Part of our government's response to the massive 2008 economic collapse (aside from the massive bailouts) was to pass new financial industry regulations to try and prevent another collapse. This included the creation of the "Consumer Finance and Protection Bureau," which is in essence a watchdog for big banks and other lenders.
The CFPB has a Student Loan Ombudsman who recently wrote an "Annual Report" that reviews a large number of complaints they have received over the past year. Guess what they found? Student loan payments aren't always being processed properly. Instead of applying additional payments towards principal reduction (as is often requried with other loans, such as mortgages) some banks are escrowing those funds as "advance payments" toward future month's bills. The result? Honest borrowers end up paying more to settle their student loans.
So the private student loan banks are applying payments in confusing ways so they can make more money? What a shocker.
The takeaway? Take advantage of the government's attempt to help and use the resources provided to you by the CFPB to learn more about how to pay off your student loans as efficiently and as quickly as possible. And be sure to file a complaint when something goes wrong.
If you're still left with questions about your student loans, call us. We can go over your options with you.
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