Student Loan Servicing Problems May Endanger Financial Security for Older Borrowers
The number of older borrowers has quadrupled and amount of debt per borrower over last decade
The Consumer Financial Protection Bureau (CFPB) has issued a report examining complaints from older borrowers of student loans regarding servicing practices that may endanger their financial security over the long term.
Over the last 10 years, the number of older borrowers of student loans has quadrupled. In addition, the amount of debt that each older borrower has about doubled as many borrowers take out loans on behalf of children or grandchildren.
As the report explains, these borrowers who are having a hard time making payments complain about hurdles they face in enrolling in payment plans based on income as well as getting access to their protections as cosigners. Almost 40 percent of people ages 65 and older who borrowed federal student loans were in default.
"It is alarming that older Americans are the fastest growing segment of student loan borrowers," said CFPB Director Richard Cordray. "Many of these older Americans are helping to finance their children's or grandchildren's education while living on a fixed income. We are concerned that student loans are contributing to financial insecurity for many older Americans and that student loan servicing problems can add to their distress."
Student loans are the second-biggest consumer debt market in the U.S. , and seniors make up the fastest-growing part of this market. Between 2005 and 2015, the number of Americans 60 years old and older who have at least one student loan quadrupled from roughly 700,000 to 2.8 million. The average debt load that older borrowers owed also about doubled from $12,000 to $23,500. According to the CFPB's analysis of survey data, roughly three out of four older borrowers who have student loans used these loans to pay for the college educations of their children or grandchildren.
It may be hard for some older borrowers to repay these loans while they also handle other debts and late-life expenses on a fixed income without much savings. These consumers generally experience lowered income amounts as they approach or go into retirement. Also, some have other challenges, like more frequent physical and mental impairments linked to aging. Such difficulties can limit their ability to keep working and therefore might be associated with a fall in income.
These borrowers also have debts from mortgages, credit cards, and auto loans, according to the CFPB's analysis of recent data from surveys. The CFPB also found that older borrowers are more likely to skip making necessary expenses for healthcare, like prescription drugs or visits to the doctor, because they could not afford them than are those borrowers who do not have outstanding student loans.
Servicers for student loans are a critical connection between lenders and borrowers. Servicers take care of managing borrowers accounts, processing monthly payments, and communicating directly with borrowers. When a borrower has a change in financial circumstances because of a change in their employment situation, they will need to contact their student loan servicers if they want to enroll in another repayment plan or ask for a change in the terms of the loan(s).
The CFPB's report examines older borrowers' complaints about both private and federal student loans. These consumers claim that problems result from, among other causes, co-signing private student loans and troubles in accessing the protections guaranteed to many federal student loan borrowers under federal law. They report issues with industry practices like the following:
- Delaying or prohibiting consumers from enrolling in payment plans based on income. Some consumers who have taken out federal student loans report that they are not being advised by servicers that they can have the amounts of their loan payments reassessed under an income-driven plan when the amount of that income changes. Instead, some who are on either fixed or reduced incomes report that they have been put in plans that are meant for borrowers whose incomes are growing. Older borrowers who are in default on their loans report that their Social Security benefits are being offset to repay a federal student loan in spite of their right, under federal law, to cure their default and try to get payment relief under a plan based on their income.
- Incorrectly applying payments made by co-signers to other loans owed by the primary borrower. In general, a servicer applies payments received to all the serviced private student loans that the primary borrower owes. However, some co-signers have complained that their payments appeared short because the servicers spread them out over all the primary borrower's private student loans. Doing this can result in the servicers charging co-signers late fees and interest charges, as well as reporting late and missed payments to credit reporting companies.
- Not providing borrowers with access to loan information. Some co-signers have complained that they can't monitor the student loan for which they co-signed because the servicers did not reply when they asked for help in accessing account information. Others report that, by the time the servicer notifies the co-signer about missed payments, the amount due has accrued fees and penalties. Some consumers who have taken out private student loans claim that they were not notified before a negative report was sent to consumer reporting companies.
- Threatening to offset the federally-protected benefits of private student loan borrowers. Certain benefits provided by federal law, such as Social Security benefits, are generally protected from being collected to pay for private student loans that borrowers have defaulted on. However, some older borrowers have reported that servicers and debt collectors have threatened to collect these protected benefits when the primary borrower fails to pay.