The Consumer Financial Protection Bureau (CFPB) yesterday released a report that shows complaints by student loan borrowers have driven actions that have produced more than $750 million in relief for student loan borrowers and strengthened the student loan repayment process for millions more. These changes include automatic student loan interest-rate reductions for eligible servicemembers, more protections around federal student loan repayment relief, and the elimination of surprise “auto defaults” from most new private student loan contracts. The report shows also that in the last year the CFPB received more than 20,000 complaints from student loan borrowers, who report that widespread student loan servicing problems persist.
“Today’s report shows that complaints by student loan borrowers led to hundreds of millions of dollars in relief and important market reforms,” said CFPB Director Richard Cordray. “We will continue to work to address ongoing problems raised by borrowers and hold student loan servicers accountable for treating them fairly.”
“As borrowers continue to fall through the cracks of our broken student loan system, the Bureau’s work to date offers a roadmap for consumer-driven reforms,” said CFPB Student Loan Ombudsman Seth Frotman. “When borrowers are empowered to stand up for themselves, they can shape policy and spur government to take action. We have much more work to do to build a student loan market that works better for consumers.”
After rapid growth in the student loan market in the last decade, about 44 million Americans now owe money. The CFPB estimates that combined federal and private student loan debt has reached roughly $1.4 trillion, mostly from federal loans. More than 8 million student loan borrowers have gone at least nine months without making a required monthly payment and are in default. More than 1.2 million borrowers defaulted in 2016.
The CFPB has handled about 50,700 student loan related complaints and sent complaints to about 360 companies, in total, including student loan servicers, debt collectors, private student lenders, and companies marketing student loan “debt relief.” The report by the CFPB Student Loan Ombudsman looks at how student borrower complaints have driven government action targeting illegal acts or practices, as well as new borrower protections and industry reforms. The CFPB Student Loan Ombudsman’s analysis found that these enforcement actions and new policies have returned more than $750 million to student loan borrowers and strengthened key aspects of the student loan repayment process for millions more. This estimate includes debt relief for student loan borrowers harmed by illegal lending practices from for-profit colleges, restitution for military borrowers illegally denied benefits, and refunds and redress to student loan borrowers harmed by servicing failures. The other changes and relief outlined in the report include:
- More than 100,000 military borrowers saved at least $20 million last year due to automatic interest-rate reductions: In 2012, the Bureau handled complaints from military borrowers about student loan servicing practices that have prevented them from accessing their right to an interest-rate reduction under the Servicemember Civil Relief Act. The Bureau shared these complaints with other federal agencies, and the Department of Justice and the Federal Deposit Insurance Corporation took enforcement action in 2014 that returned $60 million to 77,000 servicemembers. It also led the Department of Education to automatically extend the interest-rate reduction to more than 100,000 servicemembers on active duty with student loans. Because of this policy change, these military borrowers have saved more than an estimated $20 million in interest charges starting in 2016.
- Millions of borrowers are protected from servicing practices that improperly or illegally denied payment relief: In 2015 and 2016, student loan borrowers complained to the Bureau about processing delays, surprise application denials, and lost paperwork that knocked them off track when applying for affordable payments. In October 2016, the Bureau reported that CFPB examiners cited servicers for illegally denying borrowers’ applications for income-driven plans that should have been regularly approved. Also, the Department of Education added stronger requirements to ensure student loan borrowers get timely, actionable information from their servicer about their application status and how to get an affordable monthly payment. Since early 2016, at least 700,000 borrowers with federal Direct Loans have signed up for income-driven payments for the first time.
- Surprise “auto defaults” eliminated from the majority of new private student loan contracts: Roughly 90 percent of new private student loans require a co-signer, usually a parent or grandparent. In 2014, the Bureau reported on complaints from student borrowers about surprise auto defaults that required borrowers to pay back the loans in full immediately if their co-signer had died or declared bankruptcy. Among them were borrowers who had been making their loan payments on time each month. In March 2016, the Bureau reported that CFPB examiners halted one or more servicers’ unfair auto defaults where loan contracts were ambiguous. Soon after, at least six of the nation’s largest private student lenders eliminated the contract terms that led to auto defaults. According to today’s report, at least two-thirds of all private student loans made in the 2016-17 academic year, estimated to total approximately $8 billion, did not permit auto defaults for borrowers who are successfully repaying their private loans.
These examples from today’s report show how the student loan repayment process can become more consumer friendly for borrowers. Improvements may include the use of automation in procedures or communications to provide more timely, actionable information to consumers, and reduce the risk of unexpected consumer harm through consumer-driven reforms to loan terms or features.
Today’s report also highlights a range of repayment roadblocks reported by consumers, based on the approximately 22,000 consumer complaints about student loans handled by the CFPB between Sept. 1, 2016 and Aug. 31, 2017. The Bureau sent student loan complaints to about 250 companies over this period. During that time period, the Bureau handled about 7,700 private student loan complaints, and 2,300 debt collection complaints related to private and federal student loans. The Bureau also handled about 12,900 federal student loan servicing complaints. Today’s report shows a 120 percent increase in student loan complaints compared to last year. Part of this year-to-year increase can be attributed to the CFPB updating its student loan complaint form to accept complaints about federal student loan servicing, starting in late February 2016. The Bureau also initiated an enforcement action against a large student loan servicer during the time period covered by this report.
These complaints indicate that borrowers face ongoing challenges when repaying student debt. For instance, borrowers report difficulty accessing federal student loan protections such as income-driven repayment plans, or being put into forbearance due to processing breakdowns, which can disrupt repayment under these plans. Servicemembers report struggling to keep their income-driven payment plan while on active duty. Borrowers with disabilities report that servicers failed to discharge their student debt as required. Private student loan borrowers report difficulties in getting affordable repayment options during times of financial distress, such as unpaid parental leave or employment furloughs. Borrowers also report aggressive collection tactics by debt collectors, such as repeatedly calling family members and employers, even after being asked to stop. Borrowers also report having their professional licenses revoked after their student loans default, making it even harder to repay the debt.
The CFPB began accepting consumer complaints about private student loans in March 2012 and began accepting complaints about the servicing of federal student loans in February 2016. Consumers can submit a complaint online at: www.consumerfinance.gov/complaint.