How to File a Complaint About a Private Student Loan
If you are having a problem with a private student loan, you can file an online complaint with the CFPB.
Many people who took out student loans with a private lender (as opposed to taking out federal loans) end up having problems or disputes with the private student loan lender, servicer, or debt collector during the repayment period. Reported problems include, among other things, losing checks, not informing borrowers when their accounts have been transferred to new servicers, misapplying extra payments, and being unwilling to work out payment plans with borrowers that fall behind in payments or are in temporary financials distress.
If you cannot resolve a problem with your private student loan lender or servicer, you can file a complaint with the Consumer Financial Protection Bureau (CFPB).
Private Student Loans
Private student loans are those that are not issued or guaranteed by the federal government. Federal loans (those issued or guaranteed by the government) are usually a borrower’s best option – they come with lower interest rates, more favorable loan terms, and eligibility for flexible repayment plans for those in financial distress. But because of the increase in college and graduate school tuition, and the rise of vocational schools, some of which are not eligible for federal loans and grants, more and more students are forced to take out private student loans.
Common Complaints About Private Student Loan Lenders
In recent years, borrowers have complained about incompetent and unfair servicing practices in the private student loan industry. In addition, many borrowers report that private loan lenders, servicers, and debt collectors are unwilling to consider any type of payment plan modification when borrowers are in financial distress.
Unwillingness to Consider Loan Modifications
If you take out federal loans and have trouble making the payments or run into temporary or permanent financial distress, there are a number or programs that can help. Among other options, many borrowers can convert to a flexible payment plan that results in lower monthly or get a short-term reprieve from making payments. (Learn about the payments plans and programs available for federal student loans.)
These programs, however, are not available for private student loans. This means that if you lose your job, experience a medical hardship, or experience other circumstances that make it difficult or impossible for you to make student loan payments, you are at the mercy of your student loan lender. Some private student loan contracts do provide criteria for getting a deferment or forbearance, or some other relief – check your contract carefully. But even so, these servicers are not always forthcoming in granting such relief.
Often, borrowers need a temporary forbearance from making loan payments while they look for a job, would like to tack a few delinquent loan payments to the end of their loan term, want to explore an extended repayment term, or wish to propose some other reasonable loan modification. Often, the need for these loan modifications arises from a job loss, medical emergency, or some other unforeseen event. Or sometimes it’s because the borrower cannot find high-earning employment.
Many borrowers report that their private loan lenders or debt collectors are unwilling to consider a workout, or are just plain unresponsive.
Payment Processing Problems
Other borrowers report problems with making payments or getting payments processed correctly. According to a recent CFPB report on the private student loan industry, it’s not uncommon for private student loan servicers to:
- lose checks and then charge borrowers late fees on the account
- process extra payments (which a borrower usually makes to pay down principal early) in a way which maximizes interest rates for the servicer, to the detriment of the borrower, or so that the payment pays principal and interest, not just principal
- process partial payments so as to maximize late fees for the borrower
- fail to provide accurate payoff information to those borrowers seeking to repay their loans early, and
- fail to notify borrowers when their accounts are transferred to a new servicer, resulting in frustration, late fees, and risk of delinquency.
To get more details about these, and other serving problems, see Repaying Private Student Loans: Watch Out for These Pitfalls.
The CFPB Student Loan Ombudsman
Federal student loan holders with complaints about or problems with their loan services have been able to report to the Department of Education’s Federal Aid Student Loan Ombudsman for a number of years. Not so if you had complaints about a private student loan lender. Prior to 2012, consumers did not have a one-stop shop for reporting complaints about private student loan companies.
This changed with the Dodd-Frank Wall Street Reform and Consumer Protection Act, which established the Consumer Financial Protection Bureau (CFPB). The CFPB has an ombudsman specifically tasked with assisting borrowers with private student loan complaints.
According to the CFPB, the private student loan ombudsman’s office will contact your lender or servicer and try to help you resolve your complaint. While the CFPB cannot guarantee a fix, it can at least get a response and urge the lender to work something out with you. For some private student loan lenders and servicers, a call from the CFPB will be enough to get it to take a closer look at your account.
The CFPB also continues to collect data about payment processing and other issues in the private student loan industry, and in the future may propose regulations to address some of these problems.
How to File a Complaint with the CFPB
To file a complaint, and get help from, the CFPB Student Loan Ombudsman, fill out and submit the online complaint form at www.consumerfinance.gov/complaint. Or you can call 855-411-CFPB.