With More Private Student Loans Come More Public Complaints

The Consumer Financial Protection Bureau (CFPB), established in 2010, identifies dangerous and unfair financial practices and educates consumers about these practices as it regulates the financial institutions that perpetuate them. Recently, the U.S. PIRG Education Fund released a report that explores consumer complaints in the private student loan sector with the aim of uncovering patterns in the problems consumers are experiencing with their student loans. Since CFPB began collecting data on private student loans in March 2012, it has recorded more than 4,300 complaints about problems with private student loans, according to Private Loans, Public Complaints report.

Student consumers can obtain federal student loans, private student loans or both to pay for higher education. Private student loans (PSLs) are typically far more risky and expensive for consumers seeking a way to pay for college.

Private student loans, including credit cards, generally offer variable interest rates that are higher for those borrowers with the least means. Repayment options are also severely limited. Federal student loans, by contrast, are typically subsidized at a fixed interest rate and offer repayment options like deferment, income-based repayment and loan forgiveness that can help the borrowers respond to job changes, job loss, illness or other changes in income, the report said.

In the United States, PSLs accounted for about 7% of all student education loans taken out last year, and account for 15% of outstanding student loan debt. The current debt owed by consumers in the U.S. on their private student loans is estimated to be about $165 billion.

According to the report, Sallie Mae was the most complained-about private student loan firm. The Pennsylvania Higher Education Assistance Authority (AES/PHEAA), which has purchased several private student loan portfolios and acts as the servicer for other private student firms, ranked second, while Wells Fargo, which is the second largest private student lender behind Sallie Mae, ranked third.

Ten U S. private student lenders and servicers account for about 90% of all complaints to the CFPB. Repayment of loans was by far the most common subject of complaints to the CFPB. Loan repayment was the subject of nearly 65% of complaints filed, the report said.

Sallie Mae, the largest PSL lender, received the largest number of complaints in all three complaint categories that the CFPB tracks. The company received 1,983 complaints – more than the next nine companies combined, and 46% of all student complaints filed with the CFPB. Sallie Mae was the most complained-about lender in 48 states.

Excluding Sallie Mae, AES/PHEAA was the most complained-about private student loan firm in 28 states. Wells Fargo was the most complained-about company in seven states, while Citibank was most complained-about in three and Discover in one.

In Northeastern states, student loan borrowers are most likely to complain about PSLs, while borrowers in the Midwest and South are least likely. The District of Columbia had the highest complaint-to-borrower ratio, followed by New Hampshire, Connecticut, Massachusetts, New York, Maryland and Vermont, according to the report.

CFPB said it has helped more than 330 consumers to receive monetary compensation to resolve their student loan complaints, with a median amount of monetary relief of $700 and maximum relief of over $75,000. More than 500 additional consumers have had their complaints closed with some form of non-monetary relief.

11 22, 2013
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