Consumer complaint received 2023-12-29
Company: MOHELA
State: MN
Product: Student loan
Sub-product: Federal student loan servicing
Issue: Dealing with your lender or servicer
Sub-issue: Trouble with how payments are being handled

Complaint:
-- Issue Summary -- 1. Issue with Statement Billing : Loan servicer statements provided to borrowers on XXXX  plans do not clearly indicate that the portion of their XXXX  payment that is applied to their principal is reduced daily from the statement date, and that waiting until their due date may negatively impact them financially as their payment towards the loan principal is reduced. A due date implies that there will be no negative impacts if paid prior to that date. As a result, borrowers are negatively impacted when an XXXX  payment made on the due date may no longer covered unpaid interest, and no portion of their payment is applied to their loan principal as anticipated per their billing statement, and as it would have been applied if paid on the statement date. 

2. Issue with Autopay : According to the Federal Student Aid website, " If you sign up for auto pay, youll pay 0.25 % less in interest each month. '' This auto pay discount is also heavily advertised on loan servicer websites, including reminders that you will save XXXX   amount if you sign up for autopay. However, loan servicers schedule autopay for the payment due date, and do not provide options for payment on the statement date or other sooner dates, resulting in interest accrual on loans prior to the due date. This negatively impacts borrowers on the XXXX  income driven repayment plan. According to the Federal Student Aid website, " The XXXX XXXX eliminates 100 % of remaining monthly interest for both subsidized and unsubsidized loans after you make a scheduled payment. '' Because this full pay off of all accrued interest only occurs " after payment, '' loan servicers that limit autopay to the statement due date and apply the borrower 's payment to interest accrued as of that date negatively impact borrower 's ability to apply their payment to their principal balance. 

-- My situation -- The issues described above have impacted me since I began repayment after the federal student loan pause. Prior to repayment resuming, I was approved for the XXXX XXXX  for income driven repayment, and I had no unpaid interest outstanding on any of my federal student loans. Due to the issues outlined above and described in detail below, my loans have been negatively impacted, and I am concerned about the implications for all student loan borrowers. 

XXXX. Issue with Statement Billing : With my prior servicer, XXXX XXXX, I received my first billing statement showing that my XXXX payment would fully cover unpaid interest on my loans, with the remaining payment amount applied to the loan principal. However, when I made my full payment prior to the due date, my payment did NOT cover all the interest accrued on my account ( as shown in the statement ) because interest had accrued between the statement date and the due date. I thought this was an error, so I contacted both XXXX and Federal Student Aid requesting my payment be applied per my statement. I received responses from both entities explaining interest had accrued between my statement and due date, which I was already aware of. However, I had assumed my payment would be applied as shown in my statement because I am on an XXXX Plan. The responses from both parties fail to recognize a fundamental issue with statement billing and repayment because it is not reasonable for a consumer to assume they will be impacted negatively by paying on or before the due date. A due date implies that there will be no negative impacts if paid prior to that date. However, I was negatively impacted because my payment no longer covered my unpaid interest, and therefore no portion of my payment was applied to my loan principal as it would have been if paid on the statement date. This is an issue that affects all borrowers, and particularly borrowers on XXXX plans. 

XXXX. Issue with Autopay : After my first payment through XXXX, I received a notice that I wasn't signed up for XXXX, and that I would receive a monthly discount for doing so. I signed up for auto pay for future payments to receive the advertised discount. After signing up for autopay, I was again debited on my due date, and my payment, which should have covered all unpaid interest as of the statement date and then applied to my principal, only went to accrued interest. After this happened, I investigated my autopay options through the servicer, and confirmed they did not offer an option through the online portal to schedule autopay for the statement date. The following month, my servicer was changed to MOHELA because I certified employment qualifying for XXXX. Again, the servicer advertised discounts available to sign up for autopay, and again, I investigated autopay options, and MOHELA only offered autopay on the due date with no early options. MOHELA advertised that I would save $ XXXX if I enrolled in XXXX, which would be LESS than the interest I would accrue, and therefore reduce my principal payment by, if I enrolled in autopay that was debited on the due date. I am not currently enrolled in autopay because it would be financially disadvantageous, and I would like my payments debited on the statement date to receive the most benefit of my XXXX payment. 

-- Why CFPB should take action -- XXXX ) It is a deceptive practice for consumers to receive a billing statement showing how their payment will be applied to their loans and interest without a clear disclaimer next to both the " due date '' and " unpaid interest '' calculation that these calculations only reflect unpaid interest as of the statement date and payments applied after the statement date will be applied to interest accrued as of that date, not per the statement. While there is a blanket statement about interest near the bottom of the statement, it is especially not clear to borrowers on the XXXX XXXX that when they make their payment on or before the due date, their payment XXXX not cover the interest as displayed in their statement because more interest has accrued since they received the statement, and none of their payment XXXX end up going to their principal balance. This is deceptive because reasonable consumers will rely on their statement to be an accurate reflection of how their payment will actually be applied on the due date, not how the payment would theoretically be applied if they paid on the statement date. It is also deceptive because a due date implies there are no negative consequences as long as you pay by that date. 

XXXX ) It is a deceptive practice to advertise a discount for autopay that results in an increased cost to the borrower due to accrued interest when autopay is debited on the due date. For many borrowers, the autopay " discount '' is less than the interest that will accrue as a result of loan servicer practices that autodebit on the payment due date, instead of offering options for debit on the statement date. Therefore there is no autopay " discount '' for many borrowers, but in fact, an autopay penalty. 

XXXX ) Loan servicer practice of autodebiting on the due date negatively affects consumer use of a government benefit through an auto pay discount. By not providing an option to schedule auto pay for the statement date, loan servicers are benefiting from denying a government benefit by collecting more in interest payments from XXXX borrowers. Further, the consequences of this issue should merit not only requiring loan servicers to offer autopay on the statement date, but defaulting and/or prioritizing that option.

Company public response: Company believes it acted appropriately as authorized by contract or law
Company response to consumer: Closed with explanation