Student Loan Borrowers Face Payment ‘Pitfalls’

Repaying a student loan should be simple. But a new report from the Consumer Financial Protection Bureau finds that’s often not the case. Loan servicers, the companies hired by lenders to collect payment for private loans, don’t always act in the borrowers’ best interests. And loan servicers sometimes take actions that increase the total cost of higher education.

“When servicers process payments to maximize fees and penalties, they undermine the trust of their customers,” said CFPB Director Richard Cordray in a statement. “Student loan borrowers deserve better; they deserve transparency and accountability.”

The most common complaints dealt with problems encountered by borrowers, trying to pay off their loans early or in a certain order.

It usually makes sense to pay off the loan with the highest interest rate first. But the CFPB found that loan servicers don’t always do that. Instead, they frequently divide the payment or overpayment and apply it to all the person’s outstanding loans.

According to the report, these “payment processing pitfalls” can lead to increased costs, prolonged repayments and harm to a borrower’s credit profile.

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