CFPB Releases Updated Report on Student Loan Servicing


5/17/2017 6:58:00 PM

Data in the report is based on responses from loan servicers who assist borrowers in rehabilitating their loans from default and enrollment in income-driven repayment plans.

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The Consumer Financial Protection Bureau (CFPB) this week released data from its initiative to monitor the student loan servicing market showing that a majority of highest-risk borrowers are not enrolled in affordable repayment plans for their federal loans.

“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,” according to a news release from the CFPB.

The data and subsequent report, “Transitioning from Default to an Income-Driven Repayment Plan,” are the result of the CFPB’s request for student loan servicers’ input on industry practices to assist borrowers who default on their student loans in transitioning into income-driven repayment plans.

Student loan servicers handling accounts for more than 20 million student loan borrowers responded to the CFPB’s voluntary request for information. The responses included data on student loan performance for more than 600,000 of the “highest-risk” borrowers, according to a news release from the CFPB. Highest-risk borrowers include those who “defaulted on a federal student loan, exited default, and were then transferred to a student loan servicer.”

“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,” according to the news release.

The CFPB’s main findings from the report include:

  • A majority (more than 90 percent) of borrowers who rehabilitated one or more loans in default were not enrolled and making income-driven repayment plan (IDR) payments within nine months of exiting default.
  • Student loan borrowers who did not enroll in IDR were five times more likely to default again.
  • Nearly one in three borrowers who exited default through rehabilitation defaulted for a second time within 24 months, and more than 40 percent of borrowers defaulted again within three years.
  • For borrowers who defaulted on their loan for a second time, over 75 percent made no bill payment to their student loan servicer.
  • However, borrowers who consolidate their loans to resolve accounts in default are more likely to immediately begin repaying their debts.

Overall, the data in this report “can inform proposals to improve repayment success for previously defaulted borrowers through immediate access to a stable and long-term IDR plan and to strengthen servicing practices to ensure borrowers avoid default in the first place.” Furthermore, the findings can prove useful as “policymakers evaluate the efficacy or the default-to-IDR-transition, they may wish to examine whether an extended period of income-driven rehabilitation payments and a complicated collector-to-servicer transition are necessary and whether current financial incentives for these companies are in the best interests of taxpayers and consumers.”

The report concludes that policymakers and student loan servicers can address challenges identified in the CFPB’s 2016 report by improving borrower communication during the transition from default to income-driven repayment plans and streamlining enrollment in the plans.

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