By Andrew A. Turner, J.D.
Almost three years after the Consumer Financial Protection Bureau released its first report documenting student loan complaints from military borrowers, the problem persists as student loan servicers are still failing to provide legal protections to servicemembers, according to the Consumer Financial Protection Bureau. The CFPB report, “Overseas & Underserved: Student Loan Servicing and the Cost to Our Men and Women in Uniform,” finds that commonly reported issues involve the denial of military deferments without adequate explanation and problems with the application of the Servicemembers Civil Relief Act.
The SCRA provides for interest rate reductions on most pre-service loans, which includes student loans. However, servicemember complaints suggest that there is an ongoing problem with how student loan servicers communicate with servicemembers about the programs available to them.
In addition to communication issues, the report suggests that there remain roadblocks in the way of servicemembers seeking military deferments. A military deferment is an option afforded to some active duty servicemembers that allows for postponement of monthly student loan payments under certain circumstances.
For federal student loans, a servicer is required to provide a military deferment in certain, defined circumstances. The CFPB suggests that servicing representatives may lack sufficient training in deferment programs. Poor communication and improper loan processing by student loan servicers may lead to “surprise” delinquencies, defaults, and debt collection attempts upon the completion of military service or the return from deployment.
The CFPB has gone down this path before, with a 2012 report, “The Next Front? Student Loan Servicing and the Cost to Our Men and Women in Uniform,” which outlined obstacles faced by servicemembers, including those in combat zones. Since that time, the CFPB has handled more than 1,300 complaints from military borrowers related to the servicing or collection of student loans.
The CFPB shared problems found in the inaugural report with other federal regulators, including the Department of Justice and the Federal Deposit Insurance Corporation. In May 2014, the DOJ joined with the FDIC and entered an order providing $60 million in compensation for more than 77,000 servicemembers in an action against student loan servicers Sallie Mae and Navient (formerly one company) related to their application of benefits under the SCRA to active duty members of the military.
The difficulties faced by military personnel have been described as the “canary in the coal mine,” raising larger questions about the adequacy of servicing in the broader student loan market. The CFPB’s latest report notes that there is currently no comprehensive framework that provides uniform standards for the servicing of all student loans.
With launch of an inquiry by the CFPB into student loan servicing practices for all consumers in May 2015, it is evident that the problems facing servicemembers repaying student debt are just one part of a bigger issue that has been put under the bureau’s microscope.
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