The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Information on this website may not be current. This website may contain links to other third-party websites. Such links are only for the convenience of the reader, user or browser; we do not recommend or endorse the contents of any third-party sites. Readers of this website should contact their attorney, accountant or credit counselor to obtain advice with respect to their particular situation. No reader, user, or browser of this site should act or not act on the basis of information on this site. Always seek personal legal, financial or credit advice for your relevant jurisdiction. Only your individual attorney or advisor can provide assurances that the information contained herein – and your interpretation of it – is applicable or appropriate to your particular situation. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, contributors, contributing firms, or their respective employers.
Credit.com receives compensation for the financial products and services advertised on this site if our users apply for and sign up for any of them. Compensation is not a factor in the substantive evaluation of any product.
Lost paperwork, bad advice, surprise late fees, misapplied payments, and massive confusion are widespread in the student loan servicing industry, the Consumer Financial Protection Bureau said Tuesday in a new report. Borrowers face huge roadblocks that contribute to a massive loan default problem, the agency found after reviewing 30,000 public comments during the past several months.
Together with the Departments of Education and Treasury, the CFPB issued a framework Tuesday for student loan serving reform.
The report cited “a wide range of sloppy, patchwork practices that can create obstacles to repayment, raise costs, cause distress, and contribute to driving struggling borrowers to default.”
Concerns about loan defaults and servicer errors aren’t limited to recent college graduates. Family members, even some elderly, are often caught up in the paperwork nightmares, the agency said. Some complaints came from older Americans who co-signed student loans and now find their Social Security checks are at risk of garnishment because of servicer missteps.
Among the reforms urged by the agencies is to make it easier for borrowers to obtain and keep relief from high payments through income-based repayment plans. The chaos students can face was detailed in a recent Credit.com story about a student whose monthly payment jumped from $200 to $1,400 over a paperwork issue.
“With one out of four student loan borrowers struggling to repay their loans or already in default, cleaning up the servicing market is critical,” said CFPB Director Richard Cordray. “Today’s report underscores the need for market-wide student loan servicing reforms to halt harmful practices and boost assistance for distressed borrowers.”
The size of the student loan market has exploded during the past decade, rising from less than $600 billion in 2006 to more than $1.2 trillion today. The complexity of the market has exploded, too. More than 10 million borrowers have seen their servicer change in the past 10 years, leading to a series of headaches.
“When servicers change, payments may be lost, consumers may incur surprise late fees, and processing problems and missing account records can knock borrowers off track on repaying their loans,” the CFPB said.
The CFPB also found that many borrowers who were entitled to apply for reduced monthly payments were instead defaulting on their loans, suggesting the former students may be getting bad advice.
“According to a recent study, 70% of the federal Direct Loan borrowers in default met the income requirements for lower monthly payment under an income-driven repayment plan. This raises serious concerns that millions of borrowers may not be receiving important information about repayment options or may encounter breakdowns when attempting to enroll,” the CFPB said. “Borrowers report servicers steering them into forbearance or other short-term options that, while appropriate for some borrowers, may increase costs and may not be in the consumer’s best interest.”
That finding is consistent with the results of a report issued Monday that reviewed the default rate of a sample of loans issued to Iowa community college students. The report found a link between default rates and servicers — the rate at one servicer was 73.1% — suggesting treatment of borrowers is related to the odds they will or won’t pay off the loan.
The regulators’ framework called for more consistency among loan servicer customer service, along with greater transparency. The framework is part suggestion, part warning shot by the agencies.
Among the report’s other findings:
Image: iStock
August 26, 2020
Student Loans
August 4, 2020
Student Loans
July 31, 2020
Student Loans