Student loan payments are hard enough to manage. But a recent report by the Consumer Financial Protection Bureau says that millions of borrowers may be missing out on opportunities to get relief from onerous payments because of hurdles thrown up by the companies that process their loans.

The report revealed extensive problems with five of the companies that the Department of Education employs to service education loans. The CFPB examined thousands of complaints from borrowers who said servicers made it difficult to get lower student loan payments tied to their income.

Such income-based payment plans, created by the Department of Education in 2009, make a significant difference for people at risk of defaulting on their loans, said the CFPB’s student loan ombudsman Seth Frotman. “Too many student loan borrowers are struggling to take advantage of their right to pay based on how much money they make.”

The report is part of the CFPB’s stepped up efforts in the past year to help borrowers who are struggling with paying their loans and to crack down on servicers that aren't providing the help they need.

CFPB Targets Education Loan Servicers' Practices

The most recent target: Wells Fargo, the second largest processor of student loan payments. The CFPB in late August fined the bank $3.6 million for a host of problems, including failing to provide important payment information to consumers, charging consumers late fees when payments were on time, and failing to update or correct inaccurate information supplied to credit reporting agencies. Though Wells Fargo didn’t admit or deny the allegations, the bank also agreed to pay $410,000 to refund those late fees to customers and improve disclosures on billing statements about the way it credits payments to outstanding balances.

"We do not agree with the CFPB’s assertions and have voluntarily agreed to resolve the Bureau’s concerns so that we can put the matter behind us," says Wells Fargo spokesman Jason Vasquez. Some of the problems identified had already been resolved or done away with, says Vasquez.

Last July the CFPB hit Discover Bank with a $2.5 million fine for what is said were illegal education loan servicing practices. It ordered the bank to pay $16 million in refunds to borrowers for problems such as overstating minimum payments and to cease practices such as repeatedly calling consumers behind on payments early in the morning and late at night.

In 2014, the Department of Education and the Federal Deposit Insurance Corp. reached a settlement with Sallie Mae and its loan servicing subsidiary Navient, to pay $60 million to military service members for charging inappropriate late fees on student loans.

“The CFPB is hearing complaints about many large servicing companies. It doesn't appear to be a problem of just one or two bad apples,” says Suzanne Martindale, a staff lawyer at Consumers Union, the policy and mobilization arm of Consumer Reports, who focuses on higher-education issues. “The Wells Fargo action sends a strong message to other companies doing loan servicing that they had better not be engaging in the kinds of practices that got Wells into the hot seat.”

Wells Fargo, for its part, says that it doesn't agree with the CFPB's findings and that the problems with loan payment procedures only affected a few customers.

The Problem With Loan Servicers

About 43 million Americans have student loans and education debt now totals $1.3 trillion, more than any other consumer debt except for mortgages. The Department of Education estimates that roughly one in four student loan borrowers is in default or late on their loans (borrowers in default are more than 270 days in making a payment). Yet 70 percent of those in default were eligible for lower monthly payments on federal student loans, according to a report by the Government Accountability Office. The lack of information about income-based payment options was a key problem identified in the CFPB report. Here are other ways that loan servicers hurt borrowers:

  • Not explaining payment options. There are numerous income-based and other programs to make payments more affordable but the CFPB says millions of borrowers aren’t getting information about all their options from servicers, who are the first and major point of contact for borrowers. That means many borrowers are needlessly falling into default, says Martindale. “Why would so many people be sliding to default on federal loans, when flexible repayment options are in the law to prevent anyone from having to fall behind? I think we know the answer,” says Martindale. "Education loan servicers are the gatekeepers to the repayment system. If they don't work with borrowers, then borrowers are simply stuck.”
  • Making enrollment difficult. Income-based repayment applications should take no more than two weeks to process, according to the CFPB. Borrowers reported that their paperwork was under review for weeks or months, wasting precious time toward getting manageable payments. Those delays can add thousands of dollars in interest to what is owed over the life of the loan according to CFPB calculations.
  • Incorrectly rejecting applications. Applications for alternate payment plans were often rejected for missing paperwork but many borrowers said they were never told that forms were missing.
  • Misapplying payments. Borrowers reported that servicers applied payments across loans in ways that maximized late fees. They also ignored requests to apply extra payments to their most expensive loans.

Help With Loan Servicer Issues

To tackle problems with servicers, the CFPB created a “Fix It Form” that borrowers can use if they run into problems with their servicer. The organization says the new form is intended for servicers to use to help borrowers understand if their applications have been denied or approved or if corrections are necessary. The CFPB suggests that borrowers fill out and submit the Fix It Form when applying for an income-based repayment plan. 

If you have student loans, here’s what you can do to protect yourself if you run into problems.

  • Keep good records. Make sure you know what kind of loans you have. If they're federal loans—which make up the bulk of student loans—they'll be in this national database. Private loans don’t offer the same consumer protections and flexible payment plans that federal loans do. Contact the lender directly for information on your loan repayment options.
  • Know your options. The payment options can be confusing and student loan servicers often give out bad information. Use the Department of Education’s Repayment Estimator to calculate your federal student loan payments under each repayment plan. Or the CFPB’s Repay Student Debt tool, which is an interactive guide to navigate borrowers through their repayment options, especially when facing default.
  • File a complaint. If your servicer isn't helping you, you can file a complaint with the CFPB whether you have federal or private loans. For federal loans, you can also file a complaint on the Department of Education’s new loan complaint site, which was launched in July.