You’ve been doing your level best to repay your college student loans since graduating, but now you’re struggling and in need of advice.
A call to the company servicing your loan leaves you more in the dark. You can’t get straight answers, some information on your account is inaccurate and additional fees are even mentioned that could spiral you into delinquency.
Those are the types of scenarios that the federal Consumer Financial Protection Bureau — the regulator in charge of the trillion-dollar student loan servicing industry — is trying to rein in.
Loan servicing companies, comprising about 10 banks and financial firms, collect payments on both federal and private student loans, issue monthly statements and generally serve as a link between millions of borrowers and lenders on repayment plans.
However, critics say companies frequently fail to provide even the most basic levels of service. Consider that about one in four borrowers is now in default on student loans or is struggling to stay even, despite a growing number of debt repayment options available.
In the words of Maura Dundon, senior policy counsel at the nonprofit Center for Responsible Lending, the servicing industry “is a mess in need of an urgent cleanup.”
Enter the Consumer Financial Protection Bureau, which has won plaudits for reforms in the mortgage, credit card and payday loan industries. It is now working with the U.S. Department of Education and the Treasury Department to strengthen service protections for student loan borrowers.
After receiving more than 30,000 comments from borrowers and other interest parties earlier this year, the bureau recently issued a series of servicing industry recommendations.
Broadly, the proposed rule changes call for creating more consistent industry standards that would replace the current patchwork of state and federal laws.
Regulators would also step up enforcement action against companies if errors occur or laws are broken, and servicing firms would be required to provide clear and more timely information on repayment options “that encourage borrower success and mitigate defaults.”
My own suggestion is that businesses spend more on training front-line customer service workers and improving their record-keeping systems.
What I’d also like to see is an increased effort by colleges to educate students before they leave campus about debt repayment options. Think about it — most schools won’t let kids graduate until their parking tickets have been paid. Why not require borrowers to take a pass-fail test on student loans and withhold the degree until earning the passing grade.
At any rate, the new regulatory proposals would have an impact on borrowers of all ages, including parents and grandparents who co-sign for student loans.
Any new rules, however, could be a year or two away at best.
The upshot for borrowers: Educate yourself about the various repayment plans that could fit your needs and push your loan service company for the answers. And if you’re still not satisfied with the answers, follow up with a complaint to the Consumer Financial Protection Bureau at www.consumerfinance.gov/students.
Steve Rosen: 816-234-4879