Back in the days prior to the recent financial crisis, the real estate sector had been in the middle of a purple patch. People were taking mortgages from various lenders in the market – often, at exorbitant rates of interest. The boom witnessed by the sector put in the shade many of the subprime lending practices, which would eventually create ripples in the mortgage market, such as:
- Lost paperwork
- Customer service breakdowns e.g. improper responses etc. and,
- Other issues concerning lack of repayment options, inflexibility in times of distress etc.
Last week, the Consumer Financial Protection Bureau (CFPB) released a report, which reveals that that the problems that affected the mortgage market in the past, are affecting the private student loan market as well.
The report analyzed over 5,300 complaints and over 2,700 debt collection complaints submitted from October 01, 2013 to September 30, 2014. It revealed that:
- Private student loan complaints increased by approximately 38 percent in the period analyzed as opposed to the previous year
- The most common grievances expressed by borrowers pertained to:
- Lenders and servicers not being transparent and consistent in their communications about how the borrowers could avoid default in times of distress
- Lenders and services rebuffing the proactive approaches from the borrowers about ways in which the borrowers could protect their credit and avoid the repercussions of loan delinquency and default
- Lenders and servicers providing assistance for short-term durations (when available), often for a maximum of just three months
- The top three private student loan lenders, based on the percent change in complaint volumes over the previous year were:
- JP Morgan Chase: Up from 149 cases in 2012-13 to 236 cases in 2013-14
- Sallie Mae / Navient: Up from 1,345 cases in 2012-13 to 1,996 cases in 2013-14
- AES / PHEAA: Up from 290 cases in 2012-13 to 358 cases in 2013-14
In her article, Jonnelle Marte highlights that because private student loan companies do not give their borrowers concrete loan modification options, borrowers end up defaulting on their loans. This has devastating repercussions, some of which could last for a lifetime. Some lenders offer options that are nothing more than short-term fixes. However, these options often involve complex procedures and obligate the borrower to pay a hefty fees.
In comparison, people with federal loans could apply for income-based repayment plans. Alternatively, if they took up public sector jobs, they could even seek loan forgiveness after 10 years (or 25 years in some cases) of making loan payments.
Earlier this month, Strike Debt, an offshoot of Occupy Wall Street, purchased and then immediately relinquished the loan obligations for thousands of Everest College students, amounting to nearly $4 million. They did this to highlight the consequences of allowing lenders to use higher education as a mean for fuelling their profits.
With the total student loan debt crossing the $1.2 trillion mark and with over seven million Americans defaulting on their student loan debt, many borrowers might be hoping to obtain a similar reprieve.
The irony lies in the fact that many student loan borrowers want to repay their loans. However, the practices of their lenders often do nothing more than push them to a point of no return.