The CFPB has come out with a report detailing roadblocks to federal and private student loan repayment caused by student loan servicers’ sloppy practices. The report states that “41 million Americans collectively owe more than $1.2 trillion in student loan debt, making student loan debt the second-largest class of consumer debt behind mortgages.” One in four student loan borrowers are delinquent or in default on student loans. The CFPB received more than 30,000 responses to its notice to student loan borrowers requesting comments on student loan servicing.
Reported problems include:
- Difficulty accessing information about loan accounts and repayment programs,
- Incorrect information or inaccurate billing statements that are difficult to correct,
- Surprise fees and lost benefits caused when servicer changes result in lost account records, new policies or disrupted administration of accounts,
- Inaccurate payoff statements or surprise bills demanding extra payments,
- Incorrect classification as in default upon the death of a co-signer even though payments are current,
- Application of payments to costs and fees rather than to loan repayment.
Servicing problems raise concerns about whether debtors who fulfill the requirements for income-based lower monthly payment plans are receiving information about those plans, or are instead being steered into less-advantageous, short-term options like forbearance. The report noted that servicer mishandling of student loans may adversely affect older people, veterans and consumers with disabilities, disproportionately.
The report makes a number of recommendations intended to provide a roadmap for reform, including:
- Consistent, industry-wide, standards for the servicing market,
- Federal and state enforcement of consumer protection laws to hold servicers accountable,
- Requiring servicers to provide timely, accurate, information about loan repayment and alternative payment plans,
- Greater transparency including publication of servicer-level information on loan performance.
The CFPB offers a guide to navigate the repayment options through its Repay Student Debt tool.
Tags: Student loans