CFPB Report Shows Nearly a Third of Student Loan Borrowers Are Behind on Payments
Posted By Eliana Osborn on November 13, 2015 at 4:45 pm
The Consumer Financial Protection Bureau reports that student loan repayments aren’t happening as they should be. Approximately, thirty percent of Federal student loan borrowers are at least one payment behind schedule. This amounts to about five million Americans who are either in default or late in paying.
Six months after a student leaves school, their student loans enter the repayment phase. Once you get behind, getting back on top of loan payments can be difficult—fees add up and the principal never seems to shrink.
Use of income-based repayment plans
The Obama Administration has pushed income-based repayment plans as a way to help borrowers in financial trouble. Such plans can only be initiated by loan holders; they have to reach out to their lender and ask to be enrolled. Because the onus is on those struggling to pay, an estimated 95% of borrowers aren’t enrolled. Many don’t even know that they can get help lowering monthly payments and avoid default.
The CFPB report also found an increase in complaints from borrowers about their student loan processors. Because student loans are such a large industry affecting millions of Americans, there’s a full section of the CFPB dedicated to this.
Default rates are higher for loan holders who borrowed from private lenders than the general market, according to the CFPB. Respondents in default report that they didn’t realize they were eligible for alternate payment plans. Others say their lenders gave them confusing information or caused paperwork issues. Overall, the promise of income-dependent repayment is not being utilized by those the program was designed to serve.
Getting loan repayment assistance
Another method of loan assistance is called forbearance; your lender can decide to give you a reprieve of up to twelve months–though interest still accrues–in the event of a serious illness or financial hardship. There’s also mandatory forbearance, wherein the lender must pause or lower payments, under certain circumstances. The CFPB report found many complaints about forbearance information given to borrowers.
Loan holders must be proactive in understanding the policies of their specific lender. There are multiple types of loans, with differing interest rules. Especially for borrowers who have loans held by different companies, it is imperative to contact each lender directly before getting behind on payments. The best bet for getting assistance is to understand the options available before a problem arises. The National Student Loan Data System allows you to view all your loans together, along with information about contacting various lenders.