Student Loans: Stressors and Pitfalls at the Start of Repayments and CFPB Actions Against Fraudulent Conduct Allegations | Spilman Thomas & Battle, LLC


On March 13, 2020, near the start of the pandemic in the United States, the CARES Act provided a pause for all federal student loans. Nearly 90% of student borrowers have accepted “the option to press the pause button on their” student loans. For example, the US Department of Education stopped repaying loans, applied a 0% interest rate, and stopped collection of delinquent loans (including garnishments). This pause has been extended several times and borrowers of some student loans have not been required to make payments for almost two years. [1] Despite the pandemic pause, the CFPB has actively engaged in investigative and enforcement activities regarding student loans.

Resumption of payments

As the deadline to resume payments approaches, many experts are sounding the alarm that borrowers are unprepared to resume payments on their student loans. A recent survey of 23,000 borrowers found that 93% of borrowers are “not ready to resume payments” on their student loans. [2] “Even before the pandemic, the country’s outstanding student debt exceeded $1.7 trillion and placed a greater burden on households than credit card or automobile debt. It is estimated that around a quarter of borrowers, or 10 million people, are past due or in default. [3] According to the president of the Student Debt Crisis Center, “The ongoing pandemic combined with unprecedented inflation are huge headwinds for borrowers who are, by and large, not ready to resume payments, are struggling to meet their basic needs and are confused about their options moving forward.” [2]

The Government Accountability Office report found that there is an increased risk of delinquency for up to half of federal student loan borrowers at the start of repayment. [3] In particular due to outdated contact information, which will make payment communications more difficult. [3]

The good news is that “the amount owed will be largely the same, since interest on most federal student loans was suspended during the government payment break.” [2] While this means borrowers are not facing increased student loan repayments, borrowers are still facing rising inflation and rising costs of living that have occurred during the suspension of payments. [2]

For those who cannot afford to restart payments, exploring options, including income-driven, forbearance, or deferral repayment plans, can help cope with the impending restart of payments.

Why it matters: First, given the potential for repayment issues, managers should expect a potentially large number of borrowers to contact managers to discuss repayment terms, repayment plans, and other options. Service agents should review policies and procedures and start preparing now for a potential deluge of borrowers seeking information and assistance. Second, borrowers should ensure that their contact details are up to date and, if difficulties may arise due to the upcoming restart of payments, they should be proactively prepared to contact their service agents for assistance, options and possibly more time.

CFPB app

As the pause in federal student loan repayments has occurred, the CFPB has actively engaged in enforcement activities relating to student loan debt.

Passed in 2007, the Public Service Loan Forgiveness Program (“PSLF”) is a federal student loan forgiveness program for individuals dedicated to careers in nonprofit and public organizations. The PSLF provides parameters for student loan debt forgiveness if a borrower meets certain payment and years of service criteria for an eligible employer. [4] The loan program has proven complicated for borrowers, and several major student loan servicers have recently left the program. Given the historical complaints about the PSLF program and the many current proposals on changes to federal student loan programs and payments, it is no surprise that the CFPB has increased scrutiny of service agents regarding the PSLF program. . [4]
“Through its oversight of student loan servicers, the CFPB found that servicers were making misleading representations to borrowers about their ability to become PSLF eligible. When managers fail to provide accurate and complete information, they mislead borrowers about their ability to qualify for PSLF, which can result in tens of thousands of dollars in loan repayments that should have been forgiven. [4]

A new waiver program from the Department of Education aims to address these issues. The CFPB has issued clear guidelines that repairers must comply with federal consumer financial protection laws while administering the new waivers. “The CFPB plans to prioritize the work of monitoring the Student Loans Department in the deployment of its enforcement and oversight resources over the coming year, with particular emphasis on monitoring the engagement with borrowers on PSLF and PSLF waiver.” [4]

However, the CFPB is not just focused on servicing student loans; he also investigated student loans during the pandemic break. In one case, the CFPB entered into a consent order with a company that provided “Revenue Sharing Agreements (ISAs) to fund post-secondary education.” [5] The companies used the ISA agreement to attempt to circumvent disclosure requirements under Reg Z and TILA. [5] “CFPB alleged that finance companies misled students by calling its ISAs ‘credit’ or ‘private education loans,'” when in fact ISAs were ‘credits’ requiring certain federal disclosures . [5]

Why it matters: The CFPB has made it clear that it will focus its investigative and enforcement activities on student loans and student loan servicing for the foreseeable future. Servicers should regularly review CFPB announcements and bulletins on areas of interest, inquiries or concerns, and then review policies and procedures to ensure compliance.

Quotes, statistics and survey results have been published in various articles. You can access it here:
1. https://www.ed.gov/news/press-releases/biden-harris-administration-extends-student-loan-pause-through-may-1-2022
2. https://www.cnbc.com/2022/02/26/93percent-of-student-loan-borrowers-arent-prepared-to-restart-payments-survey-finds.html
3. https://www.cnbc.com/2022/02/25/half-of-student-loan-borrowers-at-a-increased-risk-of-delinquency-gao-finds-.html
4. https://www.consumerfinance.gov/about-us/newsroom/cfpb-steps-up-scrutiny-of-student-loan-servicers-who-deceive-borrowers-about-public-service-loan-forgiveness/
5. https://www.enforcementwatch.com/2021/09/07/cfpb-enters-into-consent-order-with-affiliated-education-financing-companies/

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