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Consumer Financial Protection Bureau Reports the Federal Student Loan Program is All F**ked Up

The Merriam-Webster dictionary defines snafu as “a situation marked by errors or confusion.” The word is an acronym for “Situation Normal, All Fouled (or Fucked) Up.”

Earlier this month, the Consumer Financial Protection Bureau issued a report confirming what we already knew:  the federal student program is all f-cked up. Unfortunately, the CFPB’s publication is titled Supervisory Highlights Student Loan Servicing Special Edition, which doesn’t tell you a damn thing about what’s in the report. Perhaps that was intentional.

Although the bureaucratic writing style is turgid, the report clarifies that the federal student loan program is spectacularly mismanaged.

Here are some highlights:

The CFPB found that many colleges and universities refuse to release academic transcripts to students who are indebted to their institution. This practice often makes it impossible for former students to transfer to another school or get a job. The CFPB believes this practice is “abusive under the Consumer Financial Protection Act.” Duh!

Second, CFPB criticizes student-loan servicers for bungling the administration of income-driven repayment plans. As a result, many borrowers in IDRPs are kicked out of these programs because they failed to certify their annual income annually. Those borrowers are then required to get recertified.

CFPB  accused student-loan servicers of improperly denying borrowers’ applications to get reinstated in an IDRP. “Examiners found that servicers engaged in a deceptive act or practice by providing consumers with a misleading denial after submitting an IDR recertification application.”

For example, servicers sometimes don’t tell borrowers they must certify their income when they were not in an IDRP. Then they refuse to reinstate those borrowers because they didn’t provide their income information.

CFPB also accused servicers of giving parent borrowers inaccurate information about their eligibility for an IDRPeligibility.

In short, the CFPB scolded for-profit colleges for withholding academic transcripts and student-loan services for spectacular mismanagement of income-based repayment plans.

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Tellingly, the CFPB did not identify a single malefactor or suggest a substantive action to correct the identified problems. Instead, it ended its report with this pathetic and syntax-tangled sentence:

Regardless, where the Bureau identifies violations of Federal consumer financial law, it intends to continue to exercise all of its authorities to ensure that servicers and loan holders make consumers whole.

How reassuring!

Why didn’t the CFPB propose that Congress pass a law that would make it illegal for a college to withhold academic transcripts from students, regardless of the reason?

Why didn’t the CFPB call for the Department of Education to collaborate with the Internal Revenue Service to determine the annual income of students in IBRPs? It makes no sense for loan servicers to keep borrowers out of IBRPs because they didn’t certify their income when the government can quickly determine annual income by looking at borrowers’ annual federal income tax returns.

For some reason, the Department of Education and the CFPB would rather keep the student loan program in a snafu condition than take reasonable steps to make it operate more efficiently.

Richard Fossey is a professor at the University of Louisiana in Lafayette, Louisiana. He received his law degree from the University of Texas and his doctorate from Harvard Graduate School of Education. He is editor of Catholic Southwest, A Journal of History and Culture.

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