Consumer Bureau Says Loan Servicing Issues Vary

February 4, 2014
Inside Higher Ed 
student loan news
The Consumer Financial Protection Bureau on Feb. 3 published a new report on servicing of private student loans, specifically addressing the issue of prepayments.

The watchdog agency previously has expressed concern that, when borrowers seek to whittle down their debt early, some servicers apply those payments in a manner that increases their profits but that also inflates the cost of the loan for the consumer. According to the CFPB's student loan ombudsman, Rohit Chopra, a servicer could skirt rules banning prepayment penalties on student loans by automatically directing prepayments to the borrower's loan with the highest interest first.

The new report, based on information voluntarily submitted by industry sources, indicates that some servicers are able to accept a borrower's payment instructions through an online payment platform, while others do not accept such instructions for certain types of loans. The CFPB did not gauge whether the prepayment policies were in compliance with law, but the issue could come up again once the regulator officially begins oversight of large student loan services next month.

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