Last Thursday, Maria, a former government employee in New Mexico, received a charge on her bank account from the U.S. Department of Education for $258. She was confused. She didn’t owe the Department of Education any money. Her student loans — or what was left of them after she’d paid her monthly bills on time for over a decade — had been officially discharged in August of 2024 through the Public Service Loan Forgiveness program (PSLF). And even if she did owe money (which, again, was not the case), she didn’t have automatic payments set up. The funds had simply been yanked from her account without warning.
Maria — whose name has been changed to protect her privacy — logged in to the Department of Education’s website, which confirmed what she knew to be true: Her loans had been forgiven, and she didn’t owe anything. Then she checked with her loan servicer, Mohela, a behemoth contractor that manages student loans on behalf of the Department of Education. That’s when she saw something strange: Her account showed an outstanding balance of $776. She couldn’t figure out what the balance signified. The last time she’d checked, it was zero.
To make matters even more confusing, Maria knew that the Department of Education technically owed her money. The previous year, in an abundance of caution, she had continued paying her student-loan bills for two extra months after she qualified for forgiveness. Still, she thought that was the end of it — until now.
Maria called Mohela and, after waiting on hold for four hours, couldn’t get through. She emailed Mohela and the Department of Education; no response. Then she reached out to her bank, which agreed to contest the charge for a $30 processing fee. If the dispute goes through, it will take up to 45 days for the funds to be restored.
“Two hundred and fifty-eight dollars isn’t going to end my life, but it should never have been taken in the first place,” she says. “I have no idea why they made this unauthorized withdrawal of funds from my checking account for student loans that do not exist.”
Maria is one of many student borrowers who, in recent months, have encountered the downstream effects of phantom loans appearing on their old accounts after their debt was discharged through PSLF. Also commonly referred to as ghost loans, these random balances are even trickling onto people’s credit reports, damaging their credit scores. When Maria posted about her experience on Facebook, several friends reached out and said they were struggling with ghost loans, too. On Reddit, borrowers share horror stories of waiting hours on hold with their loan servicers to have their ghost loan removed, only for the servicers to be just as baffled by where it came from and what to do.
“We know it’s a widespread problem,” says Mike Pierce, co-founder and executive director of the Student Borrower Protection Center. “There’s all sorts of chaos happening in the student-loan system, and we’ve talked to many borrowers just in the past couple of weeks who have seen forgiven debts suddenly reappear.”
To be clear: This is a mistake. “It is not actually a debt,” says Pierce. “This is happening because student-loan servicers are not doing their jobs well.”
That’s not all. Separately, another group of borrowers — those with existing loans in forbearance — have been plagued by a different nightmare: unauthorized withdrawals from their bank accounts for payments they do not actively owe. Similar to Maria’s case, their money was transferred with no explanation, with “Dept. of Education” listed as the recipient.
Who’s at fault for these mysterious charges, and why are they happening now? Blame basic incompetence on the part of student-loan servicers contracted by the federal government, says Julia Barnard, who worked as the student-loan ombudswoman at the Consumer Financial Protection Bureau until she was abruptly fired by the Trump administration this month. Many of these issues date back to the complex process of restarting student-loan payments in 2023. During the pandemic payment pause, millions of loans were transferred to new servicers after former servicers’ contracts with the Department of Education ended or changed. That shuffle was flawed, to put it mildly. Barnard had her hands full trying to resolve borrower complaints about loan servicers’ inaccurate records and sloppy payment mistakes as well as recommending broader solutions to the Department of Education and Congress.
“Over the past year, payment errors were the No. 1 problem that borrowers approached us with,” Barnard explains. “A lot of borrowers experienced unauthorized withdrawals from their loan servicer. We saw people have money pulled twice in a month. Some people had the entire loan balance pulled from their account, accidentally. These types of errors are systemic, quite broad, and happening all the time.”
For some borrowers, these glitches have been financially catastrophic. “We had one borrower who was trying to pay off their entire loan balance, which was $5,000. And their servicer pulled that amount twice from their account, by accident. It took the borrower months to receive that refund,” says Barnard. Many borrowers who’d been erroneously charged reported falling behind on rent and having trouble affording basic necessities as a result.
Unauthorized transfers are also illegal, Barnard adds. “I believe that many of these cases are in violation of the Electronic Fund Transfer Act,” she explains. While student-loan servicers do have the power to take money directly from borrowers’ bank accounts under certain circumstances, they were directed by the Department of Education to seek reauthorization from borrowers to do so before student-loan payments resumed in 2023. “It appears that many of these servicers did not comply,” says Barnard. When payments restarted, many servicers turned on auto-pay functions using outdated bank information from before the pandemic, without getting permission from borrowers first. “It was a mess,” she says. “A lot of borrowers incurred overdraft fees because payments were taken from student accounts they hadn’t used for years.”
Barnard and her team detailed these problems at length in a memo to the Department of Education seeking remediation for student borrowers who were harmed by servicer errors. But it’s unclear how (or if) the Trump administration will address it or how it will hold servicers accountable. When we reached out to the Department of Education’s press office, a spokesperson said that the department was not aware of any widespread issues with the Public Service Loan Forgiveness program, and that if any borrower had questions about their loan balance, they should contact their servicer directly.
Meanwhile, the White House has cut multiple resources and channels that were previously available to borrowers grappling with ghost loans and payment discrepancies. By gutting the Consumer Financial Protection Bureau (including Barnard’s entire team), the Trump administration removed one of the only lines of defense that student borrowers had. “It’s pretty clear that right now, no one is doing the work that we used to do, and that’s scary,” says Barnard.
Lacking better options, borrowers have to fend for themselves. At least one lawsuit has been filed against Mohela alleging that it mishandled automatic payments by pulling incorrect amounts and using unauthorized payment methods, among other accusations. For borrowers who have been improperly charged, the best recourse is to dispute withdrawals through their bank, says Barnard. “Banks are required to do an inquiry, then stop or refund the payment if necessary,” she says. “These unauthorized payments have been such a pattern of behavior that banks should recognize them at this point.”
In addition to keeping an eye out for errors and faulty charges, be sure to watch your credit report, Pierce adds. Sometimes ghost loans can affect your credit score, in which case you should dispute it with the credit-reporting agency.
Finally, if you’re disputing a charge or balance with your servicer, email the company instead of calling its helpline, says Betsy Mayotte, the founder and president of the Institute of Student Loan Advisors. Many servicers don’t display their email addresses prominently, but you can usually find them if you’re logged in to your account. “Historically, I’ve always found that for disputes, people tend to get better results if they email rather than call,” she says. “Plus, then you have a paper trail.”
Even if no one responds, borrowers should still demand help. “It’s important that people expect services that they are legally entitled to,” says Barnard. “If something goes wrong, file a complaint with your congressional representative. Reach out to your state attorney general. Reach out to your federal student-aid ombudsman office. Reach out to the CFPB and to your loan servicer directly. You deserve support on these matters, and you shouldn’t give up trying to get it.”
Email your money conundrums to [email protected] (and read our submission terms here.)
More From This Column
- Should I Be Worried About My Student Loans?
- The Matchmakers to Millionaires
- Surveillance Pricing Is Ripping You Off. Here’s How to Fight It.