Lawsuit: US Department Of Education Overcharging On Student Loans?

Has the US Department of Education been unfairly overcharging millions of Americans despite “repeated warnings that it was breaking the law?” According to a lawsuit filed yesterday, the Department of Education may have some explaining to do. From the Washington Post:

A computer glitch apparently caused more than 3 million student loan borrowers to be billed hundreds of millions of dollars more than they owed, said lawyers who brought the class-action suit. It’s unclear how much individuals were overcharged.

The problem is so complex it took the plaintiff in the lawsuit over a year to figure out what was going on.

The suit, filed in U.S. District Court in Washington, says a complex billing problem affected Americans with consolidated loans that totaled more than $72 billion. The suit says the department essentially imposed late fees on borrowers even though their payments were made on time.

Pfeiffer, a former high school math teacher, said the problem is so complex that it took her more than 1 1/2 years to figure out what was going on.

Pfeiffer graduated from chiropractic school in 1994 with more than $90,000 in debt. In 1997, she consolidated multiple loans under a plan that required her to make payments by the 21st of every month.

The Education Department penalizes consolidated loan borrowers who fail to make all of their annual payments by June 30 by adding penalties to the principal of their loans, on which they then have to pay extra interest.

Pfeiffer discovered that she was being fined unfairly, her lawsuit says. She made her June payments on time and sometimes early. But the department was penalizing her for not making a separate payment for the days between her June payment and June 30, the suit says, even though her next wasn’t due until July 21. The penalties were then capitalized — or added to the principal of her loan.

In 2002, for example, $368.76 was unfairly capitalized because of the accounting glitch, the suit says. Over the past five years, more than $1,000 was incorrectly charged to her. If the problem is not resolved, she will have to pay interest on that sum over the life of the loan.

Pfeiffer said she notified officials about the overbilling mistake at least 15 times over the phone and in writing. “Most of the time I was told that, yes, we realize that this isn’t right, but that’s the way the system is,” she said.

Let’s hope this lawsuit will motivate the Department of Education to fix the glich…—MEGHANN MARCO

Lawsuit Says Education Dept. Overcharged on Student Loans [Washington Post]

Comments

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  1. gorckat says:

    Does this affect people whose loans are in deferment?

  2. joey_bones says:

    @gorckat: I would imagine that it depends on whether or not they get (forced to get) their act together before said deferment period runs out. If it really is just a “computer glitch” (the blanket explanation for a problem that affects more than a few people) than, in theory, a change to their software could correct the mistakes and prevent future issues. But that’s only in theory – we all know how the government works ;)

  3. Coder4Life says:

    Sounds like the telecommunication companies..

    “It is a mistake, but we can’t do anything”….

  4. Marce says:

    For those who are understandably nervous to hear this, a good place to watch your student loans (deferred for sure, probably during repayment too) is the National Student Loan Data System (nslds.ed.gov). A user needs their social security number, date of birth, first two letters of their last name, and FAFSA PIN to log in and view loan and Pell grant information. (To get a FAFSA PIN, go to pin.ed.gov.)

  5. Bourque77 says:

    Am I alone in thinking they were so lazy to respond because its student loans? Students dont typically have the money to fight and sue in court so who knows how long they have been doing this.

  6. mad_oak says:

    I point everyone’s attention to a previous post on the Consumerist and a website FILLED with horror stories of the abuses of the legislatively protected student loan industry.

    http://consumerist.com/consumer/lending/help-sallie-mae-is

    http://www.studentloanjustice.org/pac.htm

  7. loveshinesthru says:

    my orig 4k loan is now up to 9-10k.

  8. lrwalke says:

    How would you find out if you were ripped off by the US Department of Education?