Although most recent news about student loans has revolved around the changes to the Income-Based Repayment plan and the process for obtaining a hardship discharge for federal student loans, one item that may not have gotten as much press as it deserved was the Consume Financial Protection Bureau’s (CFPB’s) ombudsman’s report on private student loan servicers. Private student loans, i.e. those that are not direct or guaranteed by the federal government have not been dischargeable in bankruptcy since the bankruptcy code was changed in 2005, so the ombudsman’s report provides some insight into how debtors believe their loan servicers are (mis)treating them. You can read the entire report here (PDF).
Things aren’t good in the world of private student loan servicing. In the six-month period starting in March 2012, the CFPB received 3,000 complaints from debtors. The report admits that they are not a representative sample of the 850,000 private student loans Americans owe money on.
Nevertheless, the ombudsman’s report breaks them up according to the issues debtors had with their servicers, starting with sixty-five percent of the complaints by debtors who were having difficulties repaying their loans. Here’s how the CFPB divided them:
- “Inability to speak with personnel empowered to negotiate a repayment plan”
- “Inability to refinance”
- “Inability to access repayment plans previously advertised”
- “‘Good faith’ partial payments leading to default” – Even after paying more than 50 percent of their discretionary incomes, many debtors were forced into default anyway.
Another 30 percent of complaints dealt with consequences of being unable to repay their loans. These complaints include “Bankruptcy-triggered defaults,” which occurs when loan terms state that if a debtor files bankruptcy the loan is automatically declared in default. Others complained that their creditor took money out of their checking accounts to pay for their loans, even to the point of overdrafting them. Finally, many people complained that their loan servicers refused to release co-signers for frivolous reasons.
The CFPB classified the remaining five percent of the complaints as issues related to obtaining a student loan, such as “confusing terms” and “sales tactics or pressure.”
As of now, there is only $150 billion in outstanding private student loans, but all the complaints went to only seven loan servicers, a list that unsurprisingly finds Sallie Mae at the top. If you have trouble paying your private student loans, then discussing your situation with a New York bankruptcy lawyer can help you figure out what your options are, including filing a Chapter 7 bankruptcy.
For answers to more questions about private student loans, bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced business bankruptcy lawyer Bruce Weiner for a free initial consultation.
