Student loans: Roadblocks to paying down the debt

Many students face unnecessary hurdles from loan servicers when trying to pay back college debt.

It ought to be simple to pay off a student loan, said Herb Weisbaum in Yet a new report from the Consumer Financial Protection Bureau revealed last week that many borrowers face unnecessary hurdles when trying to discharge the debts they’ve acquired in paying for college. Student borrowers said they frequently run into trouble with “the companies hired by lenders to collect payment for private loans.” The most common complaints were voiced by borrowers trying to settle their loans early. In such cases, “it usually makes the most sense to pay off the loan with the highest interest rate first.” But loan servicers often apply any overpayments equally to all of a borrower’s outstanding loans, or just to the interest and not the principal. Those practices “can lead to increased costs, prolonged repayments, and harm to the borrower’s credit profile.”

Loan servicers are hurting us all and should get their act together, said Dan Kadlec in While the housing and consumer markets are finally gathering steam, student loans are still “acting as a drag” on the U.S. economy. There are now more than $1 trillion in outstanding student loans, according to the CFPB, “and 81 percent of the most burdened borrowers—those with more than $40,000 of student debt—have private loans with interest rates of 8 percent or higher.” Those private loans are not only more expensive than government-subsidized loans but also offer less flexibility when it comes time to repay and cannot be shrugged off through bankruptcy. The onerous weight of our national student debt should concern every one of us, because in a sense we all carry it: Excessive student debt impairs people’s ability to buy homes and start families, and will thus slow the economy “for years to come.”

Beleaguered borrowers do have some options, said Ann Carrns in The New York Times. If you’re trying to make extra payments to reduce your balance, don’t be deterred by the threat of prepayment penalties—“private lenders are barred from penalizing students who make extra payments to pay off their loans early.” You can also give the loan servicer written instructions—the CFPB can provide you with sample letters—to apply your payment to higher-interest loan rates first. Since private loans offer few refinancing options to help students “take advantage of lower interest rates and reduce their monthly payments,” allocating extra payments toward high-interest rates is often the best strategy for student borrowers. If your loan servicer doesn’t comply, don’t just throw up your hands in despair. Get in touch with the CFPB at and “file a complaint.”

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