Borrowers with private student loans face increasingly uncertain—and often conflicting—information from the servicers of those loans, says a report issued on Thursday by the Consumer Financial Protection Bureau.
According to the annual report, the bureau received 5,300 complaints from borrowers about their student loans from October 2013 to September 2014, an increase of 38 percent from the previous year. Fifty-seven percent of the complaints cited difficulties in negotiating with servicers and repaying loans; 41 percent came from borrowers who said they had sought help when they were unable to continue paying their loans.
Borrowers who were unable to continue making payments on federal loans were often provided with information on alternative repayment options, the bureau said. But borrowers with private loans were often presented with only the grimmest of options: forbearance or, worse, default.
The burden was particularly heavy for borrowers who began repaying their loans after the financial crisis struck, in 2008, as the number of available jobs for recent graduates began shrinking rapidly.
“The private-student-loan market continues to be opaque,” said Rohit Chopra, student-loan ombudsman at the bureau, in a call with reporters, noting similarities with mortgage lending as borrowers struggled to avoid foreclosure.
Complaints against some of the largest servicers increased sharply, with JP Morgan/Chase receiving 239 complaints, a 58-percent increase. Sallie Mae—which agreed in May to repay borrowers $90-million because of falsely assessed late fees and misinformation about interest rates—drew just under 2,000 complaints, an increase of 38 percent.
Customer-service representatives at many servicers were often unable to provide borrowers with options to lower their monthly payments, even as those options have become standard for federal loans.
“At this point, I don’t know what to do. I am not asking for the world here. I am simply asking for a little HELP making these payments,” wrote one 26-year-old borrower who was quoted in the bureau’s report.
Even though the same servicers often manage both private and federal loans, Mr. Chopra said, borrowers with private loans are offered the option of temporary forbearance or given repayment options only after they default on their loans. “That’s a Band-Aid at best,” he said.
The report recommends considering changes in the bankruptcy code, to allow borrowers to discharge their loans in bankruptcy, and examining what other options servicers provide for repayment. Another recommendation, modeled on the Mortgage Forgiveness Debt Relief Act, passed by Congress in 2007: a study of whether borrowers who use public-loan debt-forgiveness programs should receive tax exemptions.
But the report is somewhat vague about why there have been so many new complaints this year and how the bureau hopes to deal with the issues around private-loan servicing.
“It’s hard to pinpoint specific causes of increase in complaints,” Mr. Chopra said.
In response to the bureau’s concerns, some private lenders said they already offer alternative options to borrowers unable to repay their loans. Members of the Consumer Bankers Association, which represents JP Morgan/Chase and other private lenders, “remain committed to providing robust options to the very small subset of private-loan customers experiencing sustained financial distress,” said Steven I. Zeisel, the association’s general counsel, in a news release.
