The Consumer Financial Protection Bureau (CFPB) will be looking into student loan servicing practices that can make paying back loans a hassle.
Among the issues: industry practices that create repayment challenges, hurdles for distressed borrowers, and the economic incentives that may affect the quality of service.
At the same time, the CFPB is also re-launching an enhanced version of its Repay Student Debt online tool to help borrowers figure out their options for affordable repayment.
“Student debt stress can make borrowers feel like they are walking a tightrope where any false move in paying back a loan can cause them to fall,” said CFPB Director Richard Cordray. “Today’s inquiry seeks information on the pain points in student loan servicing that make repayment a more difficult and stressful process.”
Huge debt market
Student loans make up the nation’s second largest consumer debt market. The market has grown rapidly in the last decade. Currently there are more than 40 million federal and private student loan borrowers and collectively these consumers owe more than $1.2 trillion. The market is now facing an increasing number of borrowers who are struggling to stay current on their loans.
Servicers are a critical link between the borrowers and the lenders. They manage borrowers’ accounts, process monthly payments, and communicate directly with borrowers. When facing unemployment or other financial hardship, borrowers must contact student loan servicers to enroll in alternative repayment plans, obtain deferments or forbearances, or request a modification of loan terms. A servicer is often different than the lender, and a borrower typically has no control over which company services a loan.
The CFPB has heard from borrowers through its complaint handling, its Tell Your Story function, and from staff travelling across the country. The agency has observed that many borrowers are experiencing significant student debt stress. Consumers have complained about billing problems associated with payment posting, prepayments, and partial payments.
For example, borrowers report that payments may be processed in ways that make repaying student loans even more expensive. Other consumers have complained about lost records, slow response times to fixing errors, and a general lack of customer service. Often, consumers who have their loan transferred from one servicer to another report experiencing interruptions when receiving notices, billing statements, or other routine communications.
The CFPB has also heard from distressed borrowers that student loan servicers may have difficulty helping them avoid defaults and delinquencies. Repayment roadblocks can worsen problems.
Distressed borrowers complain that they are given the runaround when they ask for help, they have a hard time getting straight answers from servicing staff, and that the staff are untrained or unequipped to deal with their problems.
Joyce of Fairmont, W.Va., tells ConsumerAffairs of the problems she experienced with Wells Fargo Education Financial Services, with loans she took out for her daughters. "All of the loans were set up on the deferment option as my girls were taking the loans over as soon as they found jobs," she writes in a recent post. "Since then, I've had nothing but problems. They sent statements out late and the due dates were 3 days from date I received it. This, of course, caused all of my payments to be late, because according to one of their CRS, all payments took 10 days from the date Wells Fargo received it to be credited to my account. When I called about this, I was told 'We don't have to send you a statement, and you are still responsible for making payments.' "
The CFPB's public inquiry focuses on the following:
- Industry practices that create repayment challenges: The CFPB’s inquiry seeks information about specific practices that could potentially create problems as consumers repay their loans.
- Hurdles for distressed borrowers: The agency requests information on whether servicers’ policies and procedures are resulting in struggling borrowers paying more fees or prolonging repayment.
- Economic incentives affecting the quality of service: The CFPB is seeking information on whether the typical ways that servicers are paid may indirectly lead to borrower harm.
- Application of consumer protections in other markets: The CFPB is analyzing whether there are protections in other consumer credit markets -- such as credit cards or mortgages -- that could inform policymakers and market participants when considering options to improve the quality of student loan servicing.
- Availability of information about the student loan market: The CFPB is looking at whether a general lack of transparency in the market may be contributing to consumer harm.
Repay Student Debt 2.0
The CFPB has re-launched its Repay Student Debt web tool, which offers a step-by-step guide to navigate borrowers through their repayment options, especially when facing default.
The new version of this tool provides student loan borrowers with sample instructions to send to their student loan servicer to protect themselves against payment processing problems and auto-defaults.
It also has information about how to request a lower monthly payment when experiencing financial distress.
The Consumer Financial Protection Bureau (CFPB) will be looking into student loan servicing practices that can make paying back loans a hassle. Among the ...