WASHINGTON—The Consumer Financial Protection Bureau Thursday launched a public inquiry into student loan servicing practices the Bureau says can make paying back loans a stressful or harmful process for borrowers.
The issues the Bureau is seeking information on include industry practices that create repayment challenges, hurdles for distressed borrowers, and the economic incentives that may affect the quality of service. The CFPB is also re-launching an enhanced version of its Repay Student Debt online tool to help borrowers figure out their options for affordable repayment.
“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,” said CFPB Director Richard Cordray said in a release. “Today’s inquiry seeks information on the pain points in student loan servicing that make repayment a more difficult and stressful process.”
Student loans make up the nation’s second-largest consumer debt market. The market has grown rapidly in the last decade the CFPB said.
“Today there are more than 40 million federal and private student loan borrowers and collectively these consumers owe more than $1.2 trillion. The market is now facing an increasing number of borrowers who are struggling to stay current on their loans,” the Bureau stated.
Servicers are a critical link between the borrowers and the lenders, the CFPB said. “They manage borrowers’ accounts, process monthly payments, and communicate directly with borrowers. When facing unemployment or other financial hardship, borrowers must contact student loan servicers to enroll in alternative repayment plans, obtain deferments or forbearances, or request a modification of loan terms. A servicer is often different than the lender, and a borrower typically has no control over which company services a loan.”
The CFPB said it has heard from borrowers through its complaint handling, its Tell Your Story function, and from staff travelling across the country. The CFPB has observed that many borrowers are experiencing significant student debt stress. Consumers have complained about billing problems associated with payment posting, prepayments, and partial payments.
For example, borrowers report that payments may be processed in ways that make repaying student loans even more expensive,” the CFPB explained. “Other consumers have complained about lost records, slow response times to fixing errors, and a general lack of customer service. Often, consumers who have their loan transferred from one servicer to another report experiencing interruptions when receiving notices, billing statements, or other routine communications.”
The CFPB also heard from distressed borrowers that student loan servicers may have difficulty helping them avoid defaults and delinquencies.
“Repayment roadblocks can exacerbate problems. Distressed borrowers complain that they are given the runaround when they ask for help, they have a hard time getting straight answers from servicing staff, and that the staff are untrained or unequipped to deal with their problems,” the agency said.
For many young consumers, repaying a student loan is their first experience in the financial services marketplace the Bureau said.
“Student loans play a pivotal role as they seek to establish their creditworthiness and, eventually, finance their first major purchases. This potential impact on millions of Americans lives only heightens the student debt stress borrowers face.”