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.