TestimonyofAshleyC.Harrington
SeniorPolicyCounsel,CenterforResponsibleLending
BeforetheUnitedStatesHouseCommitteeonFinancialServices
A$1.5TrillionCrisis:ProtectingStudentBorrowersandHoldingStudentLoanServicersAccountable
September10,2019
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I. Introduction
GoodmorningChairwomanWaters,RankingMemberMcHenryandMembersoftheUnitedStatesHouseCommitteeonFinancialServices.Thankyoufortheopportunitytoprovidetestimonytodayabouttheneedtoaddresstheservicingissuescontributingtothisnation’s$1.5trillionstudentdebtcrisis.MynameisAshleyHarrington,andIamaseniorpolicycounselattheCenterforResponsibleLending.TheCenterforResponsibleLending(CRL)isanonprofit,nonpartisanresearchandpolicyorganizationdedicatedtoprotectinghomeownershipandfamilywealthbyworkingtoeliminateabusivefinancialpractices.CRLisanaffiliateofSelf-Help,oneofthenation’slargestcommunitydevelopmentfinancialinstitution.Forthirtyyears,Self-Helphasfocusedoncreatingasset-buildingopportunitiesforlow-income,rural,women-headed,andfamiliesofcolor,primarilythroughfinancingsafe,affordablehomeloansandsmallbusinessloans.Intotal,Self-Helphasprovided$6.4billioninfinancingto87,000homebuyers,smallbusinessesandnonprofitorganizationsandservesmorethan80,000mostlylow-incomefamiliesthroughmorethan40retailcreditunionbranchesinNorthCarolina,California,Florida,Illinois,SouthCarolina,Virginia,andWisconsin.Thegrowthofoutstandingstudentloandebtoverthelastdecadehasbeenstaggering.Today,morethan44millionpeople1carryover$1.5trillionofoutstandingstudentloandebt,anamountthatexceedsallothertypesofnon-mortgageloandebt.Twooutofthreegraduatesintheclassof2017borrowedfederalstudentloandebttofinancetheireducation.2Thisphenomenonisespeciallyconcerningforcommunitiesofcolor,astheexistingwealthgapmakestheburdenofstudentloandebtparticularlyheavyforAfricanAmericanandLatinocommunities.ItisimperativetoanypolicymakingprocesstofirstacknowledgethedejureracialsegregationthatAmericaninstitutionsofhighereducationwerebuilton.3Theresultsoflegalsegregationinhighereducationhavecreatedaninequitablelegacyforcommunitiesofcolorthatpersiststoday.EvenafterBrownv.BoardofEducation(1954),predominately-whiteinstitutions(PWIs)inmanystatesresistedintegrationandequaltreatmentfornonwhitestudents.4Andbytheendofthe20thcentury,justatthetimewhenstudentbodieswerediversifying,policymakerswereshiftingthecostsofhighereducationfromthepublictotheindividualstudent.5Inthepastdecade,thehighereducationlandscapehasbecomesignificantlymoreperilousforstudent
1See:https://studentaid.ed.gov/sa/sites/default/files/fsawg/datacenter/library/PortfolioSummary.xls.ReflectstotalsthroughtheendofJune20182See:http://www.newyorkfed.org/medialibrary/interactives/householdcredit/data/pdf//HHDC_2018Q4.pdf3Pierre,2012.HistoryofDeJureSegregationinPublicHigherEducationinAmericaandtheStateofMarylandPriorto1954andtheEqualizationStrategy.https://commons.law.famu.edu/cgi/viewcontent.cgi?article=1074&context=famulawreview.4Minor,J.T.2008.“SegregationResidualinHigherEducation:ATaleofTwoStates.”AmericanEducationalResearchJournal45(4):862-882.5Huelsman,Mark.2019.DebttoSociety:TheCaseforBold,EquitableStudentLoanCancellationandReform.WashingtonDC:Demos.Availableathttps://www.demos.org/research/debt-to-society.
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borrowers.WhenstatelegislaturesbegantotightentheirbeltsinthewakeoftheGreat
Recession,investmentsinpubliccollegesanduniversitiesbegantodecline.6Inresponse,public
collegesanduniversitiesraisedtuition,andcutstudentservices.7Asstatesslashedbudgetsand
schoolsraisedthecostofadegree,familiesexperiencedmassivewealthdeclinesfromasinking
economy.8Withforeclosures,jobloss,anddownturnsinthemarketfracturingfamilybalance
sheets,anentiregenerationofstudentsneededtoborrowmorethaneverbeforetoattend
college.Further,alargernumberofstudentsthaneverbeforechosetogotocollegetopursue
aneducationthatcouldhelpthemsecureasolidfuture.
Withinthiscontext,studentsfamiliesofcoloraremorelikelytoneedtoborrowforhigher
educationandinlargeramounts.Evenaftergraduation,AfricanAmericanandLatinopeople
facesubstantialjobdiscriminationandearnfarlessthantheirwhitecounterparts.9African
Americanscanalsofacemoredifficultypayingoffdebtandbuildingsavingstowithstandfuture
financialshocksbecauseofthisincomegap.Giventhesedisadvantages,thesestudentstendto
takelongertopaytheirloansbackcomparedtotheirwhitecounterparts.10Infact,recent
researchshowsthat,ratherthanhelpingcommunitiesofcolorbuildwealth,acollegeeducation
actuallydeepensthewealthgapduetothehighcostsandstructuralissuesinoursystem.11For
example,youngAfrican-Americanstakeon85%morestudentdebtthantheirwhite
counterpartsfortheireducationandthatdifferenceinindebtednessincreasesbyalmost7%
peryearafterleavingschool.12Despitethesefacts,formoststudents,especiallystudentsof
color,thepursuitofhighereducationisnotachoice.Indeed,postsecondaryeducationisa
necessity,notaluxury,fortoday’sworkforce.13
Womengraduate,onaverage,with$2,700moreinstudentloandebtthanmen,andbecauseof
thegenderpaygap,theyearnabout26%less,sopayingofftheirdebttakessignificantly
6Mitchell,Michael;Leachman,Michael;andMasterson,Kathleen.2016.FundingDown,TuitionUp:StateCutsto
HigherEducationThreatenQualityandAffordabilityatPublicColleges.CenteronBudgetandPolicyPriorities.
Availableathttps://www.cbpp.org/sites/default/files/atoms/files/5-19-16sfp.pdf.7Ibid.
82013Update:TheSpilloverEffectsofForeclosures.CenterforResponsibleLending(August2013).Availableat
https://www.responsiblelending.org/sites/default/files/nodes/files/research-publication/2013-crl-research-
update-foreclosurespillover-effects-final-aug-19-docx.pdf.9Quillian,Lincoln;Pager,Devah;Hexel,Ole;&ArnfinnH.Midtbøen.2017.“Meta-analysisoffieldexperiments
shownochangeinracialdiscriminationinhiringovertime.”ProceedingsoftheNationalAcademyofSciencesof
theUnitedStatesofAmerica114(41):10870-10875;Gaddis,S.Michael.2015.“DiscriminationintheCredential
Society:AnAuditStudyofRaceandCollegeSelectivityintheLaborMarket.”SocialForces93(4):1451-79.10Schultz,Sarah.2017.“ABlueprintforHigherEducationEquity.”WashingtonDC:YoungInvincibles.Availableat
https://younginvincibles.org/reports-briefs/blueprint-higher-education-equity/.11HouleandAddo,2018.“RacialDisparitiesinStudentDebtandReproductionoftheReproductionoftheFragile
BlackMiddleClass.”SociologyofRaceandEthnicity1-1612Id.
13Over95%ofjobscreatedsincetheGreatRecessionhavegonetothosewithatleastabachelor’sdegree.See
AnthonyCarnevale,etal.,"America'sDividedRecovery:CollegeHavesandHave-Nots"(2016)
https://cew.georgetown.edu/cew-reports/americas-divided-recovery/.By2020,65%ofalljobswillrequiresome
formofpostsecondaryeducation.AnthonyCarnevale,etal.,"Recovery:JobGrowthandEducationRequirements
Through2020."(2014)https://cew-7632.kxcdn.com/wp-content/uploads/2014/11/Recovery2020.FR_.Web_.pdf.
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longer.17Thisisespeciallytrueforwomenofcolor.African-Americanwomengraduatewith
almost50%morestudentdebtthanwhiteandLatinawomenat4-yearinstitutions.18
Approximately57%ofAfricanAmericanwomenand42%ofLatinawomenwhowererepaying
studentloansreportedthattheywereunabletomeetessentialexpenseswithinthepastyear
comparedto34%ofallwomen.19
Further,whilestudentloandebtisoftenseenasaMillennialissue,thecrisisleavesnoage
groupuntouched.TheAARPisincreasinglyconcernedaboutstudentloandebtaffectingthe
financialstabilityofolderAmericans.20Infact,$66.7billionoftotaloutstandingstudentloan
debtwasowedby2.8millionborrowersage60andolderin2015.21Nationally,themedian
studentloanbalanceofolderborrowersincreasedbymorethan$1,000,andthetotal
outstandingstudentdebtheldbyborrowersoverage60increasedbymorethan50percent
between2012and2017.22AccordingtotheGovernmentAccountabilityOffice,theincreasein
studentloandebtamongseniorshasledtomoreseniorsspendingtheirwould-begoldenyears
strugglingtomakeendsmeetbecauseofthefederalgovernment'sabilitytogarnishseniors'
socialsecurityincomeforrepaymentoffederalstudentloandebt.23
Asaresultoftheirneedtoborrowmore,alongsidetargetingandfinancialdeceptionbyfor-
profitinstitutionsandoftenabusiveservicers,adisproportionatepercentageofstudentsof
colorandthemajorityofblackstudentsareunabletopaystudentdebtandwilldefault.24
Delinquencyanddefaultsonstudentloansoccurdisproportionatelyforstudentsofcoloras
wellasforwomen.Adegreeisnotashieldfromracialdisparities:AfricanAmericanbachelor’s
degreegraduates’defaultatfivetimestherateofwhitebachelor’sdegreegraduatesandare
morelikelytodefaultthanwhiteswhoneverfinishadegree.25Latinobachelor’sdegree
graduates’defaultattwicetherateoftheirwhitepeers.26Eventhosewhocanpayare
17AmericanAssociationofUniversityWomen.(2018).Women’sstudentdebtcrisisintheUnitedStates.Retrieved
fromhttps://www.aauw.org/research/deeper-in-debt/.18Ibid.
19Ibid.
20Trawinski,Lori,Montezemolo,Susanna,&Williams,Alicia.2019.TheStudentLoanDebtThreat:An
IntergenerationalProblem.WashingtonDC:AARPPublicPolicyInstitute.Availableat
https://www.aarp.org/ppi/info-2019/the-student-loan-debt-threat-an-intergenerational-problem.html.21OfficeforOlderAmericans&OfficeforStudentsandYoungConsumers.2017.SnapshotofOlderConsumersand
StudentLoanDebt.ConsumerFinancialProtectionBureau.Availableathttps://www.consumerfinance.gov/data-
research/research-reports/snapshot-older-consumers-and-student-loan-debt/.22MichaelStratford,WhytheAARPisworriedaboutstudentloans,Politico,June7,2018,
https://www.politico.com/agenda/story/2018/06/07/student-loans-debt-aarp-000666.23GovernmentAccountabilityOffice.2016.SocialSecurityOffsets:ImprovementstoProgramDesignCouldBetter
AssistOlderStudentLoanBorrowerswithObtainingPermittedRelief.Availableathttps://www.gao.gov/assets/690/681722.pdf.24Scott-Clayton,Judith.2018.“Theloomingstudentloandefaultcrisisisworsethanwethought.”Washington,DC:
BrookingsInstitution.Availableathttps://www.brookings.edu/wp-content/uploads/2018/01/scott-clayton-
report.pdf.25BrookingsInstitution,Theloomingstudentloandefaultcrisisisworsethanwethought,January10,2018,
https://www.brookings.edu/wp-content/uploads/2018/01/scott-clayton-report.pdf26Id.
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struggling.Today,nearlyhalfofAfricanAmericangraduateswithabachelor’sdegreeowemore
ontheirundergraduatestudentloanafterfouryearsthantheydidatgraduation,comparedto
17%ofwhitegraduatesandapproximately23%ofLatinos.27Thisderailstheirfinancialand
personallivesandsubjectsthemtoharshcollectionpracticesthatcankeepthemfrom
achievingthewealthgainspromisedbyacollegeeducation.Meanwhile,theirdebtkeeps
growingduetounlimitedinterestaccrualandnostatuteoflimitationsonstudentdebt.
Theinterplaybetweenstudentloanpaymentsandothermajorlifeinvestmentsand
responsibilitiesiswelldocumented.ResearchfromtheNationalAssociationofRealtorsshows
thattheusualstudentloanborrowerdelaysthepurchaseoftheirfirsthomebyanaverageof
sevenyearsbecauseofstudentloandebt.28Thus,thishasseriousimplicationsforthehousing
marketaswell.Movingforward,themarketfornewhomeownershipwillbepredominately
borrowersofcolor,andlong-termstudentloandebtthreatenstoshrinktheavailablepoolof
buyers.Unlessbold,newactionsaretaken,agenerationwillbetrappedindebtundertakento
trytoadvancetheirlives.
Giventhesefactors,thereisarealneedformeaningfulpolicychangesthathelpthosemost
impactedbythestudentdebtcrisis.Thesechangeswillhaveimpactbeyondindividualstudents
andwillboosttheoveralleconomy.Acriticalcomponentofthisisservicingreformandthe
creationofaborrower-centeredstudentloansystemthatensuresconsumerprotectionsforall
borrowersandstrongaccountabilityatallstagesofrepayment.Tothatend,mytestimony
todaywill:
• Describethecurrentstateoftheeducationloanmarketandthesystemicfailuresthat
makeithardforborrowerstosucceedinrepaymentandaddtothegrowingstudent
debtcrisis;
• HighlightthefailuresofthecurrentDepartmentofEducationtoprotectstudent
borrowersandtheeffortsofstatesandadvocatestomitigatethem;and
• Providerecommendationsforstatutoryrequirementsandimprovementstoensureloan
servicersandprivatecollectionsagenciesmeetbasicconsumerprotectionstandards
andhelp,ratherthanprevent,studentspayofftheirloansandpursuetheintended
benefitsofhighereducation.
27BrookingsInstitute,Black-whitedisparityinstudentloandebtmorethantriplesaftergraduation,Oct.2016,
https://www.brookings.edu/research/black-white-disparity-in-student-loan-debt-more-than-triples-after-
graduation/28NationalAssociationofRealtors,StudentLoanDebtandHousingReport,Oct.2017,
https://www.nar.realtor/research-and-statistics/research-reports/student-loan-debt-and-housing-report.�
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II. Theimportantroleofstudentloanservicing
A. Backgroundonthecurrentsystem
Thoughthefederalgovernmentisthelenderforthevastmajorityofstudentloans—over
90%—ithasoutsourcedtheworkofmanagingtheseloanstoprivatestudentloanservicers.
ThesesameservicersalsohandlestudentloansmadebyprivatelenderssuchasDiscoverand
SallieMae.Currentlytherearenineprimarystudentloanservicers,withfourofthese,Navient,
FedLoanServicing,GreatLakesandNelnetdominatingthemarket.Moststudentsdonothave
achoiceofwhoservicestheirloans,andthereforecannot“votewiththeirfeet”iftheyare
unhappywiththeirservicerbyswitchingtoanother.
Oncestudentsgraduateorleaveschool,theybegintopayontheirfederalloansafterasix-
monthgraceperiod.Borrowersmayenrollinoneofseveralrepaymentplansdependingon
theircircumstances,rangingfromthestandardrepaymentplanwithlevelpaymentsover10
years,graduatedpaymentandextendedtermplans,andincome-drivenrepaymentoptions
thatlowerthemonthlypaymentbutextendthetermoveralongerperiodof20to30years.29
Whilereformstotheseoptionareneeded,30theimportanceofincome-drivenrepayment(IDR)
planscannotbeoverstated.Theirpurposeistoprovideborrowersaccesstoaffordableand
reasonablestudentloanpaymentsbytyingloanrepaymenttopost-collegeearnings(generally
10%ofdiscretionaryincome)andforgivinganybalanceontheloanafter20to25years,
dependingonthetypeofloan.EnrollmentinIDRhasbeenshowntosignificantlyreduce
delinquencyanddefault.AccordingtodatafromtheDepartmentofEducation,among
borrowersenrolledinthestandardten-yearrepaymentplan,18%arenotcurrentlymaking
paymentsontheirloans,whereasforborrowersenrolledinoneofthefiveincome-based
repaymentplans,thedelinquencyrateisjust8%.31
Thesedifferencesinstudentloandistressbetweenplansaresignificantintheirimpact.Defaults
cancauseborrowerstospiralintopovertybyharmingaborrower’screditscoreandmakingit
moredifficulttoaccessjobsandhousing,asemployersandlandlordsroutinelyconductcredit
checkswhenassessingapplicants.Insomestates,defaultedborrowerscouldlosetheirdrivers’
licensesandspecialtyworklicensesrelatedtotheiremployment.Defaultedborrowerscanhave
theirwagesgarnishedandtaxrefundsoffset.Forseniors,defaultingcouldmeangarnishment
oftheirSocialSecurityincome,reducingfundsavailableforbasiclivingneedssuchasfood,
shelter,andmedications.
29See:https://studentaid.ed.gov/sa/repay-loans/understand/plans
30CRLandothercivilrightsgroupsadvocateforstreamliningIDRoptionsdowntooneplanwithpaymentsbased
on8%ofdiscretionaryincomeandarepaymenttermofnotmorethan15years.See:CenterforResponsible
Lending,theNationalAssociationfortheAdvancementofColoredPeople,UnidosUS,theNationalUrbanLeague,
andtheLeadershipConferenceonCivilandHumanRights.2019.Quicksand:BorrowersofColor&theStudent
DebtCrisis.Durham,NC:TheCenterforResponsibleLending.Availableat
https://www.responsiblelending.org/research-publication/quicksand-borrowers-color-student-debt-crisis.31See:https://www.forbes.com/sites/prestoncooper2/2018/08/07/income-based-repayment-reduces-student-
loan-delinquency-but-dont-oversell-it/#3301fbc937d0
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Becausestudentloanservicerslinkfederalloanborrowersandtheirrepaymentoptions,they
playacrucialroleinhelpingstrugglingborrowersstayoutofdefaultandontracktorepaytheir
loans.Amongotherresponsibilities,theseservicersaretaskedwithcollectingstudentloan
payments,educatingborrowersaboutrepaymentplans,andprocessingapplicationsand
annualre-certificationsforincome-drivenrepaymentplans.Servicersareinapositiontoknow
ifaborrowerisindistresswhentheymakelatepayments,andwhenborrowerscontactthem
toaskabouttheiroptions.Savvyborrowersmayinformthemselvesoftheirrepaymentoptions,
butmostborrowersrelyontheirservicerstohelpthemnavigateaconfusingsystem.Despite
thefactthatservicersareinthebestpositiontoproactivelyhelpenrollborrowersinIDRand
preventdefault,borrowersarestillconfused–whichindicatesthatservicerscandomoreto
assiststudentborrowersinrepayment.32
B. Loanservicersarenothelpingborrowersmanagetheirstudentdebt
It’sincreasinglyclearthatservicershaveconsistentlyfailedtofulfilltheirobligations,engaging
inavarietyofabusivepracticesthathavelong-termnegativeconsequencesforborrowers.
Auditsandborrowercomplaintshaveshownthatservicersarefailingtofulfilltheseobligations
consistently,resultinginlong-termnegativeconsequencesforborrowerswhousuallydonot
haveachoiceinwhoisservicingtheirloans.Indeed,fromthetimetheConsumerFinancial
ProtectionBureau(CFPB)begantakingcomplaintsaboutstudentlendinginlate2011until
February2017,thereweretensofthousandsofcomplaintsaboutloanservicers.Otherfederal
agencieshavereportedonpoorservicingpracticesaswell.AnauditconductedbytheUSOffice
oftheInspectorGeneralfoundthat,from2015–2017,FederalStudentAidrarelyenforced
servicercompliancewiththeircontractsanddidnotfollowpolicywhenevaluatingservicer
performance.Thefailureofservicerstodotheirjobcontributestothegrowingdebtburdenas
theirpracticesresultinunnecessarilylongerandlargerdebtloads.
DocumentedcomplaintsbyborrowersreceivedbytheCFPBreflectservicersmisapplying
payments,reportingincorrectinformationtocreditbureaus,givingincorrectinformationabout
PublicServiceLoanForgivenessandplacingborrowersinpausepaymentplans,suchas
defermentandforbearance,thatovertimecausestudent’sdebttoballoonandleadto
delinquenciesanddefaults.33Studentloanservicersarenotoriousforputtingborrowersinto
defermentorforbearancewhenincome-drivenrepaymentplansaremoresuitableandless
costlyforborrowers.Infact,theCFPBinitiatedalawsuitinJanuary2017againstNavient,then
thenation’slargestservicerofstudentloans,forcheatingandmistreatingstudentloan
32Inaseriesoffocusgroupswithstrugglingstudentloanborrowers,theNewAmericaFoundationfoundthatfew
borrowershadenrolledinIDR.ThosewhowereunfamiliarwithIDRwere“confused,perplexed,andoften
suspicious”oftheoption.Theresearchersfoundthat“[t]herewasagenerallackofawarenessaboutincome-
basedrepaymentplans,andeventhosewhowereusingthemseemedtobeconfusedaboutplandetails.”See:
https://www.newamerica.org/education-policy/edcentral/studentloansaredifferent/33See:https://www.consumerfinance.gov/about-us/newsroom/cfpb-monthly-snapshot-spotlights-student-loan-
complaints/
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borrowers,includingroutinelyfailingtoputmanyoftheirmillionsofborrowersintothe
income-drivenrepaymentplanstheywereentitledtobylaw.Thesepracticesledtoupto$4
billioninextrainterestandfeesbeingaddedtotheprincipalbalancesofalreadyindebted
studentloanborrowers.34
Unfairandsubstandardservicingpracticesalsoopenthedoortoscammerspurportingto
adviseborrowersabouttheiroptionsandmisleadthemintothinkingtheyneedtopaylarge
upfrontfeestoenrollinfreeincome-drivenrepaymentplansortoconsolidatetheirloans.State
attorneysgeneralandtheCFPBhavesuedfraudsterstakingadvantageofborrowers–butthe
practicewillcontinuetoflourishaslongasstudentloanservicersfailtoadequately
communicatewithandassistborrowers.
Recently,concernshavealsobeenraisedthatservicersareprovidingaccesstoaffordable
income-drivenrepaymentinanunequalway,withadisproportionateimpactbyraceandsex.35
Borrowersofcolorarealsomorelikelythantheirwhitepeerstoexperienceservicer
misrepresentation.First,historicalpracticespreventinginter-generationalwealthbuilding
meanthatborrowersofcolorgraduatewithmorestudentloandebt.Second,theover-
representationofstudentsofcolorinthestudentbodiesofpredatory,for-profitschoolsand
ongoingworkplacediscriminationmeanthatborrowersofcoloraremorelikelytostrugglewith
repaymentofthoseloans.Servicermisrepresentationsincreasethecostsofthoseloansand
erectyetanotherbarriertowealthbuilding,perpetuatingthecycle.
C. Problemswithprivatecollectionagencies
Currently,theDepartmentofEducationreassignsloansthatare365dayspastduefrom
studentloanservicerstoprivatecollectionagencies(federalloansaretechnicallyindefaultat
270dayspastdue).36Likeallcollectionagencies,thepriorityistorecovermoneyfrom
strugglingstudentloanborrowersratherthanprovidesustainablesolutionsforloan
management.Additionally,studentloandebtcollectionhasbeenshowntobeveryexpensive
relativetotheamountofrecoveries,withtheCFPBestimatingthattheseagenciesreceive$40
incompensationforevery$1recoveredfromsomeborrowerswhoseloansareplacedback
intorepaymentthrougharehabilitationprogram.37TheCenterforAmericanProgressstudied
studentdebtcollectionsin2017andfoundthatthefederalgovernmentspentabout$700
millionforfewerthan7millionborrowersindefault,almostthesameamountitspentonloan
servicingformorethan33millionborrowersnotindefault.38
34See:https://www.consumerfinance.gov/about-us/newsroom/cfpb-sues-nations-largest-student-loan-company-
navient-failing-borrowers-every-stage-repayment/35See:https://www.responsiblelending.org/research-publication/protect-student-loan-borrowers-discrimination
36See:https://studentaid.ed.gov/sa/repay-loans/default/collections
37See:https://beta.washingtonpost.com/education/2019/02/28/billions-dollars-defaulted-student-loans-are-
going-uncollected-lawsuit-says/38Ibid.
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Studentdebtcollectorshavebeenshowntorepeatedlyviolatedebtcollectionandother
consumerprotectionlawsasreflectedinnumerousborrowercomplaintsaboutsuchabuses.39
Theseabusesincludecallingconsumersmultipletimesperdayevenafterbeingaskedtostop,
callingearlyinthemorningorlateatnight,callingconsumers’workplacesdespiteknowingthat
theemployersprohibitedsuchcalls,leavingphonemessagesthatdisclosedthedebtor’sname
andtheexistenceofthedebttothirdparties,andcontinuingcollectioneffortswithout
verifyingthedebt,evenafterconsumerssaidtheydidnotoweit.40
TheDepartmentofEducationhasannounceditsintenttofolddebtcollectiondutiesinto
studentloanservicingunderNextGenerationFinancialServicesEnvironment,orNextGen,a
broadoverhaulofhowstudentloanservicingandcollectionarehandledandcontracted.It
remainstobeseenwhetherthisoverhaulwillreducedefaultsandimproveservicefor
strugglingborrowers.
D. PrivateeducationloansIn2015–2016,5%ofundergraduatesutilizedprivateeducationloanstofundtheir
education.41Mostofthisgroupdidnotmaximizeavailablefederalaid.Whiletheuseofnon-
federalstudentdebtbegantodecreaseaftertheGreatRecession,theloanvolumeisnow
trendingupwards.TheCFPBhasidentifiedtroublingpracticesinprivatestudentloanservicing
andorigination,whichcanmaketheseloansveryriskyforborrowers.Privatestudentloans
mayhavehighinterestrates,andborrowershavenoaccesstoreliefopportunitiesofferedon
federalstudentloans,suchasincome-basedrepaymentprograms.Duringtherunuptothe
financialcrisis,privatestudentloans,likemortgages,weremadeusingquestionable
underwriting,trappingborrowersinunaffordabledebt.For-profitcolleges,incooperationwith
financialinstitutions,haveatrackrecordofmakingharmfulprivateloanstotheirstudents.
CongressinstructedtheCFPBtopayspecialattentiontoprivateloanspreciselybecausethey
haveaproblematichistoryofcausinglong-termfinancialdistresstoborrowers.Intheearly
2000s,privatestudentloansfollowedapathsimilartomortgagelending.Securitizationledto
mushroominggrowthofquestionablyunderwritten,variable-andhigh-interest-rateloans,
whichsufferedhighdefaultratesaftertheeconomycrashed.Manyborrowerstodaysuffer
fromtheloansmadebeforethemarketcorrected.
Recentdatadoessuggestthatsomelendershaveimprovedtheirprivatestudentloan
underwritingstandards,butproblemsremain.Federalstudentloansoffergreaterconsumer
protectionsthanprivateloans,yetmanyofthestudentswhotakeoutprivateloansdonotfirst
exhausttheirfederaloptions.Thismeansthattheyareunabletoaccesssuchoptionsas
39SeeDeanneLooninandPersisYu,NationalConsumerLawCenter,PoundingStudentLoanBorrowers:TheHeavy
CostsoftheGovernment’sPartnershipwithDebtCollectionAgencies(Sept.2014),availableat
http://www.nclc.org/images/pdf/pr-reports/report-sl-debt-collectors.pdf.40Ibid.
41See:https://ticas.org/wp-content/uploads/2019/08/pl_facts_trends.pdf
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guaranteedincome-basedrepaymentandloanforgivenessplans,assistanceforgettingoutof
defaultanddischargesfordisabilityordeath.Sincebothfederalandprivatestudentloansare
muchmoredifficulttodischargeinbankruptcythanotherkindsofdebt,theseprotectionsare
crucial.
Collegescanandshouldplayaroleinhelpingstudentsaccuratelycompareprivateloansto
federalloans.Strongerschoolcertificationprocesses,whichensurethatstudentsreceivefull
informationabouttheirfederalandprivateoptions,wouldrequirecollegesandlendersto
coordinatewithoneanothertohelpstudentschoosewisely.
Privateloanstakenoutbystudentsatfor-profitcollegesalsodeserveparticularattention.As
indicatedbytheCFPB'srecentlawsuitsagainstCorinthianCollegesandITTTech,theprivate
studentloanprogramscreatedbyfor-profitcollegesinconcertwithlendersandotherthird
partiesafterthecreditmarketconstrictedwereoftenbasedondeceptionandotherillegal
practices.42Similarprogramsmaystillbemakingloanswithveryhighdefaultrates.
III. Thecurrentadministrationhasrolledbackimportantconsumerprotectionsforstudentloanborrowers
DuringtheObamaadministration,contractnegotiatorsforstudentloanservicerswere
instructedtoincludeimportantconsumerprotectionsandincentivesinthecontracts.43
Unfortunately,theDepartmentofEducation’sactionssinceSecretaryDeVostookofficeinearly
2017havenotaddressedtheexistingchallengesand,instead,haveexacerbatedadynamicthat
alreadyfavoredprivateservicingcompaniesoverstudentloanborrowers.Despitethecrisis
thatstudentloandebtpresentsto44millionborrowers,theircommunities,andoureconomy,
thecurrentDepartmentofEducationrefusestoadequatelyholdservicersaccountable.The
DepartmentofEducation’sactionscanbesortedintothreeprimarycategories:(1)revoking
existingpoliciesthatweremeanttoprotectstudentloanborrowers,(2)actingtothebenefitof
privatecompaniesoverstudentsandtaxpayers,and(3)attemptingtopreventfederalandstate
enforcement.
A. TheDepartmentofEducationhasrevokedseveralpoliciesandguidancesputinplacetoprotectstudentloanborrowersfromservicingabuses.
In2016,thenUnderSecretaryofEducationTedMitchellrolledoutasetofpolicydirectives,
calledthe“StudentAidBillofRights,”thatinstructedDepartmentofEducationemployees
negotiatingservicercontractstoincludeimportantconsumerprotectionsandincentivesinthe
42https://www.responsiblelending.org/media/new-cfpb-report-finds-troubling-practices-private-loan-servicing-
and-origination43Mitchell,Ted.2016.PolicyDirectiononFederalStudentLoanServicing.U.S.DepartmentofEducation.Available
athttps://www.consumerfinance.gov/documents/2313/20160620_US-Department-of-Education_loan-servicing-
policymemo.pdf.
10
newcontracts.44InoneofherfirstactsasSecretaryofEducation,BetsyDeVosreversedthe
guidelinesforthenewcontracts.45Thecontractnegotiatorswouldnolongerbeaskedtohold
studentloanservicerstohighstandardsofconsumerprotection.InMarch2017,theDeVos
Departmentrevokeda2015guidancethatbarredguarantyagenciesfromchargingcollection
feestoborrowerswhodefaultbutquicklyenterrepaymentplans.46Thedecisiontorevokethis
guidancecould,infact,costborrowersmillions.47A2017settlementreturned$23millionto
borrowersinacaseregardingcollectionfeesthatwerechargedafterborrowershaddefaulted
buthadquicklyenteredrepaymentplans.48
TheEducationDepartmenthasalsoignoredseveralcallstostandardizeservicingguidelinesand
holdservicersaccountablefornoncompliance,eventhoughthesecallscamefromwithinthe
TrumpAdministrationandevenwithintheDepartmentitself.Forinstance,theDepartmentof
EducationhasnotaddressedanAugust2018reportfromtheTreasuryDepartmentthat
recommendedstandardizedguidelinesforfederalstudentloanservicers.51TheDepartmentof
Education,similarly,hasnotadequatelyaddressedaFebruary2019internalauditthatraised
concernsrelatedtothehighriskofservicernoncomplianceandcalledformoreeffective
mitigationbyFSA.52ThesameFebruary2019auditfoundthatFSArarelyheldservicers
accountablefornoncompliance,andinsteadneglectedtoeventrackerrorsaslongasservicers
fixedtheminindividualinstances.53Theauditfurtherreportedthattheagency“reliedonthe
memoriesoftheemployeesresponsiblefortheoversightactivitiestorecognizerecurring
instancesofnoncompliance,”andthattheDepartmentrarelyheldservicersaccountablefor
theirmistakes.54ThesedetailsindicatethattheDepartmentofEducationisneithercommitted
toholdingservicersaccountablefortheirmistakesonanongoingbasis,noraretheycommitted
torewardingservicerswithhistoriesofadequatecompliance.
44Pressrelease:EducationDepartmenttoImplementImprovedCustomerServiceandEnhancedProtectionsfor
StudentLoanBorrowers,DeptofEd.(July20,2016)retrieved:https://www.ed.gov/news/press-
releases/education-department-implement-improved-customer-service-and-enhanced-protections-student-loan-
borrowers45Pressrelease:MemorandumfromSecretaryofEducationBetsyDeVostoFSAChiefOperatingOfficerJames
RuncieRegardingStudentLoanServicerRecompete,Dept.ofEd.(April11,2017)Retrieved:
https://www.ed.gov/news/press-releases/memorandum-secretary-education-betsy-devos-fsa-chief-operating-
officer-james-runcie-regarding-student-loan-servicer-recompete46Availableathttps://www.insidehighered.com/quicktakes/2017/03/17/us-rescinds-guidance-collection-fees.
47Availableathttps://www.insidehighered.com/quicktakes/2017/03/21/usa-funds-ties-education-department-
adviser;Availableathttps://ifap.ed.gov/dpcletters/GEN1702.html.48Availableathttps://www.insidehighered.com/quicktakes/2017/01/31/usa-funds-settle-suit-loan-collection-fees.
51Availableathttps://home.treasury.gov/sites/default/files/2018-07/A-Financial-System-that-Creates-Economic-
Opportunities---Nonbank-Financi....pdf;Availableathttps://www.nasfaa.org/news-
item/15846/Treasury_Department_Pushes_for_Federal_Loan_Servicing_Standards.52Availableathttps://www2.ed.gov/about/offices/list/oig/auditreports/fy2019/a05q0008.pdf.
53Availableathttps://www.nytimes.com/2019/02/14/business/student-loans-education-department.html.
54Ibid.
11
B. TheDepartmentofEducationhastakenmanyopportunitiestoenrichprivatebusinessesattheexpenseofstudentloanborrowers
EvidenceshowsthattheDepartmentofEducationhasrepeatedlyactedinwaysthat
improperlybenefiteducationloanservicingcompanies.Asmentionedpreviously,theCFPB
suedNavientinearly2017forwidespreadservicingmistakesthatcostborrowersalmost$4
billioninunpaidinterestduetoinappropriatesteeringofover1.5millionborrowersinto
multipleforbearancesinsteadofincomedrivenrepaymentoveraperiodof5years.Rather
thanprovidingcriticaldocumentsrelatedtothecasetotheanotherfederalgovernmentactor,
theDepartmentprovidedthemtoNavientandwithheldthemfromtheCFPB.55
InanotherinstancethatsuggeststhattheDepartmentofEducationwasactinginappropriately
inordertoprotectloanservicersattheexpenseofstudentloanborrowers,theDepartmentof
EducationcompletedaninternalauditofNavientinMay2017butdeclinedtoreleaseittothe
publicuntilNovember2018,welloverayearlater.Thestatesthathadactivelawsuitsagainst
Navientdidnotreceivecopiesoftheaudituntilitwasreleasedpublicly,despitethefactthat
theauditwasrelevanttotheircasesagainstNavientforbreakingstateandfederalconsumer
protectionlaws.Beforetheauditwasmadepublic,theDepartmentofEducationmaintained
thatNavient“wasnotimproperlysteeringborrowersintoforbearance.”However,accordingto
theAssociatedPress,theauditappearedto“supportfederalandstatelawsuitsthataccuse
Navientofboostingitsprofitsbysteeringsomeborrowersintohigh-costplanswithout
discussingoptionsthatwouldhavebeenlesscostlyinthelongrun.”56Aftertheauditwas
releasedpublicly,Navientcitedtheirservicingcontractandclaimedthattheywerenotaware
“ofanyrequirementthatborrowersreceivealloftheirrepaymentoptions…oneachandevery
call.”57
Insomecases,possibleconflictsofinteresthavealsoraisedredflagsabouttheDepartmentof
Education’sconductvisavisprivatecompanies.InanotherearlyactionbytheDeVos
DepartmentofEducation(August2017),datasharingagreements(MOUs)withtheCFPBwere
terminated,reducingoversightofprivateloanservicers.58TheseMOUsencompassed
informationsharing,acriticalelementofCFPBenforcementefforts,andthusweakenedthe
possibilityoffederaloversightofbothstudentloanservicersandfor-profitcolleges.Inthis
case,thedaybeforetheMOUtermination,morethan872,000sharesofNavientwere
purchasedand,afterthetermination,thestockpricerose.59
55Availableathttps://www.americanoversight.org/nsldn-and-american-oversight-sue-education-department-for-
navient-emails-and-records.56Availableathttps://www.apnews.com/eeebf667026a420c9893220215e542cb.
57Ibid.
58Availableat
https://www.insidearm.com/documents/673/Letter_from_ED_to_CFPB_terminating_MOUs_between_ED_and_CF
PB.pdf.59TheAFL-CIOcalledontheSecuritiesandExchangeCommission(SEC)toinvestigatethetrades“tofindout
whetherthestockpurchasesweredoneillegally,inviolationofinsidertradinglawsortheSTOCKAct,a2012law
thatmakesclearitisillegalformembersofCongressortheirstafftopersonallyprofitonprivateinformation
12
In2014,theObamaadministrationbeganaprocesstosimplifyandstreamlinethestudentloan
repaymentandcollectionprocess.Becausesimplificationwouldrequireanewservicingsystem,
NextGen—asinglewebsiteforallfederalstudentloanborrowers,itwasexpectedtorequire
newanddifferentservicingcontractsthatcouldincludeborrowerprotectionsandbetter
customerservicefeatures.Basedonproblemswithsingleservicersinthepast,bipartisan
electedofficialsandindustrygroupsagreedthatcontractsshouldbeawardedtomultipleloan
servicersonthebasisofpastperformance.61Inthespringof2017,FSAamendedtheplanand
weakenedborrowerprotections,customerservicefeatures,andevencalledforawardingall
servicingcontractstooneprivateservicer.62Afterbipartisanopposition,FSAwithdrewtheplan
entirely,andre-releasedanewonethatincludesasingleonlineplatform,returnstotheideaof
multipleprivateservicers,butdoesnotincludeaccountabilitymeasures.63Infact,thenewplan
proposeshiringaprivatecontractortomanagecomplianceandoversightinsteadofrelyingon
federalgovernmentoversightagenciessuchastheCFPB.64
RelatedchangesintheprocurementdocumentssuggestthattheDepartmentofEducationmay
betippingthescalesinfavorofparticularcompanies.Inoneexample,theDepartmentof
Educationdeclaredthattheywouldmaketheircontractorselectionsbasedonfiveyearsof
complianceinsteadofseven(thenumbercitedinObama-eraprocurementdocuments)inJune
2019,whichmanyconsumerrightsgroupsfeltwasamovemeantto“tipthescalesfor
Navient,”giventhatthenewtimetablewouldmakealargelawenforcementactionagainst
NavientbytheCFPBtoooldtocountintheprocurementprocess.65
C. TheDepartmentofEducationhasattemptedtopreventfederalandstateenforcement
ThroughoutSecretaryDeVos’tenure,theDepartmenthasundertakenseveralactionsaimedat
curtailingfederalandstateentities’abilitiestoregulateandsuperviseeducationloanservicers
andprotectconsumers.
Atthefederallevel,theDepartmentofEducationhasrefusedtoshareinformationwiththe
CFPB.Ashasbeenmentioned,theDepartmentterminatedtwoMOUswiththeCFPBthat
encompassedinformationsharingandfederaloversightofstudentloancompaniesandfor-
obtainedintheirwork.”59Availableathttps://www.reuters.com/article/us-usa-sec-navient/afl-cio-wants-sec-to-
probe-trading-in-shares-of-loan-servicer-navient-idUSKBN1CF2UV.61Availableathttps://www.americanprogress.org/issues/education-
postsecondary/news/2017/06/14/434403/sides-agree-single-servicer-bad-move/;Availableat
https://slate.com/business/2017/04/betsy-devos-is-wasting-no-time-screwing-over-student-borrowers.html.62Availableathttps://www.americanprogress.org/issues/education-
postsecondary/news/2018/01/08/444641/education-department-proposes-major-changes-student-aid/.63Ibid.
64Ibid.
65Availableathttps://www.politico.com/newsletters/morning-education/2019/06/18/trump-backs-west-virginia-
governor-at-odds-with-devos-448037;Availableathttps://protectborrowers.org/navient-free-pass/.
13
profitcollegesinAugust2017.68InresponsetoquestionsfromSenatorWarren,Director
KraningeroftheCFPBwroteinMay2019thattheDepartmentofEducationwasblockingthe
CFPB’seffortstooverseestudentloanservicers.69Kraininger,aTrumpAdministration
appointee,wrotethat"SinceDecember2017,studentloanservicershavedeclinedtoproduce
informationrequestedbytheBureauforsupervisoryexaminations"relatedtofederalstudent
loans.70
Stateactorsarealsoresponsibleforholdingstudentloanservicersaccountableforunfair,
deceptive,andabusivepractices.Thus,severalstateattorneysgeneralhavepursuedlawsuits
againststudentloanservicersforviolationsofstateandfederalconsumerprotectionlaws.One
lawsuitfromMassachusettsAGMauraHealey,allegedthatPHEAA,thelargeststudentloan
servicer,overchargedstudentborrowersandpreventedthemfrommakingqualifiedpayments,
underminingthePublicServiceLoanForgivenessandTeacherEducationAssistanceforCollege
andHigherEducationGrantprograms.71InJanuary2018,EDsidedwithPHEAA,arguingthatthe
StateofMassachusetts’claimswerepreempted.72Later,inMarch,theDepartmentof
Educationattemptedtodeclarethatfederallawspreemptstatelawsgoverningstudentloan
servicers.73
IV. Despitefederalrollbacks,manystateshaveenhancedprotectionsforstudentloanborrowers
Therecentrollbacksatthefederallevelemphasizetheimportanceofsimultaneouseffortsat
thestateleveltoholdservicersaccountableandenforcebasicconsumerprotections.With
theirtraditionalpolicepowers,stateshavetheauthoritytoensureservicersarenotengagingin
unfairandabusivepractices.Justasmanystateshadlongoverseendebtcollectors,recognizing
theimpactdebtcollectionpracticescanhaveontheirresidents,statesrespondedto
widespreadconcernsaboutstudentloandebtandpoorservicingpracticesbyimplementinga
regulatoryframeworkthatwouldallowthemtoensuretheirborrowersweretreatedfairlyby
theirservicers.
In2015,Connecticutbecamethefirstlegislaturetopassthe“StudentLoanBillofRights,”abill
thatrequiredstudentloanservicerstobelicensedbythestate,createdanOfficeofthe
StudentLoanOmbudsman,andprohibitedstudentloanservicersfromengaginginactionsthat
68ThepublicannouncementoccurredinastatementfromRepresentativeVirginiaFoxx(R-NC),whowas,atthe
time,theheadoftheHouseofRepresentativesEducationandWorkforceCommittee.69Availableathttps://www.npr.org/2019/05/16/723568597/cfpb-chief-says-education-department-is-blocking-
student-loan-oversight.70Availableathttps://www.npr.org/documents/2019/may/042319-letter.pdf.
71Availableathttps://www.bostonglobe.com/metro/2018/01/10/feds-say-healey-can-sue-student-loan-
servicer/AgBmFKp0rYySyH92J24hUM/story.html.72Availableathttps://www.nasfaa.org/news-
item/14616/Federal_Guidance_Escalates_Struggle_Between_ED_States_Over_Loan_Servicing_Oversight.73Since,multiplecourtshaverejectedthisassertion.Forexample,inJune2019,afederalappealscourt
unanimouslyheldthatstudentloanservicerscanbesuedunderstatelaw,despiteDeVos'sassertionthattheyare
onlyheldtofederallaw.
14
wouldviolatecertainbedrockprinciplesofconsumerprotection.Asthebill’sauthorand
sponsor,RepresentativeMattLesser,notedatthetime,theStudentLoanBillofRights
representedashiftfromthinkingaboutstudentloansasanissueofhighereducation“toa
systemicproblemforthefinancialsectoroftheeconomy.”Otherstatestooknotice,and
California77,Illinois
78,andWashingtonDC
79followedtoenactnewlawsin2016.
Earlyin2017,theConsumerFinancialProtectionBureau,theIllinoisAttorneyGeneral,and
WashingtonAttorneyGeneralannouncedalawsuitagainstNavientCorporation,atthetimethe
largeststudentloanservicerinthecountry.80Thelawsuitsallegedthattheservicersroutinely
underminedborrowersbymisapplyingpayments,reportingincorrectinformationtocredit
bureaus,andplacingborrowersinplansthatcausedtheirdebttoballoon.TheBureau’s
complaintconfirmedwhatmanystudentloanborrowershadexperienced–loanbalances
increasingafterbeingplacedintoforbearanceratherthananincomedrivenrepaymentplan,
paymentsthatweremisapplied,andevendisabledveteranswhoweredeniedcreditaftertheir
studentloanservicingcompanyfailedtocorrectlyreportthedischargeoftheirloanstothe
creditbureaus.
Facedwithconstituentsstrugglingtogaintheirfinancialfootingastheydealtwiththeirstudent
loandebt,morestatesbecameinterestedinexertingtheirtraditionalpolicepowerstoprotect
studentloanborrowers.Predictably,however,theindustrygroupsthatlobbyonbehalfof
servicersandstateguarantyagenciessteppeduptheireffortstoprotectcorporateinterests.As
mentionedabove,inlateFebruary2018,aftermonthsoflobbyingbystudentloanservicers,
includingtheCEOofNavient,theDeVosAdministrationreleasedaNoticeofInterpretation,
outliningtheDepartment’sbeliefthatstatestudentloanservicinglawsarepre-emptedby
federallaw.81ThedocumentoutlinestheDepartment’sbeliefthatfederallawcompletely
preemptsallstatelawsthatimpactfederalloanservicing–notonlystatelicensingregimesbut
evenprohibitingservicersfrommisleadingborrowersandassertinggeneralprinciplesfoundin
eachstate’slawsprohibitingcompaniesfromengaginginunfairanddeceptiveactsand
practices.82Whilethememohasbeengivenvirtuallynolegalweightandfoundtobe
unpersuasivebymultiplecourts,ithadtheeffectofclearlyestablishingtheDepartmentof
Educationasafoeofstudentloanservicingreform.
77Studentloanservicers:licensingandregulation:StudentLoanServicingAct.
https://leginfo.legislature.ca.gov/faces/billCompareClient.xhtml?bill_id=201520160AB225178StudentLoanServicingRightsAct:http://www.ilga.gov/legislation/ilcs/ilcs5.asp?ActID=3830&ChapterID=18
79StudentLoanOmbudsmanEstablishmentandServicingRegulationAmendmentActof2016:
http://lims.dccouncil.us/Download/36411/B21-0877-SignedAct.pdf80Douglas-Gabriel,Danielle“StudentLoanServicerNavientHitWithThreeGovernmentLawSuitsinOneDay”
WashingtonPost(Jan.18,2017)https://www.washingtonpost.com/news/grade-point/wp/2017/01/18/student-
loan-servicer-navient-hit-with-three-government-lawsuits-in-one-day/81FederalRegister“FederalPreemptionandStateRegulationoftheDepartmentofEducation'sFederalStudent
LoanProgramsandFederalStudentLoanServicers”(March12,2018)
https://www.federalregister.gov/documents/2018/03/12/2018-04924/federal-preemption-and-state-regulation-
of-the-department-of-educations-federal-student-loan82Id.
15
DespitetheattemptbytheDepartmentandservicerstothwartstateinterests,Washingtonand
MarylandstillpassedsomeversionoftheStudentLoanBillofRightsduringthe2018legislative
season,andthepowerofstatestoregulatetheabusivepracticesofstudentloanservicers
remainedclear.Infact,abi-partisangroupof30stateattorneysgeneralaffirmedtherightof
thestatestooverseeandenforcestudentloanlaws,signingaletterstating,inpart:
Given the states’ experience and history in protecting their residents from all
manneroffraudulentandunfairconduct,theyplayanessentialroleinconsumer
protectioninstudentloansandeducation.Statesareuniquelysituatedtohearof,
understand,confront,and,ultimately,resolvetheabusestheirresidentsfacein
theconsumermarketplace.Abuses inconnectionwithschoolsorstudent loans
arenodifferent.Aswithotherissuesfacingtheircitizens,stateregulatorsbringa
specialized focus to, and appreciation for, the daily challenges experienced by
students and borrowers. Far from interfering with the Department and other
federalefforts to rein inabuses, therecordoverwhelminglydemonstrates that
statelawsandstateenforcementcomplementandamplifythisimportantwork.83
ApolldonebytheCenterforResponsibleLendingandtheMaineCenterforEconomicPolicyin
October2018revealedanothercauseforconcernforstateofficials–studentloanborrowers
whomoveoutofstatetofindjobsthatpayenoughtohelprepaytheirdebts.InMaine,more
than40%ofthosepolledknewsomeonewhohadleftthestateinordertopayfortheirstudent
loandebt.84
Thepollalsorevealedthedeeprippleeffectsofstudentdebt.Themajorityofstudentloan
borrowerswhowerepolledreportedthattheyhadstruggledwithpayments,reducedthe
amounttheyweresavingforretirement,andunabletopurchaseacar.Morethan30%of
respondentsreportedthattheyhadputoffpayingrentortheirmortgagetopayastudentloan,
failedtopayanotherbill,orevenhavebeenunabletoaffordfoodorclothing.
AsimilarpollfromMaryland,whichCenterforResponsibleLendingcommissionedwiththe
MarylandConsumerRightsCoalition,foundthatborrowersoverwhelmingly(85%)support
licensingandoversightofstudentloanservicersintheirstate.85
Inthe2019session,statesworkedtostrengthenthebillsthatwouldbefiledacrossthe
country,expandingontheprinciplesfirstcreatedbythepassageoftheConnecticutbillin2015.
ThenewversionsoftheStudentLoanBillofRightsnotonlyrequiredstudentloanservicersto
belicensedbythestateandenumeratedcertainprohibitedacts,butalsocreatedaffirmative
dutiesforservicersand,importantly,includedaprivaterightofaction,enablingborrowersto
83SignOnLettertoCongressreStudentLoanPreemption,Mar.15,2018,
https://nj.gov/oag/newsreleases18/2018-0315_AG-Letter-to-Congress-Opposing-Student-Loan-Preemption.pdf84https://www.mecep.org/new-poll-mainers-struggle-to-pay-down-student-debt-say-loan-servicers-are-making-
matters-worse/85https://www.responsiblelending.org/sites/default/files/nodes/files/research-publication/gonzales-poll-student-
loan-debt-apr2018.pdf
16
enforcethesenewservicinglaws.NewYork,86Colorado,
87Maine,
88RhodeIsland,
89andNew
Jersey90passedthesecomprehensivebills,whileMarylandpassedanupdatetotheir2018bill,
addingprohibitedacts,affirmativeduties,andaprivaterightofaction.AndNevadatookafirst
steptowardsaStudentLoanBillofRights,passingabilltoestablishtheOfficeoftheStudent
LoanOmbudsman.
V. Improvementstothestudentloanservicingsystemareessential
A. Recentlitigationeffortsillustratetheextentoftheproblem
Incourtsacrossthecountry,casesfiledbystudentborrowersandstateAttorneysGeneral
illustrateapatternofpoorservicingpracticesthatpreventborrowersfrommakinginformed
decisionsaboutrepayingtheirloansortakingadvantageofprogramsenactedbyCongress.
Fundamentally,thesystemisbroken,withservicersseeminglyonlyconcernedaboutreducing
costsandshorteningcustomerservicecalls.Farfromengaginginrobustoversight,the
DepartmentofEducationhassoughttofrustrateattemptstoprotectstudentborrowers.
Since2017,theConsumerFinancialProtectionBureauandtheStatesofCalifornia,Illinois,
Massachusetts,Mississippi,Pennsylvania,andWashingtonhavebroughtactionsagainst
studentloanservicers.Thecomplaintsprovidealitanyofabusiveservicingpractices.91Private
litigantshavealsosoughttoenforcestateconsumerprotectionlawsagainstservicers.92The
claimsrangefrommishandlingprocessingrelatedtothePSLFprogram,mishandling
recertificationforTEACHgrants,tosteeringborrowersintoforbearance,providinginaccurate
information,andengaginginabusivecollectionpractices.
Asnoted,theDepartmentofEducationhasrespondedtothislitigationallegingserious
servicingmisconductbyseekingtoshieldtheservicersfromstatelaw(whilealsofailingto
enforceitsownrulesagainstservicers).However,severalcourtshaverightlydismissedthe
Department’sMarch2018noticepurportingtoclaimthattheHigherEducationActbroadly
preemptsstatelaw.93Unfortunately,theDepartment’smessagehasempoweredservicersto
claimpreemption,tyingupstateandprivatelitigation.Ifservicerscanshieldthemselvesfrom
statelaw,withtheaidofafederalagencythatcannotanddoesnotexerciseadequate
86NYBankingLaw,Article14-A:
87ColoradoStudentLoanServicersAct:https://leg.colorado.gov/sites/default/files/2019a_002_signed.pdf
88TheStudentLoanBillofRights:https://legislature.maine.gov/legis/bills/bills_129th/billtexts/SP028501.asp
89StudentLoanBillofRightsAct:http://webserver.rilin.state.ri.us/BillText/BillText19/HouseText19/H5936A.pdf
90AnactconcerningtheappointmentofaStudentLoanOmbudsman,regulatingstudentloanservicers,amending
P.L.2005,c.1991,andsupplementingTitle17oftheRevisedStatutes:
https://www.njleg.state.nj.us/2018/Bills/PL19/200_.PDF91Seee.g.,Illinoisv.NavientCorp.,17-CH-761,IllinoisCircuitCt.CookCounty;Washingtonv.NavientCorp.,No.
17-2-01115-1SEA,Wa.Sup.Ct.;CommonwealthofMassachusettsv.PennsylvaniaHigherEducationAssistance
Agency,MassachusettsSup.Ct.,SuffolkCounty,CaseNo.1784CV02682;Pennsylvaniav.NavientCorp.,No.17-cv-
1814,M.D.PA;ConsumerFinancialProtectionBureauv.Navient,No.17-cv-00101,M.D.PA.92Seee.g.,Nelsonv.GreatLakes,Hylandv.Navient,Lawsonv.GreatLakes.
93Seee.g.,Nelsonv.GreatLakes,No.18-1531,7thCir.,June27,2019),SLSAv.D.C.,Dist.Ct.ofD.C.(Dec.2018).
17
oversight,thenstudentborrowerswillhavenowheretoturnandwillloseoutontheprograms
createdtoeaserepaymentandtorewardpublicservice.
B. Theconsequencesofpoorservicinghavealreadybeenillustratedbytheforeclosurecrisis
AkeylessonfromtheGreatRecessionisthatskillfulloanservicingcouldhavedramatically
mitigatedtheimpactofforeclosuresandtheirspiralingspillovereffectsonneighborhoodsand
theeconomy.Duringtheforeclosurecrisis,policymakersandserviceproviderstofamilies
facingforeclosurerepeatedlycalledforcorrectionstoineffectiveandabusiveservicing.Many
ofthesameproblemsweseetodayinstudentloanservicingwereraisedinthemortgage
context—homeownershadtroublereachingtheirservicerbyphone,andcontactsdidnothave
theauthorityorabilitytohelpthehomeowners.Acustomermightcallandreachadifferent
contacteachtime.Servicersmisappliedpayments,failedtofollowprocessesrequiredaround
noticefordebtors,andfailedtofollowinvestors’lossmitigationrequirements.Servicersalso
lackedcapacity,adequatemanagement,andsufficientqualitycontrol.Atthetimeofthe
foreclosurecrisis,itwaswidelyacknowledgedthatbetterservicingcouldhaveconverted
distressedmortgagesintostableloansinwhichthemortgageedidpaysomething,generating
revenueforinvestors,andcontributingtoastronger,stableneighborhood.Instead,aslarger
numbersofmortgageesfellintodistress,servicerswereoverwhelmedandunabletokeepup
withgrowingdefaults.Worse,asonefamilyinaneighborhoodfacedforeclosure,the
foreclosureaffectedneighboringpropertyvalues,eventuallydepressingthewholeeconomy
andforeclosuresgrew.
Twokeylessonsemergedfromthemortgagecrisisthatshouldnowbeappliedtoreforming
studentloanservicing.First,servicerincentives,funding,andaccountabilitymatteragreatdeal.
Servicerswillfocusoncost-reductionandfollowincentivestopushborrowerstosolutionsthat
suittheservicer.Ifwewantservicerstoworkwithborrowersonincome-drivenrepaymentor
otherpaymentsolutions,andtofollowbasicproceduresforapplyingpayments,providing
information,ordocumentingefforts,incentivesandaccountabilitymustdrivethoseefforts.
Second,overtime,theforeclosurecrisisandensuingresponseshowedthatitiscriticalto
minimizethecomplexityofany“application”or“certification”processthathelpsdistressed
borrowersmodifytheirloan.Themortgagemarkethasmovedtosimplifiedprocessesthat
automaticallymodifyloansfordistressedborrowers,assumingthataffordablereduced
paymentsbenefitboththeborrowerandinvestorsmorethanthehighcostof
foreclosure/pursuingdefault.
Applyingtheselessonstostudentloanservicingisactuallymuchsimplerthanithasbeeninthe
mortgageservicingcontext.Withmortgages,loanshadbeenpooledandsecuritized.Investors
inthemortgagepoolshadconflictinginterests,evenmoreinthevastmajorityofcaseswhere
mortgageeshadmultipleloans,heldinseparatepools,andthefirstlienholderhadaninterest
atoddswithmodifyingthesecond.Here,theDepartmentofEducationistheoverwhelmingly
predominantinvestorandcouldprovideglobaldirectionandaccountabilityforservicers.If
servicersweredirectedtoprioritizeworkingwithborrowerstomanagetheirdebt,avoid
18
default,and/ormodifyloans,andheldaccountableforbasicstandards,theywouldnotfacethe
sameconflictinginstructionsthatmortgageservicersstruggledwith.Hereareexamplesof
ideasproposedduringthemortgagecrisisthatcouldbeappliedmoreeasilyinthestudentloan
servicingcontext:
• Lossmitigationmustbeconductedpriortoforeclosure(defaultcollectioninthecase
ofstudentloans)
• Lossmitigationagreementsmustbeaffordablefortheborrowers
• Latepayingcustomersmustbereferredtocounseling
• Basicservicingstandardsshouldbeimplementedandmonitored,suchasrequiringa
responsetoinquiriesandrequestsforinformationinatimelywayandrequiring
servicerstoreportlossmitigationeffortsbyactivityandgeography;
• Defaultshouldbedelayedifborrowerentersalow-costrepaymentplanandmakes
timelypayments;;
• Dischargeofstudentloansinbankruptcyshouldbepermitted;
• Loanservicersshouldbepaidadequatelyforthetime-intensiveworkofloss
mitigationandloanmodification(i.e.puttingborrowersinrepaymentplans);and
• Forgivenstudentloandebtshouldnotbetreatedastaxableincome.
VI. Towardsanew,improvedborrower-centeredstudentloanservicingsystem
Fivekeyfixestostrengthenservicingstandardsandoversightcouldgoalongwaytoward
helpingstudentloanborrowersandensuringabetterreturnonourinvestmentinhigher
education.
1. Reformstudentloanservicingabusesbysettingclearconsumerprotectionstandards.Theseincluderequiringservicerstoactinthebestinterestsofborrowers,prohibiting
abusivefeesandpractices,andensuringthatvoluntaryoverpaymentsareallocatedto
principal.Feesshouldbeminimized,paymentsprocessedefficiently,anderrorsshouldbe
resolvedquicklyandwithdocumentation.Loandocumentsandhistoryshouldbeeasierto
understandandaccess.Preventthereportingofinaccurateinformationtocreditbureaus.
Preventfraudandabusethroughdebtreliefscamsandotherpredatoryschemesbylimiting
thebehaviorandholdingservicersliableforscamsthataresuccessful.Commonsense
affirmativedutiesandclearprohibitedactscanensurethatservicerscommunicatewith
borrowersinatimelymannerandthattheyprovideconsistentinformation.
2. Restructureservicercompensationtoencourageandcompensateservicersforspendingtimewithborrowersatriskofdelinquencyanddefault,includingenrollingborrowersinincome-drivenrepayment.Today,wespendmoretoputborrowersintocollectionthanwe
dotohelpthemgetmoreaffordablepaymentsandstaycurrentontheirloans.
Compensationratesencourageservicerstopushforbearancebecauseservicersarenot
compensatedoncealoanisindefaultandarecompensatedprogressivelylessasa
borrowergetsfurtherintodelinquency.
19
3. AffirmandassertthepoweroftheCFPBandstateattorneysgeneralinservicingoversightandenforcementbyexplicitlymakingviolationsofservicingstandardsenforceableunder
stateUnfair,Deceptive,orAbusivePractices(UDAP)lawsandtheCFPBAct.Today,the
DepartmentofEducationisignoringitsowndutytoeffectivelyoverseestudentloan
servicersandsimultaneouslytryingtoblockstatesfromexercisingoversight.Affirmthat
stateshavearighttooverseeandsanctionabusivestudentloanservicers.Requirethe
DepartmentofEducationtocooperatewiththeCFPBandstateentities.Capgeneralfederal
debtcollectionamountstonomorethantheamounttheborrowerwouldpayunderIBR.
4. Empowerborrowerstoenforcetheirownrightsandprotecttheirownfinancialfutures.Banmandatoryarbitrationclausesandrecognizeaprivaterightofactionbyborrowers
againststudentloanservicersanddebtcollectorswhoviolateconsumerprotectionlawsor
contractrequirements.Allowdischargeofstudentloansinbankruptcy.
5. Increasetransparencyandstemthenegativecollateraleffectsofthestudentdebtcrisis.Collectandpublishdatafromservicerstotrackservicingmetricsforallloans.Require
regularreportingonstudentloanservicerperformanceandactivity.Worktoensurethat
theburdenofstudentdebtisnotaninsurmountablebarriertootherwealth-building
activitiessuchashomeownershipandentrepreneurship.
VII. Conclusion
Ratherthanliftingpeopleoutofpovertyandprovidingaccesstothemiddleclass,studentdebt
isfurtherentrenchingtheracialwealthgapandperpetuatingthecycleofpovertythatresults
fromsystemiclackofaccesstoresources,capital,andaffordablecredit.Ourshort-sighted
approachisleavingjobsunfilled,moneywasted,andhumanpotentialsquandered,threatening
ournationalsecurityandeconomicwell-being.94With$1.5trillioninstudentdebtandwith
defaultsontherise,goodservicingisvital.
In2008,wesawfirsthandthatindividualsandtaxpayersareleftpayingthebillwhenwefailto
holdindustryaccountableforcomplyingwithbasicrulesoftheroad.Thestudentloandebt
crisisisontracktodecimateoureconomyandourcommunitiesinmuchthesamewaythe
mortgagecrisisdid.Reformingthestudentloanservicingandcollectionsystemcouldhavea
majorimpactontheabilityofstudentstoachievefinancialsecurity,thecoreintentofour
studentloanandhighereducationsystem.Skillfulstudentloanservicingcouldconvert
distressedloansintostablerepaymentplansthatgeneraterevenueandenableborrowersto
contributetostronger,morestablecommunities.Ineffectiveservicingcanproducethe
oppositeresults.Ratherthanrepeatmistakesfromthemortgagecrisis,weshouldlearnlessons
fromthatexperienceandworktoachieveasounderandmoreeffectivestudentloansystem
today.
94CouncilonForeignRelations.2012.“U.S.EducationReformandNationalSecurity,”IndependentTaskForce
Reportvol.68.Availableathttps://cfrd8-
files.cfr.org/sites/default/files/report_pdf/TFR68_Education_National_Security.pdf.
