The millions of borrowers struggling to repay their student loans often run into unnecessary obstacles that can intensify their problems when they turn to loan servicers for help, according to a new report from the Consumer Financial Protection Bureau (CFPB).
The CFPB on Tuesday released a report examining more than 30,000 comments from individual borrowers, advocacy organizations, state attorneys general and banking regulators, and trade associations that detailed problems with student loan servicing. In its report, the CFPB urged policymakers to develop widespread federal standards for the federally-contracted organizations tasked with managing borrowers’ loan accounts throughout the repayment process, and communicating with those in distress.
The report found “widespread servicing failures,” that included poor customer service, issues with servicing transfers, misplaced paperwork or processing errors, and other practices that result in increased fees and in some cases default, according to a release from the CFPB.
“With one out of four student loan borrowers struggling to repay their loans or already in default, cleaning up the servicing market is critical,” said CFPB Director Richard Cordray, in a statement. “Today’s report underscores the need for market-wide student loan servicing reforms to halt harmful practices and boost assistance for distressed borrowers.”
The CFPB, the U.S Department of the Treasury, and the U.S. Department of Education on Tuesday also released a letter that details a roadmap for student loan servicing reform, as well as a call for widespread standards.
The report also found that failures in communication among loan servicers might be driving millions of borrowers into default. A recent report from the Government Accountability Office noted that 70 percent of the federal Direct Loan borrowers in default met the income requirements for income-based repayment, a sign that borrowers might not be receiving important information about student loan repayment from their servicers.
“Adequate student loan servicing can empower consumers to satisfy their financial obligations and participate fully in the economy,” the report said. “The servicing practices discussed in this report, when taken together, raise serious questions about whether more than 41 million American consumers with student loan debt have access to the services, information, and protections they need in order to lead healthy financial lives.”
Over the past couple of years, NASFAA’s Loan Servicing Issues, Reauthorization of the Higher Education Act, Student Loan Indebtedness, and Consumer Information task forces have provided several recommendations to help improve student loan servicing. And this past July, in response to a request for information regarding loan servicing issues, NASFAA submitted written comments to the CFPB recommending the following:
As NASFAA expressed in its comments, while many of the current initiatives are a step in the right direction, more must be done to truly enhance loan servicing.
Publication Date: 9/30/2015