It’s no secret that many recent graduates have collected their diplomas only to face the one-two punch of a lean job market and mounting student loan debt. Graduation once meant independence, but for more students these days, it means crashing with their parents to make ends meet. According to the CFPB Student Loan Ombudsman’s Annual Report released last week, private student loan borrowers in particular are struggling to meet repayment obligations.
Between October 1, 2013, and September 30, 2014, the CFPB processed approximately 5,300 complaints from private student loan borrowers—an increase of 38% from the previous year. The most common complaint involved borrowers who unsuccessfully sought loan modifications. Although many federal student loans provide loan-modification programs, including income-driven plans, graduated repayment plans, and term extensions, similar options are often unavailable to private borrowers. According to the Report, private borrowers frequently were unable to negotiate alternative repayment options with lenders and servicers in times of financial hardship.
Private student loan borrowers also complain that many lenders and servicers fail to present transparent information about the options borrowers do have. Some borrowers report being bounced from one customer service representative to the next, and receiving conflicting information about potential repayment alternatives. Other borrowers report proactively reaching out to their lenders to discuss how to avoid delinquency and default, only to be rebuffed. When some borrowers receive assistance in the form of short-term forbearance, the allotted period of relief is reportedly too brief to allow borrowers to avoid default. In rare cases, reduced-payment plans are offered only after a borrower defaults.
The Report concludes with several recommendations, including that, as Congress seeks to reauthorize student loan programs under the Higher Education Act, it should consider whether reforms similar to those recently made in the areas of mortgage servicing and disclosures could improve private student loan servicing. It remains to be seen whether policymakers will adopt the reforms recommended in the Report, but for now the clear message is that the CFPB will continue to scrutinize the practices of private student lenders and servicers—particularly in the area of loan modifications for borrowers facing financial hardship.