On June 22, 2017, the CFPB’s Student Loan Ombudsman put out its 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 practices, such as payment processing, customer service and borrower communication, and income-based repayment plan enrollment, that the CFPB has frequently scrutinized in the past through supervision and enforcement activities.
However, the majority of the report focuses on complaints from consumers 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. The CFPB’s report criticizes servicers’ alleged failures to actively advise borrowers on how to qualify for PSLF, track their progress toward PSLF completion, and inform them 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 Department of Education established the PSLF program in 2007 to make it easier for recent graduates to enter into and hold public sector employment without defaulting on student loans. Under the PSLF, certain student loan balances are forgiven if a borrower meets the program’s requirements. 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 other non-profit 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 CFPB’s 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. Specifically, examiners are expected to review, among other items:
- whether servicers affirmatively inform borrowers of the availability of PSLF when borrowers indicate they are employed in the government or non-profit sectors;
- whether 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);
- whether, once a borrower has submitted an ECF, the servicer informs the borrower of the benefits of submitting additional ECFs;
- whether 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
- whether student loan servicers help borrowers qualify for PSLF and make eligible payments.
One of the CFPB’s primary criticisms 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. Likewise, the CFPB’s report highlighted consumer complaints about servicer delays and errors resulting in months of forbearance that did not qualify for PSLF. The updated examination procedures thus direct examiners to review whether a servicer’s delays or errors have caused this type of harm to borrowers and if the servicers handles PSLF requests in a timely and accurate manner. The procedures also direct examiners 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.
The Bureau seems to suggest 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, but 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, and sends a message to industry participants to look out for consumers’ best interests, even if there is no explicit legal obligation to do so. This perspective is evident not only in the updated student loan examination procedures, but in the recent lawsuit the CFPB filed against one of the largest student loan servicers. In that lawsuit, the CFPB asserts that the servicer’s alleged failure to offer borrowers 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.