WASHINGTON (10/17/13)--Payment processing and loan modification issues continue to be the most widely reported problems with private student loans, the Consumer Financial Protection Bureau's Student Loan Ombudsman noted in its annual report released Wednesday.
The report examines more than 3,800 private student loan complaints received by the CFPB between Oct. 1, 2012 and Sept. 30 of this year. Complaints from consumers seeking a loan modification comprised just under half of the student loan complaints received during the reporting period, the CFPB said.
The CFPB report said student loan refinancing options can be hard to find. It said that while many student loan borrowers attempt to pay off their loans early to reduce the total amount of interest owed, such attempts can leave consumers confused. According to the CFPB, sometimes payments in excess of normal monthly amounts are applied to all loans held by the borrower, not just the highest-interest loan under their name.
The ombudsman also reported complaints that lenders, in some cases, took partial payments intended for a single loan and distributed it equally to all a multiple loan holder's loans. That practice can result in additional late fees for the borrower, "and it can exacerbate the negative credit impact of a single late payment," the CFPB wrote.
Lost paperwork, processing errors and other issues have also cropped up when loans are transferred between multiple servicers, the report said. The CFPB released a consumer advisory to help borrowers deal with these and other issues. The advisory includes sample instructions that will help consumers ensure that any extra payments made on their student loans are applied toward the highest-rate loan they have taken out. For the CFPB report and the consumer advisory, use the resource link.
The Credit Union National Association has met with CFPB officials to underscore that credit unions could do even more to help debt-saddled grads if the maximum credit union student loan maturity of 15 years was increased. Also, this summer CUNA formed a student loan working group to explore current issues related to credit unions' offering private student loans to members. The group is focused on developing best practices for credit union student loans and monitoring related regulatory activity at the CFPB and the National Credit Union Administration.