“It was extremely difficult, before I got my monthly payments, to be able to pay rent, buy food”: Purdue graduate denounces alternative student loan, suspended by university
When former Purdue University student Matt Wilmsen decided to try a new loan funding program that would help him avoid traditional student debt, he didn’t expect to be constantly struggling with the servicing his loan for his $29,000 in student debt.
From dealing with miscommunication between his college and the loan manager, which ended up adding thousands of dollars in missed payments and increasing his monthly bill, to them mishandling his account to a new loan manager, Wilmsen said that he was at his wit’s end. trying to manage trying to stay on top of his loans.
“It was extremely difficult, before I got my monthly payments, to be able to pay rent, buy food,” Wilmsen said. “I called [the loan servicer] many times and told them that and they were very unfriendly…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.””
Revenue sharing agreements, known as ISAs, are an alternative type of student loan financing where a borrower receives a loan and then pays a percentage of their income after graduation. The terms of an ISA depend on various factors, such as their major and projected future benefits.
ISAs are considered a type of private student loan by the government. Recently, the Consumer Financial Protection Bureau, a consumer watchdog, said the ISA industry cannot claim exemptions rules governing student lenders.
The university based in West Lafayette, Indiana Returning from a boiler programlaunched in 2016, offers ISAs to students looking for alternatives to traditional federal and private student loans.
Earlier this month, the university said it had suspended the program. “If it’s actually closed, that would be good for me,” Wilmsen said, “because I don’t want other people to have to go through some of the things that I’ve been through.”
Wilmsen’s story about his ISAs, alongside the experiences of othersoffers a cautionary tale for students looking for an alternative to taking out stacks of student loans, amid a national conversation about the student debt crisis.
Pitfalls of taking out a non-federal student loan
Wilmsen always wanted to be an engineer.
Growing up in La Porte, Ind., surrounded by family and friends who attended Purdue, he was keen to attend the best engineering school in the area.
Determined to become an electrical engineer, Wilmsen took out a $15,000 ISA for the 2018-2019 academic year and a $14,000 ISA for the 2019-2020 academic year, according to documentation seen by MarketWatch. He also currently owes $12,000 in federal student loans in addition to ISAs.
His total monthly payment for both ISAs is nearly $600. Payments on 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 ISAs, if President Joe Biden forgives $10,000 in student loan debt, when Wilmsen would only be left with a very manageable $2,000 debt, his $29,000 in ISAs would remain.
Purdue’s evolving ISA program due to lender withdrawal
The Back and Boiler program is no longer available to new applicants in the 2022-2023 aid year, according to the school’s website. The school has also listed a new lending service, Launch Servicing.
Wilmsen’s loans were initially handled by Vemo Education, a company that runs ISA programs. MarketWatch was unable to reach a Vemo spokesperson by phone and email at the time of publication.
A Purdue spokesperson said the college switched lending services because Vemo Education transferred service operations to Launch. Since Launch did not create an ISA for new students and only runs accounts with existing students, Purdue had to put the program on hold until it found a replacement.
The school pointed out that the suspension was due to the fact that it had not found a “suitable” company to manage the ISA program. The spokesperson also added that ISAs are a “useful” alternative to private loans and Parent PLUS.
According to Purdue’s website, more than 1,600 students have ISAs with the school, totaling about $17.9 million in dollars owed.
Wilmsen’s customer service saga
A key part of Wilmsen’s frustrations stemmed from what he claimed was the less than adequate customer service he encountered during the maintenance process. This, he added, led the company to ask him to pay a higher than expected monthly fee.
When Wilmsen graduated in May 2020, he had a six-month grace period before making his first payment. He knew the payments would be due, so he uploaded his job posting along with his salary and other information to the payment portal. But when the six months passed and he tried to initiate payments, he said he was ghosting. He repeatedly asked how the payments would be handled.
“‘You should have started charging me,'” he recalled telling Vemo. “I asked them several times…and they assured me I was fine, no payment was due yet.”
In May 2021 – a year later – he was asked to resubmit proof of employment. He called and said he had already started working and graduated months ago. It turns out the company had received the wrong graduation date from Purdue, he said.
“And they said I owed a total of $3,400.56 in missed payments, and they increased my monthly payment by $283.38,” Wilmsen said.
He was happy to repay what he owed, but the pressure to repay so much in a short period of time was strong: “At one point, I was paying $661.22 a month.
Wilmsen said he had to ask his parents for help with his finances as he tried to correct the mistake he alleged Vemo, the student loan manager, had made in assuming he didn’t. hadn’t reported his graduation a year earlier.
After pestering the account manager at Vemo to correct the error, or at least reduce the payments per month, he was successful and reduced his payment to $495.92 per month, including $118.08 per month for the months missed.
Wilmsen then received a raise from his company, which meant his revenue-sharing portion of the deal would increase his monthly payments to $594.62 per month – which included the additional $118.08 that ‘he must.
He was then moved to a new loan manager who works with Purdue, Launch Servicing, who he says is now undercharging him instead, sending Wilmsen into another worry hole as he fears he will be hit penalties later.
“They made the first payment a month ago and they’re charging me the wrong amount,” Wilmsen said. “They charge me $118.08 a month. And based on my previous experiences, I know that once they get the hang of it, they’ll 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 experiment resembles that maintenance of misfortunes faced by millions of other student loan borrowers across the country. Some practices of loan servicers, such as compel borrowers to abstainhave been called in by government regulators, who are trying to fix the broken system from within.
But advocates in the student loan space are wary of poor servicing practices, despite ISAs being touted as a alternative.
In 2020, the Student Borrower Protection Center and the National Consumer Law Center filed a complaint to the Federal Trade Commissionalleging that Vemo engaged in deceptive marketing practices and miscalculated student starting salaries and income growth, making ISAs cheaper and more attractive.
At the time, Vemo co-founder Jeff Weinstein told 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, in many ways, fundamentally different from loans, so comparing the two isn’t always straightforward,” Weinstein told the newspaper. “We are constantly working to improve our comparison tool to ensure that it is as clear and accurate as possible.”
These service issues are just the latest example of the problems inherent in ISAs, Ben Kaufman, who leads research and investigations at DC-based advocacy group the Student Borrower Protection Center, told MarketWatch.
“The ISA industry promised their product would be safer and better, but day after day we find that these private student loans are just as dangerous as what came before them,” Kaufman said.
Kaufman called ISAs a “debt trap”. He said Purdue should re-examine cases like Wilmsen’s, but also work to “totally absolve students of any obligations they may have been forced into.”
Wilmsen said he had since been told by Launch Servicing that he was not going to be charged until they drafted a new contract for him. After being contacted by MarketWatch, Launch said the company investigated and corrected the payment errors and confirmed the new numbers with Wilmsen.
“Launch Servicing is an experienced, fully licensed and compliant consumer loan servicer,” a spokesperson said. “Launch takes great pride in the level of service it provides to customers.”
Wilmsen recalled when he first saw mention of the revenue-sharing agreement program at Purdue.
“I was still living in a dormitory. I got several flyers slipped under my door and I received emails,” Wilmsen said, “all where they implied that this loan was better than private loans and federal student loans, and that you will end up by paying less per month and in total. than you would with federal student loans.
His own experience, he says, has not proven that to be the case.
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