Tell the CFPB about your #StudentDebtStress

The data the CFPB collects through its consumer complaint process has provided important insight into the student loan industry’s practices and it has helped to pave the way to improve the student loan servicing market. The CFPB recently published a report that examines over 3,000 private student loan complaints. While federal student loans have fixed interest rates and borrowers have the right to receive affordable repayment plans, private student loans do not have these standards, which makes it harder for struggling borrowers to afford their loans.

Borrowers turn to private student loans because federal loans do not always cover all of their college expenses, but borrowers often become stuck with loans that lack the repayment flexibility of federal loans. Many private student loans require a co-signer; if the student cannot pay back the loan, then the co-signer is responsible for the repayments. In 2011, over 90 percent of private student loans had co-signers. Private student loans also drag down the families of borrowers, since it is the parents and grandparents of borrowers who typically co-sign private student loans.

The CFPB’s report revealed that 90 percent of consumers who applied for a co-signer release were rejected. A co-signer release is an act initiated by the primary borrower that would absolve the co-signers of responsibility for the loan. However, the report noted that consumers were not informed of the co-signer release criteria and some lender policies prohibited consumers from getting a co-signer release in the first place. This illustrates a lack of transparency and flexibility with private student lenders.

When servicers reject the vast majority of co-signer releases, the co-signers risk being responsible for the loan in its entirety, as seen with these parents struggling with six-figure debt after the death of their daughter. This situation is exacerbated by auto-default clauses, which require borrowers to pay back a loan in its entirety when a co-signer dies or declares bankruptcy. To remedy these issues, the CFPB recommends changes in the private student loan industry by encouraging more transparency, improving communication between the borrower and the lender, and conducting further analysis of the potentially harmful clauses in private student loan agreements.

None of this information would have been discovered without the partnership between the CFPB and consumers. The CFPB gives consumers the opportunity to share their experiences with a variety of industries through the CFPB’s consumer complaint system and regulatory processes. There are over one trillion dollars in student debt and college costs continue to increase, so the need for student loans is not going to go away anytime soon. Working with the CFPB by submitting comments and complaints will, however, help the CFPB understand emerging threats to student loan borrowers and develop policies that keep student loans safe and affordable.

Woodstock Institute strongly encourages consumers to assist the CFPB by submitting comments to the CFPB’s request for information (RFI) regarding student loan servicers. The CFPB needs to better understand the practices of this industry so that it can take targeted action. Submitting a comment to the CFPB’s RFI can help guide future regulations. You can make your voice heard by submitting a comment to the CFPB website by July 13.