As over 1.8 million new grads prepare to join the 40-plus million Americans struggling to repay student loan debt, the Department of Education encourages borrowers to contact their loan servicers to begin or change their repayment plans. Yet, while borrowing for college should be one of the best investments you’ll make, for many Americans, paying off those student loans is a real challenge…and loan servicer tricks have too often turned a tough situation into a monumental roadblock to financial success.

Five firms recently lost their contracts with the Department of Education for misleading clients and using unethical and/or illegal behavior to collect on debt. Yet the problems persist. The Consumer Financial Protection Bureau (CFPB) now warns student loan borrowers to beware of these risky practices and financial traps used by loan servicers:

• Misleading consumers about bankruptcy protections — Servicers tell borrowers that student loans are never dischargeable in bankruptcy, clearly a false and deceptive statement. While student loans are more difficult to discharge in bankruptcy than most other types of loans, it is possible if the borrower affirmatively asserts and proves undue hardship in a court.
• Delaying payments — Servicers may take additional days to process payments and charge interest on the
  outstanding principal during that processing time.
• Allocating payments to maximize late fees — If borrowers pay less-than-full payments on multiple loans with one servicer, the payment is allocated proportionally to each loan. This unfair practice results in borrowers being charged a late fee on all of their loans, forcing all to become delinquent.
• Demanding full loan balances upon the death of a co-signer — Many consumers assume that the death of a co-signer — often a parent or grandparent — will result in the release of that person’s obligation to repay. But borrowers have reported that many private student lenders immediately demand the full loan balance upon death of the co-signer.
• Placing loans into “auto-default” when a co-signer declares bankruptcy — Some private student loan lenders may automatically place a loan in default if a co-signer files bankruptcy, regardless of whether the loan is in good standing. They immediately demand payment of the entire debt, furnish negative information to credit bureaus, and refer the account to a debt collector.
• Applying prepayment to make loans more expensive — Consumers often make extra payments
  toward loans with the highest interest rates, but some servicers unjustly apply payments in excess of the
  amount due across all loans, which increases the total interest paid.
• Using hurdles to prevent promised benefits — Lenders offer incentives such as an interest rate or principal reductions to borrowers who enroll in auto-debit programs, but these perks may not be automatic. Lenders often continue to charge the higher interest rates and don’t reduce the principal until the borrower actually asks for these benefits.
• Hitting borrowers with late fees when loans are sold — Payments sent to the previous servicer or those with information containing account information from the old servicers can trigger late payments and additional fees.
• Driving borrowers to default — Private lenders fail to provide concrete loan modification options. Distressed borrowers receive very little information, are charged burdensome enrollment fees, and encounter processing delays which can lead to surprise defaults. If you are having difficulty making your payments or feel you may qualify for a lower payment, here’s a sample letter [DOC] to send to your loan servicer.
• Misrepresenting minimum payments — Servicers may inflate the minimum payment due on periodic
  and online account statements, and may include inflated numbers on amounts that were in deferment (not actually due).
• Charging illegal late fees — Borrowers are unfairly charged late fees when payments were received during the grace period or still in deferment, both of which are prohibited practices.
• Failing to provide accurate tax information — Student loan servicers fail to give consumers access to tax information, resulting in the loss of a tax write-off of up to $2,500 in student loan interest.
• Making illegal debt collection calls to consumers at inappropriate times — Examiners identified one loan servicer who made more than 5,000 calls at inconvenient times during a 45-day period, which included 48 calls made to one consumer, a direct violation of these borrowers’ rights.
• Employing uninformed servicers — Often, agents and other personnel are not adequately trained to provide assistance, are not aware of resources available to borrowers in distress, are not responsive, or are not empowered to provide help.
• Creating roadblocks for military personnel — Loan servicers may be creating barriers for military servicemembers seeking the protections granted to them under the Servicemembers Civil Relief Act (SCRA). These hurdles include imposing extra paperwork and withholding criticalinformation about benefits.

If you have been a victim of any of these unfair and deceptive practices, report them to a loan services manager. Let them know you will be reporting their sneaky tactics to the CFPB at CFPB: Complaints or by calling 1.855.411.2372. The CFPB will then work with your lender or servicer to obtain a resolution. While the CFPB can’t make your debt disappear, a call from them will certainly grab a lender’s attention and prompt a response.