Private Student Loan Gripes Echo Mortgage Complaints - NYTimes ...

Gripes received about the handling of private student loans bear an ?uncanny resemblance? to complaints about mortgage servicing during the housing crisis, and the government should consider changes to address some of the problems, says the federal ombudsman for student loans.

Rohit Chopra, the loan ombudsman for the Consumer Financial Protection Bureau and the author of a new report on private loans prepared for Congress, said yesterday that the bureau has received nearly 3,000 complaints about private student loans since March.

Unlike student loans made by the federal government, private loans lack some consumer protections, like income-based repayment plans to help borrowers manage payments, or deferments for military service. Many borrowers said they were never advised about the difference between a federal and private student loan and complained that they had not been fully informed of the terms of their loans.

The vast majority of the complaints related to servicing of the loans, like problems with fees, billing, deferments and forbearances. Many borrowers told the agency, for instance, that they had trouble getting their payments credited properly and obtaining accurate information about their loans from their servicing firms. They often ran into trouble when their loans were transferred or sold to different servicers.

The report notes that some borrowers reported problems with unauthorized payments, in cases where the borrower has a checking or savings account with the same institution that is servicing their loan. If the borrower was late with a payment, the bank might deduct the funds from the account automatically ? sometimes even charging an overdraft fee, if the payment overdrew the account.

In another instance, Mr. Chopra said, the agency heard from a borrower who was on time with payments but went into default because of a clause in the loan terms. A co-signer on the loan filed for bankruptcy, which caused the loan to go into default under the terms, even though the borrower wasn?t the one filing.

Many borrowers reported that they had tried to make ?good faith? payments toward their debt but were placed in default anyway.

A large majority of the complaints related to seven companies, with nearly half related to loans serviced by Sallie Mae. But Mr. Chopra noted that the company is a major player in making, servicing and collecting student loans, so the number of complaints ?does not seem particularly disproportionate.? Over all, he said, the distribution of complaints ?is not surprising,? given the companies? relative market share. (He also noted that the study is based mainly on borrower complaints and isn?t meant to be a statistically significant analysis of problems in the private loan industry.)

The largest share of complaints came from borrowers aged 22 to 29, suggesting that younger borrowers who have recently graduated into a tight job market are struggling, Mr. Chopra said.

Mr. Chopra?s report makes several general recommendations. Congress, he urges, should consider options that would allow student loan borrowers to modify or re-finance their loans at more attractive interest rates. It also suggests that other government officials ? specifically, the head of the consumer bureau, the Secretary of the Treasury and the Secretary of Education ? look into ways to improve servicing of such loans. The report also urges officials to consider broader application of income-based repayment plans already available for federal loans, to reduce the burden on students who also have private loans.

Have you had problems with private student loan? What was the outcome?

Source: http://bucks.blogs.nytimes.com/2012/10/16/private-student-loan-gripes-echo-mortgage-complaints/

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