Borrowers are reportedly kept on hold for long wait times and struggle to connect with their servicers as millions entered repayment last fall. The volume of borrowers in repayment is in part impacting servicers’ capabilities.
01/11/2024 1:25 P.M.
4 minute read
Student loan borrowers are experiencing delays in managing their payments and loan plan applications, according to a recent issue spotlight (PDF) on the Consumer Financial Protection Bureau’s oversight of student loan servicing practices.
The report is based on the CFPB’s examinations of federal student loan servicers and data provided to the bureau from the servicers following the October 2023 resumption of federal student loan payments.
“Borrowers are encountering long hold times when trying to reach their student loan servicer, experiencing significant delays in application processing times for income-driven repayment plans, and receiving inaccurate billing statements and disclosures,” according to a news release on the report from the CFPB.
More than 30 million federal student loan borrowers were set to resume their payments Oct. 1, 2023, after a series of pauses for three years.
“The CFPB determined that the return to repayment of federally owned student loans presents significant consumer risks and initiated its supervisory response due to the number of impacted consumers, consumer complaints and other field market intelligence, and the history of compliance issues by student loan servicers,” according to the report.
Borrowers may miss payments if they cannot connect with their servicer or are given inaccurate information, according to the CFPB.
Some hold times reportedly lasted for more than an hour. As of October 2023, servicers identified more than 1.25 million pending applications for income-driven repayment plans.
The bureau’s examiners note in the report that “servicing errors, processing delays, or confusing communications can drive borrowers to call in to clarify the status of their loans.”
At the same time, servicers have policies in place to mitigate high call volumes and wait times, the examiners found.
“Servicers employ a range of different policies and procedures related to call back functionality, online chat, and other communication methods to manage call wait times,” according to the report. “These differences in self-help and call deflection strategies between servicers may affect how many borrowers need to call their servicers and how long they wait if they do call.”
Among the billing errors, the CFPB found that servicers included premature due dates before the end of the payment pause and inflated monthly payment amounts due to using outdated poverty guidelines or incorrect income levels.
The errors occurred for several reasons and are also connected to the transfer of nearly 24 million federal student loan borrowers to new loan servicers in recent years, according to the report.
The CFPB says its monitoring of student loan servicers is ongoing and, in exams unrelated to the repayment period, it is finding servicers are engaging in unfair acts or practices.
Diving Deeper
According to a report from Student Connections, a division of Loan Science that works with schools and consumers on student loan payments and focuses on student outreach on behalf of educational institutions, the problems identified in the CFPB’s issue spotlight are largely due to the volume of student loan borrowers in repayment.
“The problems were caused largely by volume. Over 30 million borrowers began repayment at the same time,” according to the report from Student Connections. “That’s far more than the federal student loan system was equipped to handle. Given those conditions, mistakes are inevitable. In response, the U.S. Department of Education has assured borrowers they’ll be protected from any financial damage caused by the errors. They’ve also taken steps to fix the errors.”
According to Student Connections, the Department of Education (ED) has required loan servicers to notify borrowers impacted by billing errors and ensure they have retroactive administrative forbearance.
It also withheld payments from student loan servicers as a result of failing to meet contractual requirements to send borrowers timely billing statements, according to a news release. These servicers must also place borrowers they work with in administrative forbearance to ensure they don’t owe payments or interest while the issues are resolved.
Student loan servicers are encouraged to communicate with borrowers they had been in touch with before or during the payment pauses and ensure they have the correct contact information for borrowers.
Place contact information on your website as well as details about the payment start process and make sure you have borrowers’ correct contact information.
If you have contact with existing borrowers entering repayment, according to Student Connections you should:
- Provide consistent and accurate information to borrowers.
- Reinforce the importance of keeping contact information up to date.
- Make sure borrowers are in the right repayment plan.
For borrowers with questions, the FSA website has resources that can align with your repayment strategies on behalf of education clients. ACA’s Know My Debt financial literacy website also has resources.
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