A report out today from the Consumer Financial Protection Bureau outline the major problems facing American’s today when it comes to dealing with private student loans.
Not surprisingly, Sallie Mae tops the list of most complained about student loan company, with 46 percent of all private student loan complaints. American Education Services (PHEAA) was a distant second.
And while those of us in the debt world can’t be surprised by this statistic, 95 percent of complaints were about problems related to repaying loans.
People filing complaints with the CFPB hand the following issues in common:
Inability to speak with personnel empowered to negotiate a repayment plan. 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.
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Inability to refinance. Many student loan borrowers have a limited credit history when applying for a private student loan — and their interest rate reflects a high level of risk. But as borrowers build a credit profile, graduate, and earn income, they are often unable to refinance existing student debt at a lower rate — in stark contrast to the market for mortgage refinance products. We have heard from borrowers who say they are looking for loans with more attractive terms, but many have been unable to take advantage of today’s historically low rates.
Inability to access repayment plans previously advertised. Many private student loan borrowers are able to enroll in alternative repayment arrangements included in the terms and conditions of their loans. However, some borrowers note that enrolling in a new repayment arrangement is a difficult process. Some servicing personnel may not be fully aware of all policies or incentive plans available to private student loan borrowers.
“Good faith” partial payments leading to default. When borrowers are unable to negotiate a new repayment plan, many make “good faith” payments for less than the full payment amount. Many borrowers report that they send their servicers checks for what they can afford each month, including letters explaining their situation. In some cases, borrowers note that they send in more than 50 percent of their take-home income. However, these payments still resulted in delinquency and default on their private student loans. Some borrowers worry that, after defaulting because of inability to make full, monthly payments, their defaulted loans will become due in-full—presenting an even larger obstacle. Some borrowers express frustration that servicer personnel encourage them to pay what they can afford without informing them that they will still be on a path toward default.
Debt collection practices. Many borrowers in default voice concerns about certain tactics employed by private student loan debt collectors. According to some borrowers, private student loan debt collectors may attempt to exploit borrowers’ confusion between the collection tools available to recover private loans and the extraordinary powers granted to federal student loan debt collectors. For example, borrowers report that debt collectors have claimed the authority to garnish wages without a court order, seize Social Security checks, and offset tax refunds. These tactics may make borrowers more likely to remit a payment on a loan in default.
Death of primary borrower. Some borrowers describe that the process for handling a loan when the primary borrower dies is not always clear. The death of the primary borrower may trigger a default, accelerating the balance due and leaving a co-signer, often the parent or grandparent of the deceased borrower, legally responsible for payment. However, much like with federal student loans, some private student lenders allow co-signers to apply to have the outstanding debt cancelled. Co-signers complain that information about discharge or alternative arrangements in the case of death of the primary borrower is not readily available and that decisions are made on a case-by-case basis, giving co-signers little understanding of how the process works or if they will be successful.
Forbearance fees. Some lenders and servicers charge a fee for forbearance. The borrowers who request forbearance on their loans are typically those who cannot afford to make their payments. Correspondingly, a monthly charge for forbearance forces borrowers to come up with money as they attempt to demonstrate that they are experiencing financial hardship. – Source