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Solving Student Loan Challenges

When it comes to student loans, dealing with the lender can be more difficult than repaying the loan. That’s one of the top complaints by consumers in a report of the student loan ombudsman for the Consumer Financial Protection Bureau (CFPB).

For federal student loans, more than twice as many consumers (71 percent) reported difficulties dealing with their lender or service than the 28 percent who complained to the CFPB that they were struggling to repay their loan. Two percent of complaints were about a problem with a credit report or credit score.

Accessing Protections
Federal law provides protections for federal student loans. Many are designed to help borrowers avoid delinquency and default during economic distress, such as a job loss.

Servicing loan breakdowns “can delay, deter or deny access to federal benefits and protections, rendering them illusory for many student loan borrowers,” the report states.

Nearly all federal student loan borrowers should be eligible to make payments based on their income through an Income-Driven Repayment (IDR) plan. The plan can help struggling borrowers avoid default.

Yet borrowers complained to the CFPB about servicing roadblocks in IDRs, such as obstacles when trying to enroll in an IDR plan. These include unexpected delays, lost paperwork, poor customer service and inconsistent application processing. They can lead to higher loan costs, reduced benefits and extended repayment terms.

Forbearance Instead of IDR
Others said that when telling their servicer that their standard monthly payment is unaffordable, they’re directed to options like forbearance or extended payment, which can be more expensive over the long-term than an IDR plan.

Borrowers in IDR plans are required each year to recertify their income and family size so they can qualify for an affordable monthly payment—a process that should take weeks but is longer, according to the CFPB. Federal law allows borrowers during that recertification time to continue paying their current monthly plan until their new IDR payment is recalculated.

However, borrowers complained that they either had to continue making the unaffordable monthly payment, or their loans were incorrectly placed into forbearance during this process, which prevented them from accessing loan forgiveness programs. Forbearance allows loan payments to be temporarily suspended, and a long delay in the IDR recertification can prevent borrowers from making progress toward loan forgiveness.

Consumer Action
While the CFPB takes legal action against some student loan providers, there are steps consumers can take to deal with student loan problems.

When contacting a student loan servicer, do it in writing so that there’s a paper trail that may help solve problems later. Borrowers can also sign up for automatic payments, which can get them a slight interest rate reduction on their loans and will make sure their payment is made on time each month. They can also look into student loan options such as refinancing, consolidating loans, IDRs and student loan forgiveness.

To submit a complaint to the CFPB, go to consumerfinance.gov/complaint or call 855-411-2372.

Or submit by mail to:

Consumer Financial Protection Bureau
P.O. Box 2900
Clinton, Iowa, 52733