Private student loans draw the most complaints
“Another interesting statistic is that out of the data analyzed for the nine student loan servicers, 34.25 percent of all complaints made to the CFPB were in regards to private student loans. This number becomes eye-catching when you consider that only roughly 10 percent of the student loan industry is made up of private student loans.”
—“Halfway Through 2017, Here Are the Best & Worst Student Loan Servicers,” The Student Loan Report
Eye-catching, yes. Surprising? No. This fascinating study sifted through the Consumer Financial Protection Bureau’s complaints database to rank student loan servicers by the volume and types of problems reported by borrowers. These servicers, mostly for-profit entities that manage and collect on federal and private student loans, have been in the news of late for all the wrong reasons: losing paperwork, deceiving borrowers, and using unethical collection methods, among others.
The fact that private loans garner such an outsized share of complaints is to be expected: Unlike the federal government, private lenders offer very little in the way of repayment flexibility. If you’re having trouble making your monthly student loan payments—as too many grads are—and you’re only dealing with a federal loan, the government might be able to lower your payment to match your salary, extend the term of your loans, let you take a short-term breather from paying, or even forgive the debt entirely, depending on your circumstances. Private lenders? Not so much. Oh, and the interest rates on private loans can be about three times higher than those charged by the government.
Unfortunately, lots of families aren’t aware of the big differences between federal and private loans. Half of American students who took out private loans could have borrowed more money from the federal government—and avoided financial pitfalls later on. To make matters worse, the Department of Education has recently rolled back consumer protections for student borrowers and rescinded sensible guidelines to rein in reckless behavior by servicers.
Let this study remind us of what a real difference the CFPB has made in the financial lives of ordinary Americans, by demanding more transparency and creating a forum for open dialogue about the financial aid industry. We need to keep the agency alive, independent, and robust. Without it, the complaints against student loan servicers will only get louder—except there will be nobody there to listen.