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Borrowers stuck with oppressive private student loan debts continue to get little mercy from lenders, which is bad for both consumers and the financial institutions, according to a report issued Thursday by the Consumer Financial Protection Bureau.
While distressed mortgage holders have several opportunities to appeal for lower monthly payments, and federal student loan borrowers can extend the terms of the loans by 10 years or more, most private borrowers are stuck in an all-or-nothing quagmire — make the entire payment, or default.
The CFPB report criticized private student loan servicers, but did not mandate specific changes, instead issuing a series of recommendations. Reports issued last year by the CFPB, and a separate report issued in July 2013 by the FDIC and other banking regulators, made similar recommendations.
Thursday’s report, issued to fulfill an annual requirement by Congress, did highlight several examples of the problems students face, however. Such as:
The CFPB estimates that there is $1.2 trillion in outstanding private and federal student loan debt, with more than 7 million Americans in default.
CFPB student loan ombudsman Rohit Chopra said that the most risky lending practices from the last decade had largely disappeared, as they have in the mortgage market, but consumers who attended school during that time were still suffering from the consequences, and getting little help.
“The response by the private student loan industry to distressed borrowers is failing to help them avoid default,” said Chopra. “Too many borrowers are barely treading water, losing hope that these companies will throw them a lifeline.”
The report is based on 5,300 complaints filed with the CFPB during the past 12 months, which the agency says is a 38% increase from the previous 12-month period.
Complaints run the gamut — even borrowers who tried to pay more than their required monthly payments ran into conflicts with servicers.
“Many consumers who wished to pay down their loans more quickly found that student loan servicers allocated payments in ways that might maximize the amount of total interest the borrower would pay, slowing him or her down on the path to being debt-free,” the report said.
But by far, the most complaints concerned consumers looking for alternatives to oppressive monthly loan payments.
According to the CFPB, the top complaints included:
Chopra stressed that both servicers and borrowers would be better off if former students were allowed to lower their payments by extending the terms of their loan, lower their interest rates or receive principal relief. So far, financial institutions have been slow to adopt that stance, however. Meanwhile, defaulting on student loans can do considerable damage to a borrower’s credit, which can make it difficult to qualify for other loans or credit down the road. (You can use free tools on Credit.com to see how your loans and payment history are affecting your credit score.)
“Regulators and policymakers have encouraged lenders to constructively engage with borrowers to find workout solutions,” the report said. “Despite commitments by a number of major market participants to expand alternative repayment options, consumers continue to encounter limited or no flexibility when seeking help from their lender or servicer.”
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