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A young woman takes out $67,000 in student loans. Then, health issues force her to drop out of school. Debt collectors call, threatening to take away her dad’s pension (he had cosigned her loans). Finally, her 84-year-old grandfather gives every penny he has to get her loans current, but her balance is still thousands more than she borrowed. She’s now paying 20% of her $32,000 annual salary for loans taken out to pay for an education she never got.
A young man borrows $140,000 to pay for school in California. After graduating, he pays $700 a month until he’s laid off. He recounts how collectors start calling five times a day, sometimes as early as 5 AM. Explaining he can’t pay makes no impression. When he complains to state regulators, the collections called stop, but Sallie Mae and Navient Credit Finance sue him for immediate repayment of $73,000 in student loan balances. His lawyer is trying to negotiate a settlement.
These and other stories show how student loans, intended to let young people of limited means get a college degree with its promise of higher lifetime earnings, instead devastate countless students’ lives. These debts force them to put off marriage, kids, home-buying, or even enjoying something as simple as going out with friends.
The 40-year stagnation of wages for most Americans caused consumer debt as a whole to balloon to $13.86 trillion, according to 2019-Q2 data from the New York Federal Reserve Bank. Mortgage plus home equity debt, at $9.81 trillion, accounts for 71% of consumer debt. However, student loan debt is second highest at $1.48 trillion or 11%, ahead of auto loan debt ($1.3 trillion, 9%), and credit card debt ($0.87 trillion, 6%).
The CFPB just released its annual report of the Private Education Loan Ombudsman, detailing statistics of complaints relating to student loans over the past two years (no report was published in 2018).
With consumer spending accounting for over 2/3 of the US economy, anything that threatens our ability to buy goods and services can cause a recession. In 2007, the Great Recession resulted from a variety of abuses and irresponsible corporate behaviors, including lenders taking advantage of lax oversight, making misleading promises of low payments and selling so-called “liar loan” mortgages to borrowers who couldn’t afford to repay them. By the time everything unwound, home values plummeted, the stock market tanked, unemployment shot up, and millions of families lost their homes.
As part of the recovery process, President Obama proposed in 2009 a new agency to protect consumers, consolidating government oversight and responsibility for consumer protections that was up to that time scattered among many government agencies. In 2010, Congress passed, and President Obama signed into law, the Dodd-Frank Act (also known as the “Consumer Financial Protection Act of 2010”). Title X of the Act established the Consumer Financial Protection Bureau (CFPB), tasking it with protecting American consumers from unfair, deceptive, and abusive financial practices.
The report bases its findings on data from the CFPB’s Consumer Complaint Database. The database, typically updated daily, holds information on complaints about consumer financial products and services that were submitted to the CFPB and forwarded to the relevant companies to get their response. Complaints are only published once the company responds confirming that it had a commercial relationship with the consumer, or after 15 days, whichever happens earlier. The database very likely isn’t comprehensive, since not all consumers submit complaints even if they experience complaint-worthy treatment by a financial firm. The CFPB also states that it doesn’t verify all allegations made by consumers in their complaint narratives. Some complaints are referred to other regulators (e.g., if relating to depository institutions such as banks with less than $10 billion in assets). Such referred complaints are excluded from the CFPB’s database.
The database allows site visitors to view complaint data in their browser, download the data and API and analyze on their own, and/or read complaint reports.
The report covers the two-year period ending August 31, 2019 (no report was released in 2018). The report details the number of complaints, broken down by type of loan or action the complaints refer to; the geographic breakdown of complaints; highest number of complaints by loan servicer; enforcement action results; and recommendations to policy makers.
During the two-year period, the CFPB handled about 20,600 complaints relating to student loans including about 6700 private loans, 13,900 federal loans, and 4600 debt-collection complaints relating to student loans.
|Period||Number of Private Student Loan Complaints||Approximate Percentage Change vs. Prior Year||Number of Federal Student Loan Complaints||Approximate Percentage Change vs. Prior Year|
|Aug 2017 – Aug 2018||3800||-50%||7200||-44%|
|Aug 2018 – Aug 2019||2900||-25%||6600||-8%|
As seen in the two figures from the CFPB report, Navient, with 1319 complaints (52%), has the most complaints by far in the private student loan arena, and “leads” the pack in complaints related to federal student loans with 2050 complaints (39%). American Education Services/ Pennsylvania Higher Education Assistance Agency (AES/PHEAA) is in second place for most complaints relating to both private and federal loans, at 180 (7%) and 1658 (32%), respectively.
One should consider that servicers with more loans in general could expect to see more complaints than ones with fewer loans. However, the report provides data normalized to the number of loans, which show that the rate of complaints per 10,000 borrowers are still highest for Navient (3.2) and AES/PHAA (2.1). However, note that even the highest rate, at 3.2 per 10,000, is a small fraction of a percent.
The report includes a breakdown of complaints by state and the District of Columbia. The table below identifies the top and bottom states by number of complaints related to private student loans, federal student loans, and both types combined.
However, the raw number of complaints isn’t very useful by itself, since you can expect the number of complaints from a state like New York or California, with large populations, to be significantly higher than the number of complaints from say Washington DC. To address this, the bottom of the table identifies the top and bottom states by complaint rates, relative to the national average. The complaint rates are calculated by normalizing the raw number of complaints by the number of students from each state. For this normalization, we use the most recent data on total fall enrollment in degree-granting post-secondary institutions from the National Center for Educational Statistics.
|Private Student Loans||Federal Student Loans||All Student Loans|
|Top 5 Complaint States||CA (236)
|Bottom 5 Complaint States*||WY (4)
|Top 5 Complaint Rate States**||CT (222%)
|Bottom 5 Complaint Rate States**||UT (29%)
* Due to tie for fifth-lowest number of complaints, six states are shown for “All Student Loans.”
** Normalized by 2017 total fall enrollment in degree-granting post-secondary institutions, by state or jurisdiction per https://nces.ed.gov/programs/digest/d18/tables/dt18_304.10.asp, where 100% is the nationwide average.
While the highest total number of complaints is from California, New York, Florida, Texas, and Pennsylvania, after adjusting for number of enrolled students, none of these states is in the top 5 states by complaint rates. Similarly, while the lowest numbers of complaints from any state are from Wyoming, Alaska, North and South Dakota, Hawaii, and Vermont (the last two are tied, which is why we list six states in this category), none of the six makes it into the 5 states with lowest complaint rates.
In the normalized data, the highest states or districts in total complaints are Washington DC (179% of the national average rate), Connecticut (158%), Georgia (148%), Nevada (148%), and Maryland (145%). The lowest are Utah (29%), Iowa (41%), Nebraska (50%), West Virginia (58%), and Kansas (59%).
Note that the number of complaints from states in the lowest-5 list is so small, that the difference between them and the next few higher states by number of complaints is not statistically significant.
Thus, for example, Nebraska, South Dakota, Vermont, and West Virginia, could have been in the group with the lowest number of private student loan complaints, but for a statistical fluke. Indeed, two of these states made it into the list of lowest complaint rates in that category. Similarly, Hawaii and Montana had numbers of federal loan complaints that were not higher by statistically significant margins relative to Vermont; and Montana’s total number of complaints was not higher by a statistically significant number compared to Hawaii and Vermont.
The same limitation applies to the complaint rate data, where several states ended up close enough to the cutoff that the five lowest-rate states could have been a different group but for statistical fluctuations. The states close enough that they might have made it into the lowest-rate groups are:
On the higher end, the complaint rates could also suffer statistical fluctuations such that the following states might have escaped the top-five groupings:
The number of complaints per year, as mentioned above, changes from year to year. The following table shows that trend, with a large increase from 2015/16 to 2016/17, followed by a continuous decreasing trend for each year thereafter.
|Year||Private Student Loans||Federal Student Loans||All Student Loans|
|Sep 2015 – Aug 2016||4100||2500||6600|
|Sep 2016 – Aug 2017||6600||10,200||16,800|
|Sep 2017 – Aug 2018||3400||5900||9300|
|Sep 2018 – Aug 2019||2500||5200||7700|
The report authors suggest that the number of complaints in the second year may be significantly higher due to a major enforcement action taken against a large student loan servicer in 2017. The report does not offer definitive information as to why the number of complaints in subsequent years is lower despite increases both in the number of borrowers and amounts borrowed, but speculated this may be due to better practices by servicers, improved consumer outreach regarding various requirements, insufficient outreach on where to file complaints, and/or unnamed other factors.
The report authors caution borrowers about student loan debt relief scams, though they take care to point out that there are legitimate credit counselors and others who do perform valuable services.
The main points made in the report include the following.
Here are the main red flags that a student loan debt relief company may be a scam, though there may be others, and some of these may be legitimate in certain limited circumstances.
Before signing on with any student loan debt relief company, check with your state’s attorney general and state consumer protection agency if they have received complaints about the company you’re considering working with. You can also find out if your state’s regulator requires the company to have a license to work in your state, and if it does, whether it has such a license. You should also check with the Federal Trade Commission (FTC) if the company is on their list of people and companies banned from providing debt relief services.
If you believe you’re the victim of one of these scams, do the following:
As stated in the report, credit counselors are usually non-profit organizations who advise you and provide free educational materials regarding your money and debts. They may set up agreed payment plans with your creditors who won’t pursue collection and/or charge late fees as long as you keep your commitments under the agreement. They won’t typically be able to reduce how much you owe (which means there won’t usually be tax implications), but they might be able to reduce your monthly payments.
Legitimate debt settlement companies are for-profit organizations who, for a fee (that must be collected only after they carry out their task) will offer to arrange settlements with your creditors and/or debt collectors. These companies will usually advise you to stop paying your creditors until they negotiate a settlement. This could hurt your credit score, may result in your being sued, and if any of the debt is forgiven there may be tax implications as this could be considered taxable income.
If a debt settlement company suggests that you save up to be able to provide a lump-sum payment against your debts:
The FTC has several rules about payments to debt settlement companies that must be met before they can charge you a fee:
The CFPB recently released their Private Education Loan Ombudsman Annual Report, covering the two-year period ending August 31, 2019. The report provides information on student loan debt complaints, including how many were received, how they break down by loan type, loan servicer, and geography. The report also shows the multi-year trend of the number of complaints by loan type.
The CFPB cautions borrowers about student loan debt relief scams, offers a list of red flags, and suggestions on how to avoid getting scammed and what to do if you think you’re already a victim of such a scam.
Disclaimer: The information in this article is not intended to encourage any lifestyle changes without careful consideration and consultation with a qualified professional. This article is for reference purposes only, is generic in nature, is not intended as individual advice and is not financial or legal advice.