Consumer agency opens review of student loan services

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http://www.washingtonpost.com/business/consumer-agency-opens-inquiry-on-student-loan-services/2015/05/14/6c664dd4-f9ee-11e4-a47c-e56f4db884ed_story.html

WASHINGTON — The Consumer Financial Protection Bureau opened a public inquiry Thursday into student loan servicing practices that it says can make paying back loans “stressful or harmful.”

Private and federal student loan debt totals more than $1.2 trillion. Loans often are not serviced by lenders but by a company that processes monthly payments, assists borrowers with repayment options if they lose their jobs, and performs a variety of other tasks. Such service companies — among them Navient, Nelnet, American Education Services, and Great Lakes Higher Education Corp. — typically get a flat monthly fee per account.

Eight million student loan borrowers are in default, and the agency is concerned they weren’t told of available options that could have kept them out of the situation.

“Student loan servicers often make more money when they spend as little time as possible on each account, and they typically get paid more when a borrower is in repayment longer,” Richard Cordray, the director of the agency, said at a hearing in Milwaukee focused on student loan servicing. “So we are evaluating whether the typical methods of servicer compensation can jeopardize the interests of borrowers.”