Student Loan Repayment Harder Than It Looks

The Consumer Financial Protection Bureau released an annual report last week which finds that students are facing obstacles from their loan providers.

Students report that some of the biggest struggles in student loan repayment are simply dealing with their providers. Between muddled terms and conditions and unexpectedly inflexible interest rates, students rarely have the opportunity to refinance to better quality loans.

“Graduates don’t have a fair chance to pay back their debts if they are faced with surprises, runarounds, and dead-ends by student loan servicers,” said the bureau's director, Richard Cordray. “These young consumers are facing serious challenges in dealing with their debt, which can hold them back from getting ahead in life.”

This annual report steps in line with The Dodd-Frank Wall Street Reform and Consumer Protection Act, legislation passed by President Obama in 2010 to revamp US financial regulation. The act created a middle-man facilitator responsible for managing private student loan complaints and aiding in the borrowing process. The author of the report and Student Loan Ombudsman Rohit Chopra finds that about 95 percent of the 3,000 complaints received were about loan servicing and a borrower’s inability to make a payment. The report highlights three main findings:

1. Student loan payment instructions are often difficult to understand, leaving students surprised by unexpected conditions and costs. These unanticipated costs may lead to late payments simply because a student didn’t understand the process.
2. Companies can be difficult to work with and sometimes give students the runaround. The ombudsman reports that many of the reviewed cases claim that students had difficulty getting consistent and correct answers. In some cases, credited payments were incorrectly marked as late or uneven, customer assistance was shoddy, and loan providers were hard to reach.
3. Many student borrowers report becoming locked into nonnegotiable loan terms. Despite their best efforts to stay on top of loan payments, some borrowers fall behind and are trapped into conditions that they cannot afford. Students who filed complaints reported seldom being given opportunities to defer, modify interest rates, or seek forbearance.

 “Consumers deserve clarity, not chaos and confusion,” Chopra said to the White House Office of Communications.

The student loan market became especially dire just before the financial crisis, as large masses of students had to borrow money in order to pay for college. Total student loan debt has recently surpassed $1 trillion, exceeding both total credit card debt and total auto loan debt in the US. The $76 billion sum of current outstanding student loans also exceeds the yearly tuition cost of all students attending public two-year and four-year colleges and universities. In a free market, a customer may choose to take his business elsewhere if he’s displeased with the services. However, in the student loan market, borrowers are often locked in with a company and lose the market power to search for better customer service.

The Consumer Financial Protection Bureau is gradually addressing these problems. Its website provides new consumer tools, like up-to-date advice for student debt repayment, that are easy to understand for first-time borrowers. The report published more than 2,000 student comments and, in some cases, has seen immediate response from lending services that have taken action to correct some of their structural errors. Its large inventory of issues will be essential in reducing the gap between customer expectation and company delivery.

Jennifer Hicks is a Communications Intern for Campus Progress.

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