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CFPB questions transcript withholding as a debt collection practice
On April 18, the CFPB announced it is examining the practice of transcript withholding as a debt collection practice. According to a Bureau blog post, many post-secondary institutions choose to withhold official transcripts from borrowers as an attempt to collect education-related debts ranging from student loans to library fines. “Withholding transcripts as a debt collection tactic is particularly perplexing, as it can undermine rather than enhance a student’s likelihood of repaying,” the Bureau said, noting that this practice can cause students to become stuck in a cycle of collections. As previously covered by InfoBytes, the Bureau announced in January that it plans to examine the operations of post-secondary schools that extend private loans directly to students and that are not subject to the same servicing oversight as other lenders and servicers. The Bureau noted that it is “concerned about the borrower experience with institutional loans because of past abuses at schools,” high interest rates, and debt collection practices.
President Biden extends moratorium on student loan payments
On April 6, President Biden extended the moratorium on collecting student loans until August 31, explaining that the extension “will assist borrowers in achieving greater financial security and support the Department of Education’s efforts to continue improving student loan programs.” The Department of Education released a statement noting that it will continue to assess the financial impacts of the Covid-19 pandemic on student loan borrowers and assist them, which includes “allowing all borrowers with paused loans to receive a ‘fresh start’ on repayment by eliminating the impact of delinquency and default and allowing them to reenter repayment in good standing.” In response to the extension, Secretary of Education Miguel Cardona stated that the Department of Education will continue "to ensure that all borrowers have access to repayment plans that meet their financial situations and needs.”
CFPB scrutinizes student loan servicers’ PSLF compliance
On February 18, the CFPB released a compliance bulletin warning student loan servicers to make sure they provide complete and accurate information to eligible borrowers about Public Service Loan Forgiveness (PSLF) benefits. The Bureau indicated that it will be paying close attention to servicers’ compliance with Dodd-Frank’s prohibition on unfair, deceptive, or abusive acts or practices. Last October, the Department of Education changed its PSLF program to now provide qualifying borrowers with a time-limited PSLF waiver that allows all payments to count towards PSLF regardless of loan program or payment plan. The waiver covers payments made on loans under the Federal Family Education Loan Program or Perkins Loan Program. (Covered by InfoBytes here.) However, Bureau supervisory findings revealed unfair or deceptive practices taken by servicers that have prevented many borrowers from making progress towards forgiveness. The Bureau emphasized that it expects servicers to comply with federal consumer financial protection laws when administering the new PSLF waiver and providing assistance to borrowers. The Bureau “will pay particular attention” to whether (i) servicers of any federal loan type provide complete and accurate information about the PSLF waiver in communications related to PSLF or loan consolidation; (ii) servicers have adequate policies and procedures to recognize when borrowers express interest in PSLF or the PSLF waiver (or where borrowers’ files otherwise demonstrate their eligibility), in order to direct borrowers to appropriate resources; and (iii) servicers take measures “to promote the benefits of the PSLF Waiver to borrowers who express interest or whose files otherwise demonstrate their eligibility.” The Bureau advised servicers to consider enhancing their compliance management systems to ensure borrowers receive accurate and complete information about the PSLF waiver and that their enrollment is facilitated.
Education Dept. to forgive $72 million of student loans after FTC action
On February 16, the FTC announced that the Department of Education (Department) will forgive $71.7 million in federal loans for approximately 1,800 former students deceived by a for-profit university. In 2016, the FTC sued university operators for allegedly advertising that 90 percent of graduates found jobs in their fields within six months of graduation, and that graduates had a 15 percent higher income on average than graduates of all other colleges or universities one year after graduation. The announcement expands on a prior FTC settlement, which required the university to pay $49.4 million in partial refunds to qualifying students and $50.6 million in debt relief. The forgiven debt included the full balance owned on all private unpaid student loans issued by the university to students as well as debts for items such as tuition, books, and lab fees. According to the Department’s announcement, these are the first approved borrower defense claims associated with a currently operating institution. The Department noted that it intends to recoup discharge costs from the university and anticipates an increase in the number of approved claims related to the university as it continues to review pending applications.
The Department stated in total it is cancelling $415 million in student loan debt under the borrower defense to repayment program, noting that several other actions will provide borrower defense discharges to nearly 14,000 borrowers attending other colleges and universities. “The Department remains committed to giving borrowers discharges when the evidence shows their college violated the law and standards,” said U.S. Secretary of Education Miguel Cardona. The Department further noted that it is working on new regulations to improve the borrower defense to repayment program, as well as other discharge programs to provide more protections for students and taxpayers. “This includes writing a new borrower defense regulation, proposing to re-establish a gainful employment regulation to hold career training programs accountable for unaffordable debt, and proposing to create financial triggers so that the Department has monetary protection against potential losses, including borrower defense liabilities,” the Department said in its announcement.
DOJ announces $7.9 million FCA settlement with student loan contractor
On January 14, the DOJ announced a $7.9 million settlement with a contractor that serviced student loans for lenders under the Federal Family Education Loan Program to resolve allegations that it violated the False Claims Act by submitting or causing the submission of false claims to the Department of Education. According to the settlement agreement, from 2006 to 2016, the contractor allegedly knowingly failed to make required financial adjustments to borrower accounts and improperly treated some borrowers as eligible for military deferments, which resulted in incorrect reporting to the Department of Education and losses to the United States. The settlement press release noted that the contractor paid $1.4 million to the Department of Education under a remediation plan to partially resolve the allegations and received a credit for that payment under the settlement agreement.
Education Dept. extends student loan moratorium
On December 22, the Department of Education announced a 90-day extended pause on student loan repayment, interest, and collections through May 1, 2022, which will allow the Biden Administration “to assess the impacts of the Omicron variant on student borrowers and provide additional time for borrowers to plan for the resumption of payments and reduce the risk of delinquency and defaults after restart.” As previously covered by InfoBytes, in August 2021, President Biden announced the extension of the moratorium on collecting student loans until January 31, 2022. According to the Department, the extended pause will assist 41 million borrowers in saving $5 billion per month and “[b]orrowers are encouraged to use the additional time to ensure their contact information is up to date and to consider enrolling in electronic debit and income-driven repayment plans to support a smooth transition to repayment.”
Education Dept. increases standards for student loan servicers
On October 15, the Department of Education announced revised standards for its student loan servicers effective early next year. The six identified student loan servicing companies signed contract extensions agreeing to comply with federal, state, and local laws governing student loan servicing and collections and will respond to complaints filed with those authorities in a timely manner. According to Federal Student Aid (FSA) Operating Officer Richard Cordray, the new standards “rais[e] the bar for the level of service student loan borrowers will receive. . .[and] come at a critical time as we help borrowers prepare for loan payments to resume early next year.” The FSA states that servicers that do not meet certain performance standards may see a decrease in the number of accounts placed with them, and servicers that assist borrowers avoid falling behind on payments, especially at-risk borrowers, will be rewarded.
Standards will measure several performance metrics including: (i) the percentage of borrowers who end a phone call before reaching a customer service representative; (ii) how well customer service representatives answer borrowers’ questions and help navigate repayment options; (iii) “[w]hether servicers process borrower requests accurately the first time”; and (iv) the overall level of customer service borrowers receive. Additionally, the six servicers will be required to submit “new, comprehensive reports,” which will provide FSA greater insight into borrowers’ experiences with loan servicers and allow FSA to track why borrowers contact their loan servicers, the type of borrower applications that are denied, and complaints borrowers send directly to loan servicers. FSA says it intends to publicly release the performance data.
Education Dept. creates enforcement office
On October 8, the Department of Education announced the creation of the Office of Enforcement within Federal Student Aid (FSA), which is designed to strengthen oversight of and enforcement against postsecondary schools that participate in the federal student loan, grant, and work-study programs. According to the announcement, the Department named Kristen Donoghue, the former CFPB enforcement director, as the chief enforcement officer. Among other things, the office will work with the Partner Participation and Oversight Office on a risk-based approach to oversight and compliance and will be comprised of the following four existing divisions: (i) Administrative Actions and Appeals Services Group; (ii) Borrower Defense Group; (iii) Investigations Group; and (iv) Resolution and Referral Management Group. The announcement also notes that FSA will coordinate with other state and federal partners as part of FSA’s increased enforcement efforts. Specifically, FSA plans to coordinate “with the Federal Trade Commission, which earlier this week announced a major shift in its enforcement priorities to focus on postsecondary schools that illegally engage in unfair and deceptive acts or practices.” (Covered by InfoBytes here.)
Education Dept. to expand PSLF program
On October 6, the Department of Education announced several significant changes to its Public Service Loan Forgiveness (PSLF) program that will be implemented over the next year. According to the Department, approximately 22,000 borrowers with consolidated loans (including loans previously ineligible) may be immediately eligible to have their loans forgiven automatically. Another 27,000 borrowers could have their balances forgiven if they are able to certify additional periods of public service employment.
The changes will now give qualifying borrowers a time-limited PSLF waiver, which will allow all payments to count towards PSLF regardless of loan program or payment plan. These include payments made on loans under the Federal Family Education Loan (FFEL) Program or Perkins Loan Program. Restrictions will also be waived on the type of repayment plan as well as the requirement that payments be made in the full amount and on-time in order to count. Additionally, the Department states that all months a servicemember spent on active duty will now count toward PSLF, even if a borrower’s loans were in deferment or forbearance and were not actively being repaid. A fact sheet states that the Department is also, among other things, reviewing previously disqualified loan payments for errors and providing borrowers the opportunity to have their PSLF determinations reconsidered. Counting prior payments on additional types of loans will also help borrowers who have or had loans from the FFEL Program, many of whom, the Department says, reported receiving inaccurate information from their servicers about how to make progress toward PSLF. The Department will also “start automatically adjusting payment counts for borrowers who have already consolidated their loans into the Direct Loan Program and certified some employment for PSLF.” Waiver requests must be submitted by October 31, 2022.
In addition to these changes, the Department says it has started its first session of negotiated rulemaking, which includes PSLF. Future changes “would make it easier for borrowers to make progress toward forgiveness, including simplifying qualifying payment rules and allowing certain types of deferments and forbearances to count toward PSLF,” the Department explains.
Education Dept. announces new TPD discharge measures for student borrowers
On August 19, the U.S. Department of Education announced that more than 323,000 student loan borrowers who have a total and permanent disability (TPD) will receive automatic discharges totaling over $5.8 billion. Under the final regulations, applicable borrowers will be identified through an existing data match with the Social Security Administration starting with the September quarterly match to allow “the Department to provide automatic TPD discharges for borrowers who are identified through administrative data matching by removing the requirement for these borrowers to fill out an application before receiving relief.” Borrowers matched with the Department of Veterans Affairs have already been able to take advantage of the TPD discharge data match since 2019. Two additional TPD-related policy items were also announced: (i) the Department will indefinitely extend a previously announced policy to stop asking borrowers to provide earnings information beyond the end of the national emergency (“a process that results in the reinstatement of loans if and when borrowers do not respond”); and (ii) the Department will propose eliminating the currently required three-year income monitoring period during a negotiated rulemaking that will begin in October.