Recent study conducted by the Consumer Financial Protection Bureau on the potential obstacles of Loan Servicing Companies
Post grad college students are burdened with thousands of dollars of student loan debt. In the last decade, the total amount of student loans has more than doubled. Student loan debt has reached over $1.2 trillion in the last year, making up the second largest US consumer debt. Last year, the Consumer Financial Protection Bureau released a report exposing the student loan borrowers who have experienced issues and deficiencies with both private and federal loans. These results uncover the obstacles that student loan borrowers hurdle over when trying to refinance, or repay their debts.
From this report, borrowers have described malpractices used by servicing companies that include creating unnecessary obstacles to repayment, raising costs, driving students into defaulting their debts, and create an overwhelming financial distress on the borrower. A quarter of borrowers have defaulted loans and have been struggling to keep on top of the payments for their student debt. Even with the option to opt into an income driven repayment plan, it seems as though this isn’t enough to manageable finance student loan debt for many borrowers. In the spring of 2015, the CFPB reached out to the public to inquire about the problems that student loan borrowers have experienced with paying back their student loans. Over 30,000 people responded to this public inquiry with complaints against the servicing companies. Some of these complaints include: lost or misplaced paperwork, misapplying payments, long response times for getting problems addressed and fixed, and difficulties finding repayment plans that are affordable.
Borrowers struggle to find a repayment plan that will help them avoid defaulting on their student loans, or having a plan that is accessible to their financial situation. The CFPB has extensively researched these loan servicers firsthand, as well as the borrower’s complaints against these federal and private organizations. As a result, the CFPB has determined some recommendations for how to reduce these issues for borrowers. Creating a fair and consistent set of rules for all servicers would result in a consistent and high standard standardized system for repayment plans. This would hold all servicers accountable for holding up a specific standard, resulting in a well balanced and fair standard that every servicer must meet. Another important factor in creating these types of serving markets, is to make the information more accessible to the borrowers. While searching for repayment plans, borrowers may be locked into a plan that does not fit their financial needs due to the lack of access to the information. Making this information public would greatly reduce the defaults on student loans and finding a servicer that fits the needs of individual borrowers.
Within the servicing companies, there have been many complaints about the company not reaching high standards of customer service, organization, or affordability. Of the thousands of complaints gathered from the CFPB, many of these were regarding the lack of good customer service. Many of the employees had given out bad information about the borrower’s accounts, sending out inaccurate billing reports, and prolonged payment processing. Another issue that arose, was the sudden transfer of service providers. Borrowers who had been working with one service provider, were being transferred over to new servicers who had no previous experience working with. This created slow processing times for repayment as well as lost payments and benefits when switching over to a new service provider. These issues created more trouble for borrowers because of how many different fees they were billed due to miscommunication from customer service. There have been specific groups of people that have been financially devastated from malpractices in servicing companies.
Older people, veterans, people with disabilities, and military service members are the most negatively affected by bad policy in servicing companies and repayment plans. For these circumstances, it is harder to access benefits. Some of the CFPB’s findings during this investigation were problems getting interest rate reductions, difficulties enrolling in the correct plan, and damaged credit. For many people, there is access to benefits in repayment plans. However, there have been issues with accessing these benefits from servicing companies with malpractice. Some of these companies make borrowers go through hoops just to have access to the benefits that they are entitled to.
There is help out there for borrowers who have been negatively affected by student loan servicing companies. The CFPB now has a Repay Student Debt tool on their website that allows borrowers to access a step by step guide on how to repay their student loan debt and find the right repayment plan for their financial circumstances. There are still many things that need to be done to protect the finances and well being of borrowers who are trying to repay their student loans. The CFPB has been making efforts towards changing the policies in servicing companies, as well as educating borrowers on how to repay their student loan debt without getting scammed.
Options are available to help
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