Magazine article American Banker

CFPB Blames Servicer Breakdowns for Student Lending Woes

Magazine article American Banker

CFPB Blames Servicer Breakdowns for Student Lending Woes

Article excerpt

Byline: Kate Berry

Student loan borrowers face breakdowns and delays in applying for repayment plans that feature loan forgiveness or interest subsidies, the Consumer Financial Protection Bureau said in a report released Monday.

The problems in two federal student loans programs could result in 200,000 struggling borrowers defaulting on their loans in the next two years despite being eligible for an income-drive repayment plan, the agency estimated.

Borrowers will end up paying $125 million in unnecessary interest charges over the next two years because servicers and debt collectors are not providing information on where to send payments, the amount to pay and how the payments will be applied to their loan balance, the report said.

Some borrowers report payment shock because servicers are billing them for hundreds of dollar more per month than what they had arranged with a debt collector to stay on track over the long term, the CFPB found.

"Too many student loan borrowers are being left behind due to breakdowns in the federal programs designed to provide them a fresh start, including an affordable monthly payment and a path to long-term success," said Seth Frotman, the CFPB's student loan ombudsman, in a press release.

Frotman sent letters to student loan servicers asking for information about how borrowers who have previously defaulted performed over time.

Borrowers can rehabilitate their debt by entering into an agreement with a debt collector to make a series of nine on-time monthly payments or they can refinance their default debt with a new direct consolidation loan. …

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