FOR IMMEDIATE RELEASE:
May 16, 2017

CONTACT:
Office of Communications
Tel: (202) 435-7170

CONSUMER FINANCIAL PROTECTION BUREAU REPORT FINDS THAT 9 IN 10 OF THE HIGHEST-RISK STUDENT LOAN BORROWERS WERE NOT ENROLLED IN AFFORDABLE REPAYMENT PLANS
Nearly Half of the Highest-Risk Borrowers Not Enrolled in an Affordable Repayment Plan Redefault

Washington, D.C. – Today, the Consumer Financial Protection Bureau released an analysis of a student loan industry data sample showing that 9 in 10 of the highest-risk borrowers were not enrolled in federal affordable repayment plans. The analysis looks at hundreds of thousands of the highest-risk borrowers who are exiting default and may be eligible for federal programs that allow them to pay based on how much money they make. Student loan companies are responsible for informing borrowers about affordable repayment options that can help them stay on track. The Bureau also found that nearly half of the highest-risk borrowers not enrolled in an affordable repayment plan redefault, compared to less than 10 percent of those who are enrolled.

“Too many struggling borrowers fall through the cracks in a broken, outdated student loan system,” said CFPB Director Richard Cordray. “These people did everything that was asked of them to get back on their feet, only to end up deeper in debt. We will continue to work to make sure this industry provides borrowers with the kind of service they deserve.”

“For far too many student loan borrowers, the dream of a fresh start turns into a nightmare of default and deeper debt,” said CFPB Student Loan Ombudsman Seth Frotman. “When student loan companies know that nearly half of their highest-risk customers will quickly fail, it’s time to fix the broken system that makes this possible.”

The CFPB’s new report is available at: http://files.consumerfinance.gov/f/documents/201705_cfpb_Update-from-Student-Loan-Ombudsman-on-Redefaults.pdf

The student loan market has grown rapidly in the last decade with about 44 million Americans now owing money. The combined total for outstanding federal and private student loan debt now exceeds $1.4 trillion, with the vast majority from federal loans. The Department of Education estimates that more than 8 million federal student loan borrowers have gone at least 12 months without making a required monthly payment and have fallen into default. Nearly 1.2 million borrowers defaulted in the past year. These borrowers face negative consequences such as wage garnishment, loss of federal benefits, and negative credit history.

Federal student loan borrowers have access to programs that are intended to provide a fresh start through two primary options. Under the first option, borrowers can work with a debt collector to “rehabilitate” their defaulted debt — a process where borrowers have to make nine on-time payments over 10 months to exit default. Generally, the federal government pays debt collectors to take these payments and then transfers  borrowers back to a servicer or to the government for assignment to a servicer. Servicers then can help these borrowers enroll in an affordable repayment plan. Under the second option, borrowers can refinance the defaulted debt by consolidating it into a new federal Direct Consolidation loan, which immediately moves them into an affordable repayment plan. Most debt collectors use rehabilitation to get borrowers out of default, which constitutes more than 70 percent of all federal loan collections.

Last year, the Bureau sent student loan servicers a voluntary information request seeking new information on how previously defaulted borrowers perform over time. Servicers collectively handling accounts for more than 20 million student loan borrowers provided information in response to the Bureau’s request. This included data about borrower performance for more than 600,000 of the highest-risk student loan borrowers. The highest-risk borrowers are those who previously defaulted on a federal student loan, exited default, and were then transferred to a student loan servicer. Today’s report provides the public with a preliminary update on this information, including data related to the performance of certain previously defaulted student loan borrowers. Key results for borrowers in the Bureau’s sample include:

• 9 out of 10 of the highest-risk borrowers were not enrolled in an affordable repayment plan after rehabilitation: The majority of highest-risk borrowers are put into the rehabilitation program, which means that they must pay a debt collector for nine out of ten months in order to get out of default. Once out of default, these borrowers must work with a student loan servicer to secure an affordable repayment plan. The range of widely available income-driven repayment plans that allow borrowers to pay based on income should ensure that payments remain affordable over time. However, new data shows that fewer than 2 percent of borrowers accessed this protection immediately after paying a debt collector to get out of default.  Nearly a year later, 9 in 10 of these borrowers still had not secured an affordable repayment plan from their student loan servicer.
• Nearly half of the highest-risk borrowers redefault if not enrolled in an affordable repayment plan: Growing evidence shows income-driven repayments are a key step to avoid default for many of the highest-risk student loan borrowers. Data provided in the report shows that nearly half of all borrowers who were not enrolled in an income-driven plan ended up back in default within three years. In contrast, less than 1 in 10 borrowers in income-driven repayment plans ended up back in default over this period.
• 95 percent of the highest-risk borrowers do not redefault within the first year when they consolidate into an affordable repayment plan: A minority of the highest-risk borrowers consolidate their defaulted loans to get out of default, a process that will automatically establish payment plans based on their income. Nearly 95 percent of borrowers who recently consolidated their defaulted loans remained on track 12 months later. After two years, these borrowers defaulted at a rate one-third lower than the rate for those who rehabilitated their loans but did not consolidate.

This data offers new evidence that borrowers, taxpayers, and student loan companies would benefit from a clearer, more streamlined process to help previously defaulted borrowers succeed over the long term, and to ensure borrowers avoid default in the first place. Last year, the Bureau warned that hundreds of thousands of struggling student loan borrowers may end up back in default over the next two years, racking up at least $125 million in unnecessary interest charges along the way.

The Bureau has called for an overhaul of these programs to place greater emphasis on the long-term success of economically vulnerable student loan borrowers. This information will help the Bureau assess how current practices intended to assist the highest-risk borrowers may differ among companies. The Bureau previously highlighted how inconsistent practices across servicers can cause significant problems for borrowers, calling for industrywide servicing standards in this market.

The CFPB provides a Repay Student Debt tool, which helps borrowers get unbiased tips on how to navigate student loan repayment, along with other sample letters they can send to their student loan servicers. More information is available at: consumerfinance.gov/students.

FOR IMMEDIATE RELEASE:
April 25, 2017

CONTACT:
Office of Communications
Tel: (202) 435-7170

CONSUMER FINANCIAL PROTECTION BUREAU MONTHLY SNAPSHOT SPOTLIGHTS STUDENT LOAN COMPLAINTS
Report Also Looks at Consumer Complaints from Nevada

WASHINGTON, D.C. – Today the Consumer Financial Protection Bureau (CFPB) released a monthly complaint snapshot highlighting consumer complaints about student loans. The snapshot shows that both private and federal student loan borrowers nationwide report persistent servicing breakdowns that may sideline their path to repayment. This month’s report also highlights trends seen in complaints coming from Nevada. As of April 1, 2017, the Bureau had handled approximately 1,163,200 consumer complaints across all products.

“Student loan servicers play an important role in helping millions of people manage the loans they take out to pursue an education,” said CFPB Director Richard Cordray. “Unfortunately, borrowers continue to report difficulties and setbacks as they try to work with their servicers to manage their loan debt.”

The Monthly Complaint Report can be found at: http://files.consumerfinance.gov/f/documents/201704_cfpb_Monthly-Complaint-Report.pdf

Category Spotlight: Student Loans
At $1.4 trillion, student loan debt represents the U.S.’s second largest debt market behind mortgages. More than 44 million student loan borrowers rely on the companies servicing their loans to manage all aspects of repayment, including providing borrowers with available repayment options when they are struggling to repay their loans. In September 2015, the Bureau released a report outlining widespread servicing failures and sloppy, patchwork practices reported by both federal and private student loan borrowers. As of April 1, 2017, the Bureau had handled approximately 44,400 student loan complaints from consumers. Some of the findings in the snapshot include:

• Consumers complain about poor information from and sloppy practices by servicers: Of all the complaints the Bureau receives about student loans, over half—64 percent—are about problems consumers experience when dealing with their student loan servicer. Consumers who reach out to their servicer complain they are not informed about options that would allow them to continue repaying their loan, such as income-driven repayment plans. Rather, consumers complain that their servicer directs them into plans that suspend repayment and cause the interest on their loans to pile up. Consumers also complain that their monthly student loan payments are misapplied by the servicer, which the Bureau believes can cause a range of problems including negative credit reporting and loss of certain loan benefits, such as cosigner release for private student loans.
• Consumers complain about difficulty enrolling and staying in an income-driven repayment plan: Consumers complain about processing delays and inaccurate denials when submitting an income-driven repayment plan application to their servicer. These complaints include documents being lost by the servicer, application processing times spanning several months, missed payment towards loan forgiveness, and unclear guidance when enrolling into a new income-driven repayment plan. Additionally, consumers complain of receiving insufficient information from their servicers to meet recertification deadlines for their income-driven repayment plan.
• Consumers report confusion about their progress toward Public Service Loan Forgiveness programs: Consumers express concerns about their standing in Public Service Loan Forgiveness and other loan forgiveness programs. These borrowers complain that after years of making payments, they learn that their loans are not enrolled in a qualifying repayment plan, despite borrowers telling their servicers that they were pursuing Public Service Loan Forgiveness. Other borrowers complain that their servicer did not explain that consolidating their loans would wipe out all previous progress made towards loan forgiveness.
• Companies with the most student loan-related complaints: The three companies that the Bureau has received the most average monthly student loan complaints about are Navient Solutions, LLC, Fedloan Servicing/AES, and Nelnet.

The Bureau has also reported on consumer complaints to highlight the unique challenges that certain populations of consumers with student loan debt face, including older Americans, servicemembers, veterans with disabilities, and previously defaulted borrowers.

National Complaint Overview
As of April 1, 2017, the CFPB had handled approximately 1,163,200 complaints nationally. Some of the findings from the statistics being published in this month’s snapshot report include:

• Complaint volume: For March 2017, debt collection was the most-complained-about financial product or service. Of the approximately 28,000 complaints handled in March, there were 8,711 complaints about debt collection. The second most-complained-about consumer product was credit reporting, which accounted for 5,498 complaints. Mortgages were third most-complained-about financial product or service, accounting for 3,965 complaints. 
• Product trends: In a year-to-year comparison examining the three-month time period of January to March, student loan complaints showed the greatest increase—325 percent—of any product or service. The Bureau received 773 student loan complaints between January and March 2016, while it received 3,284 complaints during the same time period in 2017. Part of this year-to-year increase can be attributed to the CFPB updating its student loan complaint form to accept complaints about federal student loan servicing, starting in late February 2016. The Bureau also initiated an enforcement action against a large student loan servicer during the time period covered by this report. 
• State information: Montana, Georgia, and Wyoming experienced the greatest year-to-year complaint volume increases from January to March 2017, versus the same time period 12 months before; with Montana up 54 percent, Georgia up 46 percent, and Wyoming up 45 percent. 
• Most-complained-about companies: The top three companies that received the most complaints from November 2016 through January 2017 were Navient Solutions, LLC, Equifax, and Experian.

Geographic Spotlight: Nevada
This month, the CFPB highlighted complaints from Nevada and the Las Vegas metro area.  As of April 1, 2017, consumers in Nevada have submitted 14,600 of the 1,163,200 complaints the CFPB has handled. Of those complaints, 10,800 came from consumers in the Las Vegas metro area. Findings from the Nevada complaints include:

• Rate of debt collection complaints similar to the national average: Complaints related to debt collection accounted for 29 percent of all complaints submitted by consumers from Nevada. This is slightly higher than the rate of 27 percent at which consumers nationally submit debt collection complaints to the Bureau.
• Rate of mortgage complaints mirrors the national average: Complaints related to mortgages accounted for 23 percent of all complaints submitted by consumers from Nevada, which is identical to the national rate of mortgage complaints submitted.
• Most-complained-about companies: Wells Fargo, Experian, and Equifax were the most-complained-about companies from consumers in Nevada.

The Dodd-Frank Wall Street Reform and Consumer Protection Act, which created the CFPB, established consumer complaint handling as an integral part of the CFPB’s work. The CFPB began accepting complaints as soon as it opened its doors in July 2011. It currently accepts complaints on many consumer financial products, including credit cards, mortgages, bank accounts and services, student loans, vehicle and other consumer loans, credit reporting, money transfers, debt collection, and payday loans.

In June 2012, the CFPB launched its Consumer Complaint Database, which is the nation’s largest public collection of consumer financial complaints. When consumers submit a complaint they have the option to share publicly their explanation of what happened. For more individual-level complaint data and to read consumers’ experiences, visit the Consumer Complaint Database at: www.consumerfinance.gov/complaintdatabase/.

Company-level complaint data in the report uses a three-month rolling average of complaints sent by the Bureau to companies for response. This data lags other complaint data in this report by two months to reflect the 60 days companies have to respond to complaints, confirming a commercial relationship with the consumer. Company-level information should be considered in the context of company size.

To submit a complaint, consumers can:

• Go online at www.consumerfinance.gov/complaint/
• Call the toll-free phone number at 1-855-411-CFPB (2372) or TTY/TDD phone number at 1-855-729-CFPB (2372)
• Fax the CFPB at 1-855-237-2392
• Mail a letter to: Consumer Financial Protection Bureau, P.O. Box 4503, Iowa City, Iowa 52244
• Additionally, through “Ask CFPB,” consumers can get clear, unbiased answers to their questions at consumerfinance.gov/askcfpb or by calling 1-855-411-CFPB (2372).

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The Consumer Financial Protection Bureau is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives. For more information, visit consumerfinance.gov.