Okay, based on my prior blogs, we now know that this is a hot topic on the 2016 presidential election circuit and how democrats sat on a 2013 bipartisan bill, designed to keep student loans’ at pre-July interest rates of around 3.4% instead of the current rates of over 7%. Various sources indicate that private and federal student loan debt totals more than $1.2 trillion dollars.
This is one more example of how the U.S. government is not working for the American middle class. It is bad enough that young professionals have had their college loan interest rates doubled; but they are also having to tolerate frequent instances of lousy treatment by loan servicing companies.
There are loan serving companies which work at the behest of the lending entities. In return for processing monthly payments, assisting borrowers with repayment options if their clients lose their jobs; and performing a variety of other tasks, these loan servicing companies receive a schedule of fees per account. And these loan servicing companies are rewarded to a greater degree when a borrower is in repayment for a longer time period.
Some of loan servicing entities names are Navient, Nelnet, American Education Services and Great Lakes Higher Education Corporation.
The American taxpayer knows the reality that government is needed to fulfill certain functions but in addition, they want it to work competently and effectively when they attempt to access its services.
Whoever designed the method of compensation for the loan servicers should have been able to foresee the non-consumer friendly consequences. In short, his form of compensation provides an incentive for company employees to expend as little time as possible for each account in order to maximize profits.
The federal agency (CFPB) which has oversight of the student loan industry has listed the most common grievances by consumers as including, complaints that loan servicers have taken too long to process payments; they lost paperwork, or did not fix mistakes in a timely manner, and/ or they didn’t correctly handle prepayment of loans.
CFPB > Consumer Financial Protection Bureau has reported that there are 8 million student loan borrowers who are in default. This agency operates a website with useful information and offers a link to register complaints. In 2014, they had launched an inquiry into student loan servicing practices and then they compiled a list of the most frequent consumer complaints which are as follows:
“Many of the complaints indicate that borrowers sought to negotiate a modified repayment plan during a period of financial distress, but lenders and servicers provided no options, leading the borrower to default. These complaints closely mirror problems found in the mortgage servicing market, as large numbers of homeowners sought to avoid foreclosure.”
“Regulators and policymakers have encouraged lenders to constructively engage with borrowers to find workout solutions. Despite commitments by a number of major market participants to expand alternative repayment options, consumers continue to encounter limited or no flexibility when seeking help from their lender or servicer.”
“In last year’s annual report, (2014) we reported that many consumers experienced difficulty when lenders and servicers improperly processed their private student loan payments. For example, many consumers who wished to pay down their loans more quickly found that student loan servicers allocated payments in ways that might maximize the amount of total interest the borrower would pay, slowing him or her down on the path to being debt-free. To assist borrowers, the CFPB published a sample letter that consumers could send to their servicer requesting that any excess funds be applied to the loan with the highest interest rate, facilitating faster repayment of debt.”
“We also requested additional information from student loan servicers on their payment processing policies and learned that some servicers have inadequately invested in information technology systems to accept standing payment instructions.”
“Since publication of last year’s annual report, some servicers notified the Bureau that they have changed their payment allocation policies and now allocate payments from borrowers in excess of the scheduled payment amount toward the loan with the highest interest rate, absent alternative instructions. Other industry participants noted that they plan to upgrade borrower-facing systems to allow borrowers to easily specify how they wish to allocate a payment across various loans.”
“However, we continue to receive complaints that some servicers remain unwilling to update their servicing platforms to honor standing payment instructions without requiring the borrower to instruct them each month to request an payment allocation.”
“In last year’s report (2014), we also noted the problems faced by borrowers who make a payment below the total amount due for all of their individual loans managed by a single servicer. In some cases, borrowers reported that they called their servicer to explain that they would be unable to make a payment for all of their loans, and the servicer advised them to pay as much as they could. These complaints noted that payments were allocated in a manner that maximized late fees, and there was no clear method to target payments to individual loans.”
“The Federal Deposit Insurance Corporation (FDIC) addressed related practices regarding private student loan payment processing in an enforcement action this year. The Federal Deposit Insurance Corporation (FDIC) addressed related practices regarding private student loan payment processing in an enforcement action this year.”
The FDIC determined that Sallie Mae and Navient violated federal law prohibiting unfair and deceptive practices in regards to student loan borrowers through the following actions: (Consumers registered a record number of complaints with CFPB against Sallie Mae/ Navient)
• Inadequately disclosing its payment allocation methodologies to borrowers while allocating borrowers’ underpayments across multiple loans in a manner that maximizes late fees; and
• Misrepresenting and inadequately disclosing in its billing statements how borrowers could avoid late fees.
The FDIC ordered Sallie Mae and Navient to cease all unfair and deceptive practices in its payment processing practices, make restitution of approximately $30 million to victims, and pay civil money penalties.