October 17, 2014

A report from the Consumer Financial Protection Bureau (CFPB) found that student loan borrowers often have few options to avoid defaulting on their private student loans.

For those that are close to default, private student loan companies offer very little information to distressed borrowers, provide no affordable loan modification options and repayment alternatives are temporary.

The report comes from an analysis of more than 5,300 private student loan complaints registered between Oct. 1, 2013 and Sept. 30, 2014. Complaints increased 38 percent from last year.

The CFPB estimates that there is $1.2 trillion in outstanding student loan debt, with more than 7 million Americans in default.

"The response by the private student loan industry to distressed borrowers is failing to help them avoid default," said CFPB Student Loan Ombudsman Rohit Chopra, who submitted the report. "Too many borrowers are barely treading water, losing hope that these companies will throw them a lifeline."

That lifeline, unfortunately, doesn't seem to be coming.

When struggling borrowers tried to find more information, they found the company's website lacking. They also reported receiving conflicting or inaccurate information as they were bounced between multiple customer service representatives.

Unlike federal loans, which by law are required to provide a range of loan medication options, private loans don't offer these types of services, forcing some students into default. Their only option seems to be temporary forbearance, which gives borrowers a brief period of time when they don't have to make their monthly payment. The time is limited though and borrowers complained of enrollment fees and processing delays that lead to surprise defaults.

The CFPB put together a sample letter for borrowers to edit and send to their student loan provider to request lower monthly payments and information available on repayment plans. There is also a sample financial worksheet to assist borrowers to determine how much they would be able to afford to pay each month.

Student loan borrowers can also find help using the CFPB's Repay Student Debt tool. This interactive resource offers a step-by-step solution to navigate borrowers through their options, especially when facing default.

The 2014 CFPB Student Loan Ombudsman's Annual Report is available here.