Notice2022-22056
Supervisory Highlights, Issue 27, Fall 2022
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
October 11, 2022
Issuing agencies
Consumer Financial Protection Bureau
Abstract
The Consumer Financial Protection Bureau (CFPB or Bureau) is issuing its twenty-seventh edition of Supervisory Highlights.
Full Text
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<title>Federal Register, Volume 87 Issue 195 (Tuesday, October 11, 2022)</title>
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[Federal Register Volume 87, Number 195 (Tuesday, October 11, 2022)]
[Notices]
[Pages 61294-61304]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-22056]
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BUREAU OF CONSUMER FINANCIAL PROTECTION
Supervisory Highlights, Issue 27, Fall 2022
AGENCY: Bureau of Consumer Financial Protection.
ACTION: Supervisory highlights.
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SUMMARY: The Consumer Financial Protection Bureau (CFPB or Bureau) is
issuing its twenty-seventh edition of Supervisory Highlights.
DATES: The Bureau released this edition of the Supervisory Highlights
on its website on September 29, 2022. The findings included in this
report cover examinations of student loan servicers.
FOR FURTHER INFORMATION CONTACT: Austin Hinkle, Senior Counsel, Office
of Supervision Policy, at (202) 435-9506 or Pax Tirrell, Counsel,
Office of Supervision Policy at (202) 435-7097. If you require this
document in an alternative electronic format, please contact
<a href="/cdn-cgi/l/email-protection#7635302634293715151305051f141f1a1f020f361510061458111900"><span class="__cf_email__" data-cfemail="31727761736e7052525442425853585d58454871525741531f565e47">[email protected]</span></a>.
SUPPLEMENTARY INFORMATION:
1. Introduction
The student loan servicing market has shifted significantly over
the past two and a half years. The COVID-19 pandemic led to financial
and operational disruptions at servicers. At the same time, the Federal
loan payment suspension brought meaningful relief to borrowers.
Recently, several Federal contractors left the market, and, as a
result, nine million Federal student loan accounts transferred from one
servicer to another. Additionally, the Department of Education (ED)
introduced specific programs to broaden access to public service loan
forgiveness and forgiveness through income-driven repayment. Post-
secondary schools, such as for-profit colleges, continued to offer
institutional loans that pose particular risks to consumers. During
this period, the CFPB engaged in vigorous oversight of the consumer
protections set forth in the Dodd-Frank Wall Street Reform and Consumer
Protection Act (Consumer Financial Protection Act), in coordination
with ED and State regulators.
In light of these developments, this Supervisory Highlights Special
Edition focuses on three sets of significant supervisory findings.
First, Supervision initiated work at certain institutional lenders and
found that blanket policies to withhold transcripts in connection with
an extension of credit are abusive under the Consumer Financial
Protection Act. Second, Supervision engaged in oversight of major
Federal loan transfers and identified certain
[[Page 61295]]
consumer risks related to those transfers. Third, Supervision
identified a considerable number of violations of Federal consumer
financial law by student loan servicers in administering Public Service
Loan Forgiveness (PSLF), Income-Driven Repayment (IDR), and Teacher
Loan Forgiveness (TLF).
Supervision found that servicers regularly provide inaccurate
information and deny payment relief to which borrowers are entitled. ED
is addressing some of these risks through program changes like the PSLF
and IDR program waivers, as well as improved vendor oversight. The
extensions to the COVID-19 payment pause for federally owned loans also
has given ED some breathing room to implement these changes. However,
the findings documented in this report impact servicers' entire
portfolios, including commercially owned Federal Family Education Loan
Program (FFELP) loans, and CFPB encourages servicers to address the
issues across their portfolios.
1.1 Private Student Loans
Private student loans are extensions of credit made to students or
parents to fund undergraduate, graduate, and other forms of
postsecondary education that are not made by ED pursuant to title IV of
the Higher Education Act (title IV). Banks, non-profits, nonbanks,
credit unions, state-affiliated organizations, institutions of higher
education, and other private entities hold an estimated $128 billion in
these student loans, as reported to the national consumer reporting
companies. Private student loans include traditional in-school loans,
tuition payment plans, income share agreements, and loans used to
refinance existing Federal or private student loans.\1\
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\1\ Recently, institutions and other private actors started
offering new private student loan products branded as ``income share
agreements'' (ISAs). At least several dozen postsecondary
institutions directly offer income share agreements (ISAs), which
require consumers to pledge a given percentage of their incomes over
a specified period. The repayment process for ISAs may result in
consumers realizing very large APRs or prepayment penalties that may
be illegal under the Truth In Lending Act or State usury caps.
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The private student loan market is highly concentrated--the five
largest private education loan providers make up over half of
outstanding volume. For the most recent academic year, consumers took
out $12.2 billion in-school private education loans, which reflects a
15 percent year over year reduction from 2019-20, driven by recent
enrollment declines. Additionally, industry sources estimate
refinancing activity in calendar year 2021 at $18 billion; demand for
private refinancing appears to have declined significantly because of
the pause in Federal student loan repayment and the recent rise in
interest rates.\2\
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\2\ Navient, July 2022 investor presentation, <a href="https://navient.com/Images/SFVegas-2022-Investor-Presentation_tcm5-25984.pdf">https://navient.com/Images/SFVegas-2022-Investor-Presentation_tcm5-25984.pdf</a>, at 7.
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Postsecondary institutions sometimes provide loans directly to
their students; this practice is known as institutional lending.\3\
Aggregate data on institutional lending are limited. Underwriting
requirements and pricing of institutional loans vary widely, ranging
from low-interest rate, subsidized loans that do not require co-signers
to unsubsidized loans that accrue interest during and after the
student's enrollment and do require borrowers to meet underwriting
standards or obtain qualified co-signers. At the same time, many
institutions also extend credit for postsecondary education through
products like deferred tuition or tuition payment plans. Student loans
and tuition billing plans may be managed by the institutions themselves
or by a third-party service provider that specializes in institutional
lending and financial management. Supervisory observations suggest that
some institutional credit programs have delinquency rates greater than
50 percent.
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\3\ This category does not include Perkins loans, which were
issued by schools but largely funded by title IV Federal funds
distributed to schools.
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Additionally, students may withdraw from their classes before
completing 60 percent of the term, triggering the return of a prorated
share of title IV funds to Federal Student Aid (FSA), known as ``return
requirements.'' Institutions of higher education often charge tuition
even where students do not complete 60 percent of the term. When a
student withdraws from classes without completing 60 percent of the
term, the institution often refunds the title IV funds directly to FSA
and, in turn, bills students for some or all of the amount refunded to
FSA, since the school is maintaining its tuition charge for the
classes. Institutions handle these debts in a variety of ways, but many
offer payment plans and other forms of credit to facilitate repayment.
In aggregate, these debts, called ``Title IV returns,'' can total
millions of dollars. Supervisory observations indicate that some of
these repayment plans can include terms requiring repayment for more
than four years.
1.2 Federal Student Loans
ED dominates the student loan market, owning $1.48 trillion in debt
comprising 84.5 percent of the total market, and it guarantees an
additional $143 billion of FFELP and Perkins loans. All told, loans
authorized by title IV of the Higher Education Act account for 93
percent of outstanding student loan balances.\4\
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\4\ See <a href="https://www.newyorkfed.org/microeconomics/hhdc/background.html">https://www.newyorkfed.org/microeconomics/hhdc/background.html</a>, and <a href="https://www.newyorkfed.org/microeconomics/topics/student-debt">https://www.newyorkfed.org/microeconomics/topics/student-debt</a>.
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The Federal student loan portfolio has more than tripled in size
since 2007, reflecting rising higher education costs, increased annual
and aggregate borrowing limits, and increased use of Parent and Grad
PLUS loans. Annual Grad PLUS origination volume has more than
quadrupled in that time, expanding from $2.1 billion to an estimated
$11.6 billion during the 2020-21 academic year.\5\ Before the COVID-19
pandemic, Parent PLUS volume peaked at $12.8 billion (in current
dollars) in loans originated in the 2018-2019 academic year. Combined,
these products accounted for 26 percent of all title IV originations in
the most recent academic year.
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\5\ In comparison, annual student borrowing under the subsidized
and unsubsidized Stafford loan program rose from $49.4B in 2006-07
to a peak of $87.8B in AY2010-11 before beginning a downward trend
that tracked with falling undergraduate enrollment that was
exacerbated by the COVID pandemic. Stafford originations in AY2020-
21 totaled $62.1B, down more than 29 percent from AY2010-11.
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Federal student loans suffer high default rates. As of March 2022,
approximately $171 billion in outstanding title IV loans were in
default. This represents nearly 11 percent of outstanding balances but
19 percent of Federal student loan borrowers--a figure that would
surely be higher but for the federally owned loan payment suspension.
Federal ownership and management of more than four-fifths of
outstanding student loans enabled the government, at the outset of the
pandemic in March 2020, to directly assist more than 40 million
borrowers through the CARES Act and a series of executive orders.
Servicers are responsible for processing a range of different
payment relief applications or requests including PSLF, TLF, and IDR,
as well as payment pauses including deferment and forbearance. The
volume of these applications changes significantly over time based on
servicer account volume and external events such as the expected return
to repayment following COVID-19 related forbearance. To illustrate
these trends, Figure 1 shows the total incoming IDR applications and
processed applications from October 2021 through July 2022 at one
servicer.\6\
[[Page 61296]]
For example, in December 2021, many borrowers expected to start
repaying their loans imminently and thus submitted IDR applications. In
light of the intermittent increases in application volume, servicers
frequently did not respond timely to borrowers' applications.
Additionally, at any given time, servicers may have a meaningful number
of unprocessed applications because they wait to process the
recertifications until closer in time to the recertification due date.
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\6\ Examiners collected these data in 2021 and 2022.
[GRAPHIC] [TIFF OMITTED] TN11OC22.001
ED contracts with several companies to service Direct and ED-owned
FFELP loans. When one of these companies decides to stop servicing
loans, the accounts are transferred to another contractor. As shown in
Figure 2, the recent departures of Granite State and PHEAA/FedLoan
Servicing resulted in the transfer of millions of borrower accounts
among the remaining Federal loan servicers.\7\
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\7\ FSA provided these data and authorized publication here.
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Where a borrower's data has become lost or corrupted as a result of
poor data management by a particular servicer, subsequent transfers may
result in servicers sending inaccurate periodic statements, borrowers
losing progress toward forgiveness, and borrowers having difficulty in
rectifying past billing errors.\8\ To prepare consumers for the
transfers, the CFPB published specific information for consumers,
including advising them to remain vigilant toward potential scams at a
time when they are particularly vulnerable.\9\
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\8\ See generally Conduent Education Services, LLC (consent
order), Administrative Proceeding (File No. 2019-BCFP-0005), Bureau
of Consumer Financial Protection.
\9\ <a href="https://www.consumerfinance.gov/about-us/blog/student-loans-transferring-to-new-servicer-learn-what-this-means-for-you/">https://www.consumerfinance.gov/about-us/blog/student-loans-transferring-to-new-servicer-learn-what-this-means-for-you/</a>.
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[[Page 61297]]
[GRAPHIC] [TIFF OMITTED] TN11OC22.002
2. Institutional Lending
Earlier this year, the CFPB announced it would begin examining the
operations of institutional lenders, such as for-profit colleges, that
extend private loans directly to students.\10\ The lenders have not
historically been subject to the same servicing and origination
oversight as traditional lenders. Considering these risks, the Bureau
is examining these entities for compliance with federal consumer
financial laws.
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\10\ Consumer Financial Protection Bureau to Examine Colleges'
In-House Lending Practices, <a href="https://www.consumerfinance.gov/about-us/newsroom/consumer-financial-protection-bureau-to-examine-colleges-in-house-lending-practices/">https://www.consumerfinance.gov/about-us/newsroom/consumer-financial-protection-bureau-to-examine-colleges-in-house-lending-practices/</a>.
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2.1 Examination Process
Simultaneously with issuing this edition of Supervisory Highlights,
the Bureau has updated its Education Loan Examination Procedures. The
Consumer Financial Protection Act provides the Bureau with authority to
supervise nonbanks that offer or provide private education loans,
including institutions of higher education.\11\ To determine which
institutions are subject to this authority, the Consumer Financial
Protection Act specifies that the Bureau may examine entities that
offer or provide private education loans, as defined in section 140 of
the Truth in Lending Act (TILA), 15 U.S.C. 1650. Notably, this
definition is different than the definition used in Regulation Z.
However, a previous version of the Bureau's Education Loan Examination
Procedures referenced the Regulation Z definition. The new version has
now been updated to tell examiners that the Bureau will use TILA's
statutory definition of private education loan for the purposes of
exercising the Consumer Financial Protection Act's grant of supervisory
authority.\12\ The new exam manual thus instructs examiners that the
Bureau may exercise its supervisory authority over an institution that
extends credit expressly for postsecondary educational expenses so long
as that credit is not made, insured, or guaranteed under title IV of
the Higher Education Act of 1965, and is not an open-ended consumer
credit plan, or secured by real property or a dwelling.\13\
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\11\ 12 U.S.C. 5514 (a)(1)(D).
\12\ <a href="https://www.consumerfinance.gov/compliance/supervision-examinations/education-loan-examination-procedures/">https://www.consumerfinance.gov/compliance/supervision-examinations/education-loan-examination-procedures/</a>.
\13\ This definition does not include Regulation Z's exceptions
for tuition payment plans or very short-term credit. Thus,
institutions may offer private education loans that make them
subject to the Bureau's supervisory authority even if Regulation Z
exempts them from disclosure requirements.
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Compliance Tip: Schools should evaluate the financial services they
offer or provide and ensure they comply with all appropriate consumer
financial laws.
The Education Loan Examination Procedures guides examiners when
reviewing institutional loans by identifying a range of important
topics including the relationship between loan servicing or collections
and transcript withholding.
Where higher education institutions extend credit, the dual role of
lender and educator provides institutions with a range of available
collection tactics that leverage their unique relationship with
students. For example, some postsecondary institutions withhold
official transcripts as a collection tactic. Institutions often
withhold transcripts from their students who are delinquent on debt
owed to the institution, while also requiring new students to provide
official transcripts from schools they previously attended.
Collectively, this industry practice creates a circumstance in which a
formal official transcript is necessary for students to move from one
school to another, creating a powerful mechanism to enforce payment
demands even when consumers seek to attend a competitor school.
Consumers who cannot obtain an official transcript could be locked out
of future higher education and certain job opportunities.
2.2 Transcript Withholding Findings
Examiners found that institutions engaged in abusive acts or
practices by withholding official transcripts as a blanket policy in
conjunction with the extension of credit. These schools did not release
official transcripts to consumers that were delinquent or in default on
their debts to the school that arose from extensions of credit. For
borrowers in default, one institution refused to release official
transcripts even after consumers entered new payment agreements;
rather, the institution waited until consumers paid their entire
balances in full. In some cases, the institution collected payments
[[Page 61298]]
for transcripts but did not deliver those transcripts if the consumer
was delinquent on a debt.
An act or practice is abusive if it, among other things, takes
unreasonable advantage of the inability of a consumer to protect the
interests of the consumer in selecting or using a consumer financial
product or service. Examiners found that institutions took unreasonable
advantage of the critical importance of official transcripts and
institutions' relationship with consumers. Since many students will
need official transcripts at some point to pursue employment or future
higher education opportunities, the consequences of withheld
transcripts are often disproportionate to the underlying debt amount.
Additionally, faced with the choice between paying a specific debt and
the unknown loss associated with long-term career opportunities of a
new job or further education, consumers may be coerced into making
payments on debts that are inaccurately calculated, improperly
assessed, or otherwise problematic.
This heightened pressure to produce transcripts leaves consumers
with little-to-no bargaining power while academic achievement and
professional advancements depend on the actions of a single academic
institution. Other consumers might simply abandon their future higher
education plans when faced with a transcript hold. At the same time,
the institution does not receive any intrinsic value from withholding
transcripts. Unlike traditional collateral, transcripts cannot be
resold or auctioned to other buyers if the original debtor defaults.
Consumers do not have a reasonable opportunity to protect
themselves in these circumstances. Since most institutional debt is
incurred after consumers have already selected their schools, they may
be practically limited to a single credit source. After consumers
select their schools, those schools have a monopoly over the access to
an official transcript. At the point where consumers need a transcript,
they cannot simply select a different school to provide it. For these
reasons, Supervision determined that blanket policies to withhold
transcripts in connection with an extension of credit are abusive under
the Consumer Financial Protection Act and directed institutional
lenders to cease this practice.
3. Supervision of Federal Student Loan Transfers
In July of 2021, PHEAA and Granite State announced they were ending
their contracts with FSA for student loan servicing, triggering the
transfer of more than nine million borrower accounts.\14\ The Bureau
reviewed the transfers of one or more transferee and transferor
servicers, with a focus on assessing risks and communicating these
risks to supervised entities promptly so that they could address the
risks and prevent consumer harm. The Bureau coordinated closely with
FSA and State partners as they also conducted close oversight of the
loan transfers.
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\14\ <a href="https://www.pheaa.org/documents/press-releases/ph/070721.pdf">https://www.pheaa.org/documents/press-releases/ph/070721.pdf</a>; <a href="https://nhheaf.org/pdfs/press/2021/NHHEAF_Network_Public_Announcement_07-19-21.pdf">https://nhheaf.org/pdfs/press/2021/NHHEAF_Network_Public_Announcement_07-19-21.pdf</a>. The total volume of
transfers between entities is 14 million borrower accounts, but the
transfer from Navient to Maximus of five million accounts did not
involve borrower accounts moving to a new servicing platform.
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3.1 Supervisory Approach
The Bureau's supervisory approach included three components: pre-
transfer monitoring and engagement, real-time transaction testing
during the transfers, and post-transfer review and analysis. Throughout
this process the Bureau worked closely with ED's primary office
handling student loans, Federal Student Aid (FSA), and State
supervisors including the California Department of Financial Protection
and Innovation, Colorado Attorney General's Office, Connecticut
Department of Banking, Illinois Department of Financial and
Professional Regulation, Washington Department of Financial
Institutions, and Massachusetts Division of Banks. This coordination
significantly improved oversight.
Pre-transfer monitoring and engagement included an evaluation of
transfer-related policies and procedures in accordance with the
Education Loan Examination Procedures, coordination between the Bureau
and FSA in issue and risk identification, and direct engagement between
Supervision leadership and specific servicers.
A significant aspect of the oversight involved transaction testing
sampled accounts on both ends of the transfer. Within these samples,
examiners identified discrepancies between relevant servicers' data and
requested clarification to determine whether they represented transfer
errors or other consumer risks. Subsequently, the Bureau reviewed these
data to identify systemic risks to consumers from the transfers and
root causes of the identified discrepancies. Through this process, the
Bureau provided rapid feedback to servicers and is closely coordinating
with FSA to improve consumer outcomes and drive toward timely solutions
to any errors.
Overall, the near real-time supervision of a portfolio transfer
alongside FSA and State regulators was a novel approach. Many of the
findings detailed below were resolved, and the corrections help to
prevent the type of long-term consumer harm seen in prior transfers.
3.2 Findings
Based on the work described above, examiners issued interim
supervisory communications to certain entities documenting consumer
risks and directing them to take action to address those risks. Notable
findings include:
<bullet> Many servicers reported that the initial set of
information they received during the transfer was insufficient to
accurately service loans. In some cases, important account information
was missing or provided in an unusable format. For example, examiners
identified inaccurate information about certain consumers' monthly
payment amounts, due dates, and payment plans. The root cause of many
of these discrepancies was one servicer's failure to include current
repayment schedules--data showing future expected monthly payments
based on consumers' repayment plans--for many accounts in the transfer.
This error occurred for hundreds of thousands of accounts.
<bullet> Transferee and transferor servicers reported different
numbers of total payments that count toward IDR forgiveness for some
consumers.
<bullet> One servicer sent statements to more than 500,000
consumers that presented inaccurate information about the borrower's
next due date and, separately, the date Federal student loans were set
to return to repayment.
<bullet> One servicer placed certain accounts into transfer-related
forbearances following the transfer, instead of the more advantageous
CARES Act forbearances.
<bullet> Multiple servicers experienced significant operational
challenges in managing the transfers at the same time they were
implementing major program changes. The payment pauses and extensions,
PSLF waiver, and transfers drove increased call volume and applications
for payment relief. Some servicers were inadequately staffed, making
them unable to effectively manage this volume. As shown in Figure 3,
call wait times and average processing time for payment relief
increased significantly.
[[Page 61299]]
[GRAPHIC] [TIFF OMITTED] TN11OC22.003
<bullet> Some accounts transferred with inaccurate capitalization
or paid ahead status. These errors caused the transferee servicer to
misrepresent consumers' payment amounts or due dates.
Critically, the ongoing payment pause provides servicers and FSA
with more time to correct transfer-related errors by making manual
account adjustments, transferring supplemental account information, and
correcting previous inaccurate or misleading statements.
Compliance Tip: Prior to a transfer, institutions should engage in
robust data mapping exercises that include test transfers to minimize
errors.
Supervision issued Matters Requiring Attention (MRAs) across
student loan servicers in a series of interim supervisory
communications directing them to act before the transfers concluded to
correct many of the issues discussed above.\15\ Servicers are currently
working to resolve these issues. Supervision issued MRAs directing
servicers to:
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\15\ Supervision issues MRAs to supervised entities that direct
the entities to take certain steps to address violations or
compliance weaknesses and provide written updates on their progress
to the Bureau.
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<bullet> Update their systems with accurate repayment schedules and
other missing information;
<bullet> Correct misrepresentations on their websites and provide
disclaimers where they did not have complete and accurate account
details;
<bullet> Correct the type of forbearance applied to transferred
accounts, ensuring that CARES Act forbearances are applied rather than
less-advantageous transfer-related forbearances for the relevant
period;
<bullet> Correct credit reporting errors;
<bullet> Improve their own internal due diligence through
additional audits focused on critical date elements;
<bullet> Improve transfer-related training for call center
representatives; and
<bullet> Develop and implement staffing plans to address
operational challenges.
In addition, supervisory personnel coordinated closely with Federal
Student Aid to ensure that both agencies benefit from the Bureau's
work. The Bureau worked to verify compliance with these MRAs while FSA
directed complementary corrective action and tracked progress towards
the resolution of systematic errors such as the failure of one servicer
to provide repayment schedules in its initial data transfer. In some
cases, FSA's programmatic and contractual tools were brought to bear on
complex issues that did not originate with the transfers. For example,
the discrepancies revealed in IDR payment counting were not caused by
the transfer itself. Rather, oversight of the transfer process revealed
a range of operational differences and data weaknesses that predated
the transfer. The recently announced IDR waiver may address many of
these issues by standardizing the way periods of eligibility are
counted and expanding the repayment, forbearance, and deferment periods
considered as eligible payments toward IDR forgiveness. In this way,
FSA aims to ensure that all consumers receive the full benefits to
which they are entitled, regardless of the servicer or transfer status.
It will also provide remediation to address certain prior
misrepresentations through broadened eligibility.
4. Recent Exam Findings
The Bureau has supervised student loan servicers, including
servicers responsible for handling Direct and other ED-owned loans,
since it finalized the student loan servicing larger participant rule
in 2014.\16\ In many instances, examiners have identified servicers
that have failed to provide access to payment relief programs to which
students are entitled. Examiners identified these issues in both the
Direct Loan and Commercial FFELP portfolios; in most cases the conduct
constitutes the same unfair, deceptive, or abusive act or practice
regardless of what entity holds the loan. The Bureau shared these
findings with FSA at the time of the examinations, and in many cases
FSA's subsequent programmatic changes including the PSLF and IDR
waivers provide meaningful remediation to injured consumers.
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\16\ For a period of time beginning in 2017, servicers did not
provide information to the CFPB at ED's direction. Recently,
coordination with ED/FSA increased significantly, including entering
into appropriate confidentiality agreements. The findings documented
below come from the first three exams completed after the Bureau
resumed unrestricted oversight of federally owned student loans in
2020.
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4.1 Teacher Loan Forgiveness
Certain Federal student loan consumers are eligible for TLF after
teaching full-time for five consecutive academic years in an elementary
school, secondary school, or educational service agency that serves
low-income families. Consumers apply by submitting their
[[Page 61300]]
TLF applications to their servicers. These applications can be time
consuming as they require consumers to solicit their schools' chief
administrative officers to complete and sign a portion of the
application. Servicers are responsible for processing these
applications and sending applications that meet the eligibility
criteria to FSA or the loan guarantor for final approval. In that
process, servicers are responsible for, among other things, ensuring
applications are complete, determining whether the consumer worked for
the required period, and verifying that borrowers' employers are
qualifying schools by cross matching the name of the employer provided
against the Teacher Cancellation Low Income (TCLI) Directory.
4.1.1 Unfair and Abusive Practices in Connection With Teacher Loan
Forgiveness Application Denials
Examiners found that servicers engaged in unfair acts or practices
when they wrongfully denied TLF applications in three circumstances:
(1) where consumers had already completed five years of teaching, (2)
where the school was a qualifying school on the TCLI list, or (3) when
the consumer formatted specific dates as MM-DD-YY instead of MM-DD-
YYYY, despite meeting all other eligibility requirements.\17\
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\17\ If a supervisory matter is referred to the Office of
Enforcement, Enforcement may cite additional violations based on
these facts or uncover additional information that could impact the
conclusion as to what violations may exist.
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These wrongful denials resulted in substantial injury to consumers
because they either lost their loan forgiveness or had their loan
forgiveness delayed. Consumers who are wrongfully denied may understand
that they are not eligible for TLF and refrain from resubmitting their
TLF applications. Consumers could not reasonably avoid the injury
because the servicer controlled the application process. Finally, the
injury was not outweighed by countervailing benefits to consumers or
competition.
An act or practice is abusive when a covered person takes
unreasonable advantage of reasonable reliance by the consumer on a
covered person to act in the interests of the consumer. A servicer also
engaged in an abusive act or practice by denying TLF applications where
consumers used a MM-DD-YY format for their employment dates,
particularly where FSA had previously identified one such denial,
directed the servicer to reconsider the application, and suggested the
servicer refrain from date format denials going forward. The denial of
forgiveness was detrimental to consumers, as described above. And the
servicer may benefit from the conduct because servicers are paid
monthly and denying forgiveness may prolong the life of the loan,
generating additional revenue for the servicer.
Consumers reasonably rely on servicers to act in their interests,
and this servicer encouraged consumers to consult with their
representatives to assist in managing their accounts, including on its
websites where it provided information about TLF. Further, it was
reasonable for consumers who are applying for TLF to rely on their
servicer to act in the consumers' best interests because processing
forgiveness applications is a core function for student loan servicers,
and they are entirely in control of their evaluation policies and
procedures.
In response to these violations, examiners directed the servicer to
review all TLF applications denied since 2014 to identify improperly
denied applications and remediate harmed consumers to ensure they
receive the full benefit to which they were entitled, including any
refunds for excess payments or accrued interest.
Compliance Tip: Servicers should routinely approve applications for
payment relief when they have all the required information to make
decisions, even if that information is provided in a nonstandard format
or across multiple communications.
4.2 Public Service Loan Forgiveness
The PSLF program allows borrowers with eligible Direct Loans who
(i) work for qualifying employers in government or public service
fields, (ii) make 120 on-time monthly qualifying payments, (iii) while
in a qualified repayment plan, to have the remainder of their loans
forgiven. Congress recognized in 2007 that the ``staggering debt
burdens'' of higher education were driving students away from public
service.\18\
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\18\ E.g., 153 Cong. Rec. S9595 (daily ed. July 19, 2007)
(statement of Senator Leahy) (``Because tuition has increased well
beyond the rate of student assistance, students today are graduating
with staggering debt burdens. With the weight of this debt on their
backs, recent college graduates understandably gravitate toward
higher paying jobs that allow them to pay back their loans.
Unfortunately, all too often these jobs are not in the arena of
public service or areas that serve the vital public interests of our
communities and of our country. We need to be doing more to support
graduates who want to enter public service, be it as a childcare
provider, a doctor or nurse in the public health field, or a police
officer or other type of first responder.'').
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By 2018, Congress came to understand that many consumers working in
public service would never receive PSLF benefits due the complexities
of higher education finance and eligibility requirements. At that time,
the PSLF program had discharged loans for only 338 consumers despite
receiving 65,500 applications.\19\ At a minimum, many applicants had a
fundamental misunderstanding about the program terms. In response,
Congress authorized additional funding to extend the PSLF benefits to
Direct Loan borrowers who would be eligible but for repaying under a
non-qualifying repayment plan like the Extended or Graduated repayment
plans. The Temporary Expanded PSLF (TEPSLF) allowed these consumers
that meet certain additional requirements in their last year of
repayment to have the balance of their loans forgiven.
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\19\ FSA Public Service Loan Forgiveness Data, <a href="https://studentaid.gov/data-center/student/loan-forgiveness/pslf-data">https://studentaid.gov/data-center/student/loan-forgiveness/pslf-data</a>.
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Over the following three years, PSLF and TEPSLF canceled debts for
10,354 and 3,480 consumers, respectively.\20\ However, these successful
applications continued to be the exception, as more than half a million
applications were rejected, including 409,000 from borrowers who had
not been in repayment on a Direct Loan for 120 months. These data are
explained in part by material misrepresentations by FFELP servicers
about critical PSLF terms and application processes.\21\
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\20\ See FSA November 2021 Public Service Loan Forgiveness Data,
<a href="https://studentaid.gov/data-center/student/loan-forgiveness/pslf-data">https://studentaid.gov/data-center/student/loan-forgiveness/pslf-data</a>.
\21\ Supervisory Highlights, Issue 24, Summer 2021. Consent
Order, EdFinancial Services, LLC, 2022-CFPB-0001 (Consumer Financial
Protection Bureau March 30, 2022).
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In an effort to make the PSLF program ``live up to its promise,''
ED announced a PSLF waiver in October 2021.\22\ The waiver
significantly changed what periods of repayment were considered
eligible and opened a pathway for FFELP borrowers to receive credit
toward forgiveness for the first time, if those borrowers consolidate
into Direct Loans by October 31, 2022, providing the potential for
cancelation for nearly 165,000 borrowers with a total balance of $10.0
billion. In an effort to help identify and address servicing errors, ED
announced that it would also review denied PSLF applications for errors
and give borrowers the ability to have their PSLF determinations
reconsidered.
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\22\ Press release, U.S. Department of Education Announces
Transformational Changes to the Public Service Loan Forgiveness
Program, Will Put Over 550,000 Public Service Workers Closer to Loan
Forgiveness (October 6, 2021), <a href="https://www.ed.gov/news/press-releases/us-department-education-announces-transformational-changes-public-service-loan-forgiveness-program-will-put-over-550000-public-service-workers-closer-loan-forgiveness">https://www.ed.gov/news/press-releases/us-department-education-announces-transformational-changes-public-service-loan-forgiveness-program-will-put-over-550000-public-service-workers-closer-loan-forgiveness</a>.
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[[Page 61301]]
Starting in March 2020, the CARES Act provided additional relief
for consumers. During the CARES Act payment suspension and subsequent
extensions, consumers are not required to make any payments and can
request a refund for any payments they did make. These protections were
included in subsequent extensions of the repayment pause. Importantly,
regardless of whether a consumers paid anything, all months during this
time will count toward PSLF and other forgiveness programs.
During the periods covered by this report, borrowers submitted two
kinds of PSLF forms: Employer Certification Forms (ECFs) and PSLF
applications. ECFs certify that borrowers worked for qualifying
employers for a specified period, while PSLF applications document
their current qualifying employment and request forgiveness of the
loans when they have reached 120 qualifying payments. A combined PSLF
form was made available in November 2020 for both PSLF applications and
ECFs.\23\
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\23\ See <a href="https://fsapartners.ed.gov/knowledge-center/library/electronic-announcements/2020-10-28/changes-public-service-loan-forgiveness-pslf-program-and-new-single-pslf-form.https://www.pheaa.org/documents/press-releases/ph/070721.pdf">https://fsapartners.ed.gov/knowledge-center/library/electronic-announcements/2020-10-28/changes-public-service-loan-forgiveness-pslf-program-and-new-single-pslf-form.https://www.pheaa.org/documents/press-releases/ph/070721.pdf</a>.
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4.2.1 Unfair Practice of Providing Erroneous Initial PSLF Eligibility
Determinations, Qualified Payment Counts, and Estimated Eligibility
Dates
Results of ECFs and PSLF applications are communicated to consumers
through letters telling consumers whether the form was approved or
denied and including counts of consumers' total qualifying payments
(QPs) and estimated eligibility dates (EEDs) for reaching the 120
payments required for forgiveness. Examiners identified both wrongful
denials and approvals of applications or ECFs. In many cases, the
servicer corrected these errors months later, after the consumer
complained or the servicer identified the issue. In the sample
reviewed, examiners found that the servicer wrongfully approved ECFs
where the borrowers had ineligible employment or had loans that were
otherwise ineligible. This representation could lead consumers to
falsely believe they are accruing credit toward forgiveness and delay
taking steps like loan consolidation that could actually make them
eligible. Other ECFs were wrongfully denied when representatives
erroneously determined the forms had invalid employment dates, were
missing an employer EIN, or were otherwise incomplete--when in fact
they were not.
Examiners also found that a servicer engaged in an unfair act or
practice by miscalculating consumers' total QPs or EEDs and then
communicating that erroneous information to consumers pursuing PSLF.
Examiners' sample suggests these errors were common with many consumers
receiving multiple incorrect QP or EED determinations across multiple
ECF submissions.
Wrongful approvals and denials and incorrect PSLF eligibility
information resulted in a substantial injury because the availability
of PSLF can substantially impact borrowers' careers, financial
situation, and life choices. Depending on the circumstances, consumers
may have committed to additional work with their employers for these
months, instead of pursuing other opportunities; made other major
financial decisions, such as financing the purchase of a residence or
automobile; or delayed consolidation of their FFELP loans. The injury
is not reasonably avoidable because borrowers have no choice among
student loan servicers, no way to ensure the servicer properly
processed these forms and were often not aware of the processing
errors. Finally, the injury was not outweighed by countervailing
benefits to consumers or competition because there is no direct benefit
to consumers or competition created by improper approvals or denials.
4.2.2 Deceptive Practice of Misleading Borrowers About Student Loan
Covid-19 Payment Suspension Refunds and PSLF Forgiveness
Despite the PSLF-related benefits of the CARES Act payment
suspension, some consumers seeking PSLF continued to make payments on
their student loans during the suspension. Examiners found that at
least one servicer engaged in a deceptive act or practice by implicitly
representing to these consumers that they must make payments during the
COVID-19 payment suspension for those months to be eligible for PSLF.
During the suspension, consumers received standard PSLF communications
including denials that informed them that qualifying payments are ones
made under specific repayment programs--known as REPAYE, PAYE, IBR, and
ICR. Other letters informed consumers that the estimated eligibility
date is based on making ``on-time, qualifying payments every month''
when in fact no monthly payments were required for the period of the
payment suspension. Taken together, these communications created the
implicit representation that consumers' payments made between March
2020 and the effective date of forgiveness were necessary for PSLF when
in fact they were not.
Hundreds of consumers faced this situation, and in the first year
of the payment suspension approximately eight percent of all consumers
that earned PSLF forgiveness had made payments during the payment
suspension but did not receive a refund of those payments upon
achieving forgiveness. Consumers rely on servicers to provide accurate
information about forgiveness programs, so they reasonably believed
that those payments were necessary. These representations were material
because if consumers knew these payments were refundable, they likely
would have requested a refund as those payments were unnecessary for
achieving PSLF.
4.2.3 Unfair Practice of Excessive Delays in Processing PSLF Forms
Examiners found that at least one servicer engaged in an unfair act
or practice when it excessively delayed processing PSLF forms. In some
cases, these delays lasted nearly a year. These delays could change
borrowers' decisions about consolidation, repayment plan enrollment, or
even employment opportunities. For example, when FFELP loan borrowers
apply for PSLF, they are denied because those loans are ineligible, but
they are told that a consolidation could make the loan eligible.
Therefore, a delay in processing the PSLF form could cause consumers to
delay consolidation and delay their ultimate forgiveness date.\24\ In
addition, examiners observed that some borrowers spent unnecessary time
contacting their servicers to expedite the process or receive status
updates when these forms were delayed. Consumers plan around their debt
obligations, and excessive delays can alter consumers' major financial
decisions and cause substantial injury that is not reasonably avoidable
and not outweighed by countervailing benefits to consumers or
competition.
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\24\ The PSLF waiver will provide meaningful remediation to this
population by automatically counting periods of FFELP repayment as
eligible if the borrower consolidates their loan by the deadline and
submits the PSLF form for the relevant time period.
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Compliance Tip: Servicers should regularly monitor both the average
time for application review and outlier experiences. Delays in
processing forms can be unfair even where they affect a subset of the
portfolio.
[[Page 61302]]
4.2.4 Deceptive Practice of Misrepresenting PSLF Eligibility to
Borrowers Who May Qualify for TEPSLF
Before ED announced the PSLF waiver, examiners found that certain
servicers engaged in deceptive acts or practices when they explicitly
or implicitly misrepresented that borrowers were only eligible for PSLF
if they made payments under an IDR plan, when in fact those borrowers
may be eligible for TEPSLF. One servicer's training materials
specifically advised representatives not to initiate a conversation
regarding TEPSLF. Examiners identified calls where representatives told
borrowers that there was nothing they could do to make years of
payments under graduated or extended payment plans eligible for PSLF.
In response to a direct question from a consumer about her nearly 12
years of payments, one representative explained that they ``count for
paying down your loan, but it doesn't count for PSLF.''
This false information that borrowers could only obtain PSLF
through qualifying payments under an IDR plan, when TEPSLF was
available, was likely to mislead borrowers. Based on this false
information, consumers considered other options besides PSLF like
paying their loans down with lump sum payments. These
misrepresentations also caused certain consumers to refrain from
applying for IDR because they understood that they had not made any
eligible payments while enrolled in graduated or extended plans.
4.2.5 Remediation for PSLF-Related UDAAPs
Broadly, the PSLF violations identified relate to erroneous ECF and
PSLF application determinations or servicers deceiving borrowers by
providing incomplete or inaccurate information to consumers about the
program terms. At present, the PSLF waiver can address many of the most
significant consumer injuries by crediting certain past periods that
were previously ineligible, assuming that consumers receive the
benefits of the waiver as designed. In addition, Supervision directed
the servicer to complete reviews of PSLF determinations and to identify
consumers impacted by the violations. The servicer will audit the work
and report on the remediation-related findings to the Bureau. Where
consumers continue to face financial injuries from these violations,
the servicer will provide monetary remediation. In addition, the
servicer will notify consumers who were not otherwise updated on the
status of their PSLF applications that certain information they
received was incorrect, and it will provide those consumers with
updated information.
Compliance Tip: Entities should review Bulletin 2022-03, Servicer
Responsibilities in Public Service Loan Forgiveness Communications,
which details compliance expectations in light of the PSLF waiver. As
explained in the Bulletin, ``After the PSLF Waiver closes, direct
payments to borrowers may be the primary means of remediating relevant
UDAAPs.''
4.3 Income-Driven Repayment
Federal student loan borrowers are eligible for a number of
repayment plans that base monthly payments on their income and family
size. Over the years, the number of IDR programs has expanded, and
today several types of IDR plans are available depending on loan type
and student loan history. Most recently, ED implemented the Revised Pay
As You Earn (REPAYE) for certain Direct student loan borrowers. For
most eligible borrowers, REPAYE results in the lowest monthly payment
of any available IDR plan.\25\ By the end of 2020, more than 12 percent
of all Direct Loan borrowers in repayment were enrolled in REPAYE.\26\
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\25\ Under the program's terms, consumers are generally entitled
to make monthly payments equal to 10 percent of their discretionary
income. After repaying for 20 years (on undergraduate loans) or 25
years (for borrowers who received any Federal loans to finance
graduate school), any remaining balance on the loans are forgiven.
\26\ An additional 5 percent of consumers were enrolled in the
Alternative repayment plan--the plan in which borrowers are placed
in if they do not recertify their income or enroll in another
repayment plan. <a href="https://studentaid.gov/data-center/student/portfolio">https://studentaid.gov/data-center/student/portfolio</a>.
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Enrollment in these plans requires consumers to initially apply and
then recertify annually to ensure payments continue to reflect
consumers' current income and family size. Consumers supply their
adjusted gross income (AGI) by providing their tax returns or
alternative documentation of income (ADOI). ADOI requires consumers to
submit paper forms and specified documentation (such as paystubs) for
each source of taxable income. The servicer then uses this information
to calculate the consumer's AGI and resulting IDR payment. When
computing the IDR payment, servicers must also consider consumers'
spouses' Federal student loan debt.\27\
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\27\ See <a href="https://www.studentaid.gov/sa/repay-loans/understand/plans/income-driven#apply">https://www.studentaid.gov/sa/repay-loans/understand/plans/income-driven#apply</a> (``If you do not meet the conditions for
documenting your income using AGI--you have not filed a Federal
income tax return in the past two years, or the income on your most
recent Federal income tax return is significantly different from
your current income--you must provide alternative documentation of
income.'').
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Consumers might not timely recertify their IDR plans for various
reasons including, but not limited to, they may not have understood
that recertification was necessary, or they may have encountered
barriers in the recertification process. Likewise, some borrowers may
have experienced a boost in income making the standard repayment
amounts manageable. Regardless, many consumers who fall out of an IDR
plan seek to reenroll at some point in the future. This creates a gap
period between IDR enrollments. Unlike other IDR plans, REPAYE requires
consumers to submit documentation to demonstrate their income during
the gap period before they can be approved to return. Servicers use
this documentation to determine whether consumers paid less during the
gap period than they would have under REPAYE. If so, servicers
calculate catch-up payment amounts that get added to consumers' monthly
income-derived payments.
During the COVID-19 payment suspension, ED did not require
consumers to recertify their incomes. Consumers' payment amounts and
duration of IDR enrollments were essentially paused in March of 2020.
Recently, ED authorized servicers to accept consumers' oral
representation of their incomes over the phone for the purposes of
calculating an IDR payment amount. ED will not require consumers that
provide their incomes this way to provide any further documentation
demonstrating the accuracy of that amount.
In April 2022, ED announced it was taking steps to bring more
borrowers closer to IDR forgiveness.\28\ ED is conducting a one-time
payment count adjustment to count certain periods in non-IDR repayment
plans and long-term forbearance.\29\ This waiver can help address past
calculation inaccuracies, forbearance steering, and misrepresentations
about the program terms. While the revision will be applied
automatically for all Direct Loans and ED-held FFELP loans, Commercial
FFELP loan borrowers can
[[Page 61303]]
only become eligible if they apply to consolidate their Commercial
FFELP loans into a Direct Consolidation Loan within the waiver
timeframe. FSA estimates the changes will result in immediate debt
cancellation for more than 40,000 borrowers, and more than 3.6 million
borrowers will receive at least three years of credit toward IDR
forgiveness.\30\ The pool of borrowers who may potentially benefit from
IDR forgiveness is large. As of March 2022, one third of Direct Loan
borrowers in repayment were enrolled in an IDR plan.\31\
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\28\ <a href="https://www.ed.gov/news/press-releases/department-education-announces-actions-fix-longstanding-failures-student-loan-programs">https://www.ed.gov/news/press-releases/department-education-announces-actions-fix-longstanding-failures-student-loan-programs</a>.
\29\ ED also announced that it was issuing new guidance to
student loan servicers to ensure accurate and uniform payment
counting, that it would track payments on a modernized data system,
and that it would seek to display IDR payment counts on
<a href="http://StudentAid.gov">StudentAid.gov</a> that borrowers could access on their own. See <a href="https://studentaid.gov/announcements-events/idr-account-adjustment">https://studentaid.gov/announcements-events/idr-account-adjustment</a>.
\30\ <a href="https://www.ed.gov/news/press-releases/department-education-announces-actions-fix-longstanding-failures-student-loan-programs">https://www.ed.gov/news/press-releases/department-education-announces-actions-fix-longstanding-failures-student-loan-programs</a>.
\31\ <a href="https://studentaid.gov/sites/default/files/fsawg/datacenter/library/DLPortfoliobyRepaymentPlan.xls">https://studentaid.gov/sites/default/files/fsawg/datacenter/library/DLPortfoliobyRepaymentPlan.xls</a>.
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4.3.1 Unfair Act or Practice of Improper Processing of Income-Driven
Repayment Requests
Examiners found that servicers engaged in unfair acts or practices
when they improperly processed consumers' IDR requests resulting in
erroneous denials or inflated IDR payment amounts. Servicers made a
variety of errors in the processing of applications: (1) erroneously
concluding that the ADOI documentation was not sufficient,\32\
resulting in denials; (2) improperly considering spousal income that
should have been excluded, resulting in denials; (3) improperly
calculating AGI by including bonuses as part of consumers' biweekly
income, resulting in higher IDR payments; (4) failing to consider
consumers' spouses' student loan debt, resulting in higher IDR
payments; and (5) failing to process an application because it would
not result in a reduction in IDR payments, when in fact it would. These
practices caused or likely caused substantial injury in the form of
financial loss through higher student loan payments and the time and
resources consumers spent addressing servicer errors. Consumers could
not reasonably avoid the injury because they cannot ensure that their
servicers are properly administering the IDR program and would
reasonably expect the servicer to properly handle routine IDR
recertification requests. The injury was not outweighed by
countervailing benefits to consumers or competition resulting from the
practice, as servicers should be able to process IDR requests in
accordance with ED guidelines.
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\32\ For example, denying an IDR application because there is no
pay frequency listed on a paystub when in fact the paystub showed
the frequency, or the borrower wrote the frequency on the paystub.
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4.3.2 Unfair Practice of Failing to Sufficiently Inform Consumers About
the Need To Provide Certain Income Documentation When Reentering the
REPAYE Payment Plan
Consumers enroll in REPAYE by submitting a form with income
documentation; they must recertify annually. Consumers who fail to
recertify on time are removed from REPAYE and placed into the
``Alternative repayment plan'' which has monthly payments that are
generally significantly higher than those under the REPAYE plan.\33\
Many consumers attempt to reenroll in REPAYE creating a gap period that
can range from one month to multiple years. Consumers who apply to
reenroll in REPAYE must provide income documentation for the gap
period. At one servicer, during a two-year period only 12 percent of
applicants attempting to reenter REPAYE for the first time provided the
required gap period income documentation. Among the 88 percent that
were initially denied for this reason, 74 percent were delinquent six
months later compared to only 23 percent of consumers who had been
successfully reenrolled in REPAYE.
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\33\ Specifically, the monthly payment under this plan is the
fixed amount necessary to repay the loan in the lesser of 10 years
or whatever is left on the consumer's 20- or 25-year REPAYE
repayment period.
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Examiners found that servicers engaged in an unfair act or practice
when they failed to sufficiently inform consumers about the need to
provide additional income documentation for prior gap periods when
reentering the REPAYE repayment plan. By failing to sufficiently inform
consumers about the need for income documentation for gap periods,
servicers likely caused the failure of many consumers to successfully
reenter REPAYE with their first applications because consumers were
unaware of this requirement. This caused or was likely to cause
substantial injury because consumers are deprived of the benefits of
the REPAYE program (which often offers the lowest repayment amount
among IDR plans). Consumers could not reasonably avoid the injury
because their servicers did not inform them of the requirement to
include income documentation during the gap period.
Compliance Tip: Compliance officers should monitor consumer outcome
data to identify potential unfair, deceptive, or abusive acts or
practices. Delinquency rates and frequent denials on applications for
payment relief may suggest the company is not meeting its obligations
under the Consumer Financial Protection Act.
4.3.3 Deceptive Practice of Providing Inaccurate Denial Letters to
Consumers Who Applied for IDR Recertification
Starting in March of 2020, the CARES Act and subsequent executive
orders suspended payments on all ED-owned student loans and temporarily
set interest rates to zero percent. These executive orders also
extended the ``anniversary date'' for consumers to recertify income for
their IDR plans to after the end of the payment suspension.
Examiners found that servicers engaged in a deceptive act or
practice by providing consumers with a misleading denial reason after
they submitted an IDR recertification application. Servicers told
consumers that they were denied because the executive orders suspending
payments had delayed their anniversary date, which made their
applications premature. In fact, servicers denied the applications
because the consumers' income had increased, in some cases rendering
the consumer no longer eligible for an income-driven payment amount
under their IDR program because their income-based payment exceeded the
standard repayment amount.\34\ These denial letters were likely to
mislead consumers and affect important decisions related to their
repayment elections. For example, a consumer who knew their application
was rejected because of an increase in income (instead of the extension
of the anniversary date) would know to refile if their income had
actually decreased. And even if consumers did not have a decrease in
income, having information indicating that their IDR application was
denied because of a payment increase would assist them in financial
planning for future payments.
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\34\ In other instances, the payment increased but the consumer
was still eligible for the income-based payment plan. Servicers'
policy was to deny applications before the anniversary date that
resulted in increased payments.
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4.3.4 Deceptive Practice of Misrepresenting Eligibility of Parent PLUS
Loans for Income-Driven Repayment and PSLF
Parent PLUS loans allow parents to fund educational costs for
dependent students. Parent PLUS loans are eligible for one IDR plan,
ICR, if the loans are first consolidated into Direct Consolidation
loans. Generally, to benefit from PSLF, borrowers with Parent PLUS
Loans must consolidate their loans into Direct Consolidation loans and
make qualifying payments under an ICR plan.
[[Page 61304]]
Examiners found that servicers engaged in deceptive acts or
practices when they represented to consumers with parent PLUS loans
that they were not eligible for IDR or PSLF. In fact, parent PLUS loans
may be eligible for IDR and PSLF if they are consolidated into a Direct
Consolidation Loan. These representations were likely to cause
reasonable borrowers considering IDR or PSLF for Parent PLUS loans to
forgo taking any future steps to pursue those programs. Examiners
directed servicers to improve policies and procedures, enhance
training, and improve monitoring to prevent future violations.
5. Conclusion
The Bureau will continue to supervise student loan servicers and
lenders within its supervisory jurisdiction--regardless of the
institution type. Supervisory Highlights can aid these entities in
their efforts to comply with Federal consumer financial law and manage
compliance risks. This report shares information regarding general
supervisory findings, observations related to the recent transfer of
millions of federally owned student loan accounts, and violations of
the Consumer Financial Protection Act's prohibition on unfair,
deceptive, and abusive acts or practices.
The Bureau recommends that market participants--student loan
servicers, originators, and loan holders--review these findings and
implement changes within their own operations to ensure that these
risks are thoroughly addressed. The Bureau expects institutions to
incorporate measures to avoid these violations and similar consumer
risks into internal monitoring and audit practices. Robust compliance
programs seek to eliminate the problematic practices described in
Supervisory Highlights while ensuring that consumers receive complete
remediation for any past errors. Evidence of strong compliance programs
that take these steps is a factor in the Bureau's risk-based
supervision program and tool choice decisions, including decisions on
whether or not to open follow-up enforcement investigations. The Bureau
expects institutions to self-identify violations and compliance risks,
proactively provide complete remediation to all affected consumers, and
report those actions to Supervision. Regardless, where the Bureau
identifies violations of Federal consumer financial law, it intends to
continue to exercise all of its authorities to ensure that servicers
and loan holders make consumers whole.
Rohit Chopra,
Director, Consumer Financial Protection Bureau.
[FR Doc. 2022-22056 Filed 10-7-22; 8:45 am]
BILLING CODE 4810-AM-P
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</html>Indexed from Federal Register on October 11, 2022.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.