Your Money: How the deck
is stacked against student loan borrowers
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[January 20, 2017]
By Beth Pinsker
YORK (Reuters) - Paying back your student loans is hard enough. It
certainly does not help when the trillion-dollar industry seems set up
to make you fail.
The Consumer Finance Protection Bureau shed some light on how harrowing
this process can be for borrowers on Wednesday when it announced a
massive lawsuit against the largest servicer of student loans, Navient,
for "systematically and illegally failing borrowers at every stage of
Reuters spoke with Heather Jarvis, a Wilmington, North Carolina-based
attorney who specializes in student loan issues (http://askheatherjarvis.com),
about the pain points in the student loan process.
Q: Multiple surveys show that a majority of student loan borrowers do
not even know how much they owe. Why is it so hard to find out this
A: It's because the amount we owe changes every day. To know how much
you owe at any given moment, you'd have to look it up and have access to
It's not even straightforward to know how many loans you have and who
processes them. They can be transferred to different services without
any choice on your part. It's also not unusual for students to have two
to four different student loans each semester they are in school. They
all can have different terms and different servicers.
I work with a lot of financial advisers and the overwhelming majority of
them are not aware of the details of student loans.
Q: If you have to rely on your loan servicer for information, how can
you be sure you are getting the right answer?
A: I tell borrowers to assume they are NOT getting the information they
need from their services.
If you call one of these big call centers that the large servicers have,
you should assume that the information you're getting is boilerplate
language from a script that is for the typical student loan borrower,
who is not a real person. The services has a job to do and that's to get
the money from you.
If borrowers want to be savvy, they will have to do a lot of independent
research. There are a number of reliable sources, like the Department of
Education, which has made a lot of improvements.
Q: One particular pain point for borrowers is those who need any delay
in making payments because of financial difficulty, which means figuring
out the difference between deferrals and forbearance, and navigating
income-based repayment options.
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A dealer shuffles a deck of cards during a poker game at a casino in
Budapest September 15, 2009. REUTERS/Katoly Arvai
A: The reason it is so convoluted is because before 2009 you have fewer
options for changing a loan you could not afford. Forbearance keeps the
loan current and keeps the person's track record clean. Now, however,
it's not nearly as effective a tool as it used to be and should be
avoided by more folks.
Income-based repayment options have been available since 2009. Initially
there were no efforts to inform people about them, but in the last
couple of years, there have been specific directives at the Department
of Education to get information to consumers, like to those who were
already behind on their payments.
But because the system is so huge and unwieldy, it has to be automated,
which can make it useless to a consumer. You get these form letters that
are inscrutable when you need to be informed about anything.
Q: If a borrower does not get the right information, what impact could
it have on them?
A: Many people are not even aware of the ways they are paying more than
they should, according to the terms of their loans, based on the
practices of the servicers and the way they process payments.
There are a number of direct costs - actual money. It's money out the
door that they can't be using for other things.
It's also a source of incredible stress to many people. It affects
credit and people's ability to participate in the economy - like being
able to get mortgages and auto loans.
Q: How can students best help themselves through the process?
A: They should try to educate themselves and not assume that the system
is one that is friendly or easy to navigate. It's not designed to be
convenient for borrowers, so it's important to approach it with some
dedication. If you don't understand why something is happening, keep
(Editing by Bill Trott)
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