Washington Years after making payments on their delinquent student loans, thousands of people are getting refunds or credits from the U.S. Department of Education because they were charged too much in collection fees.
Recipients of an estimated 114,000 loans are so far known to be eligible for cash or credits under a class action lawsuit settled in 1995. The number could more than double, an Education Department spokeswoman said Wednesday, as the review is only half-finished.
Refunds average $100, but some top $500. Their total cost could exceed $25 million.
The refunds, based on examinations of millions of loan documents, began in late 1999, but most of the refund checks have gone out since May.
"The government has been very cooperative in trying to fix this, but it never should have happened," said Jane Greengold Stevens, a New York lawyer representing plaintiffs in the class-action lawsuit.
The overcharges occurred between October 1987 and March 1995 on delinquent student loans that the government turned over to collection agencies. The department charged borrowers up to 42.8 percent of the loan's balance to cover the cost of collection, even though some loans had a 25 percent limit on such fees.
"The promissory notes explicitly capped fees at 25 percent," said Stevens, who discovered the overcharges while working at a legal services center for people seeking help with loan problems.
With Stevens' law center's help, four students of New York-area trade schools sued Richard Riley, then education secretary, and the Education Department in 1994. They filed a class-action suit to represent everyone similarly overcharged, including loan recipients at public and private colleges and universities.
Refunds go only to borrowers who paid off their loans at overcharged rates. Credits go to those with outstanding loans.
Education Department officials are still determining which loan recipients had a 25 percent cap on collection fees but were charged more. Those students are being notified by mail that they may have a refund coming.
The mailing directs the individual to call a toll-free number to discuss the status of the account. Loan documents may be requested to help the borrower determine the overcharge.
The first refunds went to residents of New Jersey and Virginia. Residents of numerous other states who had loans through a Minnesota guarantee agency have received notices or refunds in the past two months.
Recipients of loans without a 25 percent fee limit will not get refunds or credits, even if they paid a 42.8 percent collection fee. But the government agreed to cap fees at 25 percent on all collections made after March 1995.