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Violations Discovered of Federal Law by Student Loan Servicers and University-Owned Lenders

The Consumer Financial Protection Bureau (CFPB) released a special edition of Supervisory Highlights on recent examination findings covering the practices of student loan servicers, and schools that lend to students directly. The exams found that these schools had improper blanket policies of withholding transcripts to force students to make payments. These findings come after the CFPB announced earlier this year that it would examine the operations of colleges that operate lending businesses. The CFPB’s exams also found that student loan servicers illegally hampered borrowers’ access to federal student loan payment relief and cancellation programs including Income-Driven Repayment, Public Service Loan Forgiveness and Teacher Loan Forgiveness. The CFPB directed servicers to act to remediate these issues.

“Americans must exercise their right to their educational data to obtain a job or transfer schools,” said CFPB Director Rohit Chopra. “Our examinations of lenders found that blanket policies to withhold transcripts can run afoul of the law.”

Transcript Withholding

Under the Consumer Financial Protection Act, Congress gave the CFPB supervisory authority over entities that originate private education loans, including institutional loans. The CFPB examines private student lenders of all sizes, including entities that operate school-based lenders that extend loans directly to students.

Many in-house lenders employ a practice of withholding transcripts when a student borrower has an outstanding debt. Transcript withholding is designed to gain leverage over borrowers and coerce them into making payments, as it is difficult to seek employment or transfer education credits to another school without an official transcript. Even when borrowers enter into payment agreements with a school, the transcript might not be released until the debt is paid in full.

The CFPB’s examinations found that the blanket withholding of transcripts to pressure borrowers is an abusive practice under the Consumer Financial Protection Act.

Servicers’ Unlawful Impediments to Borrower Benefit Programs

The examinations also found many cases where federal loan servicers improperly denied borrower applications for loan cancellation through Teacher Loan Forgiveness or Public Service Loan Forgiveness. Servicers illegally misrepresented borrowers’ eligibility dates and the number of payments the borrower needed to make to qualify for relief. Servicers also provided misinformation about borrowers’ entitlement to progress toward loan forgiveness during the pandemic payment suspension. The CFPB directed servicers to address consumer harm caused by these actions, and it will continue to monitor servicers’ practices to ensure that student loan borrowers are not illegally excluded from relief provided for them under federal law.

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Separately, the CFPB reviewed the transfer of millions of borrower account records to different servicers, including the nine million borrower accounts transferred in July 2021 after the student loan servicers PHEAA and Granite State announced they were ending their contracts with the Department of Education. The CFPB partnered with the Department of Education and many state regulators in oversight of these account transfers to identify and address points of concern.

Read the Supervisory Highlights Student Loan Servicing Special Edition.

Students and their families can find help on how to tackle their student debt through the CFPB’s Paying for College suite of tools. For borrowers already repaying student loans, the CFPB has tools and resources to help them make important loan decisions. More information is available at consumerfinance.gov/students.

Student loan borrowers experiencing problems related to repaying student loans or debt collection can submit a complaint by visiting the CFPB’s website or by calling (855) 411-CFPB (2372).

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Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
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