In less than seven months the Consumer Financial Protection Bureau has registered nearly 2,900 complaints about private student loans, according to a new report from the agency. The majority of the complaints, 65%, deal with the servicing of the loan and 87% of the complaints are directed at seven companies.
Almost half of the complaints received, 46%, were in reference to Sallie Mae and dealt with issues that the report says “stymie responsible borrowers.” The most common concern of all the complaints was an inability to speak with a representative to discuss repayment options.
Another frequently reported problem was the inability to refinance the loan. Most borrowers have little to no credit history when they apply for their student loan, however as they build a credit profile and begin earning income they are often unable to take advantage of lower interest rates to refinance their student debt.
Borrowers also reported that they are unable to access advertised payment plans and that attempts to make “good faith payments” have led to defaults because the payments were less than the required full monthly payment. According to the report, an additional cause of default that is often included in student loan contracts is a provision that puts the loan into automatic default should the principal or co-signer declare bankruptcy.
According to the report, borrowers with accounts at retail banks that also serviced their student loans reported that, in some cases, the bank deducted the full amount of their monthly student loan payment from their checking or savings account without notifying them. Because the report is the first from the agency’s student loan ombudsman it does not provide an accurate picture as to how widespread the problems are.
While determining the scope of the problems is a necessary step in order to craft comprehensive policy solutions, the report does offer suggestions. Among the recommendations made, is that Congress explore legislation allowing borrowers to modify their loans to take advantage of lower interest rates.
The report also recommends that the Education Department and Treasury implement additional checks to improve the servicing of student loans. The report notes that borrowers are unable to choose their student loan provider and that if they could “take their business elsewhere” many would.
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