Since 2013, the Consumer Finance Protection Bureau (CPFB) has received thousands of comments about America’s student loan practices. The agency’s oversight and interventions can’t come soon enough, as the country’s secondary education students amass ever-increasing levels of student loan debt.
A Rising Tide of Difficult Debt
Recent statistics indicate that American college students are incurring more loan debt than ever before:
- Student loan debt in the U.S. has grown to more than $1.3 trillion, second only to mortgage debt and surpassing credit card debt by $620 million.
- More than 44 million people owe those funds, and not all of them are students.
- For students, the average loan load for 2016 graduates was $37,172, which is 6 percent higher than in 2015.
- Over 10 percent of existing loans are already in default.
- In 2016 alone, more than 1.2 million student loan borrowers defaulted on their obligations.
A Short-Term Build Up With a Long-Term Impact
In 1965, President Lyndon B. Johnson proposed the Higher Education Opportunity Act (HEA) to facilitate access to higher education opportunities for millions of people. In the five decades since the Act’s enactment, the student loan industry has grown into a complex and complicated financial network where federal student loans are administered primarily by only five federal loan servicing agencies (Navient, AES/PHESS, Nelnet, Great Lakes and ACS Education Services), while privately issued loans come from hundreds of other sources. Without a nation-wide overseer to protect against fraud and abuse, the student loan business succeeded in trapping millions of borrowers in loans they couldn’t afford. Consequently, many student borrowers (and family members who assumed the debt on their behalf) now find themselves with loan loads that may be impossible to repay, while eroding the future of the borrower.
The CFPB Wades In with Annual Student Loan Debt Report
Many of those student loan consumers turned to the CFPB for assistance dealing with their loan contracts. In the 2016-2017 calendar year, the CFPB received approximately 12,900 complaints about the actions of over 150 lending and servicing companies covering virtually every aspect of the student loan repayment life cycle.
Complaints About Federal Loan Servicers
The HEA put into law a series of protections for borrowers of federal student loans to ensure they had the resources to avoid delinquencies and defaults and to repay their loans successfully. However, thousands of borrowers reported significant difficulties accessing those protections through their loan servicing agency.
Income-Driven Loan (IDR) Protections
Almost all federal loan borrowers are entitled to have their monthly loan payment amount calibrated according to their monthly income. Enrolling in an IDR program gives them that opportunity, so their loan payments don’t impede their ability to cover their living expenses.
However, many borrowers were unable to enroll in their IDR plan because of challenges presented by the loan servicing company, including lost paperwork, delays, insufficient customer services and inconsistent application processing. The CFPB discovered several common occurrences across the servicing sector that caused borrowers to incur increased loan costs, reduced benefits and imposed longer loan repayment periods:
- Unstructured review periods of supporting documentation left consumers paying more than they should have for months at a time.
- Some agencies suspended loan contract terms during the annual recertification process rather than permit borrowers to continue making the old payment while the agency recalibrated the monthly payment.
- Students with older loans have the right to consolidate them to access newer benefits. Many submitted complaints that they experienced the same types of costly delays during that process as did students with newer loans.
Vulnerable Borrower Groups Also Experienced Challenges
Students and borrowers who have vulnerabilities are the most severely impacted by servicing company obstacles.
Unlike younger borrowers, older borrowers (many of whom are carrying the debt on behalf of a family member) suffer more difficult financial constraints if they default. By law, Social Security benefits can be offset to repay federal student loans, which can devastate the lives of seniors on fixed incomes.
Borrowers with permanent disabilities also face heightened economic challenges when loan servicers fail to provide legally required services. Like seniors, their disability benefits can be offset by delayed or reduced payments. And many face servicer-based obstacles when attempting to obtain a legally authorized discharge based on their disability.
Even after the discharge of the loans goes through, borrowers often find that their servicing company shares erroneous information with credit reporting agencies, which generates even more confusion and disarray.
Service Member Borrowers
Service members receive additional student loan benefits through federal law, and many of them complained that their loan servicing company does not provide those benefits.
Private Student Loan Services
Students who receive loans from private financial sources report many of the same complaints as those who take on federal student loan obligations; almost two-thirds of these complaints concerned challenges with their lender or servicer.
Servicing Company Data
Of the five major student loan servicing companies that handle both federal and private loans, Navient received the largest number of complaints — over 60 percent — about its handling of private and federal loans. AES/PHEAA was second, amassing 15 percent of the total.
Private loan servicers also scored poorly with borrowers: 49 percent of the complaints about SLM Corporation were about inadequate services, while borrowers made those same complaints in 71 percent of the challenges with Discover Bank and 72 percent of the concerns about Wells Fargo.
The HEA law is in place to ensure that America’s college students can access the resources they need to achieve a degree or diploma. The CFPB is working hard to help them achieve that goal.