Yesterday, the Consumer Financial Protection Bureau (CFPB) released a report analyzing the more than 3,800 comments, complaints and other input received during the last year from private student loan borrowers. The report found that the payment processing policies of private student lenders and loan services "may be sidetracking responsible borrowers looking to pay off their loans more quickly." The report highlighted the following issues:
- Due to a dearth of refinancing options, consumers of high-rate private student loans are opting to pay off their loans early. However, the bureau received complaints that "payments in excess of the amount due are applied across all their loans, not the highest-interest rate loan that they would prefer to pay off first."
- Although many servicers advise borrowers who are unable to make a full payment to pay whatever they can, servicers often "divide up the partial payment and apply it evenly across all of the loans in their account. This maximizes the late fees charged to the consumer and it can exacerbate the negative credit impact of a single late payment."
- "Lost paperwork, processing errors that result in late fees and interruptions of routine communication such as billing statements" are said to occur when borrowers' loans are transferred between servicers. Penalties ensue when borrowers make decisions based on the previous servicers' practices.
To assist borrowers with these issues, the CFPB released a complementary consumer advisory to help them "instruct servicers on how to process their payments." For more, read the full press release, report and consumer advisory.