Student loan debt in the U.S. has passed the $1 trillion mark while the cost of an education continues to outpace inflation, meaning tomorrow’s students will need to take on even more debt than the millions of graduates who already owe money. A new report from our coworkers at Consumers Union shows just how screwed up and unbalanced the student loan system is at every step of the way.

CONFUSED FROM THE START
Since the dawn of financial aid, schools have often sent out misleading and mislabeled financial aid offer letters to potential students, lumping together various potential sources of aid or making inaccurate assumptions about parental contributions.

In 2011, the Dept. of Education released a very helpful, simplified financial aid “shopping sheet” that more clearly spells out exactly what are the costs for attending the school, what grants are being offered, and the various loan options.

The shopping sheet allows applicants to compare apples to apples when looking at schools, rather than forcing them to decode each particular college’s financial aid offer. This would be great, if every school adopted the shopping sheet, but colleges have been very slow on transitioning to the simplified form, meaning students are left in the dark.

“Many consumers wrote to us that they didn’t fully understand their options upfront for financing college,” writes Consumers Union, “or stated that the financial aid application process was opaque and
confusing.”

To that end, CU is calling on Congress to require a standardized shopping sheet for all colleges — and one that goes a step further than the DOE sheet by plainly showing what the student’s monthly payments will be after leaving school.

OVER-BORROWING
Because of the confusion early on in the financial aid process, many students and their families tell CU that they ended up taking out either too many loans or taking out higher-interest private student loans when they had not yet maxed out their ability to get lower-interest federal and state aid.

Consumers Union is asking schools to provide worthwhile, unbiased pre-loan counseling (as opposed to the shenanigans at some for-profit colleges that were caught encouraging applicants to take out as many loans as possible) so that students know what they are getting into in the long run.

“Especially when it comes to private loans, schools need to step in and explain the differences between private and federal loans, and ensure that students have exhausted their options for federal aid first before taking out private loans,” reads the report.

REPAYMENT RIGIDITY:
One of the most common complaints about student loan repayment — especially with regard to private student loans — is the inflexibility of repayment plans. Given the current job market, it could take quite some time for a recent graduate to get a job, let alone one that pays well enough so that student loan payments are not putting them further into debt. Yet many private loans have minimal or no income-based repayment options. Banks also tend to say no when consumers ask to refinance their existing private loans to a lower interest rate.

Thus, Consumers Union is calling on Congress to require all lenders to offer flexible, affordable and manageable repayment options, including income-based repayment plans, deferments and forbearances, as well as acceptance of partial payments.

LOAN DIS-SERVICING:
It’s not just home loans that lenders are inept at servicing. Perhaps the most frequently complained-about issue with student loans is confusion and general idiocy on the part of those servicing the loans.

One example cited in the CU report is from a borrower who was trying to dispute the interest rate on his loan — he claimed to have agreed to a fixed APR of 6% while the servicer contended he’d agreed to variable rate loan that was now at 13.5% — but could not get anyone at the servicer to provide him a copy of the loan documents to resolve the issue.

Another borrower says that because her loan has been sold off and passed along so may times over the years that she’s had to take the initiative to be proactive with each servicer switch so that she doesn’t fall behind on payments.

“Congress and the CFPB should require student loan servicers to establish clear procedures and a single point of contact for questions and complaints,” writes CU. “Complaint handling, resolution and appeals should be centralized and monitored by regulators.”

STOP LYING TO STUDENTS:
As alleged in the recent lawsuit filed in California against one for-profit college network, schools don’t always provide applicants with accurate information about the success of their graduates or the quality of the education being provided. So in the end, those students may have spent many, many thousands of dollars on a program that promises to land them a job but fails to deliver.

The CU report calls on Congress and the CFPB to prohibit deceptive marketing, abusive collection and servicing practices, and other fraudulent practices. It also pushes for the Department of Education to issue a strong “gainful employment” rule to prevent students and taxpayers from subsidizing low-performing career colleges.

You can check out the full report at CU’s DefendYourDollars.org.

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