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At a Senate hearing on ways to help borrowers, Tennessee Republican Bob Corker said debate over education costs should "look at the entire picture."
July 24 -
The Consumer Financial Protection Bureau is urging colleges to adopt a new form designed to make it easier for students to compare financial aid offers.
July 24 -
Patterns in the private student-lending industry are dangerously similar to those seen in the housing market prior to its collapse, according to a study expected to be released Friday by the Consumer Financial Protection Bureau.
July 20
WASHINGTON — Many of the problems endemic to mortgage servicing are also prevalent in the private student loan market, the Consumer Financial Protection Bureau's ombudsman warned in a report to Congress on Tuesday.
In thousands of complaints to the agency this year, the vast majority of student borrowers said they encountered problems related to loan servicing and loan modifications, Rohit Chopra, the CFPB's student loan ombudsman, said in his first annual report on the private student loan market.
Borrowers said they were often caught off guard by loan terms and conditions, had trouble resolving issues with their servicers and were unable to modify repayment terms, even when they could not afford to pay.
"Student loan borrower stories of detours and dead-ends with their servicers bear an uncanny resemblance to problematic practices uncovered in the mortgage servicing business," Chopra said in a conference call with reporters Monday.
The agency has handled more than 2,900 complaints about private student loans in the past seven months, 87% of which were concentrated in seven companies: Sallie Mae, American Education Services, Citibank (C:NYSE), Wells Fargo (WFC), JPMorgan Chase (JPM), ACS Education Services and KeyBank (KEY). The number of complaints at each company is roughly proportional to its market share, Chopra said.
The report recommended that the Treasury Department look at whether new mortgage servicing standards could be applied to student loan servicing, and continue to encourage private lenders to adopt the income-based repayment program for federal student loans.
It also urged Congress to explore opportunities to make loan modifications and refinancing more readily available for borrowers.
"I see these complaints in our report in some ways serving as an early warning," Chopra said, noting that the study is based on anecdotal information from consumers, and is not necessarily statistically relevant. "In order to understand a more specific policy solution, we really have more work to do to see how widespread these practices are."
According to the report, more than two-thirds of the complaints related to problems with repaying loans, including fees, billing issues, deferment, forbearance, fraud and credit reporting. Another 30% of complaints related to problems borrowers faced when unable to pay, including default, debt collection and bankruptcy.
About 5% of borrowers complained about the process of obtaining the loan, from confusing advertising or marketing to high-pressure sales tactics.
Chopra said CFPB heard from a number of borrowers who faced servicing surprises, including one whose loan automatically went into default when his parent, who was the co-signer on the loan, filed for bankruptcy after a divorce.
The agency also heard from military borrowers who faced challenges securing the interest rate cap available to them under the Servicemembers Civil Relief Act — a mistake that cost mortgage servicers millions of dollars in settlements over the past year.
Complaints also included improper application of payments, inability to contact the right person to resolve an issue and inability to modify their payment plans. Borrowers also complained about having limited access to their payment history, receiving conflicting instructions from different servicer employees, and being unable to find refinancing opportunities.
The median age of consumers that filed complaints from March 2012 to September 2010 was 29, according to the report. The median amount of relief that lenders provided for each complaint was approximately $1,500, while one borrower received nearly $84,000.
