6 Ways Student Loan Servicers Are Trying to Trick You

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More than 40 million Americans who have student loan balances outstanding have to deal with student-loan servicing companies as their primary contact in managing their loans. Unfortunately, some of those servicers are violating laws governing how they treat borrowers, according to the latest report from the Consumer Financial Protection Bureau. The report highlights six common practices that loan servicers have used that don't comply with consumer-protection laws, and those carrying student loan balances should be aware of them to make sure that their servicer doesn't take advantage of them.

1. Watch Out for Late Fees, Especially If You Have Multiple Loans

Borrowers who can't make their monthly payments in full generally have to pay substantial late fees. To minimize those late fees, some borrowers make partial payments on their loans. If you have more than one loan outstanding with the same servicer, it's natural to assume that if you pay enough to cover the minimum payment on one or more of your loans, you'll avoid late fees on those loans even if you end up owing them on the remaining loans.

But some servicing companies take partial payments and divide them evenly across every loan outstanding. That can result in late fees on all of your loans and -- even worse -- can send all of your loans into default and trigger further consequences. According to the CFPB, this practice violates the Dodd-Frank Act, and if you see it happening, calling your servicing company and demanding the correct treatment of your partial payments is entirely warranted.

2. Make Sure Your Minimum Payments Are Right

Most loans have minimum payments that are due. But some servicing companies neglect to notice that some of your loans are still in deferment, and thus miscalculate minimum payments. As a result, your servicer might charge you late fees even if you've paid the proper amount. To catch this, you need to understand the terms of each of your loans, but the CFPB found that these practices were deceptive. If you think a problem has occurred with your loans, contact your servicer first, and if you don't get a good answer, then submitting a complaint with the CFPB could help move the process forward.

3. Don't Let Your Servicer Take Away Your Grace Period

Some loans offer grace periods during which lenders can't charge late fees even after the due date. The CFPB, though, found that servicers sometimes illegally charge late fees even when payments are made during the grace period. If your loan documents say that you're entitled to a grace period, make sure your servicer honors it -- and call your servicer on any improper late fees.

4. Get the Tax Data You Need to Deduct Loan Interest

Many students are entitled to deduct the amount they pay on student loan interest, and loan servicers are required to provide the information returns that you rely on to determine how much interest you've paid in a given tax year. Some servicing companies, though, have made it difficult to get the information you need to claim the deductions you're entitled to, resulting in the loss of tax writeoffs of as much as $2,500. As the end of 2014 approaches, make sure you put it on your tax checklist to see if you get the forms you need from your loan servicer early next yearn. If you don't get the standard tax forms from your servicer, look at your monthly statements to figure out how much in interest you've paid each month. Still, in the ideal situation, your servicer should make things easier on you, and letting the CFPB know if your servicer doesn't cooperate could help you get what you need.

5. Know Your Bankruptcy Rights

It's harder to have student loan debt discharged in bankruptcy, as current laws require you to establish an undue hardship that prevents you from repaying your student loans. But contrary to what some servicers tell borrowers, it's not impossible to have student loans discharged through bankruptcy, and the CFPB found that those servicers who said otherwise were engaging in deceptive practices under Dodd-Frank.

6. Get Protection From Debt Collectors

Student-loan servicers often double as collection agencies against borrowers who become delinquent on their loans. Even though debt collectors are required to honor laws governing when and how often they can make calls, the CFPB found that many servicers illegally call borrowers at impermissible times, either early in the morning or late at night. With one consumer reporting four dozen calls within a 45-day period, and with a total of 5,000 impermissible calls made overall during that same time frame, you need to understand that you have rights and to assert them.

Motley Fool contributor Dan Caplinger celebrated the day he paid off his last student loan. You can follow him on Twitter @DanCaplinger or on Google Plus. To read about our favorite high-yielding dividend stocks for any investor, check out our free report.

6 Steps to Start a Debt Payoff Plan
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6 Ways Student Loan Servicers Are Trying to Trick You
The first thing you should do is stop charging. Put your card aside, and switch to cash or debit now.
Get your debts in order. Make a detailed list of all the cards you're carrying debt on. Be sure to include each card's balance, its annual percentage rate and its payment due date.
Now that you know what you owe, it's time to make a budget. This will help you keep your finances in order and plan to pay off a big chunk of debt every month. It's also an opportunity to look for ways to trim expenses so that you can devote more money to cutting your debt.
Before deciding which card to pay off first, you should consider consolidating your debt onto a 0 percent balance transfer card. This can save you big bucks in interest, but it's also tricky. There are a lot of factors to consider, including balance transfer fees.
As an alternative to consolidating, you should make it a goal to pay off the card with the highest APR first. Devote all your extra funds to squelching this balance while still making minimum payments on your other cards. Doing so will save you the most money in interest in the long run.
Once you've paid off your highest APR card, attack the card with the second-highest APR next. Then tackle the others using APR as your guide to prioritizing. Keep it rolling until all your cards are paid off.
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