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]

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