As expected, student loans were a major issue in 2016, as the presidential election brought the issue to the forefront and regulatory scrutiny continued to rise. 2017 is now upon us, and the CFPB wasted no time getting the ball rolling for the new year. In its first student loan report of 2017 released last week, the CFPB drew its focus to older student loan borrowers. According to the report, older borrowers are the fastest growing category of student loan borrowers. Today, there are four times the number of student loan borrowers over age 60 than there were 10 years ago, and they owe twice as much on average.
According to the CFPB, student loan obligations can threaten the long-term financial security of older borrowers, and certain student loan servicing practices can exacerbate the problem. The CFPB’s report focuses on two servicing practices that have been highlighted in recent reports: income driven repayment (IDR) plans and practices related to cosigners.
Based on the CFPB’s January report, servicers should consider the following steps:
- Review practices related to processing inquiries and applications for IDR plans and ensure accurate and timely communications to borrowers
- Review policies and procedures regarding communication with cosigners to ensure cosigners receive accurate and timely information related to the loan and any payment issues
- Review and reconsider the general practice of applying payments across all loans owed by the primary borrower to ensure that cosigner payments are applied only to loans the cosigner is obligated to pay
The January report is the most recent in a string of publications addressing student loans in recent months. In October 2016, the CFPB revised its examination procedures for student loans to include significant changes to the student loan servicing module. Also in October, the Student Loan Ombudsman released his Annual Report, highlighting servicing practices the bureau says may contribute to high rates of re-default among rehabilitated borrowers. The Fall 2016 Regulatory Agenda released in December again lists student loan servicing among the long-term initiatives of the bureau, signaling that potential rulemaking is still on the horizon.
All of these developments in the student loan arena come amid speculation as to the future of education finance under the incoming Trump administration. According to a recent Forbes article, President-elect Donald Trump has pledged to adjust repayment structures for student debt with a cap that could be even more generous than currently available IDR plans. Mr. Trump’s nominee for Secretary of Education, Betsy DeVos, and other congressional leaders are also expected to bring about numerous adjustments to the student lending industry, including risk sharing between the government and universities with respect to defaults and mandating reduction of interest rates for federal student loans. A November 2016 report from the Government Accountability Office that found the Department of Education had underestimated the cost of loan forgiveness under current IDR plans by billions should support expected efforts to limit federal involvement. The Trump administration may also push toward privatization of the student loan industry, given that Mr. Trump spoke in favor of eliminating federal involvement in student loans entirely throughout the campaign.
Just how this will all play out remains to be seen, but suffice it to say, 2017 is poised to be an eventful year for the student loan industry.