The prepay prevention plan

Every student loan has a prepay option, but servicers make them almost impossible to use.  Ever wonder why they make it so hard?  Rohit Chopra and his team at the CFPB asked private loan servicers and came to some conclusions:

“Creating obstacles for borrowers to direct payments to a specific loan can increase future servicing revenue.  Incentive misalignment was one cause of significant harm to consumers in the mortgage servicing industry. This may also be a contributing factor to the frustration experienced by many private student loan borrowers who submit complaints to the CFPB about payment allocation issues.”

In other words, the harder it is to prepay, the more money the servicer makes.