The Consumer Financial Protection Bureau’s student loan ombudsman released a report recently documenting consumer complaints about income-based repayment of student loans. The report concluded that many servicers present obstacles and delays to borrowers that can leave them with thousands of dollars of extra costs.
Since 2009, the vast majority of borrowers with federal student loans have a right under federal law to set their monthly student loan payments based on their income. For borrowers who are unemployed or earn low wages, these income-driven repayment (IDR) plans provide for a “payment” as low as $0 per month. About five million borrowers had enrolled in income-based repayment plans as of the first quarter of this year, according to the CFPB. But the agency says many more eligible borrowers are not benefiting from the program, leading to needless defaults.
“Too many student loan borrowers are struggling to take advantage of their right to pay based on how much money they make,” said the ombudsman. “Servicers who want to better serve their customers can take the immediate steps recommended in this report to clean up this broken process.”
Although the CFPB is not taking any action at this point, the report suggests three specific areas that the industry should address.
First, the CFPB is calling for consistent industry standards for IDR enrollment and recertification for those the bureau refers to as “their most vulnerable customers.” Applications with deficiencies that would otherwise cause an application to be denied should instead render the application incomplete, states the report, and the servicer should actively engage with the borrower to complete the application.
The second directive in the report is related. The bureau urges servicers to adopt clear and transparent policies for helping consumers with incomplete applications. The report notes that the ability of a borrower in that situation to rectify an incomplete application prior to denial “may depend on the practices at their specific servicer.”
Finally, the CFPB is recommending more public reporting of IDR data. The report calls for public reporting of performance data, including metrics on IDR plan enrollment, recertification, utilization of forbearance, and the share of borrowers making partial financial hardship payments, as well as performance data such as the number of days it takes to enroll borrowers in IDR plans, and the number of days borrowers are in administrative forbearance and the number of days borrowers spend in voluntary forbearance while awaiting IDR plan enrollment.