The Pain of Paying Student Loans

Anger, frustration, confusion, and regret – high emotion permeates the nearly 8,500 complaints about student loans posted last year on the Consumer Financial Protection Bureau (CFPB) website.

A college education can pay dividends in the form of higher lifetime earnings and more opportunities, and millions of graduates repay their loans without incident. But many of the one in three borrowers facing extreme difficulty with repayment have legitimate reasons. The job market, while improving, is not robust for recent graduates. And interest rates on student loans are higher than mortgage rates, so the amount of debt accumulated – and the monthly payments – can be substantial.

Borrowers report that lenders and the firms hired by lenders to service customers are often unwilling to renegotiate monthly payments or devise ways to work down the principal. “I wish that with what I know now I never would have gotten these loans for college,” said one borrower’s online complaint.

The CFPB last month requested detailed information from lenders and servicing firms about customers’ options for modifying loans or negotiating more affordable loan payments. Customers receive “very little information or help when they get in trouble,” CFPB said.

Future borrowers beware. Here’s a sampling of the complaints about lenders:
• No flexibility.
• Refinancing may one day be possible – but not now.
• “Bureaucratic nightmare.”

Unfortunately, private lenders are not under the same obligations as the federal government to show flexibility in renegotiating federally funded loans; for example, the government forgives loans for some public workers or offers payment plans that take into account graduates’ incomes for those who don’t earn enough to meet their loan payments.

So before taking out student loans, consult the CFPB consumer guide, which recommends exhausting all federal loans before resorting to private loans.

The issues raised in the complaints detailed below sound similar to subprime borrowers’ experiences with loan servicing firms.

• “Only deferment is offered, which does nothing for the actual amount owed – just allows more interest to accrue,” said one borrower.

• A 50-year-old said his lender offers loan forbearance in two-month spurts, charging him a $50 fee each time. The servicer also suggested the borrower settle his loans by agreeing on a total payoff amount and then persuading his mother to take out a line of credit to pay them off, he said.

• “They will not help me with lowering or changing payments because they are private,” one teacher said about her lender. “I am stuck forever.” [Student loans largely cannot be discharged in bankruptcy court.]

• Another borrower who described his servicer as “horrible” said the firm is unwilling to negotiate any terms. “The stress is about to kill me.”

• Nineteen borrowers describing themselves as “part of the most indebted graduating class ever” signed a letter saying that they have experienced “confusion, inefficient communication, lost paper work and ‘runarounds’ ” as well as a “lack of consistency” in how servicing firms and lenders address borrowers’ requests.

• “They were not flexible at all and said I would have to wait a few more years, reamortize (not sure that is the right word), which would likely only lower my payment by $30-$40 per month,” said one borrower seeking repayment options.

• An elderly man in Columbus, Ohio, on a “tight budget” said he didn’t receive a statement when his payment was due for student loans for his son’s education. His wife, who also has loans for graduate school, gets “sporadic” statements, which often come just days before they’re due.

• A couple in their late 60s have been paying loans on their son’s college education for 25 years and owe $17,000. They said they have been unable to get information from their lenders about loan forgiveness programs. [Debt forgiveness after 25 years is available for certain federal loans.]

• One cash-strapped borrower pays his loan on Friday and is charged interest over the weekend, because the payment isn’t posted until the following week. The additional interest reduces his principal payment, he said. “How is anyone supposed to get ahead of their loans when this happens?”

• A recent graduate said her servicer was “easy to talk to,” but she won’t be able to pay her loans if she doesn’t get a full-time job.