The companies servicing student loans are making it harder for student loan borrowers by ignoring borrowers’ requests, by failing to provide customer service, and by sloppily handling documentation.
According to the New York Times, servicers receive $600 million a year for their work, yet they are not providing full explanations of loan terms, nor do they offer borrowers repayment plans that borrowers are eligible for, plans that could lower interest rates or accelerate loan payments. The Times reports, “the Government Accountability Office estimated that 51% of student loan borrowers nationwide are eligible for income-based repayment plans, but only 15% are enrolled.”
Here is an excerpt of the article:
“It feels like I’m being set up to fail.”
That’s how Patrick Wittwer, 31, described his experience trying to repay his roughly $50,000 in student loans. Between misdirected payments by one of the companies servicing his loan and the abusive collection tactics he encountered when he fell behind, Mr. Wittwer said the repayment process simply seemed stacked against him.
A 2008 graduate of Temple University with a degree in media arts, Mr. Wittwer is not alone in his experience. Consumer advocates say student-loan servicers often make an already heavy debt load even more burdensome for borrowers.
A report issued late last month by the Consumer Financial Protection Bureau supports this view. Even though the economy and labor market have improved, student loan borrowers are experiencing high distress levels compared with borrowers with other types of consumer debt, the government report found. More than 1 in 4 student loan borrowers are delinquent or in default on their obligations.
In the aftermath of the financial crisis, we learned repeatedly about dubious practices among mortgage servicing companies that made it harder for homeowners trying to repay or renegotiate their loans. Now, similar horror stories are emerging about the companies servicing student loans.
Some 41 million Americans owe $1.2 trillion in student loan debt. The median debt burden among borrowers was $20,000 in 2014, up from $13,000 in 2007.
Companies servicing these loans manage borrowers’ accounts, process their payments and enroll them in alternative repayment plans, including those based on a fixed share of the borrowers’ income. Among the biggest companies are Navient, Great Lakes, and Discover Bank.
The Education Department has contracts with 11 loan servicers. But with no federal standards governing these activities, student-loan servicers have great leeway in their practices. Making matters worse, borrowers are not allowed to choose their servicers. So if they encounter problems, they cannot take their business elsewhere.
Read more at the New York Times.