Consumer Bureau Says Loan Servicing Issues Vary
- Problems plague servicing of private student loans, CFPB says
- Federal regulators finalize rule to provide more oversight of student loan servicers
- Consumer Financial Protection Bureau publishes 2,000 comments on private student loans
- Federal agency requests comment on private loan modifications
- Consumer Financial Protection Bureau to seek oversight of loan servicers
Continuing its focus on problems with the servicing of private student loans, the U.S. Consumer Financial Protection Bureau on Monday released an analysis of its voluntary request for information from the private student loan industry. The bureau was especially interested in information about how loan servicers process the payments of borrowers seeking to pay down their debt ahead of schedule. The CFPB has said it’s concerned that some loan servicers apply prepayments in a way that maximizes their profits but makes the cost of the loan more expensive for borrowers.
In its report, the CFPB found that servicers varied in how they apply prepayments to student loans. Some were able to accept a borrower’s instructions through their online payment platform, while others were did not accept such instructions for certain types of loans. The bureau did not release the names of which entities responded to its request for information.
Rohit Chopra, the bureau's assistant director and student loan ombudsman, vaguely alluded to potential compliance issues in Monday’s report. He noted that it is illegal for companies to charge student loan borrowers a penalty for making early payments on their debt and said that one way for some servicers to ensure compliance with that requirement would be to automatically direct prepayments to a borrower’s loan with the highest interest rate first. In analyzing the servicers' prepayment policies--all of which were submitted voluntarily -- the CFPB did not check to see whether the policies were complying with the law. However, prepayment issues on private student loans could become a focus of the agency's efforts when it officially begins its supervision of large student loan servicers in March.