NASFAA's Altitude: Borrowers' Biggest Complaints About Student Loan Servicing May Surprise You

Welcome to NASFAA's "Altitude," a new-ish Today's News series that aims to provide a 30,000-foot view on the intersections of economics, public policy, management, and student financial aid. Look for an assortment of links, reactions, conversations, and other missives from NASFAA President Justin Draeger and others. It may be easier to say what this series isn't: a place to find answers to tough regulatory and implementation questions. We'll be trying out this series over the next few months, so please send us your comments and follow us on Twitter

By Justin Draeger, NASFAA President and CEO

As it turns out, much of the discontent borrowers feel about loan servicing doesn’t appear to have much to do with actual loan servicing. After reviewing Consumer Financial Protection Bureau (CFPB) complaints about student loan servicing, Rajeev Darolia, Ph.D. — Wendell H. Ford professor of public policy and associate professor of public policy and economics at the University of Kentucky — pointed out in an issue brief published at Third Way that: 

"... [M]uch of the discontent about student loan servicing is rooted in displeasure with the federal student lending system more broadly, and even more so the system of postsecondary financial aid and pricing in the United States." 

What two things do loan servicers take the most blame for, according to the report? 

  1. The terms of their loans, like interest rates.

  2. The perceived value of borrowers' education relative to the cost.

Student loan servicers have nothing to do with either of those complaints. 

The other complaint highlighted by Darolia had to do with the information (or lack thereof) borrowers receive about their loans. Getting information to student and parent loan borrowers has long been discussed, but with few solutions. The key question is how much information should we be giving to students and parents, in a digestible way that doesn't overwhelm them to ensure they only take on manageable amounts of debt? 

  • Between the Lines: Last week, the CFPB  accused loan servicers of “sloppy” service in helping borrowers apply and receive a waiver for the Public Service Loan Forgiveness program. Borrowers are reporting significant lag times in reaching anyone on the other end and widespread confusion over which loans do and don’t qualify for the new waiver.

  • The Other Side: Servicers contend that information from Federal Student Aid on program details are not delivered in a timely way and are working under reduced contracts from the Department of Education that hinders their ability to fully staff up. In addition, servicers point out that it is impossible to realistically onboard tens of millions of borrowers all at once without some delays.

  • Why It Matters: Servicers have made mistakes over the years, some of which they have acknowledged and some of which they have settled; but they’ve also disproportionately borne  America's discontent with our student loan system. The reality is that loan servicers will be needed to keep the student loan repayment system operating, and it will be important for Federal Student Aid, the CFPB, and lawmakers to understand what servicers should and shouldn’t be held accountable for as we develop new loan programs, repayment terms, and servicing contracts.  

 

Publication Date: 2/3/2022


Ben R | 2/22/2022 12:24:25 PM

Complexity enters the equation due to IDR plans, deferments, forbearances and promised cancellation. Instead of getting paid to collect loans, servicers are now asked to do a host of other functions, with conflicting priorities.

If it was just about paying what you owe over 10 or 20 years, that would be simple, but we now we have a system where only a minority of borrowers pays in full and the rest either are not paying at all or are expecting cancellation while paying only partial amounts.

Jesse H | 2/4/2022 12:51:20 PM

All good points -- both the original article and Mary G's comment above. From a 2-year community college FAA perspective, the most important reform we could be given at our level is much broader discretion in approving or denying student loans without worrying that the decision will be heavily scrutinized. I understand that the broad accessibility of student loans to students regardless of ability repay or financial background is "a feature, not a bug"... but the same was true of opioids in the medical field, and we saw how that went. Students should be able to access loans on the basis of good academics OR credit (which would keep it open to all students who are making good progress toward their degree), but having the doors wide open to all students no matter their likelihood of eventual academic success, and then shackling them to virtually unescapable debt, is completely unethical. Schools with open admissions policies need more opportunity to intervene in cases where students are doing themselves irrecoverable financial harm.

Mary G | 2/3/2022 9:15:15 AM

We sell the loan as simply you work in a certain field in a low income area, make payments for 10y ears and then the rest of the loan is forgiven. It should be as simple as it sounds.
The fine print and extra paperwork never should have been part of this loan.

People in prior years have had to pay back their loans, this generation should pay back their loans as well. I would suggest removing interest payments so the loans are more reasonable to pay back. Over the next several years, the government should then pay back the interest to previous generations.

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