Consumer complaint received 2024-12-21 00:00:00
Product: Student loan — Federal student loan servicing
Issue: Dealing with your lender or servicer — Received bad information about your loan
Company: Servicer under contract with Federal Student Aid
State: NY

Complaint narrative:
in CFPB complaint # XXXX I reported that the aggregate student loan totals being reported by the NSLDS were incorrect due to the fact that capitalized interest was being added to the loan total balances. I should still be eligible to receive {$24000.00} in direct student loans to continue my education. I asked NSLDS to correct the issue. The response I received from NSLDS confirmed my complaint. The response from NSLDS is as follows : -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- " This is an interesting one, but I can assure you that our code is doing nothing incorrectly and capitalized interest is not being added to the aggregate for any consolidation loan. I attached my worksheet where I compared their loans with our aggregate limits and their aggregate totals ; everything is accurate. 

The issue is that NSLDS cant find a link between their consolidation loans and their consolidated loans ( PN status ). The respective dates are too far apart for us to calculate a link between the open consolidation loans the consolidated loans and we dont have any valid reported linkages in our system ( this would be a servicer issue to report status date correctly ). 

Because we cant find an association, we ignore the consolidated loans and take the OPB of the consolidation loan at face-value and reflect it in the recipients XXXX totals. That explains why theyre exceeding their XXXX Subsidized and Combined Limits, but for their Graduate totals, theres not much nuance. They have XXXX XXXX loans that have a Graduate academic level and were calculating each of their respective Aggregate OPB correctly and reflecting it in the Graduate Unsubsidized Total. 

Only two loans are being impacted by Capitalized Interest amounts, both are Direct Stafford Unsubsidized ( NOT Consolidation ) loans. And for their PLUS Additional Unsub loans, theyre all Graduate loans, and we only increase their limits when the recipient is a Dependent Undergraduate. So nothing impacted there. '' -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- LEGAL REPORT TO THE COURT I. Introduction Comes now the undersigned counsel, on behalf of the student borrower ( Plaintiff ), to address the improper accounting methods used by the loan servicer and/or relevant educational agency ( Defendant ( s ) ) in calculating the Plaintiffs student loan aggregate limits. Despite Plaintiff having remaining loan eligibility of approximately {$24000.00}, Defendant ( s ) have improperly reduced Plaintiffs eligibility by including capitalized interest in the loan principal for the purpose of aggregate loan limit calculations. This practice violates the Higher Education Act of 1965 ( HEA ), as amended, and its implementing regulations under Title 34 of the Code of Federal Regulations ( C.F.R. ), and deprives Plaintiff of financial aid to which they are legally entitled. 

II. Statement of Relevant Facts Plaintiff maintains multiple federal student loans, including Direct Subsidized, Direct Unsubsidized, and certain Direct Consolidation Loans. 
According to Defendant ( s ) own admissions, only two of Plaintiffs Unsubsidized loans have capitalized interest. Nonetheless, the total capitalized interest is being counted toward Plaintiffs aggregate loan limits.

Defendant ( s ) also acknowledge the lack of proper linkages between the consolidation loans and the underlying loans, but they continue to overstate the outstanding principal balance ( OPB ) by including capitalized interest amounts in the aggregate calculation for new loan eligibility. As a direct result, Plaintiffs eligibility for an additional {$24000.00} in federal loans has been wrongfully denied. 

III. Applicable Law and Regulations Higher Education Act ( HEA ), 20 U.S.C. 1070 et seq.

Under the HEA, federal student loans are subject to specific statutory and regulatory frameworks that govern annual and aggregate borrowing limits.

Aggregate Loan Limits Under 34 C.F.R. 685.203 This regulation sets the maximum annual and aggregate loan amounts that a student may receive in Direct Subsidized and Direct Unsubsidized Loans. Nowhere does it authorize the loan servicer to include unlawfully capitalized interest in the principal balance for the purpose of restricting further loan eligibility. 

Provisions on Capitalized Interest, 34 C.F.R. 685.202 ( b ) While the regulation permits the capitalization of interest under certain conditions ( e.g., during periods of deferment or forbearance if interest is not paid ), it does not allow such capitalized amounts to be deemed principal when determining a students eligibility under the aggregate limits. 

XXXX XXXX XXXX XXXX XXXX, XXXX XXXX XXXX. XXXX XXXX ( XXXX XXXXXXXX ) stands for the principle that the Department of Education and its agents must adhere strictly to statutory and regulatory directives. A failure to comply with regulatory provisionssuch as improperly interpreting or expanding the scope of aggregate loan amountcan render the agencys action arbitrary, capricious, or otherwise not in accordance with law. 

XXXX XXXX XXXX, XXXX XXXX XXXX ( XXXX XXXX XXXX ) ( cited for persuasive value ) similarly underscores that loan servicers must follow the precise regulatory guidelines established by the U.S. Department of Education when assessing interest, principal, and overall borrower eligibility. 

IV. Legal Argument Violation of 34 C.F.R. 685.202 ( b ) and 685.203 The Defendant ( s ) accounting practices contravene the Department of Educations regulations by counting capitalized interest as part of the outstanding principal for purposes of assessing new loan eligibility. See 34 C.F.R. 685.202 ( b ) ( authorizing capitalization but not including such interest in statutory or regulatory eligibility calculations ). 

Under 34 C.F.R. 685.203, the aggregate loan limit calculation is intended to cap the total amount a student may borrow in principalnot artificially inflated balances caused by servicing errors or improper capitalization. The unauthorized inclusion of capitalized interest in the aggregate effectively denies XXXX the loan funds to which they are statutorily entitled. 

Violation of the Higher Education Act ( 20 U.S.C. 1071 et seq. ) The Defendant ( s ) practice is directly at odds with Congresss intent to ensure access to federal loans within prescribed statutory limits. By artificially reducing Plaintiffs borrowing capacity, Defendant ( s ) violate 20 U.S.C. 1078 and related provisions that aim to protect student borrowers from arbitrary or capricious denials of loan eligibility. 

Failure to Properly Link Consolidation Loans to Underlying Loans Defendant ( s ) admit to a deficiency in linking consolidation loans to their underlying loans, thereby forcing the system to treat the entire consolidation loans OPB, including capitalized interest, as an undergraduate balance. This administrative error breaches their regulatory duty to accurately represent the borrowers correct loan history. XXXX XXXXXXXX XXXX XXXXXXXX, XXXX XXXX XXXX ( XXXX XXXX XXXX ). 

V. Conclusion and Prayer for Relief Wherefore, based on the foregoing, Plaintiff respectfully requests this Court to : Declare that Defendant ( XXXX ) current practice of including improperly capitalized interest in the aggregate loan limit calculation violates 34 C.F.R. 685.202 ( b ) and 685.203, and is therefore illegal. 

Enjoin Defendant ( s ) from continuing these unlawful accounting practices and order them to recalculate Plaintiffs aggregate loan balances excluding any improperly capitalized interest that is not allowed by law. 

Restore Plaintiffs eligibility for the additional {$24000.00} in federal student loans, as guaranteed under the HEA and its implementing regulations.

Grant any further relief that this Court deems just and proper. 

Respectfully submitted, XXXX XXXX

Company response to consumer: Untimely response