The CFPB Education Loan Ombudsman has issued his annual report covering the period  from September 1, 2020 through August 31, 2021.

The report includes an analysis of the approximately 5,300 complaints related to private or federal student loans that the Bureau received during that period.  While complaints overall during this period trended lower, the decrease was most pronounced for federal student loan complaints which decreased approximately 32% compared to the prior year. Private student loan complaints decreased approximately 0.8%.  The Bureau cites the CARES Act and other relief measures for federal student loans as the likely reason for the decrease in federal student loan complaints.

Return to repayment and servicer transitions.  The report leaves little doubt that the Bureau will be closely monitoring how student loan servicers respond to the upcoming return to repayment and servicer transitions.  Beginning February 1, 2022, there will be a return to repayment for over 32 million borrowers with federally held loans when extended CARES Act relief measures expire on January 31, 2022.  In addition, there will be a servicing transition for over 16 million federal student loan borrowers as a result of the announcement by two servicers that they will not renew their federal contracts and the announcement that one servicer has been approved to novate its federal contract.  The Bureau calls these events “significant and historic,” and warns that they raise “the potential risk of significant consumer harm” resulting from these events.  The Bureau comments that “[t]here is no historical precedent to gauge the potential scale of the effects that these transitions may have on borrowers, let alone that these transitions are overlapping.”

Most significantly, the Bureau’s discussion strongly suggests that the “new CFPB” is unlikely to provide flexibility or show leniency to servicers in meeting compliance requirements.  The Bureau states that “the potential issues and challenges that may cause borrower confusion and borrower harm are mostly known, and thus, they can be planned for and then mitigated.”  According to the Bureau, “[w]hat is different is that planning and mitigation efforts must be done at scale and done correctly the first time.  Strong leadership at the servicers is required to navigate through these transitions.” The Bureau sets forth its expectations for the tasks that “strong leadership” should undertake to mitigate borrower harm.  It also states that “[t]hough these tasks and others may be delegated, ultimate responsibility and accountability for the success of these transitions cannot be delegated.  Given the magnitude of these transitions, their preparation, planning, and execution are leadership responsibilities that start and end at the C-suite level.  Being unprepared for the transitions is unacceptable.”

The Bureau concludes its discussion of return to repayment and servicing transitions with this warning:

[T]he Bureau has robust monitoring in place for the return to repayment and the servicer transition that includes the ability to identify statistical spikes in the Bureau’s complaints. The Bureau and the Department of Education (ED)/Federal Student Aid (FSA) are working collaboratively on the return to repayment and the servicer transition.  The Bureau and FSA proactively share complaint information and analysis in accordance with the January 31, 2020 Memorandum of Understanding.

In addition to the recommendations to improve transparency and accountability discussed below, the Bureau also makes recommendations to policymakers regarding return to payment and servicing transition.  These recommendations include giving consideration to the following:

  • Because not every federal loan payment will be due on February 1, 2022 and there will be a narrow window within which loans will have different due dates, deliberately staging the return to repayment during this window in a manner that will most likely result in the successful return to repayment for the greatest number of borrowers
  • Structuring future federal servicing contracts so that they do not all expire at nearly the same time
  • Requiring all servicers to submit “Lessons Learned” documents that should start with the implementation of CARES Act relief, and include challenges during the pandemic (as well as best practices), and challenges during the return to repayment and servicer transition (as well as best practices)

Transparency and accountability.  The Bureau discusses a number of issues and makes a number of recommendations that do not clearly fall within its jurisdiction, such as what should be taught at law schools, tenure requirements, and the length of bachelor degree programs.  The wide-ranging nature of the Bureau’s discussion and recommendations suggests that the “new CFPB” is likely to “push the envelope” in asserting its jurisdiction with regard to schools, particularly for-profit schools.

Issues discussed in the report include:

  • Marketing claims by schools that could create false impressions of affordability, particularly where such claims present an access issue because they do not apply to all applicants.
  • School policies that place a hold on transcripts for nonpayment of items such as fees and parking, which could have a large disparate impact, particularly on vulnerable populations.  (A California law that became effective on January 1, 2020 prohibits postsecondary schools from withholding transcripts as a debt collection tool.)

Recommendations to policymakers include that they:

  • Consider an appropriate metric or system of metrics to measure school and program accountability
  • Accelerate efforts to incorporate qualitative and quantitative metrics that protect consumers into future federal student loan servicing contracts
  • Require detailed disclosures for every student loan disbursement, such that borrowers know how much they owe, what their projected monthly payments will be, the duration of their monthly payments, and how much they will pay in interest, and consider providing financial counseling with such disclosures