Borrowers of private student loans have registered some 2,900 complaints with the Consumer Financial Protection Bureau since the federal agency began collecting them last March. And on Tuesday, the bureau released its student-loan ombudsman’s first annual report, detailing those complaints and offering recommendations to improve private-loan borrowing.
The report, “Annual Report of the CFPB Student Loan Ombudsman,” illustrates the “surprises, runarounds, and dead ends” borrowers grapple with, Rohit Chopra, the student-loan ombudsman, told reporters. He compared problems in the private-student-loan industry to those in the mortgage market, a comparison the bureau also made in a study this past summer.
Overwhelmingly, according to the report, borrowers have complained about problems with the servicing of their loans. About two-thirds of complaints collected by the bureau were related to repayment, including fees, billing, deferment, and forbearance. The next largest group of complaints, about 30 percent of the total, concerned problems borrowers face when they are unable to make payments, such as issues with default and debt collection. The remaining 5 percent of complaints involved confusion around taking out loans.
While the report is based mostly on the complaints submitted by borrowers, it is also informed by responses to the bureau’s request for comments and its other outreach.
Before the new agency was established, there was no central place for borrowers to log complaints about private lenders. As a result, some of those recently collected may be from a “backlog of people who’d been seeking help for years,” Mr. Chopra said. It is possible, then, that some problems have already been tackled by relatively recent disclosure rules, he said.
‘Early Warning’ of Problems
The federal bureau’s student-loan ombudsman is required by the Dodd-Frank Wall Street Reform and Consumer Protection Act to make an annual report to Congress, as well as to the secretaries of the Departments of Education and the Treasury and the director of the bureau.
While this first report provides what Mr. Chopra called an “early warning” of the kinds of obstacles borrowers have encountered, it does not convey how widespread such problems are. Determining the scope of those problems will be key to proposing detailed policy solutions, Mr. Chopra said.
Still, the report does make some recommendations. It suggests that Congress explore ways that borrowers might be allowed to modify their loans. As it stands, borrowers have very few refinancing and modification options, Mr. Chopra said. They are not able to take advantage of current low interest rates, and their ability to participate in the economy in other ways, such as buying a house or starting a business, may be limited as a result.
The bureau, the Education Department, and the Treasury should consider whether to add checks to improve the quality of student-loan servicing, the report suggests. Borrowers do not choose their loan servicers, and as the report points out, the customer of a loan servicer is not the borrower but the lender or holder of the loan. If borrowers could readily “take their business elsewhere,” the report suggests, they would probably get better customer service.
Federal agencies, the report says, should encourage struggling borrowers who also have federal student loans to consider the government’s income-based repayment option for those loans. Reducing monthly payments on federal loans could help borrowers keep up with their private ones, which tend to have less repayment flexibility.