The director and ombudsman of the Consumer Financial Protection Bureau is saying the number of complaints his office is receiving over student loans are similar to those that the bureau has been receiving about mortgage servicers. He’s hoping the government will take significant steps to address and ultimately change those problems.
The Consumer Financial Protection Bureau has been asking the public for feedback on student loans since earlier this year with the goal of finding ways to improve the system as a whole.
Referring to them as “uncanny resemblances’, Rohit Chopra, CFPB loan ombudsman, along with his agency, released a new report based on the private loan sector and student loans. The report was completed at the request of Congress and in it, there are revelations that include more than 3,000 complaints the bureau has received about student loans – and specifically private student loans – since March. That averages out to around 125 complaints a week.
It’s important to differentiate between private student loans and government student loans. While those with traditional government backed loans have protections in place including options to base payments on income, these private loans have none of those protections in place. There are no deferments for those in the military and in the private sector, one’s income isn’t taken into consideration. Worse, many of the complaints say the students nor their families were ever explained the differences between private and government loan packages. The terms were never explained nor the repercussions for failing to repay the funds.
The vast majority of the complaints filed by consumers were in regard to how the loans are actually serviced. There are complaints on things like unexpected and exorbitant fee structures, deferments, late payments and other billing issues. There were also serious problems discovered with the way payments were posted to a student’s account, often times, showing late payments when in fact the payments were made on time and simply not posted in a timely fashion. These are all part of a person’s credit history, so the long term implications exist and could affect one’s ability to get a job, gain approval for a home mortgage or insurance.
Another serious problem, reads the report, is the frequency in which the loans or sold and re-sold to different lenders. Often, students had no idea where to send their payments and weren’t aware they were going to the wrong lender until the new lender called demanding payments.
Then, there are the instances in those complaints that took on more of a predatory nature. The report detailed problems with unauthorized payments, especially in those instances where the borrower has a checking or savings account with the same institution that is servicing their loan. A late payment often meant an automatic (and one with no warning) deduction from that borrower’s account automatically. Overdraft fees were charged in some instances if the payments put the account into an overdrawn status.
In another instance, the agency reports that one borrower was making all of his payments on time, but still went into default due to lack of clarity in the loan terms. Another story includes a co-signer on the loan who filed for bankruptcy, though put the loan into default, making problems for the student or primary borrower. Several stories mirrored one another. Many say they attempted to make payments from a good faith stance, only to find themselves being placed in a default status and having to answer numerous collection calls on a daily basis.
Finally, the report reveals that those student loans that are serviced by Sallie Mae make up half of all of the complaints. The remaining complaints were separated between six more companies. It appears Sallie Mae has an unusually high number of complaints, but it should be noted the number of complaints are proportionate with the size and number of loans the companies make.
The dynamics of the complaints shows most complaints were made by those between the ages of 22 and 29. This is important as it reveals much about the job market college graduates are entering into. Chopra said the report reveals are entering a “tight job market and are struggling”.
A few of the recommendations made by CFPB include new laws that would allow borrowers to modify the terms of their loans easily. Refinances were offered as a possible solution, too. Lowering the interest rates can result in lower payments, too. It was also suggested the CFPB, along with the Treasury and Secretary of Education, come together to reformat the student loan sector in its entirety with the goal of finding better servicing solutions. Finally, broader application of repayment plans to ease the many burdens could also help alleviate the growing problems.
Are you currently carrying student loan debt? Have you had problems with private student loan? What was the outcome? Share your story with us.