The Consumer Financial Protection Bureau, which oversees companies that service student loans, estimated in a report released on Tuesday thokat about a quarter of the current federal loan borrowers are delinquent or in default, despite the availability of programs that offer more affordable payments for the majority of borrowers. (Loans are generally considered in default if a borrower doesn’t make payments for nine months.)
More than 41 million borrowers owe a total of $1.2 trillion in student debt, making it the second-largest type of consumer debt, behind mortgages. The average debt is now nearly $30,000, and borrowers continue to struggle with loans despite the improvement in the overall economy, the report noted.
Richard Cordray, the bureau’s director, said in a prepared statement that the continued distress of student borrowers means that “cleaning up the servicing market is critical.”
The bureau said it was working with the Education Department and the Treasury Department to explore new, more consistent industrywide servicing rules to increase borrower protections.
A servicer is a company that collects payments, issues monthly statements and generally serves as a point of contact for borrowers. (The report didn’t refer to companies by name. But big servicers of federal student loans include FedLoan Servicing, Great Lakes Higher Education, Nelnet and Navient.)
The bureau said its report was based in part on more than 30,000 public comments from individuals and organizations submitted in response to toan inquiry in May.
In their comments, the bureau said, borrowers told of problems like “sloppy, patchwork” practices, including lost paperwork and misapplied payments. (The comments reflected borrower experiences with servicers of both federal and private student loans).
The comments suggest, the bureau said, that servicers do not inform borrowers about applicable payment plans unless the borrowers specifically ask. But putting more borrowers in such plans could go a long way toward reducing delinquencies. According to research cited in the report, participants in the most generous repayment plans available for federal student loans — like the “pay as you earn” and income-based repayment programs — have much lower delinquency rates than borrowers in the standard, 10-year repayment plan.
The report also cited research that found that 70 percent of federal direct loan borrowers in default met the income requirements for lower monthly payments, raising questions about whether servicers are informing borrowers about affordable repayment plans.
Here are some questions and answers about student loan servicing:
■ What if I am having trouble finding out about or enrolling in an affordable payment plan?
“Understand that there are a range of options,” whether you are current, delinquent or in default on your federal student loans, said Deanne Loonin, a lawyer with the National Consumer Law Center. Rather than asking about specific repayment programs and using technical terms, she said, ask your servicer questions like, “Isn’t there a more affordable option for me?”
The Education Department offers a repayment estimator tool that can help you determine which plan may work best for you.
Also, the Project on Student Debt has information about affordable repayment plans.
Maura Dundon, senior policy counsel at the Center for Responsible Lending, said borrowers should educate themselves about the various plans and press for information, even if their servicer isn’t being especially helpful: “This is an area where the consumer has to be assertive and persistent.”
(Alternative payment plans for private student loans are more limited, and they vary by lender.)
■ Can I request a different loan servicer if I’m unhappy with mine?
Generally, no. You get to choose a servicer only if you consolidate multiple student loans into a single, new loan, Ms. Loonin said. But consolidating loans may not be the best choice for you financially, so you shouldn’t choose that option simply to switch servicers, she said. Student Loan Borrower Assistance offers pros and cons to consider.
■ Where can I file a complaint about problems with student loans?
For federal loans, contact the Education Department’s student aid ombudsman.
The Consumer Financial Protection Bureau takes complaints about private loans.