CFPB Fields–And Posts–Complaints About Private Loan Industry
The Consumer Financial Protection Bureau published nearly 2,000 comments last week from borrowers, lenders, and other organizations about their experiences in the private student loan market. Common complaints from borrowers included high interest rates, poor information, a lack of flexibility in repayment, and an inability to discharge loans through bankruptcy reported the Inside Higher Ed.
Borrowers especially had trouble understanding how to convert the amount of money they took out in loans into an average monthly payment upon graduation. When young graduates confront such a large repayments monthly, they often find themselves unable to pay because they either didn't realize how burdensome the debt would be, overestimated how much their first job out of college would offer. re fir how and soon find out that private student lenders tend to be much less forgiving than federal ones.
One comment reads:
I am currently making a monthly payment of about $350.00 for just my loans through Citibank. That is not including the handful of loans I have through other institutions. Citibank would not work with me at all to try and lower my payments or extend the life of the loan. I am working full time but I do not make enough money to be making this payment every month.
Federal loans typically offer more flexibility and protections than private loans, like providing repayment plans that are tailored to one's discretionary income– also known as the Income Based Repayment Plan or IBR.
The differences between federal student loans and private ones, especially when it comes to flexibility, are crucially important: one commenter wrote “I lost my job in 2010, and asked for a deferment. The subsidized [federal] student loans had no problem, but the private loans…wouldn't budge. I still had to pay $200/month. When I couldn't pay any more and had no more income, they still demanded payment.”
According to the CFPB, many borrowers are unaware of the differences between federal and private loans. As of July 2010, the federal government stopped providing subsidies to private lenders to offer federal loans. The comments provided to the CFPB show that while private student loans are no longer subsidized or guaranteed by the federal government, they still take advantage of vulnerable students and are plagued with problems.
Some of the issues raised about private student loans cited by commenters, like not being able to get rid of loans through bankruptcy, also pervade federal education loans as well.
Part of the problem is that student loan borrowers can't find accurate information easily. Sallie Mae’s study "How America Pays for College," revealed that only 42 percent of respondents found student loan companies to be helpful sources of information on financing college; 53 percent found the federal government helpful. The most helpful source cited, a college financial aid office, isn't generally accessible to students until after they're enrolled in a university and have likely already made those financing decisions on their own.
In an effort to provide students with better information, the Consumer Financial Protection Bureau is currently developing a “Know Before You Owe” shopping sheet that would compare a college’s cost of attendance to the national average, the default rate of students attending that college, and an estimated monthly payment upon graduation based on one’s expected debt.
“One theme clearly rose to the top," the CFPB concluded. "Many private student loan borrowers expressed confusion and frustration when paying back their loans, especially when trying to get on an affordable payment plan.”
The CFPB is offering a debt repayment assistant and a student loan complaint system as first steps toward fixing the system and highlighting the major issues.The agency has reached out to state attorneys general, universities, and advocacy groups in attempts to assess the most pressing problems concerning the private loan industry.
Eric Murphy is a journalism intern with Campus Progress.