even worse, nearly one-third of that group ended up going into a hardship-related deferment or forbearance.

For students currently enjoying the protection of reduced monthly payments, the CFPB warns that it’s critical to make sure recertification is completed in a timely fashion. Failing to do so not only results in payment shock, but it can also impact accumulated interest waivers and the 25-year maximum payment clock.

The CFPB is currently reviewing comments about issuers with student loan servicers, and says it will issue a report about next steps in the coming months.

More on Student Loans:

Image: iStock

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Credit.com receives compensation for the financial products and services advertised on this site if our users apply for and sign up for any of them.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team