Student loan servicing companies are coming under fire by regulators for the second time in two months.

The Consumer Financial Protection Bureau released a report Wednesday criticizing student loan servicing companies, which are contracted to handle details like collecting monthly payments, for not helping borrowers get into plans that make it easier to repay loans.

The agency’s student loan ombudsman found that in particular, borrowers with older federal student loans may be more heavily effected by loan servicing problems, although complaints about servicing are widespread.

Advertisement

In September, after analyzing 30,000 public comments that showed companies using “a wide range of sloppy, patchwork practices that can create obstacles to repayment, raise costs, cause distress and contribute to driving struggling borrowers to default,” the bureau announced plans to explore industrywide regulations.

More than 25 percent of all student loan borrowers were behind or defaulting on their loans, according to the September report, while Wednesday’s shows that 30 percent of borrowers with Federal Family Education Loan Program loans are behind.

Both reports point to problems like paperwork processing delays, inconsistent instructions from loan servicers and difficulty enrolling in income-driven repayment plans as contributing to struggling borrowers’ challenges.

Natalia Abrams, executive director of Student Debt Crisis, a nonprofit group that pushes for changes in how education is financed, said loan servicing companies “are not alerting the student loan borrowers of all of their options if they run into trouble.”

In a survey of 3,000 borrowers done by the group, almost 60 percent said their loan servicer did not inform them of federal programs to help repay their loan, even though they were eligible to apply for them, Abrams said. Borrowers also complained of loan servicers processing payments late, incorrectly reporting credit scores and losing information.

Although graduated students are not typically referred back to their schools for help with loans, said Anna Griswold, executive director for student aid at Pennsylvania State University, she has heard of problems with servicers from both struggling borrowers and those just trying to pay down their principles early.

Griswold said students receive guidance from their school on loans when they graduate, but servicers have direct access to the borrowers for the rest of their repayment.

Advertisement*

“Students are given packets of information when they leave school about their options in loan repayments. Some study these carefully and others may not,” she said in an email. “However, when a servicer first sees that a borrower is struggling [misses a payment], they are not always proactive in helping the borrower or moving them to a different payment plan.”

Despite the Education Department’s requirement that students get counseling when they take out loans and when they graduate, there is still a lack of information and they “don’t know their options,” said Sheelu Surender, director of financial aid at Wichita State University.

“There are so many different types of repayment programs out there,” she said.

(c)2015 McClatchy Washington Bureau

Visit the McClatchy Washington Bureau at www.mcclatchydc.com

Distributed by Tribune Content Agency, LLC.