New Stats Out Paint Depressing Outlook on Student Loans

The Consumer Financial Protection Bureau just published their annual report on student loans. Some of the data jumped out at me.

Fun Facts

Students who take out college loans but don’t graduate are three times more likely to default than borrowers who complete.

The average amount of recent defaults, as of March 31, 2020, is approximately $26,700 and the average default amount for defaulted loans owned by ED is approximately $28,000. Further, borrowers who owe less than $5,000 at the start of repayment are the most likely to default within four years.

Only 44% of first-time, full-time students who enroll in a bachelor’s degree program graduate within 4 years, while only 62% graduate within 6 years.

But graduation rates aren’t equal for all.

Private student loans account for 28% of the CFPB complaints and only 7.9% of total outstanding student loan debt. Federal loans account for 92.1% of debt and 72% of complaints.

It seems the CFPB is omitting complaints by debtors against student loan assistance companies. The CFPB says, “Complaints that cannot be sent to companies for response such as those regarding issues with third-party debt relief companies that do not yet participate in the complaint process, or complaints that result from debt relief scams, are not published in the Consumer Complaint Database or reflected in the company-level analysis in this report.”

Federal student loan servicers have a wide variety of different complaint areas by percentage.

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Student loan debt is second only to outstanding mortgages and almost twice as large as all the outstanding credit card debt.

Among student loan borrowers, (1) those with over $40,000 of student loan debt have an average debt of $96,341, and (2) those with less than $40,000 of student loan debt have an average debt of $14,564. Generally, the lower average debt of $14,564 is attributable, in part, to students who do not complete their post-secondary education while the larger average debt balance of $96,341 attributable, in part, to professional, graduate, and doctoral students.

As the Department of Education has noted, “The most expensive education is one that doesn’t lead to a degree. While graduating with high levels of debt is holding too many borrowers back from reaching their full potential, the even more damaging outcome is for students who take on debt but never complete their degree. In fact, students’ ability to repay their loans depends more strongly on whether they graduate than on how much total debt they take on.”

CFPB Actions Taken to Protect Consumers

The CFPB states they have an eye on advertising regarding student loan assistance services. They say, “In the past year, one or more social media platform(s) changed their policies regarding the debt services advertising category. One or more social media platforms has specific restrictions on debt services and/or student loan-related advertising, including some specific considerations for student loan consolidation, refinancing, and forgiveness advertisements. Advertising of student loan debt relief products appears to have waned over the past year in one or more social media platforms. These company policies are not a 100% solution to ending the marketing of fraudulent student loan debt relief activities, but they do contribute to a financial marketplace that works to protect consumers from student loan debt relief scams.”

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The CFPB talks about the various enforcement actions they have taken against student loan assistance companies.

  • Bureau of Consumer Financial Protection, et al v. Consumer Advocacy Center Inc., d/b/a Premier Student Loan Center, et al, United States District Court for the Central District of California, 8:19-cv-01998, filed October 21, 2019. The Bureau, along with the Minnesota Attorney General’s Office, North Carolina Department of Justice, and the Los Angeles City Attorney, filed a complaint in the Central District of California against this student-loan debt-relief operation that allegedly deceived thousands of federal-student-loan borrowers and charged over $71 million in unlawful advance fees in connection with the marketing and sale of student-loan debt-relief services.
  • Bureau of Consumer Financial Protection v. Chou Team Realty, LLC f/k/a Chou Team Realty, Inc., d/b/a Monster Loans, d/b/a MonsterLoans, et al, United States District Court for the Central District of California, 8:20-cv-00043, filed January 9, 2020. The Bureau alleged that many of the defendants violated the Fair Credit Reporting Act by obtaining consumer report information without a permissible purpose, and that other defendants charged unlawful advance fees and engaged in deceptive acts and practices in connection with the marketing and sale of student loan debt relief products and services. The complaint also alleged that certain entities and individuals are liable as Relief Defendants because they received profits resulting from the illegal conduct.
  • Bureau of Consumer Financial Protection v. Timemark Solutions, Inc., et al, United States District Court for the Southern District of Florida, 9:20-cv-81057- RS, filed July 7, 2020. The Bureau alleged that the defendants violated the Telemarketing Sales Rule (TSR) by charging illegal advance fees to consumers who were seeking to renegotiate, settle, reduce, or alter the terms of their loans. Defendants allegedly used telemarketing campaigns to convince more than 7,300 consumers to pay up to $699 in fees to submit paperwork to reduce or eliminate monthly payments for their federal student loans despite the TSR’s prohibition against advanced fees. The consent judgment permanently bans defendants from providing debt relief services, imposes about $3.8 million for consumer redress (full payment of which will be suspended upon defendants’ paying a portion of the redress based on their demonstrated inability to pay the full amount of judgment in each order), and assesses a $1 civil money penalty on each of the defendants.
  • Bureau of Consumer Financial Protection v. GST Factoring, et al, United States District Court for the Central District of California, 8:20-cv-01239, filed July 13, 2020. The Bureau alleged that the companies, their owners, and the attorneys participated in a nationwide student-loan debt-relief operation that charged thousands of consumers saddled with private student-loan debt approximately $11.8 million in illegal upfront fees in violation of the Telemarketing Sales Rule (TSR).
  • United States v. Rudy Dekermenjian. Dekermenjian, an attorney, pleaded guilty in connection with a conspiracy to defraud a bank into processing more than $5 million in credit and debit card payments for a student loan debit relief merchant that had previously been terminated by the bank’s risk department and his attempt to obstruct a federal grand jury proceeding and a civil investigation conducted by the Bureau, both of which were investigating this scheme. Dekermenjian pleaded guilty to one count of conspiracy to commit wire fraud affecting a financial institution and bank fraud and one count of alteration and falsification of records. A sentencing date has not yet been scheduled.
  • United States v. Brandon Demond Frere. Frere formulated, directed, controlled and participated in the operations of the following companies: American Financial Benefits Center (“AFBC”), Ameritech Financial (“Ameritech”), and Financial Education Benefits Center (“FEBC”) which were registered as California Corporations on February 11, 2011, October 28, 2015, and October 30, 2015, respectively. The charges include one count of Wire Fraud and Aiding and Abetting, and one count of International Money Laundering and Aiding and Abetting. Frere targeted recipients of federal student loans who were often struggling to make payments and caused his employees to use misleading sales scripts and other deceptive practices that fraudulently induced thousands of victims to sign up for document preparation services and to enroll in the financial education benefits program. Frere was sentenced to 42 months of imprisonment.
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