The Consumer Financial Protection Bureau has released a report outlining widespread servicing failures reported by both federal and private student loan borrowers.
Student loan borrowers dealing with both private and federally-assigned servicing companies describe a wide range of sloppy, patchwork practices that are hindering “repayment, raise costs, cause distress, and contribute to driving struggling borrowers to default,” according to the Consumer Financial Protection Bureau (CFPB).
The Bureau says it will explore potential industry-wide rules to increase borrower protections. The Bureau’s report released Tuesday is in coordination with the U.S. Department of Education and the U.S. Department of the Treasury.
“With one out of four student loan borrowers struggling to repay their loans or already in default, cleaning up the servicing market is critical,” said CFPB Director Richard Cordray. “Today’s report underscores the need for market-wide student loan servicing reforms to halt harmful practices and boost assistance for distressed borrowers.”
Student loans make up the nation’s second largest consumer debt market, which has grown alarmingly in the last decade. The total volume of outstanding student loans has more than doubled, rising from less than $600 billion in 2006 to more than $1.2 trillion today. One in four student loan borrowers are currently in default or struggling to stay current on their loans, despite the availability of income-driven repayment options for the vast majority of borrowers.
Servicers serve as a key link between borrowers and lenders. They manage borrowers’ accounts, process monthly payments, and communicate directly with borrowers. When facing unemployment or other financial hardship, borrowers must contact student loan servicers to enroll in alternative repayment plans, obtain deferments or forbearances, or request a modification of loan terms. The servicer is often different than the lender, and a borrower typically has no control over which company services a loan.
In May, the CFPB launched a public inquiry into student loan servicing practices that may make paying back loans a stressful or harmful process for borrowers. The CFPB also sought input on potential solutions to improve service for student loan borrowers in repayment. In response to the public inquiry, the Bureau received over 30,000 public comments, which informed the recommendations in today’s report.
The Bureau’s report can be found here.