Magazine article American Banker

Student Loan Servicing Problems Mimic Mortgage Market: CFPB

Magazine article American Banker

Student Loan Servicing Problems Mimic Mortgage Market: CFPB

Article excerpt

Byline: Kate Davidson

WASHINGTON a Many of the problems endemic to mortgage servicing are also prevalent in the private student loan market, the Consumer Financial Protection Bureau's ombudsman warned in a report to Congress on Tuesday.

In thousands of complaints to the agency this year, the vast majority of student borrowers said they encountered problems related to loan servicing and loan modifications, Rohit Chopra, the CFPB's student loan ombudsman, said in his first annual report on the private student loan market.

Borrowers said they were often caught off guard by loan terms and conditions, had trouble resolving issues with their servicers and were unable to modify repayment terms, even when they could not afford to pay.

"Student loan borrower stories of detours and dead-ends with their servicers bear an uncanny resemblance to problematic practices uncovered in the mortgage servicing business," Chopra said in a conference call with reporters Monday.

The agency has handled more than 2,900 complaints about private student loans in the past seven months, 87% of which were concentrated in seven companies: Sallie Mae, American Education Services, Citibank (C:NYSE), Wells Fargo (WFC), JPMorgan Chase (JPM), ACS Education Services and KeyBank (KEY). The number of complaints at each company is roughly proportional to its market share, Chopra said.

The report recommended that the Treasury Department look at whether new mortgage servicing standards could be applied to student loan servicing, and continue to encourage private lenders to adopt the income-based repayment program for federal student loans.

It also urged Congress to explore opportunities to make loan modifications and refinancing more readily available for borrowers.

"I see these complaints in our report in some ways serving as an early warning," Chopra said, noting that the study is based on anecdotal information from consumers, and is not necessarily statistically relevant. …

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