The Consumer Financial Protection Bureau (CFPB) released a report on Friday detailing the struggles borrowers face as they resume payments on federal student loans. The report is part of the CFPB’s ongoing monitoring of federal student loan servicers following the restart of required payments.
In March 2020, in response to the financial strain of the COVID-19 pandemic, the federal government suspended payments and waived interest on federal student loans owned by the U.S. Department of Education. However, in June 2023, Congress enacted legislation to end the suspension, and borrowers have been required to resume payments for the past few months.
The Role of Loan Servicers
Much like with mortgages and auto loans, student loan payments are collected by companies known as loan servicers. These companies profit from financial arrangements and contracts with lenders. Notably, borrowers do not choose their loan servicer; instead, it is selected for them. This arrangement can lead to increased consumer protection risks, as loan servicers often prioritize profit over customer service.
Borrower Struggles
According to the CFPB report, many borrowers are making their first-ever payment on their student loans and are navigating various repayment options, including those that allow lower payments based on income. These borrowers face challenges in contacting their servicers, enrolling in alternative repayment plans, and dealing with billing statement errors.
The report indicates a significant variation among servicers in their capacity to manage these demands. Many servicers used the payment pause as an opportunity to cut costs and significantly reduce their capacity, despite the need to adhere to existing laws. In some instances, the CFPB has alerted servicers that they might be in violation of federal consumer financial protection laws.
Impact on Household Finances
Though loan servicers may not be well-known entities, their actions considerably impact household finances. As the report notes, outstanding student loan debt surpasses both auto loan debt and credit card debt. Consequently, if borrowers cannot successfully enroll in payment plans or access accurate account information, it can trigger a chain reaction affecting their entire financial lives.
Recognizing these high stakes, CFPB Director Rohit Chopra affirmed that the bureau would continue its close monitoring of loan servicers and work with federal and state agencies to hold those who violate borrower protection laws accountable.
Read the report, Issue Spotlight: Federal Student Loan Return to Repayment.
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