Student Loan Firms Lax in Default Prevention: CFPB
A new CFPB student loan report found that many private lenders are not offering practical repayment options for borrowers.
“We are hearing from consumers that they are driven into default because private student loan companies are not providing concrete loan modification options,” CFPB Director Richard Cordray said. "Struggling private student loan borrowers are finding themselves out of luck and out of options. Lenders and servicers must redouble their efforts to deal with these distressed borrowers."
In the report, the CFPB examined 5,300 private student loan complaints filed with the bureau between Oct. 1, 2013 and Sept. 30, 2014, which represented a 38% increase above the total from the previous year.
Many consumers expressed a commitment to repaying their loans if they could qualify for a payment plan that reflected their current financial circumstances, the CFPB said.
“But, instead, many of these borrowers are being driven to default because no viable repayment options are available to them,” the bureau’s report read. “When a consumer defaults on their private student loan, the whole balance may become due in full, immediately. This usually causes damage to a consumer’s credit profile.”
The CFPB cautioned that defaulting could hurt a consumer’s ability to rent or purchase a home, pass a background check for a job, and access other forms of credit.
‘The response by the private student loan industry to distressed borrowers is failing to help them avoid default,” Rohit Chopra, CFPB student loan ombudsman, said. “Too many borrowers are barely treading water, losing hope that these companies will throw them a lifeline.”
Based on the complaints received, the CFPB found that there is not enough information provided by lenders on how to avoid default.
The bureau also said complaints revealed the lack of affordable loan modifications available through private lenders. The complaints indicated that private lenders typically only offer short-term fixes that delay default.
“Borrowers report that while many private student lenders and servicers do not offer affordable repayment plans, some may offer temporary forbearance,” the CFPB said. “This short-term fix may delay default by giving borrowers a brief period where no payment is due, often just a few months.”