Student loan servicers make it harder for borrowers to repay loans
Do you ever feel like your student loan servicer is out to get you?
You’re not being paranoid.
A new report finds that student loan companies aren’t doing much to help borrowers repay their student loans.
In fact, they seem to be actively trying to prevent borrowers from paying off their student debt as quickly as possible.
And it’s not the first time we’ve found that student loan lenders aren’t guiding students toward their best repayment options.
How student loan servicers hurt borrowers
The Consumer Financial Protection Bureau (CFPB) recently released its second annual review of student loan practices, and the findings aren’t pretty. The federal agency determined that student loan servicers use tactics that make it harder and more expensive for borrowers to pay off their loans early.
One specific strategy servicers employ is dividing up early or partial payments in a way that costs the borrower more unless the borrower specifies otherwise. Servicers often apply early payments made by borrowers to lower-interest loans first, even though this costs the borrower more in the long run in interest. And partial payments are divided in the opposite way, which maximizes late fees.
Why is this a problem? Richard Cordray, director of the CFPB, explains:
Repaying a student loan should be simple. When servicers process payments to maximize fees and penalties, they undermine the trust of their customers. Student loan borrowers deserve better.
We couldn’t agree more. Instead of taking advantage of people with few options, servicers should be trying to guide borrowers toward the best student loan repayment plan for their situation and help them pay off their loans as quickly as possible.
Unfortunately, borrowers are often forced to look elsewhere for help repaying their student loans.
Complaints by student loan servicer
Check out the chart below to see the percentage of borrower complaints by student loan company. Sallie Maes top the list, making up nearly half of all complaints against student loan servicers.
According to the CFPB, though, these numbers are proportionate to the companies’ respective shares of the student loan market.