Millions of Americans are struggling to pay back their student loans. They’re understandably anxious and stressed.
All too often, their situation is made worse, they say, by the companies that service their loans. These servicing companies manage the accounts and process the monthly payments for the lender.
At a public hearing in Milwaukee on Thursday, the Consumer Financial Protection Bureau (CFPB) will announce that it is launching a public inquiry into the student loan servicing industry. CFPB Director Richard Cordray says he wants to find out which industry practices create repayment challenges and hurdles for distressed borrowers.
“Student debt stress can make borrowers feel like they are walking a tightrope where any false move in paying back a loan can cause them to fall,” Cordray said in a statement. “Today’s inquiry seeks information on the pain points in student loan servicing that make repayment a more difficult and stressful process.”
The CFPB received more than 28,000 comments and complaints about student loans in the past two years.
An analysis of this information shows that the problems often start as soon as a student graduates. Common complaints include trouble with the posting of payments, lost records, slow response times in fixing errors and a general lack of customer service.
The CFPB hopes to learn if the student loan servicing industry:
- Does things that make repayment more complicated and costly
- Applies payments in ways that maximizes fees
- Has an economic incentive for poor quality service
Similarities to mortgage servicing problems
More than 40 million Americans are currently repaying federal and private student loans. Outstanding student loan debt now tops $1.2 trillion, making it the second largest source of consumer debt in the country, after mortgages.
An increasing number of these young consumers are having a hard time staying current on their loans. Many are asking their loan servicers for help.
When they do, the problems they experience “bear an uncanny resemblance to the situation where struggling homeowners reached out to their mortgage servicers before, during, and after the financial crisis,” CFPB Director Cordray said. “Having seen the improper and unnecessary foreclosures experienced by many homeowners, the Consumer Bureau is concerned that inadequate servicing is also contributing to America’s growing student loan default problem.”
About eight million Americans are in default on their student loans, according to the CFPB. A default can have serious and long-lasting financial consequences for someone trying to establish good credit and finance their first major purchases.
Are new rules needed?
Consumer advocates would like to see more government oversight and protection for the growing legions of student loan borrowers. At Thursday’s public hearing, they will call on the agency to do more.
The CFPB will not announce any proposed new rules for student loan servicers, but in prepared remarks to be delivered at the hearing, Cordray noted that “there is currently no comprehensive statutory or regulatory framework that provides uniform standards” in this area. He said the bureau will consider whether recent reforms in the mortgage servicing market might also benefit student loan borrowers.
The CFPB has prepared a factsheet about student debt stress. They bureau’s Repay Student Debt web tool offers a step-by-step guide to navigate repayment options, especially when facing default. You can share your experience with the CFPB or a file a complaint about a problem related to repaying a student loan.