On October 28, 2020, the CFPB’s Private Education Loan Ombudsman published its annual report on student loans, as required by the Dodd-Frank Act. Despite an increased focus on student loans by many state legislatures and regulators and some members of Congress, the report reflects a significant decline in the number of consumer complaints about student loans over the past year. The report analyzes complaints submitted by consumers about student lenders and servicers between September 2019 and August 2020. Notably, the report covers a period during which many student loan borrowers have experienced financial hardships as a result of the COVID-19 pandemic and the federal government – as well as some state governments (in partnership with holders of private student loans) – has offered a myriad of loss mitigation options for eligible student loan borrowers.
Overall Complaint Trends and Findings
Student loan-related complaints represent 1.6% of the CFPB’s total complaint volume. During the period covered in the report, private student loan complaints totaled approximately 28% of student loan-related complaints and decreased by approximately 33% as compared to the same period in 2019. Federal student loan complaints comprised 72% of student-loan related complaints and decreased by approximately 24% as compared to the same period in 2019. Considering that more than 90% of student loan debt is held by the federal government, it is notable that complaints about federal student loans comprised only 72% of total student loan-related complaints.
As noted in the report, the overall decrease in student loan-related complaints is likely largely attributable to CARES Act and similar relief. Among other things, the CARES Act suspended payments, temporarily reduced interest rates to zero, and suspended involuntary loan collections on federal student loans held by the Department of Education (ED). However, the report shows an overall trend of declining consumer complaint volume starting in October 2019 – well before the CARES Act was passed in response to the COVID-19 pandemic. The CFPB attributes this decrease to borrower education and outreach by regulators and consumer advocates, industry compliance improvements, and improved industry complaint monitoring systems and internal consumer advocate or ombudsman offices.
Student loan servicers responded to 99% of complaints in a timely manner (i.e., within 15 days of receipt), and provided explanations or non-monetary relief for 98% of complaints received. As a result, the CFPB’s report appears to highlight fewer material issues with regard to student loans compared to prior annual reports. However, this year’s report highlights a number of significant trends and actions taken by regulators:
- The vast majority of complaints came from borrowers who allege that they either received inaccurate information about their loans or are experiencing trouble with how payments are being handled.
- Many borrowers also complain that they cannot access flexible options for repaying their loans or are experiencing problems lowering monthly payments. Borrowers with federal student loans are generally eligible for income-driven repayment programs, forbearance, and certain types of deferment, among other repayment plan options. Private student loan borrowers also often have the ability to apply for various repayment plans, although these options vary by investor.
- The CFPB filed four enforcement actions against student loan debt relief companies and one enforcement action against a trust that allegedly provided substantial assistance to ITT Educational Services, Inc. in engaging in unfair and abusive acts and practices.
- Through proactive monitoring of social media and complaints, the CFPB identified a credit reporting issue involving one or more student loan servicers and one or more specialty credit scoring companies. Although the report does not provide specifics, it notes that a data element involving suspended payments resulted in a drop in credit scores for some, but not all, borrowers.
Many federal student loan borrowers are wondering whether the relief measures provided for by the CARES Act will be extended beyond the current expiration date of December 31, 2020. It remains to be seen whether Congress will extend the relevant provisions of the CARES Act, which included automatic payment suspension and a period of zero interest.
The report indicates that policymakers are likely to remain focused on assisting student loan borrowers for the duration of the pandemic. The report also suggests that “policymakers” consider doing the following:
- Simplify the various loan repayment plans and forgiveness, discharge, and cancellation programs to make them easier for borrowers to self-navigate and make it easier for borrowers to self-certify themselves for income-driven repayment plans;
- Accelerate efforts to automate data sharing between federal agencies in order to streamline enrollment in repayment plans (for instance, by automatically populating income information in annual recertification forms for income-driven repayment plans);
- Require federal student loan debtors who file for bankruptcy to enroll in an income-driven repayment plan;
- Revisit the undue hardship test in bankruptcy. Currently, student loans can only be discharged in bankruptcy if repaying them poses an “undue hardship” to borrowers;
- “[Assess] comprehensive and holistic approaches to address socio-economic and racial gaps in education attainment and student loan debt load”;
- “[Identify] methods to reinforce successful efforts to close socio-economic and racial gaps in degree attainment”; and,
- Continue to aggressively pursue student loan debt relief scams.
Under the Dodd-Frank Act, the Private Education Loan Ombudsman is primarily responsible for compiling and analyzing consumer complaints related to student loans and publishing an annual report regarding those complaints. As a result, the report’s references to socio-economic and racial differences in student loan debt and educational attainment appear to be outside the scope of the ombudsman’s responsibilities and have not been explicitly raised in previous reports.
Department of Education MOU
On January 31, 2020, the CFPB and ED signed a memorandum of understanding (MOU) regarding consumer complaints, including the resolution of complaints and the sharing of information regarding complaints and borrower characteristics. As we previously noted, the MOU allows the CFPB and ED to share consumer complaints, reroute them to the appropriate agency, delineate clear guidelines on which agency is responsible for particular areas of consumer complaints, and meet at least quarterly to discuss consumer complaints, among other things.
Since the agencies signed the MOU, the report notes that the CFPB and ED have held two quarterly meetings, shared complaint taxonomies, and mapped them for meaningful complaint comparisons. They have also met to discuss various issues related to private and federal student loans and COVID-19 protections, relief, and challenges. Moreover, federal student loan servicers continue to be subject to combined supervisory and oversight examinations by both the CFPB and ED.
The current Private Education Loan Ombudsman, Robert Cameron, was appointed on August 16, 2019, and this report is the first one to encompass complaints solely received during his tenure. Unlike past ombudsman reports, this one appears to take a more industry-friendly stance while focusing on positive complaint developments from the covered period. Notwithstanding the more positive outlook reflected in the report, state legislatures and regulators continue to focus on issues related to student loans, with many states considering or adopting broad student loan servicer licensing laws that contain a variety of practice requirements. Moreover, given public and political interest in student loan debt – which is now $1.677 trillion, second only to mortgages in outstanding household debt – student loans likely will continue to be a hot button issue in 2021 and beyond.