Personal Finance

Lenders pull incorrect amounts from student loan borrowers’ accounts

Published

1 month ago

November 19, 2024

Boogich | E+ | Getty Images

Lenders often encourage federal student loan borrowers to enroll in automatic payments. It can seem like a good idea to do so: Borrowers don’t need to worry about missing a payment and often get a slightly lower interest rate in exchange.

However, the decision can backfire in a lending space plagued by consumer abuses, according to a new report by the Consumer Financial Protection Bureau.

“Unfortunately, autopay errors were one of the most widespread, basic and consequential servicer errors we saw this year,” CFPB Student Loan Ombudsman Julia Barnard told CNBC. “These errors are incredibly costly and completely unacceptable.”

In some cases, borrowers had money pulled from their bank accounts despite never consenting to autopay, Barnard said. Other autopay users saw incorrect amounts taken or were charged multiple times in the same month.

CNBC wrote last year about a woman who was supposed to have a $0 monthly student loan payment under the plan she was enrolled in, but was charged $2,074 one month. After that unexpected debit, she worried she wouldn’t be able to pay her mortgage.

In March, one borrower told the CFPB that their student loan servicer took $6,897 from their account when they only owed $1,048.

“Borrowers have told the CFPB that these errors have made it hard or impossible for them to cover basic needs like food, medical care and rent,” Barnard said.

What borrowers can do about autopay errors

Despite the issues some student loan borrowers experience, higher education expert Mark Kantrowitz recommends that people remain enrolled in the automatic payments.

After all, it’s one of the only ways to get an interest rate discount, he said. The savings is typically 0.25%.

In addition, he said, “they are less likely to be late with a payment.”

But some borrowers on a tight budget may prefer to forgo those benefits to make sure they’re not overcharged, experts said.

There are steps you can take to protect yourself from incorrect billing, Kantrowitz said.

You can set up an alert with your bank and get notified whenever a debit occurs over a certain amount. If you set that amount a little under what your student loan bill should be, you can use that alert to check that the debit was correct each month and also have a record of your payment history, which can be especially helpful to those working toward loan forgiveness, Kantrowitz said.

If your loan service takes the wrong amount from your bank account, you should immediately contact the servicer and demand a refund, Kantrowitz said. You should also ask your servicer to cover any late fees from bounced checks or an overdraft, he said.

Unfortunately, Barnard says, the CFPB has heard from borrowers who weren’t able to get a timely refund.

“We’ve seen instances where borrowers have waited months or even years to receive a refund related to autopay errors,” she said.

As a result, she also suggests borrowers reach out to their bank about the incorrect payment.

“The borrowers’ financial institution may be able to quickly resolve errors in autopay amounts,” she said, so long as the borrower notifies them within 10 business days of the amount being debited.

If you run into a wall with your servicer, you can file a complaint with the Education Department’s feedback system at Studentaid.gov/feedback. Problems can also be reported to the Federal Student Aid’s Ombudsman, Kantrowitz said.

Personal Finance

Here’s the average 401(k) savings rate as investors boost deferrals

Published

45 minutes ago

December 20, 2024

Business Finance News

Drs Producoes | E+ | Getty Images

The average 401(k) savings rate, including employee deferrals and company contributions, continued to climb in 2023, a new industry survey reported.

In 2023, the average combined savings rate was 12.7%, up from 12.1% in 2022, with employees deferring 7.8% of pay and companies adding 4.9%, according to the Plan Sponsor Council of America’s yearly survey of more than 700 company 401(k) and profit-sharing plans.

“The deferral rate has been trending up over time,” with dips during economic downturns, said Hattie Greenan, director of research and communications for the Plan Sponsor Council of America.

Meanwhile, Vanguard reported the average combined savings rate was an estimated 11.7% in 2023, which matched the figures from 2022, according to the company’s yearly analysis of more than 1,500 qualified plans and nearly 5 million participants.

Fidelity Investments, which reports retirement savings rates quarterly, estimated the combined savings rate was 14.1%, as of Sept. 30, 2024, based on an analysis of 26,000 corporate retirement plans.

How much to save in your 401(k)

Vanguard recommends saving 12% to 15% of your earnings every year, including employer contributions, to meet your retirement needs. The combined savings benchmark for Fidelity is 15%.

Typically, companies match employee deferrals up to a specified limit — and you should aim to contribute at least enough to get the full match, said Greenan from the Plan Sponsor Council of America.

“That’s really going to add up over time,” she said.

More than 80% of plans included a matching contribution in 2023, according to the Plan Sponsor Council of America report.

After hitting the match, some experts suggest boosting your deferrals every year, but “you’re going to see growth from whatever you can afford to contribute,” Greenan said.

Starting in 2025, the 401(k) maximum employee deferral will jump to $23,500, up from $23,000 in 2024. The 401(k) catch-up contribution will remain $7,500 for workers 50 and older, but increases to $11,250 for investors aged 60 to 63.

If you’re planning to save more in 2025, right now is “an important time of the year” to boost deferrals, said certified financial planner and enrolled agent Catherine Valega, founder of Boston-area Green Bee Advisory.

Typically, it takes a few paychecks until your 401(k) deferral updates go into effect, so it’s better to make changes in December to be ready for January, she said.

Only 14% of employees maxed out 401(k) plans in 2023, according to Vanguard’s annual report. On top of maxed-out contributions, an estimated 15% of workers made catch-up contributions in plans with the feature, the same report found.

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Personal Finance

Senate to hold final vote on Social Security bill. What leaders are saying

Published

2 hours ago

December 20, 2024

Business Finance News

The US Capitol building in Washington, DC, on November 24, 2024.

Daniel Slim | Afp | Getty Images

The Senate is getting closer to a final vote on a bill that would increase Social Security benefits for an estimated 3 million people.

The chamber voted Wednesday to let consideration of the bill — the Social Security Fairness Act — proceed. The bipartisan proposal calls for repealing certain rules that reduce Social Security benefits for individuals who receive pension income from work in the public sector.

Despite a bipartisan 73 majority vote to proceed, the effort to advance the bill was met with some dissent, with Sen. Thom Tillis, R-N.C., citing the costs associated with the change. The Congressional Budget Office has estimated repealing the rules — known as the Windfall Elimination Provision, or WEP, and Government Pension Offset, or GPO — would cost $196 billion over 10 years.

The WEP reduces Social Security benefits for individuals who receive pension or disability benefits from jobs where they did not pay Social Security payroll taxes. The GPO reduces Social Security benefits for spouses, widows and widowers who also receive their own government pension income.

GOP lawmakers upset over Congressional spending bill

Passing the bill would speed up Social Security’s trust fund insolvency dates by six months, according to the Committee for a Responsible Federal Budget. Without the change, Social Security’s trustees have projected the trust fund the program relies on to pay retirement benefits will run out in 2033, when 79% of those benefits will be payable.

“We are about to pass an unfunded $200 billion spending package for a trust fund that is likely to go insolvent over the next nine to 10 years, and we’re going to pretend like somebody else has to fix it,” Tillis said during a Senate speech ahead of the vote to advance the bill.

Tillis said lawmakers are not considering the 97% of beneficiaries who would not benefit from the bill, but who would be hurt by future consequences that passing it would have on the program.

“Ladies and gentlemen, this bill has not even had a hearing in any committee in the House or the Senate,” Tillis said.

The Social Security Fairness Act was approved by the House in November after two lawmakers – Reps. Abigail Spanberger, D-Va., and Garret Graves, R-La. – filed a discharge petition to force a vote on the bill. The Senate cloture vote to proceed to a final vote also limited the ability for that chamber to debate the proposal.

The 27 Senate leaders who voted “no” on moving the Social Security Fairness Act to a final vote are all Republicans, with the exception of Sen. Joe Manchin, an independent representing West Virginia.

The Senators who voted to move the bill forward included a mix of Democrats and Republicans, including Senate Majority Leader Chuck Schumer, D-N.Y., and Vice President-elect and Sen. JD Vance, R-Ohio.

‘No excuse for treating our public servants this way’

Leaders who spoke on the Senate floor in support of the bill ahead of Wednesday’s vote to proceed cited the financial suffering of their constituents.

As of November, more than 2 million people’s Social Security benefits were affected by the WEP, while more than 650,000 people were impacted by the GPO, said Sen. Susan Collins, R-Maine, who co-led the Senate version of the bill.

One 72-year-old constituent had to return to work after her husband died, since the GPO reduced her Social Security widow benefits by two-thirds, Collins said.

“She did not have the financial security any longer to remain retired, and the GPO penalty left her with few choices but to return to work,” Collins said.

Sen. Bill Cassidy, R-La., recalled meeting with a retired Louisiana schoolteacher impacted by the GPO, who cried in his office because she didn’t understand why her Social Security spousal benefits were reduced.

“She felt like she was being punished for educating generations of Louisiana children,” Cassidy said. “There’s no excuse for treating our public servants this way.”

If the Senate passes the bill, it will be a win for Collins and Sen. Sherrod Brown, D-Ohio, who co-led the bill. Collins has pushed for the change for more than two decades, Brown noted in a Wednesday Senate speech. Brown is leaving the Senate after losing a reelection campaign.

Reps. Spanberger and Graves, who introduced the House bill, are also leaving Congress.

“If you love this country and fight for the people who make it work, I urge all my colleagues on both sides to join us — restore the Social Security that people who protect us in service have earned over a lifetime of work,” Brown said during a Wednesday Senate speech.

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Personal Finance

Biden forgives $4.28 billion in student debt for 54,900 PSLF borrowers

Published

2 hours ago

December 20, 2024

Business Finance News

U.S. President Joe Biden delivers remarks on the economy at the Brookings Institution in Washington, DC, U.S. December 10, 2024.

Kevin Lamarque | Reuters

The Biden administration announced on Friday that it would forgive another $4.28 billion in student loan debt for 54,900 borrowers who work in public service.

The relief is a result of fixes the U.S. Department of Education made to the once-troubled Public Service Loan Forgiveness Program.

The debt relief comes in President Joe Biden’s final weeks in office.

Biden has forgiven more student debt than any other president. He has cleared nearly $180 billion for 4.9 million people with student debt.

Still, Republican-led legal challenges have stymied all of Biden’s attempts at delivering wide-scale relief.

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