A recent article published in the New York Times discussed how borrowers are affected by the incompetent actions of student loan servicers. Servicers have been accused of losing paperwork, selling loans to other servicers without notifying borrowers, and failing to mention helpful repayment options. An outcry from consumer protection groups has called upon the Department of Education to crack the whip and put an end to dishonest and incompetent debt collection practices for federal loans.
How are student loan debtors affected by these practices? Borrowers can set up automatic billing by providing their servicers with bank account information, so payments are withdrawn every month. However, if borrowers have their loans transferred to another servicer, the automatic payments stop and late fees accrue. Servicers have also failed to tell borrowers about repayment options based on income and family size, such as the income-based repayment (IBR) plan.
Private student loan servicers are even worse. Borrowers have accused private student loan servicers of inflating account balances. Discover Bank is a private loan servicer that was recently fined $18.5 million by the Consumer Financial Protection Bureau (CFPB) for inflating the accounts of borrowers.
Federal Regulators Call for Policies to Help Student Loan Debtors
The CFPB, the Department of Education and the Department of the Treasury are now calling for new standards that would hold student loan servicers accountable for errors and dishonest activities. If new guidelines were put in place, borrowers would also be informed of helpful repayment options. Many of the problems mentioned in the New York Times article could be solved, helping millions of borrowers avoid defaulting on their student loans.
The Sader Law Firm – Kansas City Bankruptcy Attorneys