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Stressed out by student debt

Crossposted from the Milwaukee Journal Sentinel . This opinion editorial originally ran on May 14, 2015 online.

As millions of students and their families across the country celebrate graduation season, many will be joining the ranks of the more than 40 million other Americans on the hook for over $1.2 trillion in student debt.

The average student loan borrower owes nearly $30,000 — a large chunk of debt for someone just starting out. This debt can cause real stress for borrowers. According to a recent study that examined the effects of student loans on health, researchers found that those who had higher amounts of student loan debt reported higher levels of depression, even with adjustments for parental wealth, childhood socioeconomic status and other factors. And there is growing consensus among industry leaders and policymakers that student debt may be holding back the economic recovery.

But the size of the debt isn’t the only stress these borrowers face. Soon after graduation, borrowers must begin to pay companies known as student loan servicers. These companies are the critical link between the borrowers and the lenders. They are expected to provide clear information on billing, keep accurate records, process payments and offer options to borrowers to avoid default when they hit a rough patch.

For many people, cutting through the company red tape to pay back their student loans is daunting and discouraging. Borrowers report that they are running into repayment roadblocks at every stage of the process: put on hold, transferred from one employee to the next and then given the runaround when trying to make good on their loans. We’ve heard of servicers processing payments to maximize the amount of interest or fees, rather than applying them in ways that help borrowers pay off their loans more quickly. And some borrowers report that they can’t get a straight answer from their servicer about who actually owns their loan and whether they qualify for a different repayment plan.

We’ve also heard reports of private student loan companies putting borrowers into default when their co-signer dies, even though the loan is otherwise in good standing. And too many struggling borrowers with high-rate private student loans looking for a straight answer on their options to avoid default are finding themselves out of luck and out of options. Adding to the stress is the specter of damaged credit, making it harder to pass an employment check, rent an apartment or pass a security clearance.

Borrowers don’t get to choose their student loan servicer — their lender chooses one for them. Since student loan refinance options are few and far between, borrowers can’t shop around or easily take their business elsewhere to get better service.

Breakdowns in student loan servicing can be a huge impediment to staying current on student loans. For those borrowers who are struggling to make ends meet, high quality student loan servicing can be the difference between getting by and going broke.

For many young Americans, repaying debt is among their first experiences in the financial services marketplace. And when things go wrong, their student debt can lead to putting off starting a family, buying a home and saving for the future.

Given the student debt stress faced by so many Americans, we can all agree that a well-functioning student loan market depends on quality customer service. By fixing the plumbing of our student loan servicing system, we can make sure our college graduates are set up for success — not left on hold.

Rohit Chopra is student loan ombudsman for the federal Consumer Financial Protection Bureau.