Student loans represent one of the largest sources of debt in the US, with 43 million Americans having outstanding balances worth a combined $1.3 trillion. To address perceived issues relating to the uniformity of administration and collection of student loans, on April 28, 2016, the Department of Education (“DOE”), the Department of the Treasury (“Treasury”), and the Consumer Financial Protection Board (“CFPB” and collectively with the DOE and Treasury, the “Agencies”) came out with a series of coordinated actions and announcements.
Based on an August 2015 study by the U.S. Government Accountability Office entitled Federal Student Loans: Education could do more to help ensure borrowers are aware of repayment and forgiveness options, “70% of federal Direct Loan borrowers in default earned incomes low enough to qualify for reduced monthly payment under an income-driven repayment plan,” but the borrowers have not applied for such relief. The Agencies consider that may mean borrowers lack sufficient information regarding their options. Therefore, in an effort to make sure that borrowers are properly informed of their repayment options, the CFPB proposed a so-called “Payback Playbook” as a standardized set of disclosures for loan servicers to inform borrowers of their loan amounts, monthly repayment obligations, any options available to them to modify their repayment schedule/amount, and how to enroll in any such option. Intended to address borrowers’ multiple options for repayment plans, the Payback Playbook, according to the CFPB, will “cut through the clutter by clearly presenting three personalized repayment options.” The costs to create a compliance program and to provide the updated information on such a frequent basis may be significant. Currently the proposed Payback Playbook may apply to servicers of: Direct Loans, Federal Family Education Loan Program (“FFELP”) loans, Perkins loans, loans made through the PLUS program, and Federal Consolidation
Loans or Direct Consolidation Loans. However, based on the current focus in this area, the Agencies may likely try to force such a provision on private student loan servicers in the future; therefore, private student loan servicers should carefully consider the potential impact and consider commenting now while the Payback Playbook is subject to public comment. Examples of the Payback Playbook are available here.
Relatedly, the CFPB announced a specific guide to help military members be informed of “special consumer protections” available to them to help manage their debt repayment.
On the same day, the Agencies also released a Fact Sheet titled: “Student Loan Borrowers’ Repayment Rights and Expectations.” These rights have as their basic tenets that borrowers should receive information that is accurate and actionable, communication between borrowers and servicers should be consistent, servicers should be accountable for errors, and the process should be more transparent. The Student Loan Borrower Repayment Rights and Expectations as enumerated by the Agencies are:
- Borrowers have a right to receive personalized, actionable, and effective information about alternative repayment plans, including income-driven repayment plans.
- Borrowers have a right to access knowledgeable, well-trained staff who can evaluate borrowers’ specific circumstances to help them stay on track.
- When borrowers fall behind, they should be able to depend on knowledgeable, well-trained staff to reach out.
- Military borrowers should be able to speak with staff trained to help navigate benefits and protections for service members and veterans.
- Borrowers enrolled in income-driven repayment plans should always be aware of upcoming changes in their monthly payments.
- Borrowers enrolled in income-driven repayment plans should not be harmed by processing delays, lost paperwork, or bad information.
- Student loan borrowers deserve a clear path to making and maintaining affordable payments under an income- driven repayment plan.
- Borrowers should be able to easily direct their payments and expect servicers will credit their account the day the payment was received.
- Even when borrowers do not provide instructions, they should still expect that their payments will be applied fairly.
- Borrowers should expect easy access to their payment histories so they know exactly where their money goes.
- Borrowers should regularly receive basic information about their loans.
- When borrowers pay off a student loan, they deserve a fair and transparent process.
- Borrowers should receive consistent service when servicers change.
- The Department of Education will monitor borrowers’ experiences when repaying student loans, ensuring that they receive timely and accurate help when they need it.
- Borrowers should have access to a simple process to file complaints about their federal student loans and receive a response to their concerns.
- Borrowers should expect that requests for assistance and account disputes shouldn’t go unanswered, and borrowers have a right to get a second opinion.
- Borrowers deserve fair treatment while repaying their loans, no matter who is handling their account.
- Borrowers and the public should have access to information on aggregate student loan outcomes, including whether borrowers are able to keep up with their payments and able stay out of default.
- Borrowers, taxpayers, and the public should have access to enhanced reporting and robust information about the Federal Student Loan Portfolio.
Additional information on what each of these rights entails is available here.
The Agencies view these actions as being part of a more concentrated effort in the area of student loans that began last fall following President Obama’s signing of a Presidential Memorandum on a Student Aid Bill of Rights. This effort resulted in tens of thousands of public comments from industry participants, including borrowers, lenders, and servicers. Most comments represented that there was difficulty in communications between borrowers and lenders/servicers that resulted in borrowers feeling frustrated, and potentially not being informed of their options. Last week’s proposals were a direct response to these identified communication issues. Industry participants should consider commenting on these proposals in light of the current regulatory and enforcement environment.