Most people who need to file Las Vegas bankruptcy are at the financial brink because of their mortgages, but a growing problem is student loan debt. One way the federal government has tried to assess the problem is by creating an ombudsman’s position inside the newly formed Consumer Financial Protection Bureau (CFPB). The law authorizing this is none other than the Dodd-Frank Wall Street Financial Reform and Consumer Protection Act. An ombudsman is an official within an organization that resolves complaints brought against it and firms that it monitors. In this case, the ombudsman is charged with monitoring complaints against student loan companies and is required to generate one report (PDF) per year, based on complaints that the CFPB began collecting in March 2012. Here are six things to know about the report.
- The CFPB ombudsman regulates only lenders servicing private student loans, not the federal loan system. As a result, the report’s findings only apply to $150 billion in student loan debt, not the full trillion that is commonly cited. As a result, when the Washington Post writes, “[The ombudsman] is concerned that we face a student-loan-servicing sequel that will rival the home-mortgage crisis that helped lead to the financial collapse of 2008,” it’s misleading readers into thinking that private loan servicing problems will lead to a financial collapse.
- That aside, things in the private student loan world are not looking good. The CFPB received nearly 3,000 complaints from Americans about private student loans and lenders. These complaints aren’t a representative sample of the 850,000 student debts held by borrowers.
- The report categorizes the issues the debtors complained about the most. The majority (65 percent) focused on difficulties responsible debtors in hardships had repaying their loans. The biggest problems included lack of refinancing options, inability to speak with bank personnel authorized to negotiate repayment plans, inability to access those repayment plans even when they were advertised, and being forced into default despite making good faith payments of half or more of their discretionary income.
- Another thirty percent of borrowers faced problems when they weren’t able to pay, for instance being unfairly thrown into default because a parent co-signer filed bankruptcy. Others found difficulties entering incentive programs or arranging for a co-signer to be released.
- Only five percent were about obtaining a private student loan, e.g. availability and sales tactics.
- Surprisingly, 87 percent of the complaints were directed at only seven servicing companies, mostly to Sallie Mae, which is one of the largest loan servicers in the country.
Private student loans are a trap. Their interest rates are high and often variable. Income-Based Repayment is not an option, and bankruptcy is just as difficult with them as with federal loans. However, filing a Chapter 7 Las Vegas bankruptcy isn’t always a bad idea because it can free up income that normally went to other loans for spending on more important expenses.
For more questions about bankruptcy in Las Vegas, please feel free to contact an experienced Haines & Krieger Las Vegas bankruptcy attorney for a free initial consultation. Call us at 1-702-880-5554 to set up your free consultation.