Complaints about private student loans increased markedly over the past year, according to a report released Thursday by the Consumer Financial Protection Bureau.
The bureau analyzed 5,300 private student loan complaints — an increase of 38 percent compared to the previous year — of which the largest subset concerned “the lack of repayment options and flexibility in times of distress.” The federal government does not publish statistics on the percentage of students who take out private loans, which originate from banks and other lending agencies.
Suzanne Martindale, a staff attorney at the West Coast office of Consumers Union, the policy and action division of Consumer Reports, criticized the current state of private student loans.
“These private loans are just the worst, because you don’t have any protection,” Martindale said. “There’s no right under law to access an alternative or negotiate lower payments every month.”
UC Berkeley’s average student private and federal loan debt of $18,377 is the lowest of the UC system, which has a cumulative average of $20,205.
The university requires students to complete an online financial awareness counseling course before taking out a private student loan. The course discusses both the expected payments and benefits of different federal and private loans and counsels students to take “free money first” in the form of scholarship, work study or grants.
Along with the release of the report, the bureau released a letter that borrowers can send to their private student loan servicer to more quickly obtain information on their options.
In January, the director of the bureau, the U.S. education secretary and other senior governmental officials met with lending agencies to speed the rollout of alternative repayment plans. The bureau noted in the report, however, that “analysis of complaints and other market data” suggests that “lenders and services are not making significant progress” in rolling out the new programs.
Debt-encumbered graduates can find it difficult to find any relief from their debt, as even bankruptcy law provides little protection for the loan holder.
“You’re not entitled to the same automatic discharge (as other debts),” Martindale said. “Even gambling debts are easier to discharge in bankruptcy than student loans.”
Currently, there is a cap on the total amount of annual federal aid students can receive, and after exhausting scholarships, federal grants and work study, private loans can take up the remaining costs.
Private loans can also be a good option for students pursuing an advanced degree who are secure in their earnings potential, according to Maura Dundon, senior policy counsel for the nonpartisan think-tank Center for Responsible Lending. Such loans can also offer better terms when parents are footing the bill, because federal loans lose some of their benefits when the student is not the borrower, she said.
But private student loans are “definitely a last resort” for most undergraduates, according to Martindale.
“If you’re going to borrow, go through all federal loan options first,” she said.