Student loans have never held a pre-payment penalty. This means, that if you want to pay your loan off before the end of the repayment term, you can do so with no additional penalties added to your loan. This is good, because it encourages people to pay their loans off earlier than they are scheduled to, and thus avoid the additional accrued interest.
Not so fast.
The recently released 2013 annual report by the student loan ombudsman for the Consumer Financial Protection Bureau (CFPB) has listed the most common student loan complaint as borrowers having trouble modifying their loan in time of hardship. Just under half of the 3,800 complaints filed last year with the CFPB concerned this issue. Another large percentage of complaints dealt with borrowers inability to get an accurate payoff and pay their loan off early.
The following is a more detailed listing of the other issues student loan borrowers faced in 2013.
- Improper Treatment of Military Borrowers - Student loan borrowers who are in the military and are being deployed are eligible for an automatic student loan deferment during their deployment period, and a grace period after they return. These deployments often come with very short notice, and the CFPB routinely received complaints about student loan servicers not working in a timely manner to issue this deferment before the soldier was deployed.
- Loan Modification Problems – As the most common problem, many student loan borrowers complained about not being able to modify their loan when they were struggling financially. This could come in the form of changing their repayment term, adjusting their monthly payment, or applying for a deferment or forbearance. Making up just under half of all of the complaints, this remains a serious issue.
- Poor Communication About Payment Application – This one seems simple, but many borrowers complained about not understanding when or how their payments were applied to their loan principle. This could be due to a confusion as to the payment posting timing, the actual breakdown of principle versus interest payments, and also the actual method of payment. As you can imagine, this is incredible frustrating for borrowers.
- Difficulties Making Extra Payments – Many borrowers have multiple loans under one servicer. This was a mandate by the Department of Education back in 2008, that was supposed to make it less confusing for borrowers. However, borrowers are now complaining that when they make extra loan payments each month, these extra payments are not applied to the loans as instructed, but rather to the loans which carry the lowest interest rates, and the most favorable repayment terms. Borrowers are finding it difficult to pay off their high interest private student loans.
- Timing of Payment Processing – Borrowers are complaining about receiving late fees, even though they paid their payments on time. This seems to be due to a lack of communication between the online payment system, and the late fee generation system. Servicers are generally available to remove these late fees, but this often results in an additional headache for borrowers.
- Access to Payment Histories – Borrowers have found that online payments are generally available via their online portal, however payments made via mail or by the phone, are not often available until months after the payment has been processed. Also, requests to provide payment histories are also generally slow to be fulfilled.
- Difficulty Obtaining Accurate Payoff Information – Servicers are very reluctant to provide payoff information, and when it is provided it is often inaccurate. This creates a problem when a check is requested to payoff a loan, or if a consolidation is processed. There is then sometimes a small balance remaining and the borrower may not always be aware of this, causing potential late fees and negative credit reporting.
- Servicer Transferring Chaos – Borrowers repeatedly experienced a nightmare when transferring their loans from one servicer to another. The process was tedious and time consuming, causing borrowers to often be late on intermediate payments, and experience confusion with the process. I’ve heard this problem many times with NelNet student loan servicing.
Have you experienced any of these difficulties?