A substantial number of student loan borrowers are reporting costly and distressing problems with the companies that service their federal or private student loans.
Borrowers report basic failures when dealing with servicers, including bad or inaccessible information, surprise fees and lost benefits.
The Consumer Finance Protection Bureau issued a warning on September 29, citing a number of servicing shortcomings, as well as plans to improve the situation.
The difficulties often stem from sloppy or illegal practices that tend to drive some student loan borrowers into default.
The CFPB enumerated a number of specific problems, including:
- Poor Service: Borrowers are often distressed by poor customer service and bad information. Some servicers have problems providing basic account information, issuing inaccurate billing statements and dispensing conflicting information regarding repayment programs.
Further distress results from the servicers' inability to resolve errors or provide suitable recourse. When servicers give out bad information, borrows may miss payments, lose benefits and suffer damage to their credit scores, leading to higher borrowing costs.
- Transfer Problems: In the last five years, over 10 million student loan borrowers have had their loans transferred to new servicers.
These transfers can be a significant source of confusion because of differences in procedures involving payment posting and allocation, processing and administration of borrower benefits.
If a new servicer doesn't record payments properly, the borrowers may be hit by late fees and other hassles.
- Refinancing Roadblocks: Borrowers' attempts to refinance their student loans may be frustrated by inaccurate and out-of-date information from servicers.
The bad information includes the wrong payoff amounts, unanticipated bills requesting extra payments and general confusion about how to pay off existing loans.
- Co-Signer Confusion: Some servicers cause needless distress by incorrectly placing a borrower's account into default status, even though the borrower hasn't missed any payments.
The problem stems from incorrect administration when the servicer learns of the death or bankruptcy of the loan's co-signer.
- Costly Allocation Procedures: A borrower may make payments in full and on time, yet poor processing practices by servicers can maximize fees and interest charges.
- Improper Guidance: Reports have come in from borrowers that servicers gave non-optimal guidance, steering distressed borrowers away from excellent long-term repayment options in favor of short-term ones. Other servicers gave conflicting or incorrect guidance about repayment options.
- Recertification Problems: Distressed borrowers must re-enroll in income-based repayment plans each year, yet many complaints have cited lack of renewal notifications from servicers.
Failure to recertify can cause a large spike in a borrower's monthly payments. In some cases, sloppy practices caused servicers to miss recertification deadlines.
- Debt-Relief Scams: Some distressed borrowers who have had problems with servicers are turning to student debt relief programs that are nothing more than scams, collecting fees for services that are freely available.
The CFPB offers a Repay Student Loan Tool to guide borrowers through their repayment options, including ways to avoid default.