The Student Loan Servicing Crisis
The student loan system in the United States is broken, and millions of borrowers are paying the price. Federal and private student loan servicers are responsible for managing the repayment process for over 40 million Americans, and the track record of these companies is deeply troubling. Misapplied payments, incorrect interest calculations, lost paperwork for income-driven repayment recertification, and wrongful default declarations have become systemic problems rather than isolated mistakes.
The Consumer Financial Protection Bureau has taken enforcement action against several of the largest student loan servicers in the country, including Navient, MOHELA, and others, for widespread violations of federal consumer protection law. These actions have revealed patterns of conduct that harmed borrowers on a massive scale: steering borrowers into costly forbearance instead of affordable repayment plans, failing to process income-driven repayment applications in a timely manner, and providing inaccurate information about borrower eligibility for loan forgiveness programs.
But enforcement actions by federal agencies only address part of the problem. Individual borrowers who have been harmed by servicer misconduct have their own legal rights under federal and state law. The Fair Credit Reporting Act, the Fair Debt Collection Practices Act, the Telephone Consumer Protection Act, and New York's consumer protection statutes all provide mechanisms for borrowers to hold servicers and collectors accountable. These are not abstract legal theories. They are the same statutes that Rausa Russo Law litigates under every day in our consumer protection practice.
Common Student Loan Servicer Violations
Student loan servicer violations take many forms, but certain patterns appear again and again across servicers. Understanding these common violations is the first step toward recognizing when your rights have been violated.
- Payment misapplication: Servicers are required to apply your payments according to specific rules and according to your instructions. When payments are applied to the wrong loan, to fees before principal, or in a manner inconsistent with your payment plan, the resulting errors can extend your repayment timeline, increase the total interest you pay, and cause your account to appear delinquent when it is not.
- Failure to process IDR applications: Income-driven repayment plans are a critical lifeline for borrowers who cannot afford standard payments. Servicers have a legal obligation to process IDR applications and annual recertifications in a timely and accurate manner. When they lose paperwork, fail to process applications before deadlines, or calculate payments incorrectly, borrowers can face payment shock, capitalized interest, and unnecessary financial hardship.
- Incorrect payment counts for PSLF: The Public Service Loan Forgiveness program requires 120 qualifying payments. Servicers have been documented miscounting qualifying payments, failing to track payments accurately during servicer transfers, and providing incorrect information about which payments qualify. These errors can delay forgiveness by months or years.
- Failure to provide required disclosures: Federal regulations require servicers to provide specific information to borrowers, including details about available repayment options, the consequences of forbearance, and the terms of their loans. When servicers fail to provide these disclosures, borrowers cannot make informed decisions about their repayment strategy.
- Improper default declarations: Declaring a borrower in default when they are not, or failing to properly account for deferments and forbearances, can trigger devastating consequences including wage garnishment, tax refund seizure, and severe credit damage. Wrongful default is one of the most harmful servicer errors a borrower can experience.
- Illegal collection practices on defaulted loans: Once a federal student loan goes into default and is sent to a collection agency, the FDCPA applies. Collectors who misrepresent the amount owed, threaten actions they cannot legally take, or engage in harassing conduct are violating federal law.
- Inaccurate credit bureau reporting: Servicers are required under the FCRA to report accurate information to the credit bureaus. Reporting a loan as delinquent during an approved forbearance, showing an incorrect balance, or failing to update the status of a discharged loan are all violations that can destroy a borrower's credit score and their ability to obtain housing, employment, and other credit.
Your Rights Under Federal Law
Borrowers are not without recourse when student loan servicers violate the law. Several federal statutes provide specific protections and remedies, and these are the same statutes that form the core of our litigation practice at Rausa Russo Law.
The Fair Credit Reporting Act 15 U.S.C. § 1681 requires that information reported to credit bureaus about your student loans must be accurate. When you dispute inaccurate information, both the credit bureau and the servicer (as the furnisher of information) have legal obligations to investigate and correct errors. If they fail to do so, you may be entitled to statutory damages, actual damages, and attorney's fees. Credit reporting errors are one of the most common and most actionable student loan violations we see.
The Fair Debt Collection Practices Act 15 U.S.C. § 1692 applies to third-party debt collectors who are collecting on defaulted student loans. This includes collection agencies hired by the Department of Education, as well as private collectors. The FDCPA prohibits harassment, false representations, and unfair practices, and it provides for statutory damages of up to $1,000 per case, plus actual damages and attorney's fees.
The Telephone Consumer Protection Act 47 U.S.C. § 227 restricts the use of autodialed calls and prerecorded messages to your cell phone. Student loan servicers and collectors who use robocalls or automated text messages to contact you without proper consent may be liable for $500 to $1,500 per call or message. Given the volume of calls that some collectors make, TCPA damages can be substantial.
The Higher Education Act and its implementing regulations impose specific requirements on federal student loan servicers, including obligations related to income-driven repayment processing, borrower communications, and account management. The CFPB has authority to supervise and take enforcement action against large student loan servicers under its general consumer protection mandate.
At the state level, New York General Business Law Sections 349 and 350 NY GBL §§ 349-350 prohibit deceptive acts and practices and false advertising in the conduct of any business, trade, or commerce. These statutes apply to student loan servicers operating in New York and provide borrowers with a private right of action. When a servicer engages in deceptive practices, such as misrepresenting the terms of repayment plans, providing misleading information about forgiveness eligibility, or failing to disclose the consequences of forbearance, New York's UDAP statutes offer an additional avenue for relief.
Credit Reporting Errors on Student Loans
Credit reporting errors involving student loans are among the most common issues we encounter in our consumer protection practice. Because each individual loan may be reported as a separate tradeline on your credit report, a single servicer error can produce multiple inaccuracies across all three major credit bureaus, compounding the damage to your credit score.
The most frequent credit reporting problems with student loans include:
- Delinquency reported during forbearance or deferment: If your loans are in an approved forbearance or deferment, they should not be reported as past due. Servicers that continue to report missed payments during these periods are furnishing inaccurate information in violation of the FCRA.
- Discharged loans still showing balances: When student loans are discharged through bankruptcy, borrower defense, total and permanent disability, or closed school discharge, the balance should be reported as zero. Loans that continue to show outstanding balances after discharge cause ongoing credit damage.
- Incorrect payment history after servicer transfers: When your loans are transferred from one servicer to another, the payment history must be accurately carried over. Transfers are a notorious source of errors, with payments being lost, accounts being duplicated, and payment histories being reported incorrectly by the new servicer.
- Duplicate accounts: Servicer transfers and consolidations sometimes result in the same loan appearing multiple times on your credit report, inflating your reported debt and lowering your credit score.
These errors tie directly to the core of our FCRA practice. The process for challenging inaccurate credit reporting on student loans follows the same framework as any other credit reporting dispute: you dispute the inaccuracy with the credit bureau, the bureau forwards the dispute to the furnisher, and both parties have a legal obligation to conduct a reasonable investigation. When they fail to correct verified inaccuracies, you have a right to bring a claim under the FCRA.
Income-Driven Repayment and PSLF Issues
Income-driven repayment plans, including Income-Based Repayment (IBR), Pay As You Earn (PAYE), Revised Pay As You Earn (REPAYE), and the SAVE plan, are designed to make student loan payments affordable based on a borrower's income and family size. These plans are not optional extras. For millions of borrowers, they are the only way to manage student loan debt without defaulting.
Servicer failures in administering IDR plans cause real financial harm. Common problems include losing or failing to process IDR applications and recertifications, calculating monthly payments based on incorrect income information, failing to notify borrowers of upcoming recertification deadlines, and placing borrowers in forbearance instead of processing their IDR applications. When a recertification is not processed on time, borrowers can see their monthly payment jump from an affordable amount to the full standard repayment amount overnight, with accrued interest capitalizing and increasing the total balance owed.
Public Service Loan Forgiveness adds another layer of complexity. PSLF requires borrowers to make 120 qualifying monthly payments while working full-time for a qualifying employer. The program has been plagued by servicer errors from its inception. Borrowers have been told they were on track for forgiveness only to discover, years later, that their payments were not being counted because they were on the wrong repayment plan, their employer certification was processed incorrectly, or their payment history was lost during a servicer transfer.
The SAVE plan, which was introduced as a replacement for the REPAYE plan, has been the subject of ongoing federal litigation that has created additional uncertainty for borrowers. Court injunctions have affected the implementation of the plan, leaving borrowers in limbo regarding their repayment obligations and forgiveness timelines. Servicer handling of accounts during this litigation has generated its own set of problems, including improper account status changes and inaccurate communications to borrowers.
Borrower Defense to Repayment
Borrower defense to repayment is a federal regulation that allows borrowers to seek discharge of their federal student loans if the school they attended engaged in certain acts or omissions. This includes fraud, misrepresentation of job placement rates, misrepresentation of the transferability of credits, misleading claims about program accreditation, and other deceptive practices.
The borrower defense regulations have been revised multiple times over the past decade, and the applicable standard depends on when the borrower took out the loans. The Department of Education processes borrower defense claims, but the process has been slow and inconsistent, leaving many borrowers waiting years for a determination while their loans continue to accrue interest.
This area of student loan law connects directly to our work on deceptive business practices. The underlying claims in a borrower defense application are fundamentally consumer protection claims: a business made false representations to induce a consumer to enter into a financial transaction. Borrowers who attended schools that engaged in fraud may also have claims under state consumer protection statutes, including New York GBL 349 and 350, against the institutions themselves.
We help borrowers understand their options for borrower defense claims, prepare documentation supporting their applications, and pursue related claims against institutions and servicers that have violated their rights during the process.
Why Choose Rausa Russo Law
Student loan disputes are not a niche specialty that requires a different kind of lawyer. They are consumer protection cases that happen to involve student loans. The servicer that misapplied your payment is violating the same types of laws as the debt collector who harassed you about a medical bill or the credit bureau that refused to fix an error on your report. The legal frameworks are the same. The enforcement mechanisms are the same. The statutes are the same.
At Rausa Russo Law, we litigate under the exact federal and state statutes that protect student loan borrowers. The FCRA, FDCPA, TCPA, and NY GBL 349/350 are not unfamiliar territory for us. They are the foundation of our practice. When we take on a student loan case, we bring the same litigation experience, the same knowledge of these statutes, and the same commitment to holding companies accountable that we bring to every consumer protection matter we handle.
This matters because many attorneys who advertise student loan services focus solely on administrative processes like consolidation, IDR enrollment, or borrower defense applications. Those processes are important, but they do not address the full scope of a borrower's rights. When a servicer has violated the FCRA by furnishing inaccurate credit information, or when a collector has violated the FDCPA through illegal collection tactics, administrative processes are not enough. You need attorneys who know how to litigate these claims in federal court, and that is what we do.
Student loan servicers are required to follow the same consumer protection laws as any other financial institution. When they mishandle your account, misreport to credit bureaus, or use illegal collection tactics, you have legal remedies.