CFPB Says Student Loan Servicers May Be Violating Consumer Protection Laws

Borrowers are facing challenges as they resume federal student loan payments after a pause that began during the pandemic.

They are encountering long hold times when they try to reach student loan servicers, delays in application processing times for income-driven repayment plans, and inaccurate billing statements and disclosures, the Consumer Financial Protection Bureau (CFPB) said in a Friday (Jan. 5) press release.

The regulator has been monitoring the experiences of student borrowers during the resumption of repayments that began a few months ago and published its findings in an issue spotlight released Friday, according to the release.

“The report shows that there is significant variation between servicers in their ability to manage these demands,” CFPB Director Rohit Chopra said in a statement released Friday. “During the payment pause, many servicers made a business decision to cut cost and significantly curtail their capacity.”

The average call wait time to speak with a servicer’s live representative rose from 12 minutes in August to 70 minutes in October, according to the release. Being forced to wait on hold for more than an hour, borrowers abandoned about half of all calls in October.

Borrowers are also dealing with delays in the processing of their income-driven repayment plan applications, the release said. More than 1.25 million of these applications are pending, and more than 450,000 of them have been pending for more than 30 days with no resolution.

Inaccurate and untimely billing statements are a third challenge being faced by student loan borrowers, per the release. Common errors include premature due dates, inflated monthly payment amounts and incorrect calculations of the new income-driven repayment plan payments.

The CFPB has notified loan servicers that they may be violating federal consumer financial protection law, and will continue to watch servicers, Chopra said in his statement.

“While loan servicers may not be household names, their conduct has a significant impact on household finances,” Chopra said in the statement. “Outstanding student loan debt exceeds outstanding auto loan debt and credit card debt. If student loan borrowers are unable to successfully enroll in payment plans or obtain accurate information about their accounts, this can have a domino effect on the rest of their financial lives.”

PYMNTS Intelligence found that one-quarter of young borrowers are more worried about paying back student loans than they are about inflation.

In addition, 43% of consumers with student loans who are concerned about repayments believe their financial stability will suffer, according to “Back to School Means Back to Federal Loan Repayments.”