A Sydney woman battling mental health issues has told how she is “surviving off the charity of friends and family” after an apparent Centrelink bungle left her with a $3,500 welfare debt and no income for more than two months.

Charlotte Coulter, 29, told Guardian Australia she was wrongly kicked off the $276.55-a-week Austudy payment in March because Centrelink failed to process a doctor’s certificate.

Of the $100 a fortnight her cash-strapped mother can afford to send her, Coulter, of Parramatta, is forced to pay $20 every two weeks to Centrelink despite having no formal income. She said she entered a payment plan out of fear that her case would be referred to a debt collector and is adamant she does not owe the money.

“I’ve got nothing. I actually had a few hundred [in savings] before but I’ve blown through them,” said Coulter, who is still not receiving welfare payments and has been forced to make a new Centrelink claim.

“[Mum] has her own financial concerns to deal with. Life without money is pretty much impossible.”

Responding to questions from Guardian Australia on Thursday, the agency apologised to Coulter and indicated her case was under review.

The agency has been under fire in recent weeks, particularly over its handling of the disability support pension claim of a terminally ill man, revealed by Guardian Australia this month.

Centrelink has become an election issue after the opposition vowed to end the outsourcing of Centrelink staff, which the public sector union has warned would lead to poor service.

The Coalition strongly denies the claims, and argues it has increased staff levels at the agency after Labor cuts.

In March, Coulter applied to Centrelink for an exemption that would allow her to keep receiving Austudy while dropping her study load to part-time.

She has been allowed to enter this arrangement previously, under social security guidelines that protect those “unable to undertake full-time study due to health reasons”.

Coulter provided Centrelink with supporting letters from a psychologist and GP, seen by Guardian Australia.

She only learned her payments had been stopped in March when she received a debt letter.

Coulter entered into a payment arrangement on the understanding that she would receive backpay and the debt would be dropped once her medical certificates were processed.

In the meantime, she said she had been skipping meals to save money while her housemates were covering her rent.

But on 10 May she said she was told Centrelink had never processed her medical evidence and that “now it is too late to do that because it has been more than the 13 weeks since they’ve retroactively cancelled the payments”.

“It has been an absolute nightmare,” she said. “It’s gone to the point where I’ve had some pretty suicidal thoughts because of this whole situation and the effect it’s had on pretty much every area of my life.”

On one occasion, she said she had to call the Centrelink number “at least 200 times just to get past the busy signal so that I could [be] put on hold to talk to someone”.

A Department of Human Services spokesman, Hank Jongen, said: “Ms Coulter’s case is being carefully reviewed to ensure her entitlements have been assessed appropriately.”

“We understand that our customers may be dealing with complex issues and we will work with her to ensure all relevant circumstances are taken into account.

“Our sincere apologies to Ms Coulter for any distress or confusion she has experienced.”

In Australia, the crisis support service Lifeline is 13 11 14. Other international suicide helplines can be found at www.befrienders.org