On June 18, the Student Loan Ombudsman at the Consumer Financial Protection Bureau released a new report on the private student loan industry that sheds light on many troubling servicing practices affecting students and loan co-signers.
CRL senior policy counsel Maura Dundon offered the following remarks:
The Consumer Financial Protection Bureau's report confirms what consumers and consumer advocates have known for years: the servicing industry for private student loans is sorely in need of reform. The report reveals an industry plagued by poor customer service, breaches of contract, and even possible violations of the law.
Troubling parallels exist between the servicing problems identified by the CFPB's student loan report and the servicing problems we saw in the mortgage industry before mortgage reform. Instead of acting in economically rational ways, many private student loan servicers are acting to maximize their own revenue. As a result, consumers are being denied access to reasonable customer service that would allow them to responsibly pay off student loans.
The fact that some students still find themselves in default after diligently and responsibly making on-time payments is among the most troubling findings in this report. Auto-default occurs when, though a student is repaying the loan as agreed, the loan is still deemed to be in default because the cosigner has died or declared bankruptcy. Performing loans should never be placed in default for any reason.
The report also highlights the difficulties cosigners face when seeking to be released from the loan. Servicers and lenders should not place obstacles in the way of parents who want to be removed as cosigners after their child has graduated and started earning an income. What's markedly clear here is the case for regulatory reform. Consumers don't get to choose their servicer; they're stuck with whatever servicer their lender choses. When a consumer's ability to exercise choice is eliminated, regulators, like the CFPB, must step in to ensure fairness, transparency, and accountability. Clearly, that is what we need here.
Contact: Catherine An, 202-349-1878, catherine.an@responsiblelending.org.
For more information, contact Catherine An at 202-349-1878 or catherine.an@responsiblelending.org.