Ting Shen/Bloomberg via Getty Images
On Friday, the Consumer Financial Protection Bureau vowed to crack down on student loan servicers who flout rules on loan forgiveness for public servants.
The government agency said it ‘plans to prioritize’ monitoring student loans over the coming year, with a ‘particular focus’ on monitoring how services engage with of federal borrowers over the cancellation of public service loans, according to a compliance bulletin.
This forgiveness program, created in 2007, allows nonprofit and government employees to have their remaining federal student loans forgiven after 120 payments (or 10 years).
Learn more about personal finance:
Department of Education writes off $415 million in student debt
The cost of long-term care is rising due to staff shortages
Petition for $18 minimum wage collects signatures in California
The program has been plagued with problems and few borrowers have obtained the relief promised, often for confusing or technical reasons.
The CFPB, created in the wake of the 2008 financial crisis, found that some loan servicers – who handle student loan accounts – misled borrowers about their ability to become eligible for public service loan forgiveness, according to the note released Friday.
The Biden administration relaxed the program’s rules in October, offering a waiver that essentially gave borrowers who had been barred from forgiveness a second chance. The US Department of Education estimates the move could impact 550,000 borrowers.
But there are certain steps many must complete before October 31 to be eligible, and the CFPB is concerned that service agents will give borrowers accurate and complete information.
(For example, to receive benefits, some borrowers will need to apply to consolidate their federal loans into a particular type of loan, called a direct loan, and submit a remission form by Oct. 31.)
“Illegal conduct by a student loan officer can be ruinous for borrowers who miss the opportunity to cancel their debt,” CFPB Director Rohit Chopra said in Friday’s announcement. “We will work closely with the U.S. Department of Education to ensure that public service loan cancellation pledges are honored.”
Rohit Chopra, director of the Consumer Financial Protection Bureau, during a House Financial Services Committee hearing on October 27, 2021.
Bill Clark | CQ-Roll Call, Inc. | Getty Images
Chopra, appointed by President Joe Biden, oversaw student loans in the office during the Obama administration.
The Dodd-Frank Act, signed in July 2010, created the CFPB to protect consumers from unfair, abusive, and deceptive financial practices — a response to risky lending that plunged the United States into a deep recession.
The bureau controls banking, mortgages, student loans, debt collection, credit cards, credit reports, and payday loans, among other areas. This broad consumer oversight had not previously been the primary focus of a federal agency.
The watchdog will focus its review of federal loan servicers on a few areas, according to its compliance bulletin: whether companies provide complete and accurate information about the forgiveness waiver, whether they have adequate mechanisms in place to identify when borrowers are interested in the program or to refer eligible borrowers to the appropriate resources, and whether companies are promoting the benefits of the rebate to those borrowers.
The compliance crackdown comes as the White House weighs what steps it might be able to take to write off federal student loan debt. The Department of Education said Thursday it had forgiven a total of $415 million in debt for nearly 16,000 borrowers who attended for-profit schools.