For many students and parents, figuring out how to pay for college can be complicated and confusing. The decision to borrow for college should be the best investment a student will ever make.
But before the financial crisis, some families took on mortgages they didn’t fully understand and are now struggling to make ends meet and save their homes. While less talked about, many student loan borrowers also used products outside of the federal student loan program that they might not have fully understood.
What we’ve heard
Making sure that borrowers have clear information to make the best possible choice is critical. But borrowers have told us they didn’t know that private student loans don’t always have the same repayment options as federal student loans. These options allow borrowers to cap their payments as a portion of their income – a valuable option when times are rough. In addition, private student loan borrowers generally have fewer options in the bankruptcy process, compared to credit cards and other consumer loans.
But like borrowers struggling to stay afloat on their mortgages, private student loan borrowers have told us that they too need assistance. This past winter, we put out a request for information to find out more about their experiences.
Today, the Consumer Financial Protection Bureau published nearly 2,000 comments we received in response to that request. The comments include stories from individual borrowers, parents, school officials, and others.
One theme clearly rose to the top. Many private student loan borrowers expressed confusion and frustration when paying back their loans, especially when trying to get on an affordable payment plan.
One woman told us about the $90,000 debt she incurred to get a degree. Like other students who graduated in the middle of the financial crisis, she struggled to find a job to make ends meet. Interest and fees have led her debt to balloon to over $120,000. She said she’s been unable to get a new payment plan, and her loan has been sent to a debt collector. She worries that that the American Dream is out of reach.
This was just one of many stories of borrowers struggling to make ends meet.
Fortunately, many of these borrowers are making use of the CFPB’s new student loan complaint system, launched a few months ago. Borrowers across the country have shared stories and submitted complaints about the process of obtaining or paying back a student loan.
These submissions have touched every stage in the lifecycle of a private student loan—from marketing and origination through repayment and servicing to default, bankruptcy and debt collection. Not surprisingly, we heard a lot about the challenges borrowers have faced in periods of unemployment and financial hardship.
Many borrowers submitting complaints to the CFPB have gotten some good news from their lenders, who have corrected billing problems and informed their customers about options for enrolling in an affordable payment plan.
Cracks in the system
The Dodd-Frank Wall Street Reform and Consumer Protection Act also requires the Bureau to analyze private student loan borrower complaints and offer recommendations to the Treasury Secretary, Education Secretary, and Congress.
To help us get a more complete picture of the private student loan borrower issues, today we issued a notice in the Federal Register and wrote to state attorneys general, schools, and advocacy groups such as Queens Legal Services – who is here today – seeking information about the complaints they hear. Once we figure out all of the cracks in the system, we’ll work with our government partners, industry, and schools to address them. Already, our new consumer agency has been working with the Department of Education to make sure students know before they owe.
You or someone you know might feel that changes to the system won’t help if you’re struggling today. Based on the comments we published today, you are not alone. Visit our website where you can use our student debt repayment assistant, file a complaint, or just tell your story.
With your first-hand knowledge of how the market impacts consumers, you’ll be able to help us understand how to help the next generation of students make smart student loan choices and make sure that their college education truly is a path to a better life.
Rohit Chopra is the CFPB’s student loan ombudsman. This post is excerpted from prepared remarks for a town hall on student debt in Queens, New York, hosted by Rep. Gregory Meeks.