Rohit Chopra, the Student Loan Ombudsman for the Consumer Financial Protection Bureau, released his annual report this week analyzing private student loan complaints. Of 3,800 complaints received by the CFPB in the past year, the most common source of dissatisfaction continues to be loan modification, although Chopra’s analysis focused on repayment problems.
In the report, Chopra said “the inability of lenders and servicers to initiate alternative repayment plans . . . continues to be a sign that this market functions poorly.” Citing a joint federal bank regulatory agencies statement issued in July, Chopra vowed the CFPB would “monitor the sector closely to determine whether lenders and servicers are making satisfactory progress” in implementing modified repayment programs.
Chopra then moved on to student loan repayment problems. Chief among these complaints is the manner in which private lenders process over- and underpayments, although what the report called “servicing transfer chaos” was also criticized.
According to the report’s summary of complaints, lenders, when not explicitly instructed otherwise, apply over- and underpayments equally across all loans. This approach might either prevent borrowers from paying off higher-interest-rate loans more quickly or maximize the amount of late fees charged to the borrower.
This prompted the CFPB to issue a consumer advisory for student loan borrowers, offering a sample letter of instruction directing the servicer in how to apply over- or underpayments.
In closing remarks, Chopra contemplated “whether certain reforms to the servicing of credit cards and mortgages . . . might also be applicable to the student loan market,” specifically mentioning Dodd-Frank and the CARD Act of 2009. He warned that if “industry fails to correct deficiencies in the student loan servicing market, policymakers may need to act to avoid further negative consequences for the economy.”
After a midyear update to the 2012 report, the 2013 report summarizes private student loan complaints collected by the CFPB between October 1, 2012 and September 30, 2013. Eight companies – Sallie Mae, American Education Services/PHEAA, Wells Fargo, Discover, JPMorgan Chase, ACS Education Services, Citibank and Keybank – were the source of 87 percent of complaints, up from 75 percent in the August update. Seven of those eight were the subject of 87 percent of complaints last year (Discover does not appear in the 2012 report).