Dear ABC News Fixer: Round 2 Epic Loan Error Battle

PHOTO: The Consumer Financial Protection Bureau said on Thursday, March 14, 2013, that it wants to regulate loan servicing companies.

Dear ABC News Fixer: I've been paying off my student loans for a few years now. The federal government offered to consolidate any outstanding federal loans under one servicer -- FedLoan Servicing in my case -- and in exchange, I would receive lower interest rates.

In March 2012, I applied for the consolidation to move $24,198 federal loans at ACS in with others that FedLoan Servicing already had. However, instead of just $24,198 in additional loans showing up, somehow an extra $68,405 was added to my account.

After approximately six months, and with your help, the "fake" loans were removed from my account. But in the process -- and despite my paying on these loans -- FedLoan sent part of these loans to collection agencies, which caused my credit score to plummet. We could not refinance our house because of my poor credit score. They promised to correct this.

I was a little relieved when (finally!) the correct balances were put in my account (in forbearance status). However, my relief was short-lived.

Now, my interest rate is HIGHER than before I consolidated – 6.55 percent versus 6 percent. The reason I did the consolidation was for a lower interest rate.

They charged me the amount of interest I would have owed had my loans been in my account the entire time. While this was all tied up, I had no opportunity to be paying down the principal. The interest bill was due even though they still had my loans in forbearance.

Most important, I looked at my credit report last week, and the negative information is still there.

Who would have thought that a "simple" consolidation would cause me to owe more in student loans, ruin my credit rating and cause a great deal of unnecessary stress!

- Elizabeth Towle, Chicago, Ill.

Dear Elizabeth: You and the ABC News Fixer are practically old friends by now! We met way back in the summer of 2012, when you came to the Chicago Sun-Times (the ABC News Fixer's previous employer) in desperation because $68,405 had mysteriously been added to your loan balance. As you noted, we were able to get through to FedLoan, and after several weeks, they put the balance back where it should be and promised to clear up your credit.

We bade each other farewell … until this past December, when the ABC News Fixer was created and you came back with Round Two of your epic battle with FedLoan Servicing.

This time, you had issues with the interest on the debt and the continuing negative splotch on your credit record.

To top it off, midway through our work on this, there was yet another glitch with the payoff of one of your old accounts, making it appear you might owe an additional $1,063.

Give us an aspirin, please!

It took about three more months, but finally, we got this fixed.

FedLoan ended up back-dating your December 2012 payment and applying it to April 2012, which they said would help cut back on the interest that had piled up in the interim. You weren't completely satisfied, and argued that they should have done more, but that's the best they would do. On the bright side, you said they did end up dropping the interest rate to 5.75 percent.

Most significantly, they again asked the credit reporting agencies to update your file, and this time it worked. The negative information has finally vanished, and you were able to refinance your home mortgage as planned. That's great news.

In working on your case, we found lots of other complaints and blog posts about loan consolidations that had become a headache for the borrowers, with problems such as incorrect account balances and long time lags. We wondered why some student loan consolidations seem to require a degree in quantum physics to be done error-free.

We called the U.S. Department of Education, under which FedLoan has a contract (along with three other servicers). A spokesman for the department's office of student aid said some of the general confusion occurred when older loans were transferred by the department to new servicers after 2010.

In other cases, borrowers such as you were initiating their own consolidations, with the goal of creating a more manageable loan.

The spokesman said your case was especially tricky, because the consolidation was occurring at the same time you – being a good consumer – were sending in large payments to try to pay down your debt. While FedLoan was trying to move the account balances into one new loan, the balance amounts were changing because of the money coming in.

At the same time, there were differences in the ways each servicer had its files organized, so the numbers had to be entered by hand, and someone made a "manual error" that accidentally added that frightening $68,405 in debt.

"We certainly regret it," the spokesman said.

Persis Yu, a staff attorney at the National Consumer Law Center, said consumers need to be alert and know that their loan servicer could change. She recommends carefully checking account statements to be sure there are no errors.

Consumers who want to know what's going on with their loans can check out www.studentloans.gov. The U.S. Department of Education also has an ombudsman's office at (877) 557-2575. For info on what type of aid is available, go to www.studentaid.gov.

- The ABC News Fixer

Got a consumer problem? The ABC News Fixer may be able to help. Click here to submit your problem online. Letters are edited for length and clarity.

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