CFPB Releases Special Edition on Student Loans Service of Supervision Highlights

Last week, the CFPB released a “Special Edition on Student Loan Servicing” from Oversight Highlights. In this blog post, we highlight a stealthy expansion of oversight jurisdiction and focus on CFPB findings in two key areas:

• Transcript hold policies at institutional lenders (e.g., for-profit colleges that provide private loans directly to students); and
• Manager administration of Public Service Loan Forgiveness (PSLF), Income Contingent Reimbursement (IDR), and Teacher Loan Forgiveness (TLF).

Guardianship jurisdiction. The CFPB indicated that alongside the publication of the special edition, but after having apparently already performed reviews based on his portrayal of Dodd Frank, it had updated its student loan review procedures regarding the definition of “private student loans” for the purposes of its non-bank supervisory authority. A previous version of these procedures referenced the Regulation Z definition of “private education loans,” which differs from the Truth in Lending Act definition. The updated procedures reference the TILA definition, which means that the Office may supervise an institution that expressly grants credit for post-secondary education expenses as long as the credit is not extended, insured or guaranteed under the title IV of the Higher Education Act of 1965, and is not an indefinite consumer credit plan, nor secured by real estate or accommodation.

Transcript Hold. The CFPB has observed that some post-secondary schools withhold official transcripts from students who default on a debt to the school. The CFPB reported that a school would not issue transcripts to defaulting borrowers who had entered into new payment arrangements but had not yet paid their balances in full and that some schools were collecting payments for transcripts but did not provide the transcript if a student was behind on a debt. The CFPB has determined that the general policies of withholding transcripts for extended credit are abusive and has ordered schools to end the practice. (Earlier this year, the CFPB published a blog post in which it endorsed a call from the Secretary of the Ministry of Education to schools to end the practice of withholding transcripts to promote fairness. and diversity. In 2019, California enacted a law that prohibits post-secondary schools from withholding transcripts as a debt collection tool.)

Administration of forgiveness programs.

TLF. Reviewers found that repairers engaged in unfair acts or practices when they falsely denied TLF requests in the following circumstances: (1) when consumers had already completed five years of education, (2) when the school was an eligible school in the low-income teacher cancellation directory. , or (3) when the consumer has formatted the specified dates as MM-DD-YY instead of MM-DD-YYYY, despite meeting all other eligibility requirements. The services were tasked with reviewing all denied TLF applications since 2014 to identify wrongfully denied applications and remedy aggrieved consumers to ensure they received all benefits to which they were entitled, including any reimbursement for overpayments or accrued interest.

PSLF. Reviewers found repairers engaged in deceptive acts or practices by:

• Implicitly represent to consumers that to be eligible for the PSLF, they must continue to make payments during the COVID-19 payment suspension until the effective date of the rebate by sending standard PSLF communications or letters advising consumers consumers that the estimated eligibility date was based on achieving on-time monthly payment.
• Before ED announced the waiver of the PSLF in October 2021, explicitly or implicitly misrepresenting that borrowers were only eligible for the PSLF if they made payments under an IDR plan, when in fact these borrowers could be eligible for the temporary expanded PSLF announced in 2018.

Reviewers found repairers engaged in unfair acts or practices by:

• Falsely denying or approving PSLF applications or employer certification forms and providing incorrectly calculated total eligible payments or estimated eligibility dates to reach the required 120 payments for PSLF.
• Excessively delaying the processing of PSLF forms.

In addition to any relief that borrowers were entitled to receive through the PSLF waiver or adjustment of the number of one-time payments for IDR forgiveness announced by ED, the relief measures that the CFPB has Services directed to take include completing reviews of PSLF determinations to identify consumers impacted by PSLF violations and provide financial relief to consumers who continue to suffer financial harm from the violations.

IDR. Reviewers found repairers engaged in unfair acts or practices by:

• Improper processing of consumer IDR requests resulting in erroneous denials or inflated IDR payment amounts. The Bureau has listed various types of errors made by processing officers when processing applications.
• Not sufficiently informing consumers of the need to provide additional earnings documentation for prior gap periods when re-entering a Revised Pay As You Earn (REPAYE) plan (i.e. for the period following the withdrawal of a consumer from REPAYE).

Reviewers found repairers engaged in deceptive acts or practices by:

• Providing consumers with a misleading reason for denial after submitting an IDR recertification request when, in fact, the services had refused the requests because the consumer’s income had increased.
• Representing to consumers with parent PLUS loans that they were not eligible for IDR or PSLF when in fact these loans may be eligible for IDR or PSLF if consolidated into a consolidation loan direct. (With respect to this practice, servicers have been instructed to improve policies and procedures, improve training, and improve monitoring to prevent future violations.)

In its introduction to the special edition, the Bureau cautioned that the report’s findings impact all managers’ portfolios, including commercial loans from federal family education loan programs, and encouraged managers solve problems across their portfolios. In its conclusion, the Bureau recommended that managers, originators and loan holders review the findings and implement changes in their operations to ensure that the risks identified are carefully considered. It has informed market participants that it expects them to incorporate measures to avoid these breaches and similar consumer risks into internal monitoring and auditing practices and notes that evidence of compliance that address these risks is a factor in the Bureau’s decisions about whether to initiate follow-up investigations. The Bureau also said it expects institutions to self-identify violations and compliance risks, proactively provide comprehensive remediation to consumers, and report those actions to the Bureau.