A new report released today by the Consumer Financial Protection Bureau (CFPB) reveals data that both federal and private student loan servicers are using illegal tactics to maximize their profits at the expense of borrowers. These illegal practices include charging unfair late fees and making harassing debt collection calls – many of the same practices utilized by mortgage servicers when the housing bubble burst.
The report reflects a growing trend for the more than 40 million Americans with student debt, whose only point of contact when it comes to dealing with their student loans is the servicer, not the actual lender. In a report released earlier this year that was commissioned by Jobs With Justice, researchers at Elon University and the University of Michigan found that many companies who service student loans cut corners to reduce labor costs, impacting the quality of service offered to borrowers looking to find alternative repayment plans, enroll in programs that lead to debt forgiveness, and collect accurate data about their accounts.
The CFPB’s report goes on to identify a number of additional issues with servicing companies, including: misrepresenting minimum payments, failing to provide accurate tax information, unfairly penalizing borrowers in grace period with late fees and misleading consumers about bankruptcy protections. And while they may seem like technical issues, the impact these practices can have on the life of a borrower is enormous: their tax returns and wages can be garnished, and in one case, a student debtor received more than 48 phones calls in a 45-day period from a debt collector about their student loans.
For many student debtors, this news doesn’t come as much of a shock. Student loan servicers have commonly worked in their own best interest at the expense of those trying to pay off their student debt, but the report gives new credibility to demands that the Department of Education cutting the servicing model altogether and move this responsibility back into a federal government agency.
If you feel that you might have experienced one or more of these deceptive and unfair practices, we recommend filing a complaint with the Consumer Financial Protection Bureau. If you are struggling to repay your private student loans, the CFPB has recently produced this sample letter which you can send to your bank to request a more affordable payment plan.