The Consumer Financial Protection Bureau says borrowers are reporting widespread problems with the companies servicing their student loans.
In a report released Tuesday, the bureau found servicing practices that “may be contributing to student debt stress” after analyzing more than 30,000 comments from the public as part of an inquiry launched in May.
Some of the problems included lost paperwork and processing delays that could lead to missed payments and late fees. Some borrowers said they had trouble getting errors fixed; others couldn’t easily access complete information on alternative repayment options to help them avoid default.
The federal agency, which oversees the student loan industry, said it will consider industry-wide rules for the companies that manage student loans.
“Cleaning up the servicing market is critical,” CFPB Director Richard Cordray said in a statement. “Today’s report underscores the need for market-wide student loan servicing reforms to halt harmful practices and boost assistance for distressed borrowers.”
Student loans make up the nation’s second-largest consumer debt market, after mortgages. More than 41 million people hold federal and private student loans totaling over $1.2 trillion. One in 4 student loan borrowers is in default or struggling to stay current.
According to the agency’s analysis, borrowers are having trouble getting basic information about alternative repayment plans that could keep them from defaulting.
One commenter said: “The online system only allows for minimal direct contact with a person and is completely inflexible. When you do reach someone on the phone, after an eternal wait, they do not provide thorough information regarding all the options available.”
Another commenter on a repayment plan said, “they have made error after error after error in rejecting my income verification forms despite them being correct; they have now continued to keep me in forbearance even after a supervisor told me 2 months ago I was all clear … Everyone answering their phone calls tells me something different.”
The Consumer Financial Protection Bureau has been taking a closer look at companies servicing student loans.
In July, the bureau ordered Discover Bank to pay $18.5 million after accusing the bank of engaging in illegal servicing practices such as overstating the minimum amounts due on billing statements and denying consumers information they needed to get federal income tax benefits.
The bureau is also investigating Navient Corp. and Citibank over their student loan-servicing practices.