A new CFPB report titled “The Next Front? Student Loan Servicing and the Cost to Our Men and Women in Uniform” focuses on repayment issues faced by servicemembers with private and federal student loans. One of the report’s findings is that many servicemembers could be entering into more favorable repayment plans if they had better information about their available options. For example, the report indicates many servicemembers could be realizing substantial interest savings on their federal loans through alternatives to deferment and forbearance such as income-based repayment and public service loan forgiveness.
The report also finds that servicemembers may be receiving misinformation from servicers about the requirements for receiving the 6% interest rate cap imposed by the Servicemembers Civil Relief Act and servicing errors may be preventing servicemembers from having the cap fully applied to all of their federal and private loans. In addition, the report finds that servicers may be misapplying the diverse eligibility requirements for various servicemember benefit programs.
The CFPB is moving forward on several fronts to address these shortcomings. As part of its efforts to assist servicemembers, the CFPB also announced that it has issued a “Guide for Servicemembers with Student Loans” and added an FAQ section directed at military student loan borrows to the “Ask CFPB” page of its website. Likewise, Holly Petraeus made a point of emphasizing that the CFPB will be working with the Department of Defense to make sure that all “Judge Advocate General personnel, personal finance managers, and education service officers” are able to counsel servicemembers about all of the various benefits and protections available for federal and private loans.
Finally, the report sends the clear message that student loan servicers should expect heighted scrutiny of their policies and procedures for servicemember loans when they are examined by the CFPB or other regulators. According to the report, “financial regulators and enforcement agencies must ensure their policies and oversight mechanisms hold accountable those who violate [servicemember] consumer protections.”