CFPB highlights state of student loans in the pandemic on heels of coalition’s recommendations for transitioning federal student loans out of pandemic era servicing

Ballard Spahr LLP

Ballard Spahr LLP

The CFPB has created a student loan infographic to highlight the state of student loans in the pandemic.  Among the statistics included in the infographic is that, based on Department of Education data current as of September 2020, 87% of federal student loan borrowers had their federal student loans in administrative forbearance.

The CFPB published its graphic on the heels of a memorandum released by a group of think tanks and student loan borrower and financial aid administration interest groups which makes recommendations for transitioning federal student loan borrowers back into repayment after administrative forbearance ends (currently scheduled to expire after September 30, 2021).  Noting that borrowers may “fall[] through the cracks and into delinquency and default,” the groups recommend that the Department of Education (ED) and its office of Federal Student Aid (FSA) do the following:

  • Focus outreach on “borrowers who are most at risk of delinquency and default and take steps to ensure they get the help they need to enroll in income-driven repayment (IDR) plans;
  • Carefully consider whether servicers should resume automatically debiting payments (for those borrowers who were enrolled in auto-debits before the payment pause), warning that doing so, particularly without adequate notice, could create significant financial hardship for borrowers whose financial situation worsened during the pandemic;
  • Allow additional short-term, penalty-free periods of non-payment after forbearance expires;
  • Streamline the IDR enrollment process, at least temporarily, to permit servicers to enroll borrowers in IDR without requiring extensive paperwork;
  • Ensure that federal student loan servicers are staffed appropriately and maintain a skilled workforce;
  • Minimize confusion and upheavals in federal loan servicing contracting while the transition back into repayment occurs; and
  • Work on longer-term repayment reform, including facilitating IDR enrollment and recertification by enabling data sharing with the IRS and “re-thinking” loan default consequences and the role of private collection agencies.

Given that many servicers have offered forbearance options to borrowers of privately-held FFELP loans and private student loans that mirror those granted to federal student loan borrowers, we expect a similar focus on the above issues across the student loan servicing industry generally. Additionally, we expect that advocacy groups and regulators will continue to focus on servicers’ credit reporting practices during the pandemic (see, for example, NCLC’s letter to the CFPB requesting that it rescind guidance allowing CRAs and furnishers to exceed FCRA deadlines for disputes).

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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