CFPB Report Details Student Borrower Harms from Servicing Failures and Program Disruptions

The Consumer Financial Protection Bureau (CFPB) today released the annual report of the CFPB Student Loan Ombudsman, highlighting the severe difficulties reported by student borrowers due to persistent loan servicing failures and program disruptions.

The report details how millions of student borrowers have received relief through new income-driven repayment plans, cancellation programs, and various adjustments and program automation processes.

However, borrowers tell the CFPB how servicing breakdowns, including inaccurate information provided by servicers, improperly processed payments, and delayed income driven payment applications have stymied their return to repayment.

The report, which focuses on the 2023-2024 Award Year and analyzed over 18,000 consumer complaints, showed that servicer errors with billing & auto-pay, customer service failures, and incorrect repayment information are causing severe financial and personal distress to borrowers.

During the past year, 28 million federal student loan borrowers returned to repayment following the end of the COVID-19 payment pause.

To assist struggling borrowers, the Department of Education implemented reforms resulting in billions of dollars in loan cancellation for almost 5 million borrowers and restored eligibility for 3 million formerly defaulted borrowers.

However, servicing failures and legal challenges have hampered the implementation of critical loan relief efforts, including the Saving on a Valuable Education (SAVE) plan.

The report details challenges facing student borrowers, including:

Servicer failures are causing borrowers to pay inflated amounts that jeopardize their financial well-being; borrowers described problems with billing, including inaccurate or late statements; errors with auto-pay, including thousands of dollars incorrectly debited from accounts; and payments that were not properly applied to their balances.

Among the dozens of individual consumer disputes highlighted in the report, there was an average of more than $14,000 disputed per borrower.

These servicing issues are resulting in borrowers having difficulty meeting their other financial obligations such as rent and car payments, being shut out of mortgages and homeownership, and forgoing saving for retirement, among other financial difficulties.

The report urges several systemic reforms to improve student loan servicing, such as ensuring that servicers are held accountable for performance failures.

It also notes the importance of considering broader changes to the student loan system to reduce the persistence and prevalence of student loan debt.