CFPB examiners have identified a variety of illegal practices across student loan markets, the bureau said, in a special edition of its Supervisory Highlights. The report covers alleged violations related to student loan refinancing, private lending and servicing, debt collection and federal loan servicing.

“Companies break the law when they mislead student borrowers about their protections or deny borrowers their rightful benefits,” CFPB Director Rohit Chopra, said, as he released the report. “Student loan companies should not profit by violating the law.”

The CFPB said that student loans represent the second-largest form of consumer credit, with more than $1.7 trillion in total outstanding balances.

The bureau said that within the past year, many student borrowers faced a variety of challenges. For instance, some 28 million federal student loan borrowers returned to repayment, following the end of the COVID-19 payment pause.

In the Supervisory Highlights, the CFPB said it has found:

• Lenders misleading borrowers and failing to carry out their instructions for refinancing. Refinancing or consolidating federal student loans through a private lender results in the loss of federal protections. The CFPB said its examiners found that lenders gave misleading impressions that borrowers who refinance might not lose access to federal loan cancellation programs.
• Private lenders deceiving borrowers or denying benefits. Bureau officials said they found that lenders unfairly denied discharge applications for borrowers who were eligible based on Total and Permanent Disability status. Lenders also inaccurately claimed that some borrowers were not eligible for autopay discounts or falsely told borrowers that they could suspend their loan payments if they lost their jobs, only to later eliminate this benefit, according to the CFPB.
• Servicers failing to address claims dealing with school misconduct. Many private student loans made directly by schools include provisions allowing borrowers to challenge their loans due to school misconduct, regardless of who holds the loan, the report said. Examiners found that servicers misled borrowers about their right to challenge their loans and failed to properly consider most borrower challenges to their loans based on school misconduct, according to the bureau. The CFPB said it has directed the entities to create robust systems for evaluating borrowers’ claims of misconduct.
• Servicers distributing contracts allowing illegal collection tactics. CFPB officials said they uncovered institutional loan contracts with provisions that it asserted would allow schools to illegally withhold students’ academic transcripts and access to classes and other education services in the case of default. Some servicers also falsely threatened students with legal action.
• Federal loan servicers failed to provide, for extended time periods, adequate ways for borrowers to manage key loan issues by phone. Servicers also issued deceptive billing statements with incorrect payment amounts and due dates and debited unauthorized amounts, according to the CFPB. Examiners also uncovered numerous problems with how servicers processed borrowers’ applications for income-driven repayment plans.

The CFPB said that when examiners uncover problems, they share their findings with companies to help them remediate violations. Typically, as with some of the instances identified in the Supervisory Highlights, companies take action to fix the identified problems, according to the bureau.