On December 16, the CFPB released a special edition of its Supervisory Highlights, which detailed findings from the Bureau’s recent examinations of student loan markets. The report identifies a range of violations related to student loan refinancing, private lending and servicing, debt collection, and federal loan servicing.
Notable violations identified by the Bureau include:
- Lenders mislead borrowers and failed to follow borrowers’ refinancing instructions. Refinancing federal loans with private lenders can result in borrowers losing federal protections. The Bureau found that lenders mislead consumers into believing that refinancing with them allowed the borrowers to retain access to certain protections, such as federal loan cancellation programs, when this was not the case. Lenders also failed to adjust consolidated loans following borrowers’ requests to exclude federal loans.
- Private lenders deceived borrowers or denied them benefits. Lenders engaged in unfair acts and practices by denying discharges applications for eligible borrowers based on Total and Permanent Disability status. Examiners observed that borrowers’ loan notes provided for Total and Permanent Disability discharge based on the criteria that borrowers were unable to engage in any substantial gainful activity due to a physical or mental impairment of a certain type; however, lenders denied eligibility based on other criteria not in the note. Lenders also falsely claimed certain borrowers were ineligible for autopay discounts, and falsely advertised to borrowers that they could suspend loan payments if they lost their job, but later unilaterally eliminated this benefit and failed to honor the previously-stated protections.
- Servicer Failed to Address Claims Regarding School Misconduct. Student loan borrowers can allege that their schools fraudulently induced them to enroll and to secure private student loans to finance their education. These borrowers may be able to discharge certain of these loans due to their school’s misconduct under numerous state and federal laws and protections. Examiners found that servicers misled borrowers about their right to challenge their loans and failed to consider borrower’s challenges to their loans due to school misconduct. The CFPB directed these entities to create systems to enable proper evaluation of borrowers’ school misconduct claims.
- Servicer Contracts Allowed Illegal Collection Tactics. Examiners found that servicers engaged in deceptive acts and practices by including illegal provisions in loan contracts allowing for the withholding of student transcripts or access to classes and other educational services in the event of a default. Several servicers also falsely threatened students with legal actions. This conduct was also called out in the Bureau’s Fall 2022 Supervisory Highlights.
- Federal loan service practice failures. Federal loan servicers engaged in abusive acts and practices by failing to provide adequate ways for borrowers to manage key loan issues by phone. Servicers also issued deceptive billing statements with incorrect payment amounts and due dates, and debited unauthorized amounts in violation of Regulation E. Examiners also found that servicers engaged in unfair acts and practices when they caused consumers to experience excessive delays in processing borrower’s applications for income-driven repayment plans.
Putting It Into Practice: This Supervisory Highlights underscores the CFPB’s commitment to policing improper student lending practices (we covered recent Bureau student lending enforcements here, here, and here). It will be interesting to see if the CFPB’s vigorous efforts to protect student borrowers continue under the incoming Trump administration. In the meantime, companies engaging making or servicing student loans should review these guidelines and make any adjustments necessary.
