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by debtfreer
2856 days ago
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During the private student loan heyday circa 2000-2007, anyone with a decent bank affiliation could spin up a "private student loan" company, write up thousands of loans, and sell them off to the bigger banks and trust portfolios, with very little regard to the student's ability to repay. It was a very fly-by-night operation with sketchy advertising practices. When the credit crisis hit, these companies were one of the first to cut off the tap. And it was a literal overnight cessation of loan originations. Buried within these promissory notes were odd mechanisms for calculating variable interest, accounting fees, and cosigner releases. Despite the variable rate moving very little on a month-to-month basis, students in repayment would see 20% of their payment applied to principal one month, then 8% applied the next month. Some servicers would not apply extra payments to principal, opting to apply payments to the next month's payment (which results in maximum interest for the bank) unless the debtor followed a convoluted trail of paperwork to force the bank to apply the extra payments correctly. Co-signer releases would be advertised at "24 months of on-time payments" but by the time the debtor reached that mark, they'd receive letters informing them that the promissory note had a clause that allowed the servicer to change terms, and the co-signer release was now 36 or 48 months. Even servicers of the federal student loans would engage in sketchy practices, such as charging the debtor an fee to enter into a hardship forbearance. You can Google which servicers were fined heavily for these practices by the CFPB during the last administration. |
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Actually, just encouraging forbearance when switching to income-based repayment was available was a legally available option was a bigger one, which the main service of federal loans (Sallie Mae—now Navient) was charged with engaging in.