Private student loans

Today, I joined the Secretary of Defense at the Pentagon to announce a report about the servicing obstacles that servicemembers face in paying off student loan debt. The report, “The Next Front? Student Loan Servicing and the Cost to Our Men and Women in Uniform,” shows that servicemembers are having a hard time accessing the student-loan repayment protections granted to them under federal rules.

Since I began this job almost two years ago, I’ve visited over 40 different military installations – talking to senior leaders, military service providers and thousands of servicemembers and spouses. One thing I’ve heard repeatedly is that servicemembers are entering the military with – and sometimes because of –student-loan debt, and, as a result, are facing both financial challenges and paperwork challenges. And unfortunately they are not always getting the information they need from their loan servicers about programs and policies that could help them reduce that debt significantly while they’re on active duty.

We’re hearing that servicemembers are having problems getting their lenders to correctly apply their SCRA rights. They also don’t know about their repayment alternatives, and are getting inaccurate or incomplete information about their options. And they’re confused by eligibility requirements for benefits that are so complicated that they either can’t figure out what they’re entitled to or don’t realize that taking one benefit might exclude them from being eligible for another, more helpful, one.

One particular conversation with a young sailor stands out. He was just out of basic training at Naval Station Great Lakes. He told me that he entered the Navy with over $100,000 in student loan debt – and no degree! He joined the Navy because it was the only way he believed he could “make it,” but most of his Navy paycheck was going towards paying off those loans.

How he chooses to pay off his debt is not a matter of just a few dollars and cents. That young sailor could pay nearly $25,000 extra if he doesn’t receive his Servicemembers Civil Relief Act (SCRA) six-percent interest-rate cap while he’s on active duty. And if he stays in the Navy for 10 years but doesn’t know about or doesn’t use the Income-Based Repayment plan, the Public Service Loan Forgiveness program, and the SCRA rate cap, he could lose out on nearly $76,000 that he could have cut off his debt in those 10 years.

We’ll be teaming up with DoD to get the word out about military student-loan benefits and consumer protections. We’ve developed a “Guide for Servicemembers with Student Loans” with information on repayment options, as well as an FAQ section for military student loan borrowers at Ask CFPB. Servicemembers with problems in the servicing of their student loan debt can also file a complaint at consumerfinance.gov. And we want servicemembers to know that even if you didn’t ask for student loan repayment benefits when you entered active duty, it’s not too late to do it now!

Since we launched on July 21st 2011, we’ve heard directly from consumers about the challenges they face in the marketplace, brought their concerns to the attention of financial institutions, and helped address their complaints. Accepting, resolving, and analyzing consumer complaints is an integral part of our work.

Periodically, we’ll feature stories from consumers who we have helped, and who have agreed to let the CFPB make their stories public.

Julio, a 31-year-old waiter from Florida struggled to pay his private student loans from a for-profit college after his payments shot up.

When Julio left Puerto Rico to pursue his dream of studying to be an artist, he chose a for-profit college that he says advertised itself as a top ranking school. But after accruing $110,000 in debt and graduating with only an Associate’s Degree, not the Bachelor’s he wanted, he couldn’t find a job in his field. The college was not competitive, he was told.

Like many other students, Julio says the school steered him into taking on expensive private loans before exhausting his federal loan options. For more than a year, he promptly paid $700 a month to the private student loan lender. But when his federal loan kicked in, his payments increased to $1,100 a month and he could no longer make ends meet. He called his private student lender and asked to work out a deal for lower, extended payments. The company refused, he said.

After Julio contacted the CFPB, the loan provider discovered that Julio was eligible for a reduced-payment program. Julio’s private student loan payments were cut back to $407 a month for the next year. Julio is still working out a plan for to reduce his payments for the federal loans.

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