The CFPB’s student loan ombudsman, Seth Frotman, just released the Annual Report of the CFPB Student Loan Ombudsman which looks at complaints the CFPB has received regarding federal and private student loans. This report looks at the 5,500 loan complaints and 2,300 debt collection complaints received and analyzed by the CFPB Student Loan Ombudsman. These complaints were reviewed by the CFPB between September 1, 2015 and August 31, 2016.
It also looks at the 3,900 federal loan complaints received between March 1, 2016 and August 31, 2016. The CFPB began receiving federal loan complaints on February 25, 2016.
It is important to note that the number of complaints received by the CFPB is extremely low in comparison to the millions of outstanding federal and private student loans.
In the 2015 report, the Student Loan Ombudsman focused on the alleged failure of servicers to help private and federal loan borrowers enroll or remain enrolled in income-based repayment plans. In the current report, the Ombudsman reviewed borrower complaints about difficulty they experienced trying to transition from default to an income-based repayment plan.
According to the report, the CFPB sent a request to some of the biggest student loan servicers and requested new information on their policies for borrowers that previously defaulted. A copy of this is attached to the report as Appendix C.
The report outlines problems experienced by borrowers who made rehabilitation payments to debt collectors, describing a lack of communication and understanding on the part of the borrower. It also outlines customer service problems experienced by borrowers seeking to enroll in an income-based repayment plan after coming out of default.
This report projects that 45 percent of FFELP borrowers who rehabilitated their loans will default again at some point and 75 percent will default again within the first two years. The report discusses the fact that the rehabilitation program has not been revised in over two decades and therefore doesn’t reflect major changes made to the federal loan program.
This report includes suggestions for how policymakers and servicers can improve the recovery process for borrowers. This includes:
- Reassessing the treatment of borrowers with loans in default and making access to income-based repayment plans easier for borrowers.
- Improving communication with borrowers switching from rehabilitation to an income-based repayment plan.
- Creating incentives for debt collectors and loan servicers to help borrowers and to improve the availability of data on borrowers who have previously defaulted.