Report: Student loan woes mirror mortgage problems
Complaints from students about the way financing companies are handling student loans are eerily similar to the problems that frustrated mortgage-holders in the wake of the financial crisis, and cost some of them their homes, according to a government report.
Source: Consumer Financial Protection Bureau
In its second annual review of student-loan practices, the federal Consumer Financial Protection Bureau, or CFPB, says loan servicers make it hard for borrowers to pay off their loans early and, unless recipients provide explicit instructions, divide up early or partial payments in ways that are the most expensive to consumers.
“Repaying a student loan should be simple,” says the agency’s director, Richard Cordray. “When servicers process payments to maximize fees and penalties, they undermine the trust of their customers. Student loan borrowers deserve better.”
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For example, early payments made by borrowers to reduce their long-term interest costs end up being applied to lower-interest loans first, and not higher-interest loans, while partial payments are parceled out in the opposite way, which maximizes late fees. And when student loans are transferred from one servicer to another, the resulting confusion