Monday, October 29, 2012
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
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.