CFPB Releases Supervisory Highlights Regarding Practices of Student Loan Servicers and University-Owned Lenders

In September 2022, the Consumer Financial Protection Bureau (CFPB) released a special edition of Supervisory Highlights regarding recent examination findings related to student loan servicing.  The Supervisory Highlights focus on three sets of “significant supervisory findings:”  (i) blanket policies to withhold transcripts in connection with an extension of credit are abusive under the Consumer Financial Protection Act (CFPA), (ii) major Federal loan transfers entail consumer risk, and (iii) student loan servicers violated Federal consumer financial law in administering Public Service Loan Forgiveness (PSLF), Income-Driven Repayment (IDR), and Teacher Loan Forgiveness (TLF).  The CFPB also found that servicers “regularly provide inaccurate information and deny payment relief to which borrowers are entitled.”

First, the CFPB’s examiners found that institutions engaged in abusive acts or practices by withholding official transcripts as a blanket policy in conjunction with the extension of credit.  Specifically, some schools did not release official transcripts to consumers that were delinquent or in default on their debts to the school.  The CFPB noted that, because many students need official transcripts to pursue employment or future higher education opportunities, the consequences of withheld transcripts are often disproportionate to the underlying debt amount.  CFPB Director Rohit Chopra is quoted in the CFPB’s press release regarding this finding, stating that “Americans must exercise their right to their educational data to obtain a job or transfer schools. Our examinations of lenders found that blanket policies to withhold transcripts can run afoul of the law.”

Second, after two student loan servicers ended their contracts with Federal Student Aid (FSA), which triggered the transfer of more than nine million borrower accounts to different student loan servicers, the CFPB reviewed the transfer of millions of borrower account records to different servicers with a “focus on assessing risks and communicating these risks to supervised entities promptly so that they could address the risks and prevent consumer harm.”  The CFPB’s examiners identified a number of risks associated with these transfers, including the fact that many transferees reported that the initial set of information they received during the transfer was insufficient to accurately service loans.  The CFPB also pointed to the practices of one transferee servicer that sent statements including inaccurate information to more than half a million consumers.

Third, the CFPB examinations found many cases where federal loan servicers improperly denied borrower applications for loan cancellation through TLF or PSLF.  For example, the CFPB states that servicers (i) illegally misrepresented borrowers’ eligibility dates and the number of payments the borrower needed to make to qualify for relief, and (ii) provided misinformation about borrowers’ entitlement to progress toward loan forgiveness during the pandemic payment suspension.

The Supervisory Highlights make clear that student loan servicers, originators, and loan holders should review the CFPB’s findings and implement changes to thoroughly address these risks.