On June 22, 2017, the Consumer Financial Protection Bureau’s (CFPB) Student Loan Ombudsman put out the CFPB’s annual report on student loans, as required by the Dodd-Frank Act. The report analyzes complaints submitted by consumers about student loan servicers between March 2016 and February 2017. Many of the complaints relate to servicing practices that have been frequently scrutinized by the CFPB through supervision and enforcement activities, such as payment processing, customer service and borrower communication, and income-based repayment plan enrollment.
However, the majority of the report focuses on consumer complaints related to the Public Service Loan Forgiveness (PSLF) program, which allows those who enter careers in public service to have their student loans forgiven after a decade. More specifically, the CFPB criticizes servicers’ alleged failures to actively advise borrowers on how to qualify for PSLF, track borrowers’ progress toward PSLF completion, and inform borrowers about the requirements of the PSLF program. In conjunction with the report, the CFPB updated its education loan examination procedures to include additional questions about the PSLF program.
The PSLF program was established in 2007 with the goal of making it easier for recent graduates to enter into and hold public sector employment without falling delinquent on student loan debt. Under the PSLF, certain student loan balances are forgiven if a borrower qualifies for and meets the requirements of the program. To qualify, a borrower must (1) not be in default on the loan for which they are requesting forgiveness; (2) be employed full-time by a public service organization (a) while they make required monthly payments, (b) at the time of their application for loan forgiveness, and (c) when the loan is actually forgiven; and (3) make 120 separate monthly payments under one of a number of enumerated repayment plans. Qualifying public service organizations include, among others, the US government, certain 501(c)(3) organizations, and certain nonprofit organizations that provide public services. Although the requirements for this program may seem fairly straightforward, the CFPB’s report expresses concern that student loan servicers do not do enough to help borrowers who may be eligible to participate in the PSLF program.
As a result, the updated student loan examination procedures require examiners to review whether student loan servicers actively inform borrowers about the program and how to maximize its benefits. Examiners are expected to review, among other items, whether:
- servicers affirmatively inform borrowers of the availability of PSLF when borrowers indicate that they are employed in the government or non-profit sectors;
- borrowers who express an interest in PSLF are informed of the benefits of the program and the process for submitting an employer certification form (ECF);
- once a borrower has submitted an ECF, the servicer informs the borrower of the benefits of submitting additional ECFs;
- servicers explain how an income-based repayment plan can maximize the borrower’s PSLF benefit if the borrower is not currently enrolled in such a plan; and
- servicers help borrowers qualify for PSLF and make eligible payments.
One of the primary criticisms in the CFPB’s report is that student loan servicers often failed to accurately calculate the number of qualifying payments made by PSLF-eligible borrowers. Under the updated examination procedures, examiners will evaluate whether servicers have policies and procedures in place that will allow them to accurately assess the number of qualifying payments borrowers have made during the entire repayment period. In addition, the CFPB’s report highlighted consumer complaints about servicer delays and errors resulting in months of forbearance that did not qualify for PSLF. These concerns are reflected in the updated examination procedures, which direct examiners to review whether a servicer’s delays or errors have caused this type of harm to borrowers and if PSLF requests are handled in a timely and accurate manner. Examiners are also directed to review whether servicers accurately inform consumers about the number of qualifying payments made toward PSLF and record those payments even before a borrower submits an ECF.
Possibly the most notable aspect of the CFPB’s updated student loan examination procedures is that the CFPB seems to be suggesting that student loan servicers should assist PSLF-eligible borrowers in maximizing their benefits under the program. The updated examination procedures go beyond merely requiring examiners to evaluate whether servicers inform borrowers of the existence of the program and how to qualify for it; they also focus on whether servicers help borrowers determine the best available income-based repayment option, how many ECFs to submit, and how to consolidate their loans in order to avoid losing progress towards PSLF. Attempting to maximize consumer benefits under any student loan program is particularly challenging for student loan servicers when borrowers have multiple loans with different terms, including different deferral programs.
The report and revised examination procedures reflect the CFPB’s continued focus on student lending and servicing. The CFPB has not been shy about sending messages to industry participants that they need to look out for consumers’ best interests, even in circumstances in which there is no explicit legal obligation to do so. This perspective is evident not only in the updated student loan examination procedures, but also in the recent lawsuit filed by the CFPB against one of the largest student loan servicers. In that lawsuit, the CFPB is taking the position that the servicer’s alleged failure to offer borrowers enrollment in income-based repayment plans instead of forbearance on their loans constituted abusive conduct. Servicers should consider reviewing their policies, procedures, and practices to evaluate potential risks.