CFPB calls on student loan servicers to fix costly ‘breakdowns’

By Katalina M. Bianco, J.D.

Consumers have continued to complain of servicing problems that make it difficult to get lower student loan payments tied to their income, according to a report by the Consumer Financial Protection Bureau’s Student Loan Ombudsman Seth Frotman. The Ombudsman said that student loan borrowers wishing to make use of income-driven repayment (IDR) plans with their federal student loans have experienced servicing “breakdowns” when trying to navigate the system. The report addresses those difficulties, the impact they have on student loan costs, and what servicers can do to improve the process.

Report specifics. The report analyzes complaints submitted to the CFPB between Oct. 1, 2015, and May 31, 2016. The bureau handled approximately 3,500 private student loan complaints and 1,500 debt collection complaints related to private and federal student loans during that time.

Among the issues that consumers have reported:

• Consumer applications “sit under review” for a lengthy period of time, leaving borrowers “to linger in an application abyss.”
• Applications are rejected because of missing information or because the servicer lost paperwork, but applicants are not notified by servicers and given a chance to remedy the problem.
• Borrowers who successfully enroll in an IDR plan may re-encounter the same obstacles each year because they are required to certify their income and family size annually in order to keep an income-driven payment. Servicing requirements can lead to increased costs for borrowers.
• Processing delays may cost more than $2 per day and can last weeks or months. For borrowers with high loan balances or higher interest rates, the bureau estimates these costs to be substantially greater. 

Fix It Form. The CFPB has developed a prototype “Fix It Form” intended to help servicers improve the level of service they provide. The form can be used by servicers to address application problems and help borrowers understand whether their IDR application has been approved, denied, or needs to be corrected. When a borrower needs to make a correction or provide more information, servicers can use the Fix It Form to help consumers understand how to "fix it" and stay on track. Specifically, the form is intended to:

• create more responsive and consistent servicing;
• improve transparency around criteria by documenting problems with an application and communicating with borrowers about fixing those problems; and
• make the process easier for consumers in order to bolster applications and increase the number of borrowers who are able to their right to a federal IDR plan.

Blog post. The CFPB posted information to consumers on its blog detailing how borrowers with federal student loans can make their payments more affordable by changing their repayment plans. Almost all federal student loan borrowers have the right to a repayment plan that can set their monthly student loan payment based on their income. IDR plans can make borrowers’ monthly payment as little as 10 percent of their income. In its post, the bureau advises consumers on how to use the Fix It Form and provides tips for navigating the IDR process.

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