Spotlight on Student Loans:

CFPB Pens Damning Report on Student Loan Servicers

CFPB Finds Student Loan Servicers Routinely Misled and Defrauded Borrowers

A new report from the government consumer watchdog finds that student loan servicers betrayed borrower’s trust, gave misleading and fraudulent advice, and withheld refunds when their mistakes were identified. In 2010, Congress created the Consumer Finance Protection Bureau (CFPB) as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Created with the help of Sen. Elizabeth Warren (then a Professor of Law at Harvard), the agency monitors compliance of consumer protection laws, including those that regulate student loans. One of the major sections of their summer highlights report is on recent and continuing acts by the student loan servicing industry that have harmed borrowers, especially during the course of the Covid-19 pandemic.

Student Loan Servicers Steered Borrowers Away from PSLF, Miscalculated Payments, And More

The CFPB found that student loan servicers were responsible for a number of fraudulent practices that had harmed borrowers, costing them time and money, particularly those pursuing Public Service Loan Forgiveness (PSLF). Borrowers with Federal Family Education Loans (FFELs) were wrongly told that they could qualify for PSLF and were encouraged to submit Employer Certification Forms. However, then rejected, they were not told that they needed to consolidate their loans into a Direct Consolidation Loan in order to qualify, but were simply told there was no option for them. This deception resulted in borrowers qualifying for PSLF later than they should have been able, causing them to lose money and months in which they could have been making qualifying payments towards PSLF.

Other borrowers, with Direct Loans (which are eligible for PSLF), were given false information about which kinds of employers qualify for loan forgiveness. They were told that only 501(c)(3) non-profits were eligible, whereas government, tribal organizations, and certain other non-profit public service employers can also qualify you for the program.

The mismanagement of student loans during the Covid-19 pandemic has been perhaps the most upsetting revelation. Besides already documented errors—such as consistently reporting borrowers to credit agencies for non-payment even though payments were frozen by the CARES Act—borrowers were sometimes negatively impacted by being automatically placed in forbearance without their consent, causing them to lose financial incentives for timely payment. Some tried to recalculate their monthly payments under an income-driven repayment (IDR) plan and had their servicer switch. In doing so, their payment terms were changed without their knowledge and were suddenly charged a higher amount with no explanation. In both instances, servicers refused to refund borrowers who had been financially harmed by the servicers’ mistakes.

Have You Been Harmed by Your Servicer? Make Your Voice Heard

The Department of Education has solicited comments from the public around Public Service Loan Forgiveness and the Student Borrower Protection Center is collecting your stories. Join the chorus of advocates and borrowers who are pushing for a reform to PSLF and to the broken loan servicer industry. The government promised loan forgiveness to the multitude of public service workers who strive to improve their communities, but consistent abuses by the private companies who service student loans have been an obstacle. Lend your voice, and we can shape the future of PSLF together.

For those pursuing PSLF, they’ve had the added benefit that these months of forbearance have counted toward their 120 qualifying payments required for forgiveness. The economy, however, remains fragile, and many are wondering what will happen as student payments resume in the coming monthsnot to mention the end of expanded unemployment benefits for millions of Americans.