Monday, October 29, 2012

Sobering Student Debt Statistics

In the Dodd-Frank Wall Street Reform and Consumer Protection Act, Congress

established an ombudsman for private student loans within the Consumer Financial

Protection Bureau. The ombudsman began accepting student loan complaints in March 2012. Here is the executive summary of its recent annual report:

Outstanding student loan debt is now over $1 trillion, with private student loans

accounting for more than $150 billion. There are at least $8 billion of private student

loans in default, representing more than 850,000 individual loans. Private student loans

are issued by banks and credit unions, state-affiliated and non-profit agencies, schools, and

other financial companies. Like in the mortgage market, creditors often employ third party servicers to collect payments from private student loan borrowers. Many of these

servicers are also active in the federal student loan market.

 

In less than seven months, the CFPB has handled approximately 2,900 private student

loan complaints. For complaints where companies report monetary relief, the median

amount of relief reported was $1,572. The vast majority of the complaints were related to

loan servicing and loan modification issues.

 

Eighty-seven percent of all student loan complaints were directed at just seven companies.

This is not surprising, given that the private student lending and servicing markets are

highly concentrated.

 

The complaints and input received by the CFPB resemble many of the same issues

experienced by mortgage borrowers, such as improper application of payments,

untimeliness in error resolution, and inability to contact appropriate personnel in times of

hardship. Many borrowers feel overburdened by paperwork and other requirements to

activate incentives marketed prior to loan origination.

 

Similar to the mortgage market, active-duty service members and their families sometimes

experience difficulty exercising their rights under the Service members Civil Relief Act.

 

Like mortgage borrowers, student loan borrowers face challenges when attempting to

refinance or modify their debt. Many borrowers are unable to take advantage of low

interest rates due to a lack of refinance options, while others have been unable to secure

modified payment plans during the difficult labor market environment.

(ljs)

 

 

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