Last week, the CFPB announced that it had issued a Request for Information seeking comment on a set of prototype disclosures (the “Payback Playbook”) to assist federal student loan borrowers in selecting between alternative repayment plans. The CFPB’s announcement was accompanied by an announcement by the Department of Education of two new student loan-related initiatives, one directed at credit reports and the other directed at servicing. The ED’s initiatives were undertaken with the Treasury Department, in consultation with the CFPB.
Credit reporting. The ED’s fact sheet indicates that the initiative’s goal is “to modernize the way student loans appear on borrowers’ credit reports.” It states that the ED is “working collaboratively with the credit reporting industry to develop guidance for servicers, lenders, and others who furnish data to credit bureaus to determine how best to report student loan data to ensure that credit reporting for student loans fairly, consistently, and accurately reflects repayment activity. In the coming months, the [ED] will implement this effort as part of its new vision for serving student loans.”
The fact sheet describes the elements of an updated credit reporting system. Such elements include:
- Credit reporting will reflect changes in the way federal loans are made, such as using common reporting standards for common features of Direct Loans and guaranteed loans and having servicers provide information that clearly indicates programmatic differences between such loans.
- Credit histories will be reported in the same way for each borrower so similarly-situated individuals are treated similarly, such as by having servicers use the same basic reporting framework that standardizes reporting of loan details and establishing clear requirements for servicers to follow when providing additional information about a borrower’s credit history.
- Credit histories will accurately reflect the unique characteristics and terms of federal loans, such as having the expected duration of a loan reflect the repayment terms for both fixed-amortization and income-driven repayment plans, ensuring the reporting of accurate information about servicing transfers, and distinguishing borrowers experiencing financial distress from borrowers who invoke their right under federal law to reduce or postpone monthly payments.
Servicing. The ED’s fact sheet lists borrower “rights and expectations” concerning student loan repayment rights which include the following:
- The borrower’s right to receive “personalized, actionable, and effective information about alternative repayment plans,” access to “knowledgeable, well-trained staff who can evaluate borrowers’ specific circumstances to help them stay on track,” access to staff trained to assist borrowers at risk for default and military borrowers, and appropriate information and assistance with income-driven repayment plans.
- Consistency in common servicing functions such as in maintaining affordable payments under an income-driven repayment plan, honoring of directions for processing payments, easy access to payment histories and basic loan information, instructions for requesting payoff statements and making payoffs, and consistent service when servicers change.
- Accountability of servicers for errors, such as through the ED’s monitoring of complaints submitted to the online complaint system being developed by the ED, a servicer escalation process in which borrower disputes are reevaluated by senior personnel, and servicer monitoring of third-party contractors
- Transparency in information about the performance of private and federal student loans and practices of individual student loan lenders and servicers through portfolio performance data, including data at the individual servicer level, such as information on aggregate student loan outcomes, and enhanced reporting and robust information about the Federal Student Loan Portfolio.