The vast majority of high-risk student loan borrowers don’t know about the options they have to lower their monthly payments — and that’s because loan servicers do a bad job of telling them. That’s the thrust of a report that MagnifyMoney asked me to write about this week.
I wrote recently about an effort by various states to enact student loan borrower protections — an attempt to blunt the impact of removal of some protections at the federal level. This week’s report confirms some of the assertions made by Attorney General Lisa Madigan in her call for a state-level Student Loan Borrower Bill of Rights.
Here’s an excerpt of the Magnify Money story. You can go there to read the rest.
The Consumer Financial Protection Bureau says a stunning 9 out of 10 of these high-risk borrowers were not enrolled in affordable repayment plans, such as income-driven repayment — meaning their monthly payments were much higher than they had to be. Predictably, those borrowers were five times more likely to re-default on their loans, racking up $125 million in unnecessary interest charges along the way.
Conversely, students who were enrolled in income-driven repayment plans, which reduce payments based on the borrower’s income, were much less likely to have trouble making on-time payments. Fewer than one in 10 re-defaulted when enrolled in income-derived repayment, the CFPB said.
Loan servicers are responsible for informing borrowers about their options, but the CFPB has alleged previously that they do a poor job of it.
A Government Accountability Office report in 2015 found that while 51% of borrowers were eligible for a repayment program that could lower their payments, only about 15% were enrolled in it. The CFPB complaint database is littered with allegations that servicers make enrollment unnecessarily hard. And earlier this year, the CFPB and the state of Illinois both sued Navient — the nation’s largest servicer — and alleged the firm systematically failed to inform borrowers of their options. (Navient denied the allegation.)
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