Seth Frotman, the CFPB’s Student Loan Ombudsman, has sent a letter to CFPB Acting Director Mulvaney tendering his resignation effective September 1, 2018.  (In addition to Treasury Secretary Mnuchin and Department of Education Secretary DeVos, Mr. Frotman’s letter indicates that copies were sent to various Senate and House lawmakers.)

In his letter, Mr. Frotman is highly critical of the CFPB’s actions in the student loan arena.  He comments that the Bureau’s current leadership “has abandoned its duty to fairly and robustly enforce the law,”  “has made its priorities clear—it will protect the misguided goals of the Trump Administration to the detriment of student loan borrowers,” and “has turned its back on young people and their financial futures.”

 

 

The Department of Education has issued a proposal that would rescind the “Borrower Defense” final rule issued by the ED in November 2016 and replace it with the “Institutional Accountability regulations” contained in the proposal.  Among the major changes to the final rule that would be made by the proposal is the removal of the final rule’s ban on the use of pre-dispute arbitration agreements  and class action waivers for borrower defense claims by schools receiving Title IV assistance under the Higher Education Act (HEA).  Comments on the proposal are due by August 30, 2018.

Although the final rule had an initial effective date of July 1, 2017, there has been a series of postponements of the effective date.  A final rule published by the ED in February 2018 established July 1, 2019 as the current effective date.  In the supplementary information accompanying the proposal, the ED indicates that the negotiated rulemaking committee it established to develop proposed revisions to the 2016 final rule did not reach a consensus on the proposal.

The proposal includes the following significant changes to the 2016 final rule:

  • The final rule created a new federal standard for a “borrower defense” asserted with respect to Direct Loans and loans repaid by Direct Consolidated Loans.  A Direct Loan is a federal student loan made by the ED under the Direct Loan Program and a Direct Consolidated Loan is a federal student loan made by the ED under the Direct Loan Program that repays multiple Direct Loans or other specified loans.  A “borrower defense” includes a defense to repayment of amounts owed on such loans and a right to recover amounts previously collected on such loans.  Before 2015, the ED interpreted the Higher Education Act (HEA) to only allow a borrower to raise a “borrower defense” as a defense to repayment in a collection action.  The final rule codified the ED’s new 2015 interpretation that also allowed a borrower to raise a borrower defense in an affirmative claim for loan relief.  In the proposal, the ED seeks comment on whether it should return to its pre-2015 interpretation and only allow “defensive” claims from defaulted borrowers who are in a collections proceeding or accept both “defensive” and “affirmative” claims, including claims from borrowers still in repayment.
  • Prior to the 2016 final rule, a borrower defense could only be asserted based on an act or omission of a school that would give rise to a cause of action against the school under applicable state law.  The final rule created a new federal standard for Direct Loans disbursed after the final rule’s effective date under which a borrower defense could be a non-default, favorable contested judgment against a school, a school’s breach of contract, or a substantial misrepresentation made by a school on which the borrower reasonably relied to his or her detriment when deciding to attend or continue attending the school or deciding to take a Direct Loan.  The proposal would create a different federal standard for defenses to repayment based upon misrepresentations and would remove a breach of contract or judgment as a basis for borrower defense relief.  Instead, a judgment or breach could be considered evidence of a misrepresentation to the extent it bears on an act or omission related to the educational services provided.  Under the proposed federal standard, a defense to payment could only be based on a misrepresentation on which the borrower reasonably relied in deciding to obtain a Direct Loan, or a loan repaid by a Direct Consolidation Loan, for the student to enroll or continue enrollment in a program at the school and the borrower suffered financial harm as a result of the school’s misrepresentation.  A misrepresentation would be defined as a statement, act, or omission by a school to a borrower that is false, misleading, or deceptive, and made with knowledge of its false, misleading, or deceptive nature or with reckless disregard for the truth, and that directly and clearly relates to the making of a Direct Loan, or a loan repaid by a Direct Consolidation Loan, for enrollment at the school or to the provision of educational services for which the loan was made.
  • Under the 2016 final rule, a borrower defense claim based on a substantial misrepresentation could be asserted at any time but, to recover amounts previously collected on a Direct Loan, it had to be asserted not later than six years after the borrower discovered, or reasonably could have discovered, the information constituting the substantial misrepresentation.  The proposal would allow a borrower to assert a defense to payment at any time once the loan is in collections, including to recover amounts previously collected on a Direct Loan.  If the ED decides to continue to allow affirmative borrower defense claims, it proposes to only allow such claims to be filed within three years of the end date of the borrower’s enrollment at the school alleged to have made the misrepresentation.
  • The 2016 final rule bans both mandatory and voluntary pre-dispute arbitration agreements, whether or not they contain opt-out clauses, and class action waivers for borrower defense claims by schools receiving Title IV assistance under the HEA.  In adopting the final rule, the ED rejected the argument that the Federal Arbitration Act (FAA) barred the ED from including a ban on class action waivers or mandatory pre-dispute arbitration agreements.  When the final rule was adopted, we expressed our strongly-held view that the ED’s position was incorrect and that the final rule’s arbitration provisions were preempted by the FAA.  In stark contrast, the proposal would allow schools to use pre-dispute arbitration agreements or class action waivers as a condition to enrollment.  Citing the U.S. Supreme Court’s May 2018 decision in Epic Systems, the ED states that it believes “the Supreme Court’s recent affirmation of the Federal policy in favor of arbitration may warrant a different approach to these regulations.”  The ED also references Congress’ disapproval of the CFPB’s arbitration rule pursuant to the Congressional Review Act and states that “[i]n light of Congress’ clear action, the Department believes a change in its position to align with the strong Federal policy in favor of arbitration is appropriate.”  The ED’s supplementary information describes the potential advantages of arbitration, including that it can be quicker than litigation and “allow borrowers to obtain greater relief than they would in a consumer class action case where attorneys often benefit most.”  The proposal would require schools using pre-dispute arbitration agreements or class action waivers to satisfy the following conditions:
    • The school must make available on its website where information about admissions and costs is presented (which cannot solely be an intranet website), a plain language disclosure that the agreement or waiver is a condition of enrollment.
    • As part of entrance counseling, a school must provide: a description of its dispute resolution process that the borrower has agreed to pursue as a condition of enrollment, including the name and contact information for the individual or office that the borrower can contact regarding a dispute; a written description of how and when the agreement or waiver applies, how the borrower enters into the arbitration process or, for class action waivers, alternative processes the borrower can pursue to seek redress; and who to contact with borrower questions.

The proposal also includes changes relating to an array of other subjects such as: the charging of collection costs to defaulted borrowers by guaranty agencies; the capitalization of interest on loans sold by guaranty agencies after the completion of loan rehabilitation; financial responsibility provisions that establish the conditions or events that have or may have an adverse material effect on a school’s financial condition and which warrant the school’s provision of a letter of credit or other financial protection to the ED; the circumstances under which borrowers can qualify for a closed school discharge; and actions by the ED against schools to collect loan amounts discharged based on successful borrower defense claims or to obtain reimbursement of discharge amounts repaid to borrowers by the ED based on such claims.

 

 

The California Department of Business Oversight (DBO) has published a second round of modifications to its proposed regulations under the State’s Student Loan Servicing Act.  As previously covered, the DBO published its first round of revised rules last month.

The latest revisions to the regulations clarify servicer responsibilities related to application of payments, borrower communications and handling of qualified written requests (QWRs), and recordkeeping requirements, among other miscellaneous changes.

Payments

The initial regulations provided that a servicer must credit any online payment the same day it is paid by the borrower, if paid before the daily cut off time for same day crediting posted on the servicer’s website, or the next day, if paid after the posted cut off time.  These requirements, which were unmodified by the first round of revisions, have now been changed to clarify that servicers must only apply payments the same or next business day, depending on whether received before or after the published cut off time.

Borrower Communications and Qualified Written Requests

The Act requires that a servicer respond to QWRs by acknowledging receipt of the request within five business days and, within 30 days, providing information relating to the request and an explanation of any account action, if applicable.  The first round of revised regulations added the limitation that a servicer is only required to send a borrower a total of three notices for duplicative requests.  The latest revisions add two additional provisions.  First, servicers are only required to send an acknowledgement of receipt within five days if the action requested by the borrower has not been taken within five days of receipt.  Second, servicers may designate a specific electronic or physical address to which QWRs must be sent.  If designated, however, this information must be posted on the servicer’s website.

The revised regulations also further specify what is required of customer service representatives.  Now, federal and private loan servicer representatives must inform callers about alternative repayment plans if the caller inquires about repayment options.  Federal loan servicers must now also inform callers about loan forgiveness benefits, if the caller inquires about repayment options.  These regulations have evolved significantly.  The initial regulations required that representatives “be capable of discussing” alternative repayment plan and loan forgiveness benefits with callers, and be trained in the difference between forbearance and alternative repayment plans.  The latest revisions have added specific triggers for discussing repayment options—and forgiveness benefits for federal loans.

Servicer Records

The first round of revisions eliminated the DBO’s specific record keeping formatting requirements.  In its place, the latest round of revisions has added the general requirement that the books and records required by the act must be maintained in accordance with generally accepted accounting principles.  The new revisions also change the information required as part of the aggregate student loan servicing report to require the number of monthly payments required to repay the loan.

The modifications are subject to comment until July 25, 2018.  As with the first round, the revisions will not be effective until approved by the Office of Administrative Law and filed with the Secretary of State.

The CFPB has issued a new report, “Data Point: Final Student Loan Payments and Broader Household Borrowing,” which looks at repayment patterns for student loans and how borrowers who have repaid their student loans subsequently use credit.  The CFPB’s analysis focuses on borrowers when they first pay off individual student loans.  The report uses data from the Bureau’s Consumer Credit Panel, a nationally-representative sample of approximately five million de-identified credit records maintained by one of the three nationwide credit reporting companies.

Key findings include the following:

  • Most borrowers paying off a student loan do so before the scheduled due date of the final payment, often with a single large final payment.  The median final payment made on a student loan is 55 times larger than the scheduled payment (implying a payoff at least 55 months ahead of schedule), with 94 percent of final payments exceeding the scheduled payment and only 6 percent of loans paid off with the final few payments equal to the scheduled payments.
  • Most borrowers paying off a student loan early also simultaneously reduce their credit card balances and make large payments on their other student loans.  These borrowers are also 31 percent more likely to take out their first mortgage loan in the year following the payoff.  While this evidence shows that early student loan payoffs coincide with increased home purchases, the simultaneous reduction in credit card and other student loan balances suggests that increased wealth or income may influence when borrowers pay off student loans, reduce credit card balances, and purchase homes.
  • Most borrowers who pay off a student loan by making all of the scheduled payments pay down other debts in the months following payoff rather than take on new debt.  Those borrowers with additional student loans put 24 percent and 16 percent of their newly-available funds toward, respectively, paying down their other student loans faster and reducing credit card balances.  Unlike borrowers paying off a student loan early, borrowers paying off on schedule are not more likely to take out a mortgage for the first time.

The CFPB observes that because the results discussed in the report show that repayment of one type of debt directly affects payments and borrowing on other kinds of debt, “policies and products that change repayment terms or balances for one credit product are likely to have spillover effects on  others, either enhancing the intended effects (e.g. payment relief, increased credit access) or leading to compensating shifts (e.g. reallocated payments or borrowing).”  As a result, the CFPB believes that analyzing borrower behavior across all liabilities can improve its understanding of the underlying mechanisms that influence behavior and allow it to more accurately predict the impact of new policies or products on consumers and the overall marketplace.

The CFPB also notes that while its analysis focuses on student loan borrowers who successfully pay off their loans, similar approaches could be applied to struggling student borrowers and might shed light on how borrowers use other credit products to cope with their student debt, how their access to other credit may be inhibited, and how available repayment plans and other programs change these outcomes.

The District of Columbia Department of Insurance, Securities, and Banking (DISB) has issued a second round of revised emergency and proposed rules under the Student Loan Ombudsman Establishment and Servicing Regulation Amendment Act of 2016.  The latest revision, backdated to April 20 from its May release, provides “numerous substantive changes” in response to public comments.  A blackline of the revised emergency rules showing changes from the rules adopted in December 2017 can be found here.  The Student Loan Servicing Alliance filed a lawsuit in March 2018 challenging the rules as preempted by federal law.

The first revision made one substantive change from the initial rules by reducing the annual assessment fee from $6.60 per loan to $.50 per borrower.  The second revision further modifies the annual assessment fee by eliminating the additional “fixed” component.  Now, licensees are subject only to the volume-based assessment.  Application fees (initial and renewal) and reinstatement fees have also been reduced by $100.

For the first time, the proposed rules explicitly acknowledge and yield to federal law.  The DISB recordkeeping rules now apply “[e]xcept to the extent prohibited by federal law” and allow the Commissioner to “waive or reduce” the requirements if compliance “would require the licensee to violate federal law.”  The revisions also add protections by prohibiting public disclosure of the records under the Freedom of Information Act.

Unlike the recordkeeping provisions, the examination authority contains no deference to federal law.  The examination authority has also been expanded to allow the Commissioner to consider reports prepared by other federal or state agencies in conducting an examination and to conduct joint examinations with federal or state agencies.  The rules now also explicitly allow the Commissioner to request “policies and procedures, consumer complaints, financial statements, and any other reasonable information.”

Most significantly, the revisions have eliminated the initial penalty provisions, which allowed the Commissioner to impose a penalty of up to $5,000 “for each occurrence of each violation of the act” by a licensee and up to $25,000 “for each occurrence of each violation of the act” by an unlicensed person.  The revisions have also reduced the penalty for failure to timely file an annual report from up to $1,000 per business day to up to $50 per day.

The revised rules also expand the oversight of the DISB.  The rules now require updating of any information on file with the commissioner within ten business days of it become inaccurate.  Additionally, licensees must now notify the Commissioner in writing of “any material fact or condition” which may preclude the licensee from fulfilling its contractual obligations.

 

 

The Department of Education has published a request for information in today’s Federal Register seeking comment on the factors used to evaluate claims of undue hardship made by student loan borrowers attempting to discharge student loans through adversary proceedings in bankruptcy court.  Responses to the RFI must be received by May 22, 2018.

Under the federal Bankruptcy Code, a student loan can be discharged in bankruptcy only if necessary to avoid an “undue hardship” on the borrower.  Congress did not define “undue hardship” in the Bankruptcy Code nor did it authorize the ED to do so by regulation.  As a result, the legal standard for a student loan borrower to prove “undue hardship” has been developed through case law, with courts generally using one of two tests to determine if “undue hardship” has been established.  The three-factor Brunner test (named after the case in which the test was first articulated) evaluates the debtor’s standard of living, likely duration of his or her financial difficulties, and the efforts he or she made to continue making loan payments before filing for bankruptcy.  The “Totality of the Circumstances” test looks at the debtor’s financial resources (past, present, and future), his or her reasonably necessary living expenses, and any other relevant factors and circumstances surrounding the debtor’s individual circumstances.

ED regulations require guarantors and educational institutions participating in the Federal Family Education Loan Program (FFELP) and Federal Perkins Loan Program (Loan Holders) to evaluate undue hardship claims to determine if requiring repayment of a student loan would constitute undue hardship.  Guidance issued by the ED in 2015 provides that Loan Holders should use a two-step analysis when evaluating undue hardship claims.  First, using the tests established by the federal courts, a Loan Holder should determine whether requiring repayment would impose an undue hardship.  Second, if the Loan Holder determines that requiring repayment would not impose an undue hardship, it must evaluate the costs of undue hardship litigation.  If the costs to litigate the matter in bankruptcy court are estimated to exceed one-third of the loan balance, the Loan Holder is permitted to accept an undue hardship claim.

The 2015 guidance included a discussion of factors that are appropriate for a Loan Holder to consider when evaluating an undue hardship claim and how such factors fit within the tests established by the federal courts.  It also stated that the guidance mirrored the ED’s existing practice for the Direct Loan program and for ED-held FFELP and/or Perkins loans.

The RFI seeks comment on:

  • Factors to be used in evaluating undue hardship claims and the weight to be given to such factors
  • Whether the use of two tests results in inequities among borrowers
  • Circumstances under which a Loan Holder should concede an undue hardship claim
  • Whether and how the 2015 guidance should be amended

 

 

 

The District of Columbia Department of Insurance, Securities, and Banking (DISB) has released for comment a revised “Student Loan Borrower’s Bill of Rights.”  The District of Columbia Student Loan Ombudsman Establishment and Servicing Regulation Act of 2016 (Servicing Act), which became effective February 18, 2017, directed the DISB to draft the Bill of Rights.  (In September 2017, pursuant to the Servicing Act, the DISB began licensing student loan servicers operating in D.C.)

As originally released in October 2017, the Bill of Rights contained five articles.  We commented that instead of tracking the student loan servicing principles articulated by other regulators, the Bill of Rights seemed to borrow copiously from principles for the origination, servicing, and collection of small business loans adopted by the Responsible Business Lending Coalition, a network of for-profit and non-profit lenders, brokers and small business advocates.  In the revised Bill of Rights, which contains 17 articles, the DISB now appears to be proposing student loan servicing principles that more closely resemble those articulated by other regulators.

The revised Bill of Rights contains numerous requirements that were not in the original version.  For example, the revised version contains requirements concerning payment allocation and partial payments (Article IV), monthly billing statements (Articles V and VI), annual tax statements (Article VII), schedule of fees (Article IX), reporting to credit bureaus (Article XI), access to default diversion services (Article XII), and refinancing disclosures (Article XIII).  However, the DISB does not identify the source of those rights, which are not separately set forth in the Servicing Act.

The National Council of Higher Education Resources (NCHER), a national trade association representing higher education finance organizations, has sent a letter to the DISB commenting on the revised Bill of Rights.  As a general matter, NCHER expresses its view that the principles should not create enforceable obligations and highlights the enormous compliance burden that would be created for servicers if the DISB were to attempt to require federal and private student loan servicers to follow separate servicing routines for D.C. residents.  We agree, and find it particularly troubling that the DISB appears to be seeking to create obligations that may not only be inconsistent with the terms of the underlying loans but also preempted by federal law.  

With respect to specific provisions of the revised Bill of Rights, NCHER’s comments include the following:

  • Article IV provides that a borrower “has the right to have his or her payments applied to outstanding loan balance(s) timely, appropriately, and fairly” and that the servicer’s application process “shall result in partial payments being applied in the best interest” of the borrower.  NCHER questions what it means to apply payments “appropriately,” “fairly,” and “in the best interest” of the borrower and states that servicers currently post their payment allocation procedures but “should not be held to a vague standard that could be interpreted to create fiduciary responsibilities.”
  • Articles V and VI provide that a borrower has a right to “a monthly billing statement” and quarterly periodic statements containing certain information.  NCHER questions whether these articles establish separate servicing requirements for D.C. residents and comments that if so, they “would be overly burdensome to require that monthly payments be sent to borrowers in an in-school deferment.”
  • Article IX provides that a borrower has a right to have the servicer’s current schedule of fees that could be charged to the borrower.  NCHER comments that this article “seems to be based on an inaccurate understanding of roles of the various players in the student loan industry.”  It notes that as a general matter, “loan fees such as late fees and NSF fees are charged by lenders, not servicers, and are disclosed as part of the lender’s Truth-in-Lending Act requirements.”  NCHER also comments that if the article purports to cover expedited payment or convenience fees, “it should be understood that these optional payment services are selected by the borrower.”
  • Article XII provides that a borrower has the right to access “default diversion services” from the servicer that notifies the borrower when he or she is at risk of default and requires the servicer to assist the borrower with avoiding a default.  NCHER raises numerous questions about this article, including what timeframe the DISB contemplates using when measuring whether a servicer has appropriately notified a borrower that he or she is at risk of default and what “default diversion services” are contemplated by the DISB.
  • Article XIII provides that to the extent a servicer or an agent of a servicer provides any financing to a borrower, including a loan modification or refinancing, the borrower has a right  to receive financing that complies with certain principles.  Such principles include that the financing “is in the best interest” of the borrower.  NCHER comments that this article also “misconstrues the role of servicers since they do not make loans or extent credit” and that the reference to financing that “is in the best interest” of the borrower “sets up a fiduciary or suitability standard where compliance may be impossible.”

 

The FTC has filed a lawsuit in a California federal district court against three interrelated student loan debt relief companies and the individual who is their majority owner for alleged violations of Section 5 of the FTC Act and the Telemarketing Sales Rule (TSR).  The TSR implements the Telemarketing and Consumer Fraud and Abuse Act.  While the CFPB appears to be embarking on a new strategic path in 2018 that will result in less aggressive enforcement, the lawsuit demonstrates that the FTC is continuing to target the debt relief industry for compliance with consumer protection statutes.  According to the FTC’s press release, the lawsuit represents the eighth action the FTC has taken in “Operation Game of Loans,” the FTC’s enforcement initiative targeting deceptive student loan debt relief scams.

The FTC alleges that the defendants violated Section 5 and the TSR by engaging in conduct that included the following:

  • Sending mailers to consumers representing they were eligible for federal programs that would permanently reduce their loan payments to a fixed, lower amount or result in total loan forgiveness.  The FTC alleges these representations were deceptive in violation of Section 5 and material misrepresentations in violation of the TSR because while the Department of Education and state government agencies administer loan forgiveness and discharge programs, none of those programs guarantee a fixed, reduced monthly payment for more than one year, and most consumers are not eligible because of the programs’ strict eligibility requirements.
  • Representing that consumers’ monthly payments were being applied to their loan balances.  The FTC alleges that this representation was deceptive in violation of Section 5 and a material misrepresentation in violation of the TSR because the defendants were charging consumers a monthly fee unrelated to their student loans that purportedly gave consumers access to various discounts and other benefits.
  • Charging an advance fee for enrollment in a “financial education” program.  The FTC alleges that this fee violated the TSR advance fee prohibition.

The FTC’s complaint seeks consumer redress and injunctive relief.

The Illinois House of Representatives and Senate have voted to override the veto by the state’s Republican governor of Senate Bill 1351, known as the Illinois Student Loan Servicing Rights Act.  The override means that the new law will become effective on December 31, 2018.  The bill was drafted by the office of Lisa Madigan, the Democratic Illinois Attorney General, and had strong Democratic support in the state’s House and Senate.

The Act includes the following key provisions:

  • Licensing. The Act makes it unlawful “for any person to operate as a student loan servicer in Illinois except as authorized by this Act and without first having obtained a license in accordance with this Act.”   For purposes of the Act,  a “student loan” includes federal and private student loans, including loans to refinance a student loan.  The Act contains exclusions for various types of entities, such as federal- or state-chartered banks, and for open-end credit and loans secured by real property or a dwelling.  Credit extended by a postsecondary school is also excluded if the credit term is no longer than the borrower’s school program, the remaining principal balance at the time of the borrower’s graduation or completion of the program is less than $1,500 ,or the borrower failed to graduate or successfully complete the program and had a balance due at the time of disenrollment.  The Act authorizes the Secretary of Financial and Professional Regulation, or his or her designee, to license and supervise servicers and issue implementing regulations.
  • Servicing Practices. Article 5 of the Act, titled “Student Loan Bill of Rights,” prohibits certain servicing practices and imposes various requirements.  The Act authorizes the Attorney General to enforce a violation of Article 5 as an unlawful practice under the Consumer Fraud and Deceptive Business Practices Act.  Article 5 prohibits a servicer from engaging in any unfair or deceptive practice toward any borrower or cosigner or misrepresenting or omitting any material information in connection with servicing a loan.   A servicer is also prohibited from misapplying payments to the loan balance and is required to oversee third parties to ensure their compliance with Article 5 when working on the servicer’s behalf.  In addition, Article 5 contains provisions addressing the following specific areas:
    • Payment processing. Provisions include a requirement for prompt and accurate crediting of payments, a prohibition on charging a penalty if within 90 days of a change in address, a payment is received at a previous address, and a requirement to allow borrowers or cosigners to provide instructions for applying payments.
    • Fees. Unless otherwise provided by federal law, a servicer can only charge late fees that are reasonable and proportional to the cost it incurred related to the late payment and cannot charge a borrower or cosigner for modifying, deferring, forbearing, renewing, extending, or amending a loan.
    • Billing statements. A servicer is prohibited from misrepresenting various items of information in billing statements or information “regarding the $0 bill and advancement of the due date on any billing statement that reflects $0 owed.”
    • Payment histories. A servicer must provide a written payment history to a borrower or cosigner at no cost within 21 days of receiving a request.
    • Specialized assistance. A servicer must “specially designate servicing and collections personnel deemed repayment specialists who have received enhanced training related to repayment options.”  The  Act contains a definition of “federal loan borrower eligible for referral to a repayment specialist” that covers a borrower who has certain specified characteristics such as a borrower who requests information about options to reduce or suspend payments, has missed 2 consecutive payments, or is at least 75 days delinquent.  Servicers must provide specified information to such borrowers and make certain assessments regarding available payment options and are prohibited from implementing any compensation plan that incentivizes a repayment specialist to violate the Act.
    • Disclosures related to discharge and  cancellation.  Servicers must make disclosures information related to the Department of Education’s procedures for asserting a defense to repayment or claiming a discharge to borrowers eligible to assert such a defense or claim a discharge.
    • Income-driven repayment plan certifications.  A servicer must disclose the date a borrower’s income-driven payment plan certification expires and the consequences, including the new repayment amount, of failing to recertify.
    • Information provided to private student loan borrowers. A servicer’s website must provide a description of any alternative repayment plan offered by the servicer for private student loans.  The servicer must establish policies and procedures for evaluating private student loan alternative repayment arrangement requests and such arrangements must consider certain specified information.
    • Cosigner release. A servicer’s website must provide information on the availability and criteria for the release of cosigners on private student loans.
    • Payoff statements.  A servicer’s website must indicate that a borrower can request a payoff statement.  The servicer must provide a statement within 10 days, including information needed for the requester to pay off the loan, and must send a paid-in-full notice within 30 days of a payoff.
    • Transfer of servicing. The Act requires specified information to be provided by a transferor and transferee servicer within a specified time period, prohibits the charging of late fees and interest and furnishing of negative credit information in connection with certain payments made after a transfer of servicing, requires prompt transfer of payments received by a transferor servicer, and requires a transferee servicer to establish a process for a borrower to authorize recurring electronic fund transfers (unless the borrower’s authorization was automatically transferred to the transferee servicer.)
    • Requests for assistance and account dispute resolution. A servicer must implement policies and procedures for dealing effectively and timely with requests for assistance that meet certain specified requirements, including providing information about submitting such requests on its website, responding to such requests within specified time frames, and implementing a process for a requester to escalate such a request.  When a request for assistance contains an account dispute, a servicer must comply with specified dispute resolution procedures that must include a process for a requester to appeal a servicer’s determination.  The Act contains requirements that the appeal process must satisfy.
  •  Ombudsman. The Act creates the position of Student Loan Ombudsman within the Attorney General’s office “to provide timely assistance to student loan borrowers.”  The Ombudsman’s responsibilities include attempting to resolve complaints from student loan borrowers and compiling and analyzing complaint data.

 

 

 

 

The CFPB has issued a “50-state snapshot of student debt,” which provides student debt data on a state-by-state basis.

The report states that the complaint data “reflects over 50,000 student loan complaints and over 10,000 debt collection complaints related to private or federal student loan debt, submitted through September 30, 2017.”  The CFPB began accepting private student loan complaints in March 2012, debt collection complaints in July 2013, and federal student loan servicing complaints in February 2016.

For each state, the report indicates:

  • Total student loan complaints handled
  • Change in volume of student loan complaints handled
  • Total debt collection complaints handled related to student loans
  • Change in volume of debt collection complaints handled related to student loans
  • Total outstanding student loan debt balance as of 2016

The percentage changes in complaints volume set forth in the report compare October 2015 through September 2016 with October 2016 to September 2017.  The CFPB notes that “part of this year-to-year increase can be attributed to the CFPB updating its student loan complaint form to accept complaints about federal student loan servicing, starting in late February 2016.  The Bureau also initiated an enforcement action against a large student loan servicer during the time period covered by the report.”

The total outstanding student debt loan balance is taken from the CFPB’s analysis of State Level Household Debt Statistics from 1999 to 2016 issued by the Federal Reserve Bank of New York in May 2017.

For each state, the CFPB provides a map showing the number of complaints by type (student loan or debt collection) by geocoded zipcode.