On May 14th, the same day that the CFPB launched a public inquiry into student loan servicing loan practices (the “Request for Information”), the CFPB held a public field hearing in Milwaukee, Wisconsin to address issues with the student loan servicing industry. After a brief introduction by Zixta Martinez, Assistant Director of Community Affairs for the CFPB, Under Secretary of the U.S. Department of Education, Ted Mitchell gave opening remarks, during which he emphasized the Department of Education’s goal of having a zero default rate among student loan borrowers. In an effort to achieve this goal, Under Secretary Mitchell noted that the Department of Education has worked (and will continue to work) closely with the student loan servicers to improve the quality and effectiveness of the servicing programs that are being offered, including establishing definitive performance standards.
Director Richard Cordray spoke next, and his remarks were published online before the field hearing and are available here. His remarks outlined the CFPB’s concerns with student loan borrowers’ experiences with servicers, which was based on the responses the CFPB received in connection with a public notice and hearing that took place two-years ago addressing the alleged “student debt domino effect.” Director Cordray then described the Request for Information that was issued by the CFPB related to student loan servicing practices and outlined a number of areas the CFPB may need to address depending on the responses received to the Request for Information:
- Whether the student loan servicing industry is doing things that make repayment more complicated and more costly for consumers. For instance, whether payments are applied in ways that maximize fees or lengthen the amount of time for repayment.
- Whether servicers are forwarding enough information to the new company when the rights to a loan are sold.
- Whether there are economic incentives for inadequate service.
- Whether the reforms that the CFPB has made to the mortgage servicing market, such as payment handling, loan transfers, error resolution, loan counseling, and treatment of distressed borrowers, may also benefit student loan borrowers.
Following these remarks, the CFPB moderated a panel discussion during which participants from industry, consumer advocacy groups, and representatives from financial aid offices and associations had the opportunity to provide remarks and answer questions. The CFPB panel included:
- Richard Cordray, Director, CFPB
- Steven Antonakes, Deputy Directory, CFPB
- Rohit Chopra, Student Loan Ombudsman, CFPB.
The guest panelists were:
- Jennifer Wang, Policy Director, Young Invincibles
- Timothy Fitzgibbon, Senior Vice President, National Counsel of Higher Education Resources
- Deanne Loonin, Attorney with the National Consumer Law Center (NCLC) and Director of NCLC’s Student Loan Borrower Assistance Project
- Justin Draeger, President and CEO, National Association of Student Financial Aid Administrators
- Richard D. (Dick) George, President and CEO, Great Lakes Higher Education Corporation
- Chuck Knepfle, Director of Financial Aid, Clemson University
- Ted Mitchell, Under Secretary, U.S. Department of Education.
The panelists first answered questions posed by the CFPB and Under Secretary Mitchell including: (i) What standards and protections that have been provided for consumers of other financial products can and should be used in the student loan servicing context?; (ii) What data exists that would indicate warning signs for troubled student loan borrowers?; and (iii) What is the quality of advice that is given by the servicers?
In answering these questions, the consumer advocate panelists urged the CFPB to (i) require objective counseling of the full range of rights that a student borrower may have since it was their experience that many student loan borrowers are not provided with sufficient counseling so that they understand all of the options that they may have; (ii) allow private enforcement actions against the servicers; and (iii) establish servicing standards for the student loan servicing industry. They also voiced their frustration with the few repayment options that are available for borrowers of private student loans.
Dick George, the sole panelist representing the industry, acknowledged the importance of the issues that were being discussed, but wanted the panelists to focus on the fact that most student loan borrowers are not in default. Rather, the vast majority of the student loan borrowers that have defaulted on their loans consist of students that dropped out of school early and never earned a degree. In his opinion, “the most important thing we can do in the servicing environment,” is to “find a way to communicate” early on with the most vulnerable of cohort student loan borrowers—the dropouts. Later, Dick George had a sensible suggestion that the Department of Education condition Title IV eligibility on having financial literacy courses at the college or university.
The representatives from financial aid offices and associations offered unique perspectives to the group. They encouraged the modernization of the rules that implement the Telephone Consumer Protection Act. Because most student loan borrowers exclusively use cellular phones, the servicers should be allowed to speak with the borrowers and offer them solutions by directly contacting them on their cellular phones, and not be forced to rely on a website and collection letters. In addition, they recommended the creation of a “policy and procedures manual” that highlights “how different servicers handle different loan interactions” so that the institutions could understand how servicers handle the various repayment options.
After the panel concluded, the CFPB entertained comments from approximately 15 members of the public who had registered in advance. The speakers were each afforded two minutes to comment. Student loan borrowers and consumer advocates made up the largest group of speakers. Two of the speakers were particularly noteworthy. The first, a veteran who had been deployed to Afghanistan, expressed frustration regarding the increase of the cost of higher education, and explained that he was essentially forced to join the military in order to attend school. He also urged that veterans not be required to payback their student loans during their deployment. The second speaker also cited the cost of higher education, and urged the group not to ignore the “elephant in the room”: that increased costs to attend post-secondary schools is the main reason for the so-called student loan debt crisis.