The Consumer Financial Protection Bureau student loan ombudsman, Rohit Chopra, has issued his first annual report required by the Dodd-Frank financial reform law. Michelle Singletary of the Washington Post says that the report may portend a finanical crisis.
The report's executive summary appears after the jump.
** In the Dodd-Frank Wall Street Reform and Consumer Protection Act, Congress established an ombudsman for private student loans within the Consumer Financial Protection Bureau. In its first year of operation, the CFPB entered into a memorandum of understanding with the Department of Education to coordinate on student loan complaints, began accepting student loan complaints at ConsumerFinance.gov in March 2012, and released a number of consumer education tools to assist borrowers.
** Outstanding student loan debt is now over $1 trillion, with private student loans accounting for more than $150 billion. There are at least $8 billion of private student loans in default, representing more than 850,000 individual loans. Private student loans are issued by banks and credit unions, state-affiliated and non-profit agencies, schools, and other financial companies. Like in the mortgage market, creditors often employ thirdpartyservicers to collect payments from private student loan borrowers. Many of these servicers are also active in the federal student loan market.
** In less than seven months, the CFPB has handled approximately 2,900 private student loan complaints. For complaints where companies report monetary relief, the median amount of relief reported was $1,572. The vast majority of the complaints were related to loan servicing and loan modification issues.
** Eighty-seven percent of all student loan complaints were directed at just seven companies. This is not surprising, given that the private student lending and servicing markets are highly concentrated.
** The complaints and input received by the CFPB resemble many of the same issues experienced by mortgage borrowers, such as improper application of payments, untimeliness in error resolution, and inability to contact appropriate personnel in times of hardship. Many borrowers feel overburdened by paperwork and other requirements to activate incentives marketed prior to loan origination.
** Similar to the mortgage market, active-duty servicemembers and their families sometimes experience difficulty exercising their rights under the Servicemembers Civil Relief Act.
** Like mortgage borrowers, student loan borrowers face challenges when attempting to refinance or modify their debt. Many borrowers are unable to take advantage of low interest rates due to a lack of refinance options, while others have been unable to secure modified payment plans during the difficult labor market environment.