CFPB Student Loan Ombudsman: Servicer Mistakes Undermine Student Loan Program

CFPB Student Loan Ombudsman: servicer errors plague student loan program

The CFPB’s Student Loan Ombudsman has released his annual report, again emphasizing complaint volume without investigating all complaints, suggesting that states should acquiesce when the Department of Education promulgates rules that exceed its statutory authority, and blaming servicers for communications issues caused in no small part by the Department of Education’s failure to provide clear directions and to set and adequately fund appropriate staffing levels for federal student loan servicing.

Student loan servicer errors have had a huge impact on borrowers and “likely” cost them millions of dollars, the CFPB’s ombudsman said. “Taken together, the harms outlined in this report suggest that millions of borrowers face an uphill battle to simply make payments on their student loans,” according to the report.

The report covers the period from July 1, 2023 through June 30, 2024. During that period, the ombudsman received a record number of complaints about loans, including 13,524 complaints related to federal student loans, 3,399 related to private student loans, and an additional 1,354 complaints related to student loan debt collection.

The complaints are not a new development, the ombudsman’s office wrote. The “complaints echo the consumer financial law violations highlighted in several publications over the past year and routine servicer failures that the CFPB and other federal agencies have documented for over a decade.”

The report categorizes the types of issues harming students, including:

• Servicer failures that cause borrowers to pay inflated amounts that jeopardize their financial well-being. “Borrowers described problems with billing, including inaccurate or late statements; errors with auto pay, including thousands of dollars incorrectly debited from accounts; and payments that were not properly applied to their balances,” according to the report. Students reported that servicers failed to give accurate guidance about income-driven repayment plans and imposed costly delays in processing refunds and applications for relief.
• Legal challenges to the SAVE program are delaying loan relief. That program allows payments to be adjusted based on a borrower’s income. The Department of Education currently is enjoined from operating the program and the Eighth Circuit Court of Appeals recently expressed frustration with the department’s efforts to proceed with implementation of the program. The ombudsman said that because of the ongoing litigation, eight million students already enrolled in the program can no longer make income-adjusted payments, enroll in most other income-driven repayment plans, or gain credit toward cancellation as long as the litigation is ongoing.
• Customer “doom loops” and inaccurate communications. “Borrowers reported being shuffled between servicers repeatedly without receiving help, waiting months for responses, and receiving inaccurate or misleading communications, such as miscalculated payment amounts and inaccurate due dates,” according to the report. “Across the consumer complaint narratives highlighted in the report, borrowers waited an average of eight months for servicers to resolve their issues.”

The ombudsman’s office wrote that while administrative efforts at reform have demonstrated that it is possible to relieve some of the debt burden that students face, they also underscore the need for legislative action to stabilize the loan program and to address the root cause of borrower harm.

“Without reforms that target both longstanding servicing failures that undermine critical efforts and systematic changes, and new approaches to higher education financing, these challenges will persist and put current borrowers, students, and future generations of Americans at risk,” the ombudsman wrote.

The report suggests several changes to the loan program, including that:

• Borrowers be held harmless for challenges that result from servicer error or program disruptions that are outside of their control.
• Servicer accountability be prioritized as a way of ensuring that reforms are not undermined by implementation failures.

Finally, the ombudsman’s office recommends that policymakers consider a broader program overhaul to reduce the outstanding amount of student debt and move away from debt financing for higher education altogether.

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