CFPB issues mid-year update on student-loan complaints

The Consumer Financial Protection Bureau receives and reviews complaints about student-loan practices. Yesterday, it issued this mid-year update on those complaints. The biggest concern identified by the agency is borrowers complaining about "auto-default"– borrowers reporting that lenders demand immediate full repayment of the loan after the death or bankruptcy of their loan co-signer, even when the loan is current and being paid on time. Here is the report's executive summary:

The CFPB received more than 2,300 private student loan complaints
and more than 1,300 debt collection complaints related to student loans
between October 1, 2013,and March 31, 2014.
This mid-year update discusses specific co-signer issues reported by
borrowers. Approximately 90% of private student loan s were
co-signed in 2011. Many private student lenders advertise an
option to release a borrower’s co-signer after a certain period of
time of on-time payments. Complaints from private student loan
borrowers describe the obstacles they face when seeking to obtain
these releases. In addition, complaints indicate that borrowers often
have to apply for a release, but lenders and servicers generally
do not make the criteria for co-signer release clear and transparent.
Many private student loan contracts include an option for lenders to
demand the full balance of a loan when a borrower’s co-signer has
died or filed for bankruptcy. Complaints from private student loan
borrowers suggest that industry participants are automatically placing
loans in default – even when a borrower is paying as agreed.
The report describes potential alternatives to “auto-defaults” upon
co-signer death and bankruptcy, including assessing the borrower
for co-signer release and maintaining the existing payment schedule,
providing the opportunity to identify a new co-signer (such as the
spouse of the deceased parent), or providing time to refinance the loan.