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10 troubling facts about student loans

Earlier this week the Consumer Financial Protection Bureau (CFPB) released its annual report detailing many of the complaints about the student loan industry – complaints that sound disturbingly like the problems that we’ve seen in the mortgage servicing industry in recent years.

Some of their key findings include:

  • Outstanding student loan debt is now over $1 trillion, with private student loans accounting for more than $150 billion.
  • There are at least $8 billion of private student loans in default, representing more than 850,000 individual loans.
  • Like in the mortgage market, creditors often employ third party servicers to collect payments from private student loan borrowers. Many of these servicers are also active in the federal student loan market.
  • In less than seven months, the CFPB has handled approximately 2,900 private student loan complaints. For complaints where companies report monetary relief, the median amount of relief reported was $1,572. The vast majority of the complaints were related to loan servicing and loan modification issues.
  • Eighty-seven percent of all student loan complaints were directed at just seven companies.
  • The complaints and input received by the CFPB resemble many of the same issues experienced by mortgage borrowers. By far, the most common concern communicated by borrowers has been the difficulty negotiating a repayment plan with their servicer in periods of unemployment, underemployment, or financial hardship. Many borrowers report frustration that they are unable to identify appropriate personnel that can make a determination about their repayment options.
  • Like mortgage borrowers, student loan borrowers face challenges when attempting to refinance or modify their debt. Many borrowers are unable to take advantage of low interest rates due to a lack of refinance options, while others have been unable to secure modified payment plans during the difficult labor market.
  • Similar to the mortgage market, student loan borrowers face confusion when loans and servicing rights are bought and sold. Many student loan borrowers have found that their loans have been sold or their servicer has changed. Some of these borrowers report experiencing lost paperwork and changes in terms.
  • Few borrowers were seeking to have their loans forgiven when facing hardship— most seem to be searching for a clear answer on whether options might exist, but struggled to get an answer from their lender or servicer.
  • If these loans remain in distress without the opportunity to modify or restructure, the level of default and distress in the student loan market might further compromise many young adults from full economic participation.

To read the full 22-page report including the Consumer Financial Protection Bureau’s recommendations, click here.

To file a student loan complaint with the CFPB, visit: https://help.consumerfinance.gov/app/studentloan/ask.

7 Comments

  1. Frank Burns

    October 18, 2012 at 8:33 am

    If you are looking for the US taxpayer to bail out students who made the decision to borrow funds, then you better look elsewhere. It’s not going to happen.

  2. Alex Smith

    October 18, 2012 at 8:55 am

    The US taxpayer already owns it once it has gone into default. What are we talking…$200 – $300 bil in bad debt?

  3. Frank Burns

    October 18, 2012 at 9:01 am

    Anyone who goes into default should be pursued for loan recovery. It that means taking away their cell phones, Ipads, wide screen tvs, etc, then we should do it.

  4. david esmay

    October 18, 2012 at 9:52 am

    Yeah Frank, we only bail out to big to fail banks.

  5. LB

    October 18, 2012 at 10:23 am

    This is a very watered down version of the problems in the student loan industry, but on target. And to those who are screaming “no bail out”, that is not even the focus of this particular article. Read it, please. It was trying to focus on the sometimes corrupt, sometimes borderline corrupt or immoral or unethical practices in many student loan industries. For example, from the quote above; “Many borrowers are unable to take advantage of low interest rates due to a lack of refinance options”. That is a watered down, but very concise and correct comment on a horrible part of the student loan debt. Why is it against the law to refinance to a lower interest rate at any time. Many past students, now in their 50’s are still stuck in exorbitant high interest rates. No one is speaking to this problem. They are focused only on keeping the interest rate low on the current students. It should not take 15 years to pay off a $20,000. student loan when it would never take more than 4-5 years to buy a car at that cost. And btw, there are always, always moles from the filthy rich student loan industries on these kinds of write in sites that muddy up the water with their negativity and completely block anyone from having a decent clear conversation about this problem.

  6. Frank Burns

    October 18, 2012 at 10:35 am

    LB,
    Please don’t imply that I’m a mole for anyone, I’m a pissed off taxpayer and the intent of my note was to preempt any discussion on any more taxpayer bailouts. I have no issue with negotiating better loan terms. I believe when you take out a loan, you should make every effort to pay it back. Defaulting on loans is very shameful and irresponsible.

  7. Alex Smith

    October 18, 2012 at 12:41 pm

    There shouldn’t be any reason for someone to go into default on a federal loan…period. Programs like IBR and ICR offer a good alternative. However, I believe there’s a problem with private student loans that don’t have the same flexibility as the federal ones, while charging a premium interest rate. This rate should be determined by risk, and there’s no risk for the private lender if the Fed backs the loan. I believe this was a change made within the 2005 legislation.