CFPB issues reports on student loan repayment and repayment assistance programs

by Ballard Spahr LLP
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The CFPB has issued two new reports concerning student loans.  The first report, “CFPB Data Point: Student Loan Repayment,” examines how the payment patterns of student loan borrowers have changed over the last 14 years.  The second report, “Innovation highlights: Emerging student loan repayment assistance programs,” discusses assistance programs offered by employers and other third parties and makes recommendations to student loan companies, student loan servicers, policy makers, and third-party assistance program providers and administrators for improving the operation of such programs.

Report on repayment data. The CFPB states that although researchers have started to document the share of borrowed amounts that are repaid within a few years of entering repayment and trends in outstanding balances, a “more dynamic analysis of repayment behavior over time is necessary.”  According to the CFPB, such analysis is needed “to understand how recent changes in the student loan market—including increased use of alternate repayment plans and increased student loan indebtedness among older consumers—are affecting the repayment behavior of student loan borrowers and their usage of and performance on other consumer credit products.”

To conduct its analysis, the CFPB looked at a subsample from its Consumer Credit Panel data of more than 1 million consumers consisting of all consumers with at least one student loan that first entered repayment between 2002 and 2014 and analyzed those consumers’ repayment experience through 2016.

The CFPB’s key findings include:

  • The percentage of borrowers owing $20,000 or more at the start of repayment more than doubled since 2002, from 20 percent to more than 40 percent. The slower repayment speed of large dollar borrowers has resulted in longer average repayment periods for the overall student loan portfolio over this time span.  (For example, borrowers with loan amounts of less than $5,000 are 2.5 to 4 times more likely than borrowers with loan amounts of $50,000 or more to fully repay their loans within 8 years of entering repayment.)
  • Since 2002, the percentage of borrowers who are age 35 or older has almost doubled.  However, there is little variation in repayment speed by consumer age and the repayment progress of recent older borrowers is not noticeably different from older borrowers in the early or mid-2000s.
  • The share of borrowers not making payments large enough to reduce their balances has increased, particularly among borrowers with loans less than $20,000.  23% of these small dollar borrowers entering repayment most recently are not making payments large enough to reduce their balances.  While some of this trend likely reflects the growth of income-driven repayment (IDR) repayment plans, more than half of this group consists of borrowers who are delinquent or in default on their student loans.

The CFPB’s third finding above was also the focus of a CFPB blog post, “Too many student loan borrowers struggling, not enough benefiting from affordable repayment plans.”  In the blog post, the CFPB states that because IDR plans were first made widely available in 2009, it expected to see, over the period it analyzed, growth in the share of borrowers who were not making progress toward repaying their debt five years into repayment but still remained in good standing.  According to the CFPB, it found the opposite, thus suggesting “that borrowers with higher balances—including many of the most sophisticated borrowers—may be better-able to invoke their rights to these protections.”  The CFPB comments that “IDR should be a financial lifeline accessible to borrowers, regardless of the amount of debt they owe or level of education they attain.”

Report on repayment assistance programs. The CFPB observes that to help borrowers manage student loan debt, private-sector employees, state and local governments, financial institutions, and colleges and universities (“providers”) have launched various programs.  For example, an increasing number of employers are offering such programs designed for recruitment or retention, including programs under which the employer makes a monthly fixed payment towards an employee’s student loans.  The CFPB notes that fintech companies have been involved in the development of software platforms that enable employers to contribute to their employees’ student loan repayment via a customizable online platform.

The CFPB reviews common approaches to providing student loan repayment assistance through third-party programs and feedback from borrowers, providers, and program administrators, such as difficulties they have encountered in establishing relationships between providers and student loan servicers and transmitting payments to servicers.  The report also includes a section on policy considerations in which the CFPB makes recommendations to student loan companies and servicers and policymakers regarding steps to improve the processing of third-party payments and to providers and program administrators regarding steps to maximize borrowers’ ability to access and benefit from such programs.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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