New CFPB Report Finds Troubling Facts About Private Student Loan Industry
By Consumers Union on Wednesday, October 17th, 2012
Yesterday, the Consumer Financial Protection Bureau (CFPB) released its first annual report on student loans, focusing on problems with the private student loan market. The report found that borrowers were often surprised by the terms of their loans, had trouble contacting their loan servicers, and had few options for refinancing their loans.
This is especially troubling, given the sheer size of the student loan market – it’s currently over $1 trillion outstanding, and private loans account for $150 billion of the total amount. Forty percent of households headed by someone under 35 have student loan debt.
Private loans are different than federal student loans, because they are not afforded many of the same protections such as income-based repayment, deferment due to unemployment or hardship, and discharge for public service, disability, or death. To make things worse, loans are often transferred from the original lenders to servicers that may have incomplete or inaccurate records, making it even harder to get information about the loans.
The CFPB received almost 3,000 complaints from private student loan borrowers, and found that borrowers were encountering hurdles to paying their loans that are strikingly similar to the problems in the mortgage market:
- Problems obtaining modifications or refinancing
- Payments credited late or unevenly
- Servicers’ faulty recordkeeping
- Runaround from servicing staff
- For military personnel, difficulty exercising rights under Servicemembers Civil Relief Act
The report makes recommendations that would ease such burdens on private student loan borrowers, such as making refinancing more widely available and taking steps to ensure that these borrowers have access to income-based repayment for any federal loans they may hold apart from their private loans.
If you have concerns about your student loans or want to submit your own complaint, visit the CFPB’s Students page.
For some practical tips from Consumers Union on how to graduate with less student debt, click here.