intentional incompetence

Servicer Shame: Delaying For Profits

Michael Lux Blog, Student Loans 2 Comments

Student loan servicing issues have long been a source of frustration.  As borrowers we have learned to accept the fact that there may be long wait times to speak to customer service, and at times the help we seek is poorly trained.  Loan servicers are in business to make money and cutting costs on customer service is a common way to increase profits.  This is an unfortunate reality of life with student loans in America.

Last week we caught wind of a servicer practice designed to make things more difficult for borrowers by means of intentional incompetence.

In the process of refinancing his student loans, a reader needed to get loan payoff statements from his current lenders.  Getting a loan payoff statement is necessary when a borrower wants to pay off their loans in full or when refinancing student loans with another lender offering a better rate.  The idea behind the loan payoff statement is to inform a borrower of exactly how much it will cost to pay off their existing debt.

How a Loan Payoff Statement Should Work

With most student loan servicers this is a very straightforward process.  A borrower simply logs on to the website, follows the appropriate link, and gets a payoff statement.  Some servicers even allow borrowers to specify the exact date of payoff.

These loan payoff statements are easy to generate because it is a simple calculation.  It is not the product of any sort of negotiation, nor should there be any question as to the balance of an account on any given day.

To the credit of the vast majority of student loan servicers, getting a payoff statement is fairly simple.

Incompetence for Profits

At least one servicer chooses to make things much more difficult.

Instead of making the information available through their website, borrowers must place a phone call to customer support.

Once customer support is reached, borrowers still don’t get the simple information they are looking for.  Instead, a request has to be submitted to another individual working for the loan servicer.  Our reader was informed that these requests typically take 10 to 14 business days to fulfill.  The servicer did say that the request could be “expatiated,” but that it would still take a week before the loan payoff statement was generated.

A loan payoff statement is very easy to generate automatically.  Rather than making things simple, this servicer chooses to unnecessarily involve at least two employees in the process.

Why Put So Many Steps in the Process?

Paying multiple employees to do work that can easily be calculated by a computer is an inefficient way to do things.

However, each day of delay in providing a loan payoff statement is potentially additional interest income for the lender.

They know that once the loan is paid off in full, the interest income stops.  They also know that borrowers just want to be able to get their loans paid off and move on.  Most borrowers are not going to quibble about a week or two of extra interest.

For the student loan company, this intentional incompetence combined with borrower apathy, can generate a lot of money.  Do it to one borrower, it really doesn’t make a difference on your bottom line.  Do it to thousands of borrowers and you have a noticeable increase in interest income.

Fighting Intentional Incompetence

The average customer service representative has no desire to nickel and dime borrowers.  Most customer service reps are just trying to earn an income and doing the best they can to help people.  Yelling at them will not help things.

Instead, next time you catch a lender adding unnecessary steps in their process, take a stand.  File a complaint with the consumer financial protection bureau.  In each case, the student loan company is normally forced to respond to the borrowers allegations.  If there are numerous borrowers making the same complaint, it can result in a lawsuit being filed by the CFPB against the student loan company.  This is the exact process that led to the CFPB suing Navient.

Lenders should not profit from their own incompetence.  Intentionally being incompetent is a new low that should not be tolerated by borrowers or permitted by the government.

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Please publish the names of the servicers who partake in this unethical practice.