Repaying a student loan should be simple. But a new report from the Consumer Financial Protection Bureau finds that's often not the case. Loan servicers, the companies hired by lenders to collect payment for private loans, don't always act in the borrowers' best interests. And loan servicers sometimes take actions that increase the total cost of higher education.
"When servicers process payments to maximize fees and penalties, they undermine the trust of their customers," said CFPB Director Richard Cordray in a statement. "Student loan borrowers deserve better; they deserve transparency and accountability."
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The most common complaints dealt with problems encountered by borrowers, trying to pay off their loans early or in a certain order.
It usually makes sense to pay off the loan with the highest interest rate first. But the CFPB found that loan servicers don't always do that. Instead, they frequently divide the payment or overpayment and apply it to all the person's outstanding loans.
According to the report, these "payment processing pitfalls" can lead to increased costs, prolonged repayments and harm to a borrower's credit profile.
"The net effect is that you won't save as much on the interest as you intended, and you won't be paying off your loans more quickly," said Rohit Chopra, student loan ombudsman for the CFPB. "This can be very frustrating for responsible borrowers who are just trying to pay off their student debt and honor their obligations."
The bureau also found problems for borrowers who had multiple loans with the same servicer and were not able to make their monthly payment in full. They were typically told to pay as much as they could. Again, rather than putting the entire payment toward the highest-rate loan, it was applied evenly to all of them.
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"This maximizes late fees and can exacerbate the negative impact of a single late payment to the borrower's credit profile," Chopra said.
Borrowers also encountered problems when their loans were transferred to another servicer. Complaints included lost paperwork; processing errors that resulted in late fees; and interruptions to routine communication, such as billing statements.
For this report, the CFPB analyzed more than 3,800 complaints about private student loans received between Oct. 1, 2012, and Sept. 30, 2013. Forty-nine percent of them dealt with Sallie Mae, which has a huge share of the market for origination, servicing and collection of student loans.
"More than 90 percent of our private education loan customers are managing their payments successfully, and for those experiencing difficulty, we offer customized assistance, including modifications on more than $1 billion in private education loans," said Patricia Nash Christel, vice president of corporate communications at Sallie Mae, in a statement to NBC News. "We're continually seeking ways to improve our customers' experience."
The CFPB does not deal with any illegal activities the agency may have found in the private student loan marketplace, but Chopra said many of the practices taking place do raise serious questions.
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"We want to make sure policymakers know they may need to take action if servicers don't come up with more clear and transparent ways of handling student loan borrowers' funds," he said.
The National Consumer Law Center praised the CFPB's report and called on all federal regulators that oversee this marketplace to make sure rules and laws are enforced.
"We also need to look at new laws and regulations to make sure that borrowers get what they are entitled to and to make sure there is more relief available to help financially distressed borrowers," said Deanne Loonin, director of National Consumer Law Center's Student Loan Borrower Assistance Project.
Where to find help
Along with its report, the Consumer Financial Protection Bureau released a consumer advisory: Stop Getting Sidetracked by Your Student Loan Servicer. Other resources include the CFPB's Repay Student Debt, an interactive Web tool designed to help you navigate your repayment options, and Ask CFPB for answers to common questions. If you run into trouble when repaying student loans, you can file a complaint with the bureau.
—By CNBC contributor Herb Weisbaum. Follow him on Facebook and Twitter @TheConsumerman or visit The ConsumerMan website.