Sara Routhier, Managing Editor and Outreach Director, has professional experience as an educator, SEO specialist, and content marketer. She has over five years of experience in the insurance industry. As a researcher, data nerd, writer, and editor she strives to curate educational, enlightening articles that provide you with the must-know facts and best-kept secrets within the overwhelming world o...

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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He also has an MBA from the University of South Florida. ...

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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Sep 18, 2012

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Consolidating student loans is a wise choice that many borrowers choose to undertake when they feel burdened by multiple loans or high interest rates. Unfortunately, student loan consolidation doesn’t always go smoothly.

In a story found on the Chicago Sun Times, a borrower named Elizabeth Towle revealed the catastrophic results that can accompany a student loan consolidation processing error.

Towle said she opted to consolidate her federal student loans through FedLoan Servicing because, as she understood it, she would receive lower interest rates once the student loan consolidation was completed.

However, after moving her $24,198 in federal loans to FedLoan Servicing in March, Towle was shocked to discover that her total jumped up to $88,957.45.

What followed next was two months of relentless calls before FedLoan Servicing finally realized—or admitted—that there was a mistake.

Eventually a refund was issued for $68,405.35. Unfortunately, however, the refund was not immediately applied to Towle’s balance. She was forced to pay sizable monthly installments on the false amount even though she shouldn’t have been responsible for the incorrect and massive balance.

Continuing this comedy of errors—and in spite of Towle’s timely payments—FedLoan Servicing contacted collection agencies. This caused Towle’s credit score to plummet. Her hope of refinancing her home was dashed as her credit sank as well.

As the Chicago Sun Times—and many other borrowers who sought similar student loan consolidations—discovered, FedLoan Servicing has been linked to a rash of consolidation errors that proved costly to borrowers who were ironically looking to save money.

Fortunately, FedLoan Servicing did address the issue—albeit at a far slower pace than most borrowers would have wanted.

FedLoan Servicing resolved Towle’s erroneous balance to its correct level and contacted the three credit reporting bureaus in order to correct their error. Considering Towle’s plight was covered in the middle of September, it may be a few months before Towle can confirm her credit is back to its proper level once again.

This no-doubt maddening experience is a lesson for borrowers who must recognize that while mistakes are rare, they do happen. Being cautious and staying on top of personal finances allowed Towle to jump on the error immediately.