Private student loan borrowers have experienced payment-processing challenges when trying to finance their educations at institutions such as Boston University, according to a Wednesday report by Consumer Financial Protection Bureau officials.
The report analyzed complaints CFPB officials have received from private student loan borrowers. According to the report, borrowers have faced increased costs and prolonged repayments that have harmed their credit profiles.
CFPB has accepted student loan complains since March 2012. U.S. Congress officials have subsequently established an investigation on the complaints against student loans within CFPB.
“The most common complaints submitted to the CFPB were about payment processing pitfalls when consumers try to take control of their loans, including when borrowers attempt to pay off their loans early or pay them off in a certain sequence,” a Wednesday press release stated.
Borrowers frequently complained about having difficulties when trying to submit loan payment early, paying in part and when transferring loans between servicers, according to the release. The complaints in question were made over the course of almost a full calendar year.
“This report analyzes and discusses complaints submitted by consumers from Oct. 1, 2012, through Sept. 30, 2013,” the release stated. “During this period, the Bureau received approximately 3,800 private student loan complaints.”
According to the report, 87 percent of all complaints were directed to eight specific companies that deal with private student lending and servicing. The offending companies included Sallie Mae, American Education Services, Wells Fargo, Discover, JPMorgan Chase, ACS Education Services, Citibank and KeyBank, in descending order of volume of complaints received.
Half of the complaints received were from consumers seeking a modification on their loans, or a reduction in the monthly payments.
“Many of the private student loan complaints mirror the problems heard from consumers in the mortgage market following the wake of the financial crisis,” according to the report. “Recent changes to mortgage servicing and credit card servicing practices may shed some insight on possible approaches to remedy student loan servicing concerns.”
CFPB Director Richard Cordray said in the release that servicers should work to provide borrowers with clearer and more reliable payment options.
“Repaying a student loan should be simple,” Cordray said in the release. “When servicers process payments to maximize fees and penalties, they undermine the trust of their customers. Student loan borrowers deserve better; they deserve transparency and accountability.”
CFPB Student Loan Ombudsman Rohit Chopra said many borrowers find it difficult to repay their loans because their options are both limited and complex.
“With limited options to refinance, many borrowers want to pay off loans where they are stuck in high rates,” Chopra said in the release. “But too many borrowers have to run through an obstacle course to get their payments processed properly.”
Jeffery Yu, a School of Management sophomore, said if he experienced problems with repaying his student loans, he would try to communicate with the company he borrowed from to weigh out his options.
“I would ask them [the student loan service] what happened, and talk to their customer service,” Yu said. “I plan on getting a job next year or my senior year to make some money, and that way when I graduate I can start paying them off … My parents are willing to help me out, but I want to pay them off myself so I can learn how to be more independent.”
Zachary Vickerson, a College of Engineering sophomore, said although he has a plan to pay off his loans, he would be concerned if he experienced any payment pitfalls when he goes to pay them.
“My parents and I were going to split 50-50 in paying the student loans, so I was hopefully going to get a job and figure out how much I can afford to pay, and how much my parents can afford to pay and just go through it,” Vickerson said. “I would talk to them [parents] … to see if we have any avenues to avoid paying additional charges.”
Nicole Carter, a College of Arts and Sciences freshman, said she is probably going to graduate from BU with debt. With the help of her parents, she said she plans to start repaying her loans while she is still in school.
Carter said she knows several graduates that are currently having troubles repaying their loans.
“I’ve talked to a lot of people who went to expensive four-year colleges who are kind of like, ‘wow, I wish that I just did two years of community college because I would have saved so much money,’” Carter said.