Student borrowers whose loans are managed by private companies face major difficulties repaying their debts, the Consumer Financial Protection Bureau warned Wednesday.
The consumer agency said in a new report that the companies that bill and collect payments on those loans do not do a good job helping borrowers pay on time and access special government programs to help pay off the debt.
Today, such loans are no longer made. As part of the law that passed Obamacare in 2010, all new government-backed student loans are serviced by the Department of Education.
Before then, however, many government-backed student loans were issued by banks and other lenders. There is still $370 billion in such loans outstanding, according to the consumer agency, about one-third of total student debt.
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Of those borrowers, at least 30 percent, or five million, are delinquent, the bureau calculates.
Student debt is difficult to discharge in bankruptcy, meaning that if borrowers face obstacles repaying or restructuring their debt with their servicers, problems could persist for a long time.
The report analyzed 6,400 complaints about student loans and 2,300 debt-collection complaints related to student loans submitted by consumers to the agency over the past year.
The bureau concluded from the complaints that servicers made it difficult for student borrowers to learn their options regarding income-based repayment plans, which cap monthly student loan payments as a share of income. If the borrowers were able to enroll, they were sent confusing paperwork and had trouble making sure they were up to date on payments.
“Customer service is constantly giving me false information and not helping me to get my payments lowered,” read one complaint. “I have complained to numerous organizations and have not gotten any help since. Please, help me. I am trying hard not to allow my loans to go into default. I am not trying to ignore my loans, but how can I pay a 2,000 monthly payment.”
The report casts private servicers like Navient, Genesis Lending and Wells Fargo in a negative light.
The consumer bureau’s student loan ombudsman argued that the report issued Wednesday strengthened the argument for implementing new regulations on the student loan market proposed by the bureau and other regulators at the end of September.
The loan market overhaul contemplated by the agencies would set new rules for lending to students and increase penalties for servicers who fell afoul of them.
