Making Student Loan Servicing Work for Borrowers

The Consumer Financial Protection Bureau (CFPB) asked for comments on student loan servicing a few months ago.  Thousands of borrowers and their advocates responded before yesterday’s deadline, highlighting again and again that the current system does not work well for borrowers and is not created to ensure that borrowers have enforceable rights to quality service and accessible relief.

We filed extensive comments with numerous examples of breakdowns in the current servicing system.  The second part of the comments focus on servicing of home mortgages.  We emphasized that servicing rules and protocols are more developed for mortgages than for student loans. Unfortunately, enforcement of the rules and protocols in mortgage servicing has been largely missing. This failure of enforcement should signal an area of concern for anyone developing a system for oversight of student loan servicing.

We also filed separate comments with the National Association of Consumer Bankruptcy Attorneys (NACBA) focusing on servicing problems faced by borrowers filing for bankruptcy.

We urge the Bureau, Department of Education and other agencies to carefully review these comments and recognize the harm caused by inferior servicing.   Student loan services are the borrower’s primary point of contact.  If the servicer is competent and efficient, many financially distressed borrowers will be able to avoid default.  The main problem with the current system is that student loan borrowers do not receive consistent quality service.  Combined with lax oversight and no clear way for borrowers to enforce their rights, too many borrowers never obtain options that could relieve their debt burdens and help them make fresh starts in life.

Unfortunately, the servicing system has become so confusing that an entire industry of for-profit “debt relief” companies has sprung up to supposedly provide the services that the free government services are failing to provide.  Borrowers run the risk not only of paying exorbitant fees to these companies, but also of losing important rights.

There is an urgent need to improve student loan servicing to help avoid default and ease the burdens of student loan debt.