The nation's highest-risk student loan borrowers aren't being enrolled in affordable repayment plans that would help them get on track with payments, according to a report this week from the Consumer Financial Protection Bureau.
“Too many struggling borrowers fall through the cracks in a broken, outdated student loan system,” said Richard Cordray, the director of the consumer agency.
Credit: Carrie Teegardin
Credit: Carrie Teegardin
The Consumer Financial Protection Bureau has been a critic of the massive student loan industry since releasing a 2015 report documenting servicing failures and sloppy practices.
About 44 million Americans owe a total of $1.4 trillion in outstanding debt from federal and private student loans.
The new report studied how lenders handled student loan borrowers who are exiting default.
The consumer agency found that most borrowers who have paid debt collectors to get out of default were not immediately enrolled by a student loan servicer in affordable repayment plans based on their incomes. Those who aren't enrolled in the affordable payment plans are at high risk of defaulting again, the consumer agency reported.
“These people did everything that was asked of them to get back on their feet, only to end up deeper in debt," Cordray said. "We will continue to work to make sure this industry provides borrowers with the kind of service they deserve.”
The consumer bureau says the nation needs a clearer process to help borrowers who have defaulted succeed and eventually pay off their loans.
Nearly 1.2 million borrowers defaulted on student loans in the last year, the bureau said. The defaults lead to all sorts of consequences: wage garnishments, lost federal benefits and low credit scores.
"For far too many student loan borrowers, the dream of a fresh start turns into a nightmare of default and deeper debt," said Seth Frotman, the student loan ombudsman for the Consumer Financial Protection Bureau. "When student loan companies know that nearly half of their highest-risk customers will quickly fail, it's time to fix the broken system that makes this possible."
Need help with student loan repayment? Check out the consumer agency's "Repay Student Debt" tool and other information at consumerfinance.gov/students.
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