When former Purdue University student Matt Wilmsen decided to try a new loan financing program that would help him avoid traditional student debt, he didn’t expect to find himself constantly struggling to service his loan on his $29,000 in student debt.
From dealing with misunderstandings between his college and the loan servicer that ended up adding thousands of dollars in missed payments and skyrocketing his monthly bill, to failing to hand over his account to a new loan servicer, Wilmsen said he was at wits’ wits ends up trying to act to keep his loans in check.
“It was extremely difficult to be able to pay rent and buy groceries before I paid my monthly installments,” Wilmsen said. “I called [the loan servicer] several times and told them that and they were very unsympathetic…this whole situation was caused because Purdue made a mistake.
““I don’t want other people to have to go through some of the things that I went through.””
Income Sharing Agreements, known as ISAs, are an alternative type of student loan financing in which a borrower receives a loan and then pays a percentage of their income upon graduation. The terms of an ISA depend on various factors such as: B. their significant and projected future earnings.
ISAs are viewed by the government as a type of private student loan. Recently, the Consumer Financial Protection Bureau, a consumer protection agency, said that the ISA industry could not claim exemptions from the rules for student lenders.
The University of West Lafayette, Indiana Back a Boiler programwhich launched in 2016, offers ISAs for students seeking alternatives to traditional government and private student loans.
Earlier this month, the university announced that was the case the program suspended. “If it actually closes, I would feel good,” Wilmsen said, “because I don’t want other people to have to go through some of the things that I went through.”
Wilmsen’s story about his ISAs next door the experiences of othersoffers a cautionary tale for students seeking an alternative to taking out piles of credit for their education amid a national conversation about the student debt crisis.
Pitfalls of Getting a Non-Federal Student Loan
Wilmsen always wanted to be an engineer.
Growing up in La Porte, Indiana surrounded by family and friends who attended Purdue, he made it his mission to attend the best engineering school in the area.
Wilmsen was determined to be an electrical engineer and, according to records viewed by MarketWatch, received a $15,000 ISA for the 2018-2019 academic year and a $14,000 ISA for the 2019-2020 academic year. In addition to the ISAs, he currently owes $12,000 in government student loans.
His total monthly payment for the two ISAs is almost $600. Payments for federal student loans have been suspended since March 2020. Unlike federal loans, payments on private loans like ISAs cannot be suspended by the government.
And unlike the ISAs, if President Joe Biden cancels $10,000 in student loan debt, his $29,000 ISAs will remain in place, while Wilmsen would only have a very manageable $2,000 debt obligation.
Purdue’s ISA program in transition because of the lender’s exit
The Back and Boiler program is no longer available for new applicants in the 2022-2023 auxiliary year, according to the school’s website. The school also listed a new loan servicer, Launch Servicing.
Wilmsen’s loans were originally administered by Vemo Education, a company that administers ISA programs. MarketWatch was unable to reach a Vemo spokesperson via phone and email at the time of publication.
A Purdue spokesman said the college changed loan servicers because Vemo Education turned maintenance operations over to Launch. Because Launch did not create ISAs for new students and only maintains accounts with existing students, Purdue had to suspend the program until a replacement was found.
The school emphasized that the suspension was due to a failure to find a “suitable” company to run the ISA program. The spokesman added that ISAs are a “useful” alternative to personal and parent PLUS loans.
According to Purdue’s website, more than 1,600 students have ISAs with the school totaling approximately $17.9 million in dollars owed.
Wilmsen’s customer service saga
A significant part of Wilmsen’s frustration stemmed from the allegedly less than adequate customer service he experienced during the maintenance process. This, he added, led to the company asking him to pay a higher monthly rate than he was supposed to.
When Wilmsen graduated in May 2020, he had a six-month grace period before making his first payment. He knew that payments would be due, so he uploaded his job offer with his salary and other information on the payment portal. But when the six months were up and he was trying to initiate payments, he said he was ghosted. He asked several times about payment processing.
“‘You should have started incriminating me,'” he recalled of Vemo. “I’ve asked them several times … and they have assured me I’m fine, no payments are due yet.”
In May 2021 – a full year later – he was again asked to provide proof of employment. He called and said he had started work and graduated months ago. It turns out the company had received the wrong closing date from Purdue, he said.
“And they said I owed a total of $3,400.56 in missed payments, and they added $283.38 to my monthly payment,” Wilmsen said.
He was happy to pay back what he owed, but the pressure to pay back that much in a short amount of time was great: “At one point I was paying $661.22 a month.”
Wilmsen said he had to ask his parents for help with finances while trying to fix the mistake Vemo, the student loan administrator, allegedly made when he assumed he hadn’t reported his degree a year earlier.
After rushing the account manager at Vemo to fix the bug or at least reduce the payments per month, he succeeded and was able to bring his payment down to $495.92 per month including $118.08 per month for the missed ones Months.
Wilmsen then received a raise from his company, meaning his income portion of the agreement would increase his monthly payments to $594.62 a month — including the additional $118.08 he owed.
He was then transferred to a new loan servicer working with Purdue, Launch Servicing, which he said is now undercharging him instead, sending Wilmsen down another rabbit hole of worry as he worries, later hit with penalties to become.
“They made the first payment a month ago and billed me the wrong amount,” Wilmsen said. “They charge me $118.08 a month. And based on my past experiences, I know that once they find out, they will come back and try to increase my payments even more. Which I couldn’t afford because I’m already paying close to $600 a month.”
Wilmsen’s experience is similar to that to serve suffering faced by millions of other student loan borrowers across the country. The practices of some credit service providers, such as Steer borrowers into forbearancehave been called in by government regulators trying to heal the broken system from within.
But student loan advocates are suspicious of bad service practices, despite the touting of ISAs as such alternative.
In 2020, the Student Borrower Protection Center and the National Consumer Law Center filed an application Complaint to the Federal Trade Commissionalleging that Vemo used deceptive marketing practices and miscalculated students’ starting salaries and earnings growth, making ISAs appear cheaper and more attractive.
Then Vemo co-founder Jeff Weinstein said the Washington Post that the company was updating its data and said the complaint appeared to be based on an older version of its comparison tools. “ISAs are fundamentally different from loans in many ways, so comparing the two isn’t always easy,” Weinstein told the newspaper. “We’re continually working to improve our comparison tool to ensure it’s as clear and accurate as possible.”
These maintenance issues are just the latest example of the problems inherent in ISAs, Ben Kaufman, who leads research and investigations at DC-based advocacy group Student Borrower Protection Center, told MarketWatch.
“The ISA industry promised their product would be safer and better, but day by day we see that these personal student loans are just as dangerous as what came before them,” Kaufman said.
Kaufman called ISAs a “debt trap.” He said Purdue should reconsider cases like Wilmsen’s, but also make a point of “completely absolving students of any obligations into which they may have been pushed.”
Wilmsen said he has since been told by Launch Servicing that he will not be charged until they draft a new contract for him. When contacted by MarketWatch, Launch said the company had investigated and fixed the payment errors and confirmed the new numbers with Wilmsen.
“Launch Servicing is an experienced, fully licensed and compliant consumer credit service provider,” said a spokesman. “Launch takes great pride in the level of service it provides to its customers.”
Wilmsen recalled the moment he first saw mention of Purdue’s Income Share Agreement program.
“I used to live in a dorm. I’ve had several flyers shoved under my door and emails sent,” Wilmsen said, “all implying that this loan was better than private loans and government student loans and that you would end up paying less per month and overall than on federal student loans.”
His own experience, he said, did not prove this.
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https://www.marketwatch.com/story/it-was-extremely-difficult-before-i-got-my-monthly-payments-down-to-be-able-to-pay-rent-buy-food-purdue-graduate-slams-alternative-student-loan-suspended-by-the-university-11655822779?rss=1&siteid=rss Purdue Graduate Slams Alternative Student Loan Suspended by University: “It was extremely difficult to pay rent and buy groceries before I received my monthly payments.”