CFPB stands up for students, announces it will explore new rules for education loan servicers
By Suzanne Martindale on Tuesday, September 29th, 2015
Big news today from our consumer watchdog agency! The Consumer Financial Protection Bureau (CFPB) is publicly announcing that it plans to develop first-ever rules of the road for companies like Sallie Mae and others that handle students’ loans after they leave school. Working with the Department of Education and Treasury to develop recommendations, the CFPB will be advancing reforms that could improve the lives of 41 million people struggling navigate the complex and often confusing system for repaying loans after getting an education. They have also released a comprehensive report detailing “widespread servicing failures” that are a call for action.
The CFPB collected over 30,000 comments this summer from students, industry, advocates like us, and members of the general public about the key problems people face when dealing with their loan servicers. They found that many people commonly ran into stressful roadblocks while repaying their loans because of how their servicers treated them: giving them inaccurate or inconsistent advice during customer service calls, processing payments in ways that made them pay more in fees or interest, and making it hard to access crucial benefits like flexible repayment plans. The CFPB found that these problems occurred not just at companies that manage loans for the Department of Education, but also at banks and other finance companies that handle private education loans.
With an eye toward next steps, the CFPB has issued joint principles with the Department of Education and Treasury that set out a roadmap for successful reform:
- Create consistent, industry-wide standards for the entire servicing market: While student loan servicing is subject to a number of state and federal laws, the market lacks consistent standards that cover the servicing of all private and federal student loans. Currently there is a patchwork of student loan servicing practices across the market, which includes loans held by private investors, banks, and the federal government. Although the terms of these products can vary, the process of repaying these debts is similar for all student loan borrowers. Consistent standards for quality service for all borrowers can help ensure that consumers know what to expect from their student loan servicer and that distressed borrowers can access available assistance.
- Hold servicers accountable: Regulators must continue to act to protect borrowers if errors occur or if servicers break the law. Consumers should be able to access adequate customer service to answer questions and resolve errors. Today’s framework also calls for continuing to build coordination among federal and state agencies around the enforcement of federal and state consumer financial laws, higher education laws and regulations, and federal servicing contracts made by the U.S. Department of Education.
- Provide access to clear, timely information: Borrowers expect student loan servicers to inform them about repayment options and help them enroll in alternative payment plans. This framework calls for information provided by servicers to be accurate and actionable, ensuring borrowers are empowered to make choices that encourage borrower success and mitigate defaults.
- Improve publicly available data: Little information is publicly available about the performance of student loans, the utilization of specific repayment options such as income-driven repayment plans for federal student loans, and the outcomes for borrowers enrolled in these plans. Today’s framework calls for greater transparency, including periodic publication of servicer-level data on loan performance.
This big announcement didn’t happen overnight. Thanks to so many of you who have shared your personal stories with us about paying for college, we have been able to make a strong case in recent months to the CFPB and other key government officials that students and families deserve a fairer shake than they’re getting now. We’ll continue to be on the front lines pushing for fair and comprehensive reforms, to advocate for students and their families throughout the important journey of seeking higher education.