Consumer complaint received 2016-10-16
Product: Student loan — Federal student loan servicing
Issue: Dealing with my lender or servicer — Trouble with how payments are handled
Company: AES/PHEAA (TX)

My federal student loans have been mishandled by my loan servicer, Fedloan Servicing, resulting in an inappropriate interest capitalization of {$50000.00} applied to my principal balance in XXXX XXXX. I request that this sum be removed from my principal balance. As a result of this error approximately {$10000.00} excess interest has accrued on my account as of XXXX XXXX, XXXX. 

Background : I am enrolled in an Income Driven Repayment ( IDR ) program facilitated through the Department of Education in conjunction with my loan servicer, Fedloan Servicing. Under the umbrella of IDR, I am enrolled in the specific loan repayment program known as Income Based Repayment ( IBR ). Income Based Repayment allows me to make reduced payments, relative to the standard 10-year loan repayment, based on my income. An additional benefit of IBR relates to the method in which interest accrues upon my loan balance. If my payments are on time and I remain enrolled in IBR by accurately completing an annual application, then interest remains in a separate balance and does not capitalize directly upon my principal balance. In other words, my principal loan balance will remain static even if my loan payments are not large enough to pay down the principal balance. Instead, the balance of my accrued interest will increase. 

In XXXX of XXXX I applied for my annual IBR renewal and submitted the requisite documentation of my income which included an earnings record from a non-profit employer. This documentation of income was rejected by Fedloan Servicing because " gross income could not be calculated '' and I was issued a rejection letter. I contacted Fedloan Servicing to inquire why this error occurred. Representatives cited the lack of a payment frequency ( i.e weekly, bi-weekly, monthly, etc. ) on my earnings record. As a result of rejection, I was billed at a level consistent with a standard-10-year-repayment plan ( ~ $ XXXX ) and my interest ( ~ $ XXXX ) capitalized upon my principal loan balance When I was notified of my rejection, I informed Fedloan Servicing that the payment frequency was, in fact, documented on the earnings record. Fedloan Servicing subsequently admitted fault and processed a refund from the Dept. of Treasury in the amount of {$3000.00} on XXXX XXXX, XXXX for the erroneous standard-10-year-loan-repayment. This documentation is verified by internal records at Fedloan Servicing. 

Fed loan servicing also verified culpability by processing an 'administrative forbearance ' which is supposed to prevent interest capitalization. This forbearance was also not processed correctly and the interest capitalization was not corrected. 

Overall, I find Fedloan Servicing 's handling of my loans to be egregiously inept and even predatory in nature. I look forward to hearing back from your office regarding your opinion on this case. Please let me know if you need any additional information. Thank you in advance for your help. 

I have supporting documentation ( letters from FLS, bank statements, phone call documentation ) that corroborates my claim.