The Hidden Dangers of Automatic Student Loan Payments
When it comes to managing student loan debt, automatic payments may seem like a convenient solution. After all, who doesn’t want to avoid missed payments and enjoy a slightly lower interest rate? However, a recent report by the Consumer Financial Protection Bureau (CFPB) reveals that autopay errors are widespread and can have devastating consequences for borrowers.
Autopay Errors: A Recipe for Disaster
According to CFPB Student Loan Ombudsman Julia Barnard, autopay errors are among the most common and costly mistakes made by loan servicers. In some cases, borrowers have had money withdrawn from their accounts without their consent, while others have been charged incorrect amounts or multiple times in the same month. These errors can be catastrophic, leaving borrowers struggling to cover basic necessities like food, medical care, and rent.
The Consequences of Autopay Errors
One borrower reported that their loan servicer withdrew $6,897 from their account, despite only owing $1,048. Another borrower was charged $2,074, despite being enrolled in a plan with a $0 monthly payment. Such errors can lead to financial hardship, damage to credit scores, and even default.
Should You Opt-Out of Autopay?
Despite the risks, higher education expert Mark Kantrowitz recommends remaining enrolled in automatic payments, citing the interest rate discount and reduced likelihood of late payments. However, borrowers on a tight budget may prefer to forgo these benefits to avoid the risk of overcharging.
Protecting Yourself from Autopay Errors
To minimize the risk of autopay errors, Kantrowitz suggests setting up an alert with your bank to notify you of large debits. This allows you to verify the correctness of each payment and maintain a record of your payment history. If your loan servicer takes the wrong amount from your account, contact them immediately to demand a refund and request coverage of any late fees.
What to Do If You’re a Victim of Autopay Errors
If your loan servicer fails to provide a timely refund, reach out to your bank for assistance. You can also file a complaint with the Education Department’s feedback system or report the issue to the Federal Student Aid’s Ombudsman.
The Bottom Line
While automatic payments may seem like a convenient solution, the risks associated with autopay errors cannot be ignored. By understanding the potential pitfalls and taking steps to protect yourself, you can minimize the risk of financial hardship and ensure that your student loan debt is managed effectively.
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