‘Hundreds of thousands’ of student loan borrowers faced payment errors: CFPB
- Millions of student borrowers have transferred to new businesses over the past year.
- The CFPB found that these transfers resulted in significant errors in borrower balances.
- Many borrowers have received inaccurate bills and errors in tracking their payment progress.
Last year, a number of student loan companies announced they were terminating their federal contracts, forcing millions of borrowers to transfer to new services. A leading federal consumer watchdog found the process to be far from transparent.
The Consumer Financial Protection Bureau (CFPB) has issued a report last week, looking at the practices of student loan companies. He focused on the challenges of moving 9 million borrower accounts to new managers after major corporations Granite State and PHEAA announced they would not renew their federal contracts to collect student debt from borrowers. and manage their repayment plans.
From payment discrepancies to inaccurate billing statements, the report concluded there were errors for “hundreds of thousands” of accounts.
Here are the main results concerning service transfers:
- Services had inaccurate information on borrowers’ monthly payments and could not identify repayment schedules
- Former and current servicer reported different numbers of total payments that count for loan forgiveness progress in income-driven repayment plans
- A service agent sent inaccurate billing statements to more than 500,000 borrowers
- Borrowers were put on forbearance when it was not the best option for them
- Service agents were insufficiently staffed to manage and implement program changes for targeted loan cancellation programs and payment pauses.
The report notes that the current payment pause, which is set to expire in January 2023, “gives services and the FSA (Federal Student Aid) more time to correct transfer-related errors by making manual account adjustments, transferring additional account information and correcting prior inaccurate or misleading statements.”
Lawmakers and the Department of Education have looked at how loan companies handle borrower transfers. After PHEAA – a major student loan company – announced it was ending its federal services last year, Massachusetts Senator Elizabeth Warren said these borrowers can “breath a sigh of relief” because they don’t would be more subject to corporate practices such as not keeping up with borrower payments and encouraging them to take on more debt than they can repay.
And FSA Director Richard Cordray had previously suggested businesses close so they don’t have to adhere to higher standards the administration has put in place for servicing loans.
“We stuck to our guns,” he said. “Some repairers have decided to leave the program rather than face these new realities.”
But following the CFPB report, it is clear that companies are still engaging in potentially bad behavior. Regarding transfers, the agency has recommended companies use “robust data mapping exercises” that include test transfers to minimize errors and correct misrepresentations, and it asks services to update update their systems with accurate information and improve call center support for borrowers.
Meanwhile, federal loan companies are also tasked with implementing President Joe Biden’s recently announced $20,000 loan forgiveness plan through an app that is expected to go live in early October.