Last week, the Consumer Financial Protection Bureau released its Annual Report of the CFPB Student Loan Ombudsman garnered from approximately 3,800 complaints that were addressed to the CFPB between October 1, 2012 and September 30, 2013. (The Ombudsman role was created as a part of the Dodd-Frank Wall Street Reform and Consumer Protection Act.)
The report’s findings conclude that due to high interest rates, many student loan borrowers are unable to repay student loans well after graduating college and securing employment. And despite a plethora of refinancing options available to mortgage loan borrowers, fewer refinancing options are available for student loans borrowers. Therefore, many individuals burdened with student loans are forced to pay down their high-interest rates loans more quickly.
Complaints submitted to the report include:
- Poor communication about payment application
- Stumbling blocks when making payments in excess of the minimum amount due
- Snags when making small ‘good faith’ payments
- Timing of payment processing
- Access to payment histories
- Lost payments
- Difficulty to obtain accurate payoff information
- Servicing transfer chaos
The CFPB’s report also noted that the most common type of complaint related to borrowers attempting to adjust their terms of repayment during times of hardship. In a detailed overview analysis of the 3,000+ consumer complaints, the CFPB Report offers recommendations and commentary in response to the problems in the student loan marketplace.
Comparing standards and options like those of credit cards and mortgages, the CFPB recommends implementing similar credentials to student loans. These include:
- Notice of transfer of loan servicing
- Timely transfer of documents to new servicer
- Payoff statements
- Error resolution and dispute review procedures
- Continuity of contact
- Records retention
- Early intervention for borrowers nearing default
- Timely posting of payments
- Billing statements
It recommends to evaluate whether recent efforts to improve the servicing of mortgage and credit card obligations could be applied to student loans. With Congress preparing to reauthorize student loan programs via the Higher Education Act, the report suggests that Congress assess whether certain reforms to the servicing of credit cards and mortgages might also be applicable to the student loan market.
Borrowers can utilize the Repay Student Debt tool, ask questions about private student loans and other consumer financial products or services, and submit a complaint online, with additional information available at http://www.consumerfinance.gov/students/.