IN ITS FIRST SIX MONTHS of existence, an ombudsman’s office tasked with addressing complaints about the student loan industry has gotten 393 complaints and requests for help.
The complaints came in despite the fact that the Biden administration has paused repayment of federal student loans during the pandemic.
“Considering how many complaints they are fielding, given the fact that there’s been a COVID-related suspension or lull, shows how important and necessary the law was,” said Sen. Eric Lesser, a Longmeadow Democrat who sponsored the bill creating the ombudsman’s office.
A report filed with the Legislature this week by the ombudsman, who works in Attorney General Maura Healey’s office, provided a first glimpse into the brand new office, which was created in an economic development bill Gov. Charlie Baker signed last January. The report also provides insight into the problems with the student loan industry.
“In working with borrowers, the Ombudsman’s Student Loan Assistance Unit has consistently found that the existing federal loan repayment system is overly complex and plagued by servicing failures that have trapped borrowers in unaffordable debt,” ombudsman Arwen Thoman wrote. “Even with federal income-driven repayment plans, borrowers often face long-term and costly debt burdens.”
Borrowers who received private loans, rather than those offered by the federal government, fared worse, Thoman wrote, since they “typically have more costly loans and fewer options for managing repayment.”
The office has a dual role – it helps borrowers by providing information and guidance on their student loans and repayment plans, and it investigates complaints into student loan servicing companies and resolves disputes. Student loan servicers are companies that contract with the government or a lender to collect student loan payments.
According to the report, the office received 116 complaints against student loan servicers, and another 76 complaints about debt related to for-profit schools. There were a small number of additional complaints involving non-profit or public schools and student loan debt relief companies.
Most of the complaints against servicers – 72 percent – were split evenly between two student loan servicers: The Pennsylvania Higher Education Assistance Agency and Navient Corporation. Both are large, national corporations whose loan collection practices have drawn criticism.
Healey last February secured a settlement with the Pennsylvania agency after she sued the company alleging that they made errors and provided misinformation to borrowers about loan forgiveness and repayment programs, which caused borrowers to get off track in their repayment and lose months of loan forgiveness.
US Sen. Elizabeth Warren, a Massachusetts Democrat, has accused Navient of problematic practices, including overcharging service members, steering borrowers away from income-based repayment plans, and failing to inform borrowers of their rights.
Another 10 percent of complaints received by the ombudsman related to the Massachusetts Education Finance Authority, a legislatively-created nonprofit lender whose loans are serviced by a subsidiary of the Pennsylvania Higher Education Assistance Agency.
Lisa Rooney, spokeswoman for the Massachusetts Education Finance Authority, said in a statement that, with over 100,000 borrowers, the agency “values high-quality customer service, addresses every customer concern, and provides flexible loan repayment solutions.” She added: “We have a strong working relationship with the Student Loan Ombudsman’s Office, and we appreciate the role it will play in providing an independent resource to borrowers seeking guidance on repaying their loans.”
Around two-thirds of the complaints related to a failure to provide affordable repayment options or misinformation or disputes about payments related to a public service loan forgiveness program.
The office also received help requests: 148 borrowers sought help exploring student loan repayment options, 136 wanted help getting information on their student loans, and 89 sought help getting out of default and avoiding wage garnishment. (Some borrowers had multiple complaints or requests.)
The report did not note any type of enforcement actions or investigations against student loan servicers, but it indicated that the office generally focused on helping borrowers get information – about their loans, repayment plans, and options for resolving defaults.
Among those who sought help, 319 had federal loans and 105 had loans from private companies. Since reforms made to the student loan industry in 2010, most loans are made by the federal government. But earlier loans are likely to be from private lenders, and some borrowers today may still turn to a private lender if they want more money than they can get federally or they cannot obtain a federal loan.
The report identified several systemic problems with the student loan system. For example, borrowers who can obtain income repayment plans still end up with payments they can’t afford, burdensome annual requirements for recertification, increasing loan balances, and lengthy repayment terms. Borrowers in forbearance – a temporary reprieve from paying due to economic hardship – can find that their interest accrues and they face a high debt burden without the chance at loan forgiveness. Borrowers who pay late are often unaware that late payments result in accrued interest, and less money going to pay down the loan’s principle.
Overall, 191 borrowers (60 percent) who contacted the office said their federal loan payments were “not affordable” or “very unaffordable,” while only 50 (16 percent) classified their payments as “affordable” or “very affordable.” Only 21 percent of federal student loan borrowers reported that their federal loan balance had decreased over time, while 57 percent said it had not.
Private lenders offer less flexibility in repayment for borrowers experiencing economic hardship, and 68 percent of those borrowers calls their payments unaffordable, while only 9 percent deemed them affordable. Among those with private loans, 34 percent said their balance decreased over time, while 56 percent said it did not.
Another part of the student loan bill requires the Division of Banks to set up a licensing system for student loan services. The division published new rules governing student loan servicers last summer. Lesser predicted that over time, this will lead to changed behavior by the student loan servicers, because the division can create rules and enforce them.
“In previous era, it was the Wild West, unregulated,” Lesser said. “The state had very few tools to enforce good behavior.”
Healey, in a statement, called the student loan system “fundamentally broken and devastating to countless Americans,” noting that Americans now owe $1.8 trillion in student debt.
“My office helps students navigate this complex system every day and sees how this system and the associated debt burden holds back families from buying a home, a car, saving for retirement, or investing in their children,” Healey said. “While our Student Loan Assistance Unit has helped thousands of borrowers with their loans and secured millions of dollars in relief, the federal loan repayment system continues to trap students in unaffordable debt, loan servicers still aren’t doing their job, and private loan options are typically worse.”
Healey said in addition to helping local borrowers, she is calling on the US Department of Education to improve repayment plans, and is pushing for federal loan forgiveness. Although Biden paused student loan payments during the pandemic, some progressive advocates, like Warren, have called on him to forgive up to $50,000 in federal student debt altogether.