News
Student Loan Problems Mirror Those of Mortgages
Charlene Crowell
NNPA Columnist
A
n adage counsels, “The more things change, the
more they stay the same.” When it comes to con-
sumer debt, that advice is also a truism. After years
of mortgage borrowers complaining about servicing – or
the lack thereof – it appears that problems student loan bor-
rowers face are remarkably similar.
With student loan debt topping the trillion-dollar mark,
another looming credit crisis could emerge just as the hous-
ing market is showing signs of recovery. According to the
Survey of Consumer Finance, today one in four American
households are headed by someone under the age of 35 with
student loan debt. Private student loans account for more
than $150 billion of outstanding debt. Moreover, more than
850,000 of these loans are in default and even more are
delinquent.
Like the many troubled homeowners who did not under-
stand the terms of their mortgages, student loan borrowers
are now having the same difficulty. Servicers, often hired
by lenders, often do not share or know the terms of repay-
ment, available options for refinance, or even the total
amount owed.
Recently, the Consumer Financial Protection Bureau
released a report on the nearly 2,900 private student loan
complaints it received since March of this year. Approxi-
mately 65 percent of complaints allege problems with ser-
vicers regarding fees, billing, fraud and credit reporting.
Another 30 percent of borrowers filing complaints with
CFPB were concerned with limited repayment options, debt
collection practices and problems related to loans in default.
“Student loan borrower stories of detours and dead-ends
with their servicers bear an uncanny resemblance to prob-
lematic practices uncovered in the mortgage servicing busi-
ness,” said Rohit Chopra, CFPB’s Student Loan
Ombudsman.
The vast majority of the student loan complaints received
by CFPB were about private loans.
Unfortunately, private loans typically do not have the
consumer protections built into federal student loans, such
as lower interest and fixed rates, income-based repayment
plans, military deferments or discharges upon death.
Instead, the typical private student loan servicer actually
works for the lender and may not have an incentive to pro-
vide a high level of customer service to borrowers. In the
‘Student loan borrower stories
of detours and dead-ends with
their servicers bear an
uncanny resemblance to
problematic practices
uncovered in the mortgage
servicing business’
—Rohit Chopra
face of financial hardship, unemployment or underemploy-
ment, these student loan borrowers often discover few or no
options that can be adapted for their circumstances. In
some cases, servicers encouraged borrowers to pay whatev-
er they could, but failed to inform them their loan status
would still be on a path towards default.
With fewer options for refinance or forbearance, some
private student loan borrowers are also claiming they were
never advised of the difference between a federal and pri-
vate loan either at the time the loan was first originated or
later during repayment. If the original loan was sold or if
the servicer changed, many servicers were unable to answer
basic questions as to who actually owns the unpaid loan.
Depending upon loan terms, it may not be possible to nego-
tiate alternative repayment.
Other complaints filed with CFPB expressed concerns
with servicer errors or misinformation. For example, some
servicers may take two to four days to process payments –
even if the payment was submitted online. As a result, bor-
rowers end up paying interest on a higher outstanding prin-
cipal in the process. Others complained about faulty
record-keeping, lost paperwork and errors that though
promised to be quickly corrected were not. Still more com-
plaints charged that even after getting transferred to multi-
ple departments, no one was responsive or empowered to
provide a clear answer.
If there is a moral to these unfortunate consumer experi-
ences, it could be summed up with CFPB’s slogan, “Know
Before You Owe.” Before any debt is incurred, take the
time and necessary persistence to fully learn obligations
and responsibilities. Any business or its representative that
is unwilling or reluctant to explain their products are prob-
ably not a good choice for the consumer.
For consumers now considering a private student loan,
invest some time to identify and pursue other forms of
financial aid such as grants, scholarships, federal student
loans, or work-study programs. Need-based grants often
offered by state and federal initiatives can help defray col-
lege costs without incurring debt. Other programs are
available to promote the growth of minorities in specific
career paths.
“Know Before You Owe” is good advice. Knowing more
about financing a college education is even better.
Charlene Crowell is a communications manager with the
Center for Responsible Lending.
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Page 8 The Seattle Skanner October 24, 2012