September 2015

Student loan servicing

Analysis of public input and recommendations for reform
1

Table of contents

Table of contents.........................................................................................................1

Executive summary.....................................................................................................3

About this report .........................................................................................................6

Introduction .................................................................................................................8

1. Public input on student loan servicing practices ............................................16

1.1 Borrower benefits and protections ..........................................................17

1.2 Servicing transfers .................................................................................. 45

1.3 Customer service and error resolution...................................................63

1.4 Payment processing .................................................................................71

1.5 Practices impacting specific borrower segments ...................................89

2. Public input on analogies to servicing approaches in other 

markets..............................................................................................................103

2.1 Practices and protections for struggling or delinquent borrowers ...... 105

2.2 Practices and protections related to servicing transfers .......................114

2.3 Practices and protections related to customer service and error 

resolution...............................................................................................119

2.4 Practices and protections related to the processing of payments........ 122
2

3. Recommendations............................................................................................133

3.1 Consistent ............................................................................................. 136

3.2 Accurate and actionable........................................................................ 138

3.3 Accountable........................................................................................... 140

3.4 Transparent........................................................................................... 142

Conclusion...............................................................................................................146

Contact information ................................................................................................147

Appendix A: .............................................................................................................148

Joint statement of principles on student loan servicing............................... 148
3

Executive summary

 More than 41 million Americans collectively owe more than $1.2 trillion in student loan 

debt, making student loan debt the second-largest class of consumer debt behind 

mortgages. The student loan market continues to show elevated levels of distress relative 

to other types of consumer debt, despite recent improvements in the labor market and 

the near-universal availability of income-driven repayment plans for borrowers with 

federal student loans experiencing financial hardship. The Bureau estimates that more 

than 1-in-4 student loan borrowers are now delinquent or in default on a student loan.

 Significant data gaps exist in the higher education sector, including data related to loan 

performance, student outcomes, and certain key demographic, labor, and wage data 

about student loan borrowers. Evidence suggests that some borrowers who default share 

certain characteristics, including attendance at proprietary schools or failure to complete 

a program of study. Improved access to key data is needed, including accesss to data 

related to predictors of future borrower distress, performance of borrowers in alternative 

repayment arrangements, and the efficacy of various interventions, and should inform 

policymakers and market participants seeking to target resources and reduce defaults. 

 Student loan servicers are a critical link between borrowers and lenders. Servicers 

manage borrowers’ accounts, process monthly payments, manage enrollment in 

alternative repayment plans, and communicate directly with borrowers, including 

borrowers in distress. There are no consistent, market-wide federal standards for 

student loan servicing and servicers generally have discretion to determine policies 

related to many aspects of servicing operations. 

 In May 2015, the Bureau joined with the Department of Education and the Department 

of the Treasury to launch a public inquiry into student loan servicing practices. The 

Bureau published a notice in the Federal Register requesting comments from the public 

on student loan servicing. In response, the Bureau received more than 30,000 comments 
4

describing specific student loan servicing practices that may be contributing to student 

debt stress, and offering specific recommendations for ways to improve student loan 

servicing, encourage borrower success, and mitigate defaults. Although not necessarily 

representative of the experience of more than 41 million student loan borrowers, public 

comments help to illustrate where there may be a mismatch between borrowers’ needs 

and actual service delivered.

 Comments from individual student loan borrowers describe how they encounter

servicing problems or practices that discourage utilization of alternative repayment 

plans, including income-driven repayment plans. A number of comments describe how 

some borrowers may end up in default when they are unable to obtain an alternative 

repayment plan. Comments also describe how some servicing practices subsequently can 

result in payment shock, lost benefits, and increased interest charges for borrowers 

enrolled in these plans.

 Commenters detail problems related to customer service, including issues for borrowers 

seeking to resolve servicing errors. Commenters describe how these problems create 

barriers for borrowers experiencing financial hardship who are seeking to avoid default,

and may cause significant credit reporting harm.

 Commenters describe how payment processing and servicing transfer practices create 

problems for borrowers trying to repay student debt. Public comments from individual 

borrowers describe how these practices cause payment processing problems, increase 

interest charges and late fees, prolong repayment, and create confusion for student loan 

borrowers. Loan servicers also comment that the complexity of the student loan 

programs may contribute to these problems.

 Commenters, including student loan borrowers, student loan market participants, state 

law enforcement officials and banking regulators, policy experts, and organizations 

representing consumers, workers, people of color, and institutions of higher education, 

call on policymakers to develop student loan servicing standards. Some comments 

identify existing protections for consumers with credit cards or mortgages, suggesting 

that these protections may serve as a guide as policymakers and market participants 

consider a framework to improve student loan servicing practices. 

 In addition, the Bureau received comments from servicers, lenders, and organizations 

representing the student loan industry. Many of the public and industry commenters 
5

offer specific recommendations regarding ways to improve student loan servicing, 

encourage borrower success, and mitigate defaults. 

 Industry commenters, including the two largest participants in the student loan servicing 

market, identify certain student loan servicing practices where there is significant 

diversity in the marketplace and suggest that policymakers require consistent 

approaches to common servicing functions, while taking into account important 

variations in product terms and features. Other industry commenters suggest alternate 

approaches related to specific practices or dispute the need for additional action. 

 In this report, the Bureau suggests a framework to improve student loan servicing 

practices, recommending consistent standards for the student loan servicing market, 

strengthened servicer communications that provide information in a manner that leads 

to better borrower outcomes, continued emphasis on accountability and oversight by 

federal and state regulators, and public access to robust data on student loan 

performance. 

 In September 2015, the Bureau, the Department of Education, and the Department of 

the Treasury issued a Joint Statement of Principles on Student Loan Servicing, 

proposing a framework similar to the recommendations included in this report.
6

About this report

This report reviews and discusses public comments submitted in response to a Request for 

Information Regarding Student Loan Servicing published in the Federal Register in May 2015 

(Docket ID: CFPB-2015-0021). The notice details a series of topics and questions to elicit 

feedback from the public, including:

 How existing student loan servicing industry practices affect repayment;

 Whether protections in place in other markets for consumer financial products and 

services should be instructive to policymakers and market participants seeking to 

improve the delivery of service, including:

 Protections in place for homeowners repaying mortgages,

 Protections in place for homeowners facing foreclosure or experiencing financial 

distress, 

 Protections in place for consumers with credit cards; and

 How the availability of data on student loan origination and performance influences 

policymakers, market participants, and members of the public seeking to strengthen 

student loan servicing. 

Members of the public, including student loan borrowers, financial services providers including 

but not limited to lenders and servicers in the mortgage, credit card, and student loan markets, 
7

organizations representing students and student loan borrowers, colleges and universities, 

students, and families were encouraged to submit comments.1

In addition, a number of student loan market participants, including student loan servicers and 

recent entrants to the student loan market, provided supplemental data and other information 

related to certain student loan servicing practices, which informed the analysis contained in this 

report. The Bureau also considered complaints from individual consumers, submissions to the 

Bureau’s “Tell Your Story” function, and other qualitative input from consumers and other 

stakeholders.

Readers should note that the public comments and other qualitative inputs described in this 

report are not necessarily representative of the experience of over 41 million borrowers in the 

student loan market. Public comments help to illustrate where there may be a mismatch 

between borrower needs and actual service delivered. Policymakers and market participants will 

likely find the inventory of borrower experiences and servicing practices helpful in further 

understanding the diversity of consumer experience in the market.

 

1 Consumer Financial Protection Bureau, Request for Information Regarding Student Loan Servicing (May 2015), 

available at http://www.consumerfinance.gov/students/request-for-information-on-student-loan-servicing.
8

Introduction

More than 41 million Americans owe student loan debt. In less than a decade, the volume of 

outstanding federal student loan debt has more than doubled, rising from $516 billion in 2007 

to greater than $1.2 trillion in the third quarter of 2015,2 surpassing all other categories of 

consumer debt aside from mortgages. During the same period, the number of federal student 

loan borrowers has grown by nearly 45 percent, rising from 28.3 million to 40.8 million.3 As the 

size of the overall market has increased,4the average debt burden shouldered by an individual 

borrower grew by nearly 60 percent, rising from slightly more than $18,000 in 2007 to nearly 

$30,000 in the third quarter of 2015.5 The median debt burden has also grown by nearly 50

percent over a similar period, according to one recent analysis of borrowers entering repayment, 

increasing from approximately $13,000 in 2007 to nearly $20,000 in 2014.6 

 

2 See U.S. Department of Education, Federal Student Aid Portfolio Summary, available at

https://studentaid.ed.gov/sa/sites/default/files/fsawg/datacenter/library/PortfolioSummary.xls.

3 Id.

4 This estimate does not include private student loans. The market for private student loans is opaque, as market 

participants generally do not make available key origination and performance information, and reporting 

requirements on outstanding balances and performance are extremely limited. 

5 See U.S. Department of Education, Federal Student Aid Data Center: Federal Student Aid Portfolio Summary

(accessed on Aug. 22, 2015), available at https://studentaid.ed.gov/sa/about/data-center/student/portfolio.

6 Adam Looney & Constantine Yannelis, A Crisis in Student Loans? How Changes in the Characteristics of Borrowers 

and in the Institutions they Attend Contributed to Rising Loan Defaults, The Brookings Institution (Sept. 2015), 

available at http://www.brookings.edu/~/media/projects/bpea/fall2015_embargoed/conferencedraft_looneyyannelis_studentloandefaults.pdf. 
9

FIGURE 1: AVERAGE BALANCE PER BORROWER (FEDERAL STUDENT LOANS)7

Unlike other types of consumer debt, which have realized reduced levels of delinquency and 

default compared to highs reached following the Great Recession, the student loan market 

continues to show signs of distress.8 The Bureau estimates that a quarter of student loan 

borrowers are, collectively, either delinquent or in default on more than $175 billion in student 

debt.9 Borrowers with certain characteristics, including borrowers who attend proprietary 

schools and borrowers who do not successfully complete a program of study, comprise an 

 

7 See U.S. Department of Education, Federal Student Aid Data Center: Federal Student Aid Portfolio Summary 

(accessed on Aug. 22, 2015), available at https://studentaid.ed.gov/sa/about/data-center/student/portfolio. 

8 See Federal Reserve Bank of New York, Quarterly Report on Household Debt and Credit (Aug. 2015), available at

http://www.newyorkfed.org/householdcredit/2015-q2/data/pdf/HHDC_2015Q2.pdf. 

9 U.S. Department of Education, Federal Student Loan Portfolio: Direct Loan and Federal Family Education Loan 

Portfolio by Loan Status (accessed on Sept. 28, 2015), available at

https://studentaid.ed.gov/sa/sites/default/files/fsawg/datacenter/library/PortfoliobyLoanStatus.xls; U.S. 

Department of Education, Federal Perkins Loan Program Status of Default as of June 30, 2014 (Mar. 2015),

available at http://ifap.ed.gov/perkinscdrguide/attachments/1314PerkinsCDR.pdf; U.S. Department of Education 

and Consumer Financial Protection Bureau, Private Student Loans (July 2012), available at

http://www.consumerfinance.gov/reports/private-student-loans-report/; U.S. Department of Education, Federal 

Student Loan Portfolio: Direct Loan Portfolio by Delinquency Status (accessed on Sept. 28, 2015), available at

https://studentaid.ed.gov/sa/sites/default/files/fsawg/datacenter/library/DLPortfoliobyDelinquencyStatus.xls. 

$18,233 $19,298 $20,467 $21,860 $23,238

$24,757

$26,268

$27,759 $28,973

$0.00

$5,000.00

$10,000.00

$15,000.00

$20,000.00

$25,000.00

$30,000.00

$35,000.00

2007 2008 2009 2010 2011 2012 2013 2014 2015

(Q3)
10

outsized share of all loan defaults.10 Recent data released by the Department of Education shows 

that the total volume of defaulted student loans continues to climb—over the past 24 months, 

the total volume of federal student loans in default, on a dollar basis, has grown by nearly 25 

percent.11

There are also significant gaps in available data about higher education and student loan 

performance, including key outcome measures such as job attainment and wage information, 

which may offer insight into underlying drivers of distress in the student loan market. For 

example, current data may be insufficient to assess whether this borrower distress can be 

attributed to specific features of the higher education sector or cyclical effects of a market 

economy.12 Policymakers and researchers note that filling these gaps will improve public 

understanding of servicing practices and market trends, and allow policymakers, regulators, and 

market participants to effectively target resources to improve borrower outcomes.13

A growing body of evidence suggests that rising levels of student loan indebtedness may also 

have had spillover effects on other segments of the economy—potentially limiting borrowers’ 

access to credit, diminishing savings, reducing homeownership, threatening retirement security, 

and inhibiting borrowers from pursuing careers as healthcare providers and educators in 

underserved communities, or as entrepreneurs.14

 

10 See, e.g., Looney & Yannelis, supra note 6.

11 See U.S. Department of Education, Federal Student Loan Portfolio: Direct Loan and Federal Family Education 

Loan Portfolio by Loan Status (accessed on Aug. 22, 2015), available at

https://studentaid.ed.gov/sa/sites/default/files/fsawg/datacenter/library/PortfoliobyLoanStatus.xls.

12 See, e.g., Federal Reserve Bank of New York, Opening Remarks at the Convening on Student Loan Data 

Conference (Mar. 4, 2015), available at http://www.ny.frb.org/newsevents/speeches/2015/dud150304.html.

13 Id.; see also Susan Dynarski, We’re Frighteningly in the Dark About Student Debt, N.Y. Times (Mar. 20, 2015), 

available at http://www.nytimes.com/2015/03/22/upshot/were-frighteningly-in-the-dark-about-studentdebt.html.

14 For further discussion of the spillover effects of student debt on the economy, see Consumer Financial Protection 

Bureau, Student Loan Affordability (May 2013), available at www.consumerfinance.gov/reports/student-loanaffordability. 
11

Elevated levels of student loan borrower distress exist despite the availability of a range of 

protections for borrowers that are designed to mitigate delinquency and default, including 

income-driven repayment plans provided for by law for the vast majority of borrowers with 

federal student loans.15

Student loan servicers serve as a link between borrowers and lenders or loan holders. Servicers 

manage borrowers’ accounts, process monthly payments, and communicate directly with 

borrowers. When facing unemployment or other financial hardship, borrowers must contact 

student loan servicers to enroll in alternative repayment plans, including income-driven 

repayment plans for borrowers with federal loans, obtain deferments or forbearances, or request 

a modification of loan terms. A servicer is often different than the lender, and a borrower 

typically has little or no control over which company services their loan. 

Servicers generally must comply with applicable federal and state consumer financial laws and 

regulations and, for certain older federal student loans, regulations promulgated by the 

Department of Education and authorized by the Higher Education Act (HEA). In addition, loan 

holders generally require servicers to satisfy performance metrics included in servicing 

contracts. However, there is no existing, comprehensive federal statutory or regulatory 

framework providing consistent standards for the servicing of all student loans.16

The ability to assess the overall quality of student loan servicing is limited by lack of data, 

particularly for loans not held by the federal government; however, existing evidence—

 

15 Readers should note that access to both Income-Based Repayment (IBR) and Pay As You Earn (PAYE) is limited to 

borrowers with federal loans used to finance their own education. Parents with federal student loans made under 

the Parent PLUS program may use another income-driven repayment plan, Income-Contingent Repayment (ICR), 

but must first refinance any parent loans into a new Direct Consolidation Loan in order to be eligible. See U.S. 

Department of Education, Income-Driven Plans, available at https://studentaid.ed.gov/sa/repayloans/understand/plans/income-driven. 

16 In 2014, the Bureau expanded its examination program for student loan servicing to supervise both large depository 

institutions and larger nonbank student loan servicers for compliance with federal consumer law, including the 

prohibition against unfair, deceptive, and abusive practices under the Dodd-Frank Act. This is the first examination 

program at the federal level focused on both bank and nonbank actors in the student loan servicing market. See

Consumer Financial Protection Bureau, CFPB Examination Procedures: Education Loan Examination Procedures

(Dec. 2013), available at http://files.consumerfinance.gov/f/201312_cfpb_exam-procedures_education-loans.pdf. 

Student loan servicers, however, were required to comply with all applicable federal and state law, including federal 

consumer financial law, even before the Bureau expanded its examination program.
12

including recent actions by federal regulators17 and law enforcement agencies18— suggests that 

current servicing practices may not meet the needs of borrowers or loan holders, including, in 

the case of federal loans held by the Department of Education, the needs of taxpayers. 

A number of commenters draw parallels to mortgage servicing problems experienced by 

homeowners in the run up to, during, and in the immediate aftermath of the financial crisis. 

Macroeconomic conditions declined, unemployment rose, and household balance sheets 

deteriorated. Over this period, millions of American families struggled to manage mortgage 

payments and faced foreclosure. In response, federal agencies and financial institutions 

deployed mortgage loss mitigation initiatives designed to help borrowers avoid foreclosure. As 

foreclosures spread from borrowers with sub-prime and exotic mortgages to a broader segment 

of American homeowners, policymakers, consumer advocates, and leaders in the mortgage 

industry identified certain mortgage servicing practices as a significant source of distress for a 

growing share of homeowners.19 

 

17 See, e.g., Consumer Financial Protection Bureau, Press Release: CFPB Supervision Report Highlights Risky 

Practices in Student Loan Servicing (Oct. 2014), available at http://www.consumerfinance.gov/newsroom/cfpbsupervision-report-highlights-risky-practices-in-student-loan-servicing (identifying illegal practices by student loan 

servicers proportionally allocating partial payments among loans in a student loan account in a manner that 

maximized late fees, charging improper late fees, and misrepresenting discharging student loans in bankruptcy); see 

also Consumer Financial Protection Bureau, Press Release: CFPB Orders Discover Bank to Pay $18.5 Million for 

Illegal Student Loan Servicing Practices (July 2015), available at 

http://www.consumerfinance.gov/newsroom/cfpb-orders-discover-bank-to-pay-18-5-million-for-illegal-studentloan-servicing-practices (ordering Discover to refund $16 million to consumers, pay a $2.5 million penalty for 

illegal practices of overstating the minimum amounts due on billing statements, failure to provide accurate tax 

information, and misleading consumers that did not qualify for the student loan tax deduction. In addition, 

Discover was fined for engaging in illegal debt collection tactics by calling consumers early in the morning and late 

at night, often excessively.).

18 See, e.g., U.S. Department of Justice, Press Release: Nearly 78,000 Service Members to Begin Receiving $60 

Million Under Department of Justice Settlement with Navient for Overcharging on Student Loans (May 2015), 

available at http://www.justice.gov/opa/pr/nearly-78000-service-members-begin-receiving-60-million-underdepartment-justice-settlement; Federal Deposit Insurance Corporation, FDIC Announces Settlement with Sallie 

Mae for Unfair and Deceptive Practices and Violations of the Servicemembers Civil Relief Act (May 2014), 

available at http://www.fdic.gov/news/news/press/2014/pr14033.html.

19 For further discussion, see Adam Levitin & Tara Twomey, Mortgage Servicing, 28 Yale J. on Reg. 1 (2011), 

available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1324023; Problems in Mortgage Servicing 

From Modification to Foreclosure: Hearing before the S. Comm. on Banking, Housing, and Urban Affairs, 111th 

Cong. (Nov. 16, 2010) (testimony of Thomas J. Miller, Iowa Att’y Gen.), available at
13

Over the past two years, senior government officials,20 federal regulators,21 state law 

enforcement agencies,22 consumer advocates,23 and others have suggested that the steps taken 

by policymakers to strengthen servicing protections for homeowners may offer an instructive 

analogy for policymakers and market participants with regard to the student loan servicing 

market. As one state banking regulator notes, when drawing a parallel between servicing 

problems experienced by consumers with mortgages and student loan borrowers, “this is not 

déjà vu. We have been here before.”24

In May 2015, the Bureau, in coordination with leaders from the Department of Education and 

the Department of the Treasury, launched a public inquiry into student loan servicing 

practices.25 In support of this initiative, the Bureau published a notice in the Federal Register

soliciting input on potential solutions to improve the delivery of service to student loan 

borrowers in repayment.26

 

http://www.banking.senate.gov/public/index.cfm?FuseAction=Hearings.Testimony&Hearing_ID=df8cb685-c1bf4eea-941d-cf9d5173873a&Witness_ID=0c61c591-40e3-45d4-90e6-5aad94fd6152. 

20 See, e.g., U.S. Department of Education, Remarks of Undersecretary Ted Mitchell at the Federal Student Aid 

(FSA) Servicing Summit in Atlanta, GA (Dec. 2014), available at http://www.ed.gov/news/speeches/preparedremarks-us-under-secretary-education-ted-mitchell-federal-student-aid-fsa-servicing-summit-atlanta-ga; U.S. 

Department of the Treasury, Remarks of Deputy Secretary Raskin on Student Loans at the National Consumer 

Law Center's Annual Consumer Rights Litigation Conference (Nov. 2014), available at

http://www.treasury.gov/press-center/press-releases/Pages/JL2689.aspx.

21 See, e.g., The U.S. Economic and Fiscal Outlook: Hearing Before the S. Comm. on the Budget, 113th Cong. (May 8, 

2014) (testimony of Janet Yellen, Chair of the Board of Governors of the Federal Reserve System), available at 

http://www.budget.senate.gov/republican/public/index.cfm/2014/5/the-u-s-economic-and-fiscal-outlook. 

22 See, e.g., Office of the Attorney General, State of Illinois, Letter from Lisa Madigan to Secretary Duncan (June 1, 

2015), available at http://www.illinoisattorneygeneral.gov/pressroom/2015_06/ArneDuncanLetter.pdf.

23 See, e.g., CFPB-2015-0021-0356; CFPB-2015-0021-0861.

24 CFPB-2015-0021-0381.

25 Consumer Financial Protection Bureau, Press Release: CFPB Launches Public Inquiry Into Student Loan Servicing 

Practices (May 2015), available at http://www.consumerfinance.gov/newsroom/cfpb-launches-public-inquiryinto-student-loan-servicing-practices/. 

26 Consumer Financial Protection Bureau, Request for Information Regarding Student Loan Servicing, 80 Fed. Reg. 

29302 (May 21, 2015), available at https://federalregister.gov/a/2015-12276. 
14

The Bureau received an overwhelming response, with more than 30,000 comments submitted 

by the public.27 Commenters include:

 More than 8,000 comments from individual consumers sharing unique experiences 

related to student loan servicing and more than 22,000 additional comments from 

members of the public calling for strong standards to protect student loan borrowers in 

repayment;

 More than 110 membership organizations in 35 states and the District of 

Columbia, submitting comments on behalf of millions of people belonging to 

organizations representing student loan borrowers, workers, students, communities of 

color, senior citizens, young people, members of the faith community, and stakeholders 

in the higher education sector;

 20 state attorneys general and banking regulators; and

 More than 50 organizations including trade associations representing large 

depository institutions and specialty student loan market participants, individual 

participants in the student loan market including banks, credit unions, incumbent 

student loan servicers, specialty student loan refinance providers, credit counselors, and 

other providers of consumer financial products and services.

Part One of this report analyzes how these comments, along with available data and other input 

related to the student loan servicing market, describe existing student loan servicing practices, 

policies, and procedures. Part Two discusses how specific protections available to consumers in 

other markets may be instructive, as cited in public comments. Finally, Part Three discusses 

 

27 For a complete collection of comments received in response to this request, see

http://www.regulations.gov/#!docketDetail;D=CFPB-2015-0021. Public comments and other qualitative inputs 

described in this report are not necessarily representative of the experience of over 41 million borrowers in the 

student loan market; however, comments help to illustrate where there may be a mismatch between borrower needs 

and actual service delivered. 
15

some of the policy options raised in the public comments and offers the Bureau’s 

recommendations to improve the delivery of student loan servicing.28

 

28 As discussed in greater detail in Part Three of this report, policymakers, state and federal regulators and law 

enforcement agencies, and the public continue to encounter significant obstacles when attempting to analyze and 

assess risks to consumers in certain segments of the student loan market, in part due to significant limitations on 

data related to loan performance. Where possible, this report seeks to analyze existing sources of data about student 

loan servicing operations, including information disclosed to investors through certain public filings and other 

sources of public information about student loan performance. To support the development of this report, several 

participants in the student loan market provided supplemental information related to certain aspects of their 

student loan servicing businesses. Readers should note that, similar to comments submitted by individual student 

loan borrowers, data provided by a single market participant may not be representative of the entire market and 

readers should not draw conclusions about prevalence based on this data.
16

1. Public input on student loan 

servicing practices

The Bureau received comments from individual borrowers, student loan market participants, 

and other stakeholders identifying a range of student loan servicing practices that may pose 

risks for borrowers seeking to repay student debt. 

The student loan market is comprised principally of three types of student loans: (1) federallyguaranteed loans made through the Federal Family Education Loan Program (FFELP) by 

private-sector lenders; (2) federal loans made directly to borrowers by the Department of 

Education through the William D. Ford Direct Loans program (Direct Loans); and (3) private 

student loans.29 The origination of FFELP loans ended in 2010, but there remains approximately 

$350 billion in outstanding FFELP loans.30 To the extent possible, the following discussion 

seeks to focus on the servicing practices, policies, and procedures that are common to all three 

types of student loans. 

Public comments received by the Bureau generally fall into five broad categories. 

 

29 There are additional federal programs under Title IV that also authorize student loans. For example, one such 

program finances loans made directly by certain post-secondary education institutions through their financial aid 

offices. See 20 U.S.C. § 1087aa. Another program offers grants to those who pledge to become teachers. If the 

recipients do not become teachers, then the disbursed funds are converted from grants to loans. See 20 U.S.C. § 

1070g-2.

30 U.S. Department of Education, Federal Student Aid Annual Report (2014), available at 

https://www2.ed.gov/about/reports/annual/2014report/fsa-report.pdf. 
17

 Borrower benefits and consumer protections. Commenters describe problems 

related to servicers’ disclosure of, facilitation of enrollment in, and recertification for 

certain alternative repayment programs and other borrower benefits, including incomedriven repayment plans for federal loans. Commenters also suggest that servicers’ 

practices related to these programs may contribute to borrowers forfeiting eligibility for 

certain benefits, increase costs over the lifetime of loans, and result in loan defaults.

 Servicing transfers. Commenters state that servicing transfers, which have been a 

widespread feature of the student loan market since early in this decade, may result in 

processing problems, leading to surprise fees, damaged credit, lost repayment benefits 

and loan records, among other problems. 

 Customer service and error resolution. Commenters discuss how breakdowns in 

customer service and barriers to resolving servicers’ errors can cause performing 

borrowers to fall behind or drive delinquent borrowers into default. 

 Payment processing. Commenters identify a range of specific practices related to 

processing payments that may cause significant problems for borrowers seeking to repay 

student loans. 

 Practices that affect specific borrower segments. Commenters identify servicing

practices specific to military families and older borrowers. In addition, commenters 

describe how illegal practices by certain student loan “debt relief” companies prey on 

low-income and economically-vulnerable student loan borrowers.

1.1 Borrower benefits and protections

Student loan borrowers may be eligible for a range of benefits and protections, such as 

alternative repayment plans for borrowers in distress, which may reduce the total cost of their 

debt or provide flexibility when experiencing financial distress. Student loan servicers generally 

inform borrowers of available benefits and protections, process enrollments, and apply benefits 

to borrowers’ accounts. For borrowers experiencing financial hardship, flexible repayment 

options can be a powerful tool to keep borrowers on track to satisfy their obligations, 

particularly income-driven plans available to the vast majority of borrowers with federal loans

experiencing financial distress. Some commenters note that when borrowers are unable to 
18

access these benefits and protections, the consequences can be significant, particularly for those 

borrowers who end up in default.31

Overview of student loan borrower benefits and consumer protections

The standard repayment arrangement for both private and federal student loans is a 10-year 

repayment schedule requiring payment of 120 equal monthly installments. Borrowers generally 

begin to repay student loans following a period of deferment that coincides with the period 

during which a borrower is enrolled in school at least half-time. Borrowers with federal student 

loans may also postpone payment for six months following separation from school, which is a 

loan feature shared by some private student loans. Many student loans feature specific benefits 

to encourage behavior associated with future borrower success, such as an interest rate 

reduction awarded following enrollment in a servicer’s automatic payment function. For 

borrowers seeking additional flexibility, student loans generally feature a range of alternative 

repayment options, including periods of cessation of payment during financial hardship and a 

range of other alternative repayment plans.

As many commenters note, these repayment benefits in turn make the repayment environment 

particularly complicated for student loan borrowers and market participants.32 Private student 

loans, FFELP loans, and Direct Loans all feature a range of different borrower benefits and 

protections that can affect borrower performance, payment amount, interest rate, and other key 

loan terms and features.33 

 

31 For further discussion, see Section 1.1.1; see also, e.g., CFPB-2015-0021-0364.

32 See, e.g., CFPB-2015-0021-0974; CFPB-2015-0021-0355; CFPB-2015-0021-0357. 

33 The wide array of features associated with Federal student loans reflect the efforts of prior Congresses and 

Administrations to provide benefits and incentives to promote key national objectives, such as promoting equal 

educational opportunity. As a result, since 1958, the range and scope of benefits, requirements, and other Federal 

student loan terms have changed, reflecting shifts in policy priorities and budget constraints inherent in such a 

long-standing federally funded educational benefit program. Balancing such objectives and conditions on the one 

hand, with product homogeneity and simplicity for borrowers past, present and future on the other, will thus likely 

remain a challenge in the future.
19

These repayment benefits may come in a variety of forms, including entitlements under federal 

law, contractual features found in student loan promissory notes, or special programs initiated 

by lenders or servicers. The terms of these benefits and protections may differ significantly 

depending on the type of student loan, but generally, these programs do share certain common 

features and are deployed to assist borrowers in similar ways.34 Specifically, most borrower 

benefits and protections offer one or more of the following:

 Cessation of payment (deferment or forbearance);

 Temporary or permanent reduction of interest rate;

 Extension of repayment term;

 Reduction of monthly payment; and

 Termination of obligation to repay (loan forgiveness, cancellation, discharge, co-signer 

release).

Student loan servicers’ successful administration of these programs may depend in part on their 

capacity to accurately inform borrowers of available options. Consequently, well-conceived 

consumer protections may not be effective absent high-quality student loan servicing.

In certain circumstances, a student loan servicer may advise a borrower about benefits that are 

mutually exclusive, or that a borrower’s selection of a particular repayment arrangement or loan 

feature may result in that borrower losing eligibility for another program or benefit.35

 

34 The Direct Loan program offers additional consumer protections beyond those offered to borrowers with other 

types of federal student loans, including additional income-driven repayment plans, loan forgiveness options, and 

other options designed to protect borrowers, mitigate defaults, and encourage borrower success. These benefits and 

protections make Direct Loans unique relative to other loan types and are intended to ensure that any borrower has 

the tools necessary to satisfy his or her financial obligation. When considering the complexity that these programs 

bring to the student loan servicing market, readers should also consider the significant benefits they offer to 

borrowers.

35 See, e.g., Consumer Financial Protection Bureau, Public Service & Student Debt (Aug. 2013), available at 

http://files.consumerfinance.gov/f/201308_cfpb_public-service-and-student-debt.pdf; Consumer Financial 

Protection Bureau, The Next Front? Student Loan Servicing and the Cost to our Men and Women in Uniform (Oct. 

2012), available at http://www.consumerfinance.gov/reports/the-next-front-student-loan-servicing-and-the-costto-our-men-and-women-in-uniform/. 
20

Understanding these trade-offs is critical to understanding the complexity of the current 

servicing environment for student loans. As one large market participant notes: 

We service loans made under an increasingly complex student loan program. Since 

1990, the number of repayment options available to borrowers has increased from two 

to 15—including multiple income-driven repayment plans with similar sounding names 

and differing eligibility criteria. There are now eight forgiveness programs and over 35 

different deferment and forbearance options.36

Other commenters note that delivering adequate service is particularly critical in the student 

loan servicing market for exactly these reasons—borrowers experiencing financial hardship may 

not be able to understand and enroll in appropriate programs without assistance from their 

student loan servicer.37

The following discussion highlights problems commenters identify regarding the features 

identified above, as well as the servicing practices implemented to ensure these features are 

appropriately administered. In particular, commenters note problems related to servicers’ 

practices regarding:

 Alternative repayment plans;

 Forbearance;

 Repayment incentives; and

 Loan forgiveness, discharge, and cancellation.

1.1.1 Alternative repayment plans

Both private and federal student loans feature a range of alternative repayment plans designed 

to provide borrowers with additional flexibility when entering repayment or experiencing 

financial hardship. Commenters state that these protections often mean the difference between 

 

36 CFPB-2015-0021-0355. 

37 See, e.g., CFPB-2015-0021-0364; CFPB-2015-0021-0861.
21

keeping up with a financial obligation and becoming delinquent. A number of commenters 

suggest problems related to the administration of these plans may be contributing to elevated 

levels of student loan defaults.38

Alternative repayment plans for private student loans. In order to assist borrowers 

experiencing financial hardship or distress, a number of large private student lenders have

developed alternative repayment options that take into account borrowers’ financial 

circumstances.39 Commenters state that some servicers of private student loans may evaluate 

borrowers experiencing financial hardship against the range of loss mitigation options offered 

by each lender and facilitate enrollment should a program be available.40

Alternative repayment plans for federal student loans. The vast majority of borrowers 

with federal student loans have the right under federal law to a series of income-driven 

repayment plans, which are a type of alternative repayment plan. These plans are authorized by 

Title IV of the Higher Education Act (HEA), and consider borrowers’ adjusted gross income and 

family size in order to determine, based on a federal formula, borrowers’ monthly payments.41

Borrowers that are eligible for a reduced monthly payment under this formula are considered to 

have demonstrated Partial Financial Hardship (PFH). Borrowers must demonstrate PFH in 

order to enroll and must continue to demonstrate PFH each year in order to maintain eligibility 

for reduced payment levels by certifying their income on an annual basis.42 For borrowers who 

 

38 See, e.g., CFPB-2015-0021-0356; CFPB-2015-0021-0856; CFPB-2015-0021-0353. 

39 See, e.g., CFPB-2015-0021-0355; CFPB-2015-0021-0974. As the Bureau has noted in other publications, there 

remain questions about the scale of these programs. For further discussion of alternative repayment programs and 

private student loans, see Consumer Financial Protection Bureau, Annual Report of the CFPB Student Loan 

Ombudsman (Oct. 2014), available at http://www.consumerfinance.gov/r eports/annual-report-of-the-cfpbstudent-loan-ombudsman-2014/; see also Kevin Wack, Wells Fargo, Discover to Start Modifications of Student 

Loans, American Banker (Nov. 20, 2014), available at http://www.americanbanker.com/news/consumerfinance/wells-fargo-discover-to-start-modifications-of-student-loans-1071343-1.html. 

40 See, e.g., CFPB-2015-0021-0856. 

41 See, e.g., 34 C.F.R. § 685.209 (PAYE, only available for Direct Loans or loans consolidated into Direct Loans); 34 

C.F.R. § 685.221 (IBR under the Direct Loan program); 34 C.F.R. § 682.215 (IBR under FFELP).

42 Id.
22

are unemployed or who have very low wages, a monthly payment under these arrangements 

may be as low as $0.00.43 For borrowers with low wages over a long term, these programs also 

offer loan forgiveness following 20 or 25 years of payments.44

As discussed below, commenters identify a range of servicing practices that they assert may 

make it difficult for borrowers seeking to access these benefits. Commenters suggest that these 

practices are particularly concerning given the apparent relationship between income-driven 

repayment plan enrollment and borrower success.45 According to data recently released by the 

Department of Education regarding Direct Loans, borrowers in Pay As You Earn (PAYE) and 

Income-Based Repayment (IBR) (the most generous income-driven repayment plans) had the 

lowest delinquency rates.46 In contrast, borrowers enrolled in a standard 10-year repayment 

plan fared nearly seven times worse than borrowers enrolled in PAYE (Figure 2).47

 

43 Id. Payments may be $0.00 based on demonstration of PFH under an income-driven repayment plan. Alternatively, 

payments may be $0.00 for months during which a borrower obtained an Economic Hardship Deferment.

44 For the purpose of calculating eligibility for loan forgiveness under IBR or PAYE, servicers are expected to track 

and evaluate the number of qualified payments made by borrowers in order to ensure that, in total, 20 or 25 years of 

payments have been provided, for PAYE and IBR, respectively. 34 C.F.R. § 685.209(a)(6)(i); 34 C.F.R. § 

685.221(f)(1). For the purpose of determining eligibility for loan forgiveness, “payments” can include months during 

which a $0.00 payment was made. See, e.g., 34 C.F.R. § 685.209(a)(6). Months during which a borrower enrolled in 

forbearance do not qualify toward loan forgiveness. See, e.g., 34 C.F.R. § 685.209. 

45 See, e.g., CFPB-2015-0021-0356. Some observers also suggest that income-driven repayment plan (IDR) borrowers 

outperform borrowers in other repayment plans because these plans are largely utilized by higher-income 

borrowers with graduate degrees and above-average levels of student debt. Although public data on wages of 

borrowers in IDR is limited, one large student loan servicer provided data to the Bureau related to IDR utilization 

by its customers with Direct Loans. This data shows that, of the greater than 1 million Direct Loan borrowers on its 

platform enrolled in IBR or PAYE, 50 percent reported adjusted gross income between $0 and $20,000 and 84 

percent reported AGI less than $50,000. 95 percent of these borrowers reported AGI less than $75,000. See also 

Government Accountability Office, Federal Student Loans: Education Could Do More to Help Ensure Borrowers 

are Aware of Repayment and Forgiveness Options (Aug. 25, 2015), available at

http://www.gao.gov/products/GAO-15-663. 

46 U.S. Department of Education: Federal Student Aid, Servicing Summit Portfolio Overview (Dec. 2014), available 

at http://fsaconferences.ed.gov/conferences/library/2014/servicing/2014ServicingSummitPortfolioOverview.ppt. 

47 The limited data available about the utilization of these plans has been released by the Department of Education 

related to performance of the Direct Loan program. There may be significant cohort effects that contribute to 

information about performance by repayment plan. For example, by definition, borrowers in PAYE may not have 

federal loans originated prior to 2007. Readers should also note that IDR utilization has nearly doubled since 2013 
23

FIGURE 2: DELINQUENCY RATES BY REPAYMENT PLAN (FEDERAL DIRECT LOANS)48

Delinquency Rate is calculated by: $ [31-270 days past due]/$ [all repayment], as reflected in a December 2014 

presentation prepared by Federal Student Aid.49 This figure does not consider use of forbearance or deferment.

Beginning in November 2013, the Department of Education has made a targeted effort to boost 

enrollment in these plans among borrowers with loans made through the Direct Loan program, 

using direct-to-consumer email outreach to augment communications provided by student loan 

 

and a significant number of borrowers may not have been required to recertify income under these arrangements. 

In addition, significant gaps remain related to utilization and performance of alternative repayment arrangements 

for both FFELP and private student loans. These gaps in data are addressed further in Part Three of this report.

48 See U.S. Department of Education: Federal Student Aid, Servicing Summit Portfolio Overview (Dec. 2014), 

available at

http://fsaconferences.ed.gov/conferences/library/2014/servicing/2014ServicingSummitPortfolioOverview.ppt.

49 Id.

2.3%

5.1%

9.7%

12.7% 13.7%

25.1%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

PAYE IBR Graduated >

10 Year

Graduated 10

Year

Level > 10

Year

Level 10 Year
24

servicers.50 Since June 2013, the number of Direct Loan borrowers enrolled in an income-driven 

repayment plan has more than doubled (Figure 3).51

FIGURE 3: INCOME-DRIVEN REPAYMENT PLAN UTILIZATION OVER TIME (DIRECT LOANS)52

The following discussion highlights specific servicing practices related to enrolling in alternative 

repayment plans, as identified in public comments and other input received by the Bureau. 

 

50 U.S. Department of Education, Press Release: U.S. Department of Education Announces Additional Efforts to 

Inform Student Borrowers of Repayment Options (Nov. 4, 2013), available at http://www.ed.gov/news/pressreleases/us-department-education-announces-additional-efforts-inform-student-borrowers-repayment-options. 

51 This data does not indicate whether a borrower enrolled in an income-driven repayment plan is making a monthly 

payment that reflects his or her income (a PFH payment). As discussed in further detail below, borrowers must 

recertify income on an annual basis in order to retain a payment amount that reflects their financial circumstances; 

however, borrowers who fail to recertify or are no longer eligible to make a PFH payment are still considered 

“enrolled” in an IDR, for the purpose of current data compilation and reporting. Other measures suggest that many 

borrowers enrolled in income-driven repayment plans may not be making payments that reflect their income. 

52 See U.S. Department of Education, Federal Student Aid Data Center: Direct Loan Portfolio by Payment Plan

(accessed on Aug. 22, 2015), available at https://studentaid.ed.gov/sa/about/data-center/student/portfolio.

1.58 1.69

1.90

2.23

2.51

2.77

3.08

3.46

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

Q3

(FY13)

Q4 Q1

(FY14)

Q2 Q3 Q4 Q1

(FY15)

Q2

Borrowers in

IDR (millions)
25

Obtaining basic information about alternative repayment plans

Borrowers may not be informed about the availability of certain alternative 

repayment plans or may be encouraged by servicing personnel to enroll in 

alternatives that may not be in their best interest. Comments from individual student 

loan borrowers and organizations representing public service workers note that servicers of both 

private and federal student loans may not inform borrowers experiencing financial hardship 

about available alternative repayment plans.53 Instead, commenters state that servicers may 

advise borrowers to postpone payments through forbearance or deferment or instruct borrowers 

that the only available option is to pay the full amount due.54

One comment from an organization representing consumers states that enrolling in forbearance 

or deferment, rather than an available long-term alternative repayment plan, may have 

significant negative consequences for borrowers’ ability to satisfy their student loan debt over 

the long-run.55 Periods of nonpayment, such as forbearance, can significantly increase the 

amount of unpaid interest, cause borrowers’ total debt to grow, and ultimately prevent 

borrowers from making progress toward satisfying their obligation to repay the debt owed.56

 

53 See, e.g., CFPB-2015-0021-5190; CFPB-2015-0021-0366.

54 See, e.g., CFPB-2015-0021-0861; CFPB-2015-0021-1143.

55 See CFPB-2015-0021-0378; see also CFPB-2015-0021-0861.

56 See, e.g., CFPB-2015-0021-2802. Readers should note that there also are some circumstances where borrowers, 

when presented with a range of available options, may prefer a short-term option that permits them to cease making 

payments, particularly for borrowers with subsidized federal student loans seeking deferments for issues other than 

financial hardship, including borrowers returning to school. See Susan Dynarski, An Economist’s Perspective on 

Student Loans in the United States, Brookings Institute (Sept. 2014), available at

http://www.brookings.edu/~/media/research/files/papers/2014/09/economist_perspective_student_loans_dynars

ki/economist_perspective_student_loans_dynarski.pdf (stating “Here we have a classic ‘principal-agent’ problem, 

with the agent (the student loan servicers) having little incentive to act in the best interests of the principal (the 

federal government). Student loan servicers don’t have much incentive to prevent borrowers from defaulting, because 

the servicers either don’t own the underlying loans or, if they do, face few costs if a borrower defaults. Restructuring a 

borrower’s payments and preventing default requires effort, and the beneficiary of this effort is the government and 

the student – not the servicer.”). 
26

Another comment from an organization representing consumers notes that the student loan 

servicing business model rewards companies that minimize the length and complexity of 

customer contacts.57 The commenter asserts that this arrangement may in turn create a financial 

incentive for servicers to direct borrowers into alternative repayment arrangements that 

mitigate delinquency in the short-term, such as forbearance, but may not be in borrowers’ best 

long-term interest.58

Federal student loan borrowers may not be informed about interest subsidies, 

loan forgiveness, or other benefits associated with income-driven payment plans. 

One industry commenter states that, “[customer service] representatives must be fully versed on 

the complete range of repayment options associated with each student loan, including income 

dependent repayment plans, and be able to explain the positives and negatives associated with 

repayment alternatives, including deferments and forbearances.”59 Comments from individual 

student loan borrowers further suggest that in some cases, borrowers with federal student loans 

are not told about the availability of income-driven repayment plans and associated benefits 

unless they affirmatively inquired.60 These comments state that when borrowers are trying to 

find the right option for their needs, servicing personnel may not explain how these benefits 

 

57 See CFPB-2015-0021-0373.

58 Id.

59 See CFPB-2015-0021-0974.

60 See, e.g., CFPB-2015-0021-2275; see also Comment from The Project on Predatory Student Lending and The 

National Consumer Law Center to the Department of Education on Intent to Establish Negotiated Rulemaking 

Committee, Docket ID: ED–2014–OPE–0214 (Nov. 4, 2014), available at

http://www.studentloanborrowerassistance.org/wp-content/uploads/2013/05/comments-paye-nov2014.pdf

(“Servicers also tend to push borrowers into the most readily available solutions, such as forbearance, instead of 

helping borrowers choose a plan that will be beneficial in the long term. Unfortunately, most borrowers are unaware 

that their loans accrue significant interest while in forbearance, or are unaware of viable alternatives like incomedriven repayment plans, and are left much worse off. For example, we represent a client who is struggling to remain 

current on a federal student loan. She makes only $5,000 a year and had been living in a shelter for victims of 

domestic violence for an extended period before moving in with a friend. Her son is living with other family members 

while she tries to find work. When she called her federal loan servicer seeking relief, her loan was placed in short term 

forbearance. She has continued to receive various forbearances and deferments over the last several years. Although 

she clearly qualifies for and would benefit from an income-driven repayment plan, her loan servicer has never 

mentioned or explained this to her. It took a phone call from an insistent attorney for the servicer to acknowledge that 

she is eligible for an income-driven plan.”); CFPB-2015-0021-0378; CFPB-2015-0021-0861.
27

work or how the selection of a repayment plan can affect borrowers’ long-term financial 

circumstances.61 According to one comment from a student loan borrower:

[T]he availability of ANY student loan repayment system is poor at best. The online 

system only allows for minimal direct contact with a person and is completely 

inflexible. When you do reach someone on the phone, after an eternal wait, they do not 

provide thorough information regarding all the options available to anyone in 

repayment. Had I [been] advised of the [IBR] program, I could have started repayment 

earlier rather than spending time wasted in forbearance.62

Private student loan borrowers in financial distress may not be able to access 

accurate information about options to avoid default. Some servicers may have 

authorization from loan holders to offer reduced monthly payments for certain private student 

loan borrowers.63 However, these plans may not be advertised on servicers’ websites and may 

not be included in borrowers’ promissory notes or loan contracts. Comments from individual 

borrowers further state that when borrowers try to contact their servicers to obtain information, 

they receive conflicting advice from customer service representatives about availability or 

eligibility criteria for alternative repayment programs.64 Commenters explain that when 

borrowers do not proactively contact their servicer to learn more about repayment options, they 

may continue to struggle to make payments or end up in default.65

Enrolling and applying for alternative repayment plans

Federal student loan borrowers may be enrolled in a repayment plan that does not 

reflect their choice due to paperwork processing errors. Borrowers with federal 

 

61 See, e.g., CFPB-2015-0021-1039; CFPB-2015-0021-5683. 

62 CFPB-2015-0021-0597.

63 See Kevin Wack, Wells Fargo, Discover to Start Modifications of Student Loans, American Banker (Nov. 20, 2014), 

available at http://www.americanbanker.com/news/consumer-finance/wells-fargo-discover-to-startmodifications-of-student-loans-1071343-1.html.

64 See, e.g., CFPB-2015-0021-0229. 

65 See, e.g., CFPB-2015-0021-0245. 
28

student loans can request that their student loan servicer select the income-driven repayment 

plan with the lowest monthly payment, an option designed to assist borrowers when selecting 

between multiple, seemingly-similar options.66 Comments from individual student loan 

borrowers and borrower assistance organizations state that servicers may enroll borrowers in a 

repayment plan that does not reflect the borrower’s choice and borrowers must contact their 

servicer a second time to re-enroll in the plan with the lowest monthly payment amount.67

Industry commenters note that the complexity of federal student loan repayment arrangements 

may contribute to the problems borrowers experience when seeking to enroll in income-driven 

repayment plans.68 One trade association representing members of the student loan servicing 

industry also cited the content and timing of required disclosures related to federal student 

loans made under FFELP as contributing to confusion for borrowers with loans made under this 

program.69 For example, this commenter states that, “the HEA requires servicers to provide the 

borrower with a written notice of all the repayment plans and ask the borrower to choose one. 

Borrowers who fail to choose a plan are put in standard repayment. The majority of borrowers 

fail to choose a repayment plan; when these borrowers are put into standard repayment, many 

call right after receiving their first bill, saying that they can’t afford their payment.”70

Borrowers with new Direct Consolidation Loans report encountering processing 

problems when attempting to enroll in income-driven repayment plans. Borrowers 

also comment that they attempted to enroll in an income-driven repayment plan following a 

federal student loan consolidation, but were mistakenly enrolled in standard repayment plans.71

These errors may produce a payment amount that does not reflect borrowers’ income and may 

 

66 U.S. Department of Education, Income-Driven Plans, available at https://studentaid.ed.gov/sa/repayloans/understand/plans/income-driven.

67 See, e.g., CFPB-2015-0021-5376; CFPB-2015-0021-0861.

68 See, e.g., CFPB-2015-0021-0357; CFPB-2015-0021-0859.

69 See CFPB-2015-0021-0357.

70 Id.

71 See, e.g., CFPB-2015-0021-0861. 
29

also produce significant additional financial distress for borrowers that are already experiencing 

hardship. In addition, for borrowers electing to consolidate in order to pursue Public Service 

Loan Forgiveness (PSLF), improper processing of enrollment paperwork can result in the 

selection of a repayment plan that may not qualify toward loan forgiveness or may increase costs 

over the lifetime of the loan for borrowers who ultimately do qualify for loan forgiveness.72 No 

comments from market participants or organizations representing members of student loan 

servicing industry discuss this issue. 

Borrowers report encountering delays and processing errors when attempting to 

certify income while enrolling in an income-driven repayment plan. For most 

borrowers, income is documented based on the submission of a federal tax return, which may be 

done electronically, along with a standard enrollment form used by all student loan servicers of 

eligible loans.73 Some comments from borrowers note that servicers may incorrectly certify 

borrowers’ income or miscalculate payment amounts.74 Other borrower comments note that 

processing delays may lead to missed payments, late fees, or unnecessary use of forbearance.75

One commenter told us:

Most recently, now that I'm on the IBR repayment plan, for the past 6 months, they 

have made error after error after error in rejecting my income verification forms 

despite them being correct; they have now continued to keep me in forbearance even 

 

72 For a borrower to receive the maximum benefit under the Public Service Loan Forgiveness program, a borrower 

needs to enroll in an income-driven repayment plan. Every month a borrower makes payments under a nonincome-driven plan, the borrower may increase the lifetime cost of his or her loan. Alternatively, every month 

during which a borrower makes monthly payment at a level lower than the payment required under a standard 10-

year repayment plan, the borrower will decrease the lifetime costs of his or her loan. See 20 U.S.C. § 1028e(b)(7); 34 

C.F.R. § 685.219(c); 34 C.F.R. § 682.215(e). For further discussion, see Consumer Financial Protection Bureau, 

Public Service and Student Debt (Aug. 2013), available at

http://files.consumerfinance.gov/f/201308_cfpb_public-service-and-student-debt.pdf. 

73 See 34 C.F.R. § 682.215(a)(4); 34 C.F.R. § 685.209(a)(1)(v).

74 See, e.g., CFPB-2015-0021-0100; CFPB-2015-0021-0099. 

75 See, e.g., CFPB-2015-0021-1053.
30

after a supervisor told me 2 months ago I was all clear and had nothing to worry 

about. Everyone answering their phone calls tells me something different.76

Although no industry commenters address problems related to lost paperwork or processing 

errors directly, industry commenters state that the complexity and variety of available incomedriven repayment plans can lead to problems for borrowers.77 One trade association 

representing student loan servicers and debt collectors states that given this complexity, “the 

result can be bewildering.”78

A comment from a student loan servicer states: 

Based on data [from] servicing records, we found that more than half of borrowers 

enrolling in IDR for the first time could not navigate the options on their own and one 

in five customers renewing required support.79

Borrowers seeking to certify income using documentation other than a federal tax 

return report receiving inconsistent or inaccurate information. Borrowers who do not 

file federal tax returns or whose most recent tax return does not accurately reflect their current 

financial circumstances are permitted to submit alternative documentation of income (ADOI).

The Department of Education only requires a pay stub to certify income,80 but comments from 

borrowers report that their servicers provide very little guidance on how to certify annual 

income through the ADOI process.81 Borrowers report that sometimes they are asked to submit 

 

76 CFPB-2015-0021-0099. 

77 See, e.g., CFPB-2015-0021-0357; CFPB-2015-0021-0859.

78 See CFPB-2015-0021-0859.

79 See CFPB-2015-0021-0355.

80 U.S. Department of Education, Federal Student Aid Income-Driven Repayment Plans for Federal Student Loans, 

available at https://studentaid.ed.gov/sa/sites/default/files/income-driven-repayment.pdf.

81 Additionally, if borrowers have no income, such as during a period of unemployment, or if borrowers earn only 

untaxed income, borrowers can state this information on the application and they are not required to supply any 

further documentation. See 34 C.F.R. § 685.209(b)(3)(i); 34 C.F.R. § 682.215(e)(1)(ii).
31

an additional “self-certifying statement” declaring their annual income, without knowing 

whether it will be sufficient to qualify for an income-driven repayment plan.82

Commenters report that problems certifying income resulted in borrowers having higher 

payments than they can afford or higher payments than they are entitled to under federal law.83

One organization that provides assistance to low-income student loan borrowers told us:

The problems are likely caused by a combination of inferior information systems, staff 

incompetence, skewed monetary incentives and lack of training. Regardless of causes, 

the result is that servicers frequently lose documents and repeatedly ask borrowers to 

provide documents they have already submitted. Far too often, servicers provide 

inferior administration of basic programs such as income based repayment (IBR), 

including problems with initial application and re-certification.84

One trade association recommends eliminating the ADOI process for borrowers who have 

already provided an initial certification of income under an income-driven repayment plan, 

particularly for borrowers who are not required to file a tax return.85

Staying on track in an alternative repayment plan

Commenters note that servicing issues related to certifying income continue for borrowers even 

after they successfully enroll in income-driven repayment plans. As noted above, borrowers 

enrolled in income-driven repayment plans are required to submit documentation recertifying 

their income on an annual basis in order to continue making monthly payments tied to their 

income (PFH payments). 

 

82 See, e.g., CFPB-2015-0021-0861.

83 See 34 C.F.R. § 682.215(b)(1) (stating that a borrower is entitled to an annual payment not exceeding “15 percent of 

the difference between the borrower’s [adjusted gross income] and 150 percent of the poverty guideline for the 

borrower’s family size.”); see, e.g., CFPB-2015-0021-0252.

84 CFPB-2015-0021-0861.

85 See CFPB-2015-0021-0859.
32

Although there is no available market-wide data on recertification rates in these programs, in 

April 2015, the Department of Education released information about outcomes for a sample of 

borrowers in the Direct Loan program.86 This sample indicated that 57 percent of borrowers did 

not have a timely recertification of income processed.87 In addition, nearly one in three 

borrowers in the sample did not recertify within the six months following their deadline, the 

furthest point-in-time for which there is available data.88

 

86 U.S. Department of Education, Sample Data on IDR Recertification Rates of ED-Held Loans (2015), available at

http://www2.ed.gov/policy/highered/reg/hearulemaking/2015/paye2-recertification.pdf.

87 Id. Readers should note that this sample and the accompanying analysis provided by the Department of Education 

did not attribute causation when borrowers did not have a timely recertification processed. This data may include 

both borrowers who did not submit timely paperwork and borrowers who submitted timely paperwork but did not 

have their paperwork processed in a timely manner. Due to limitations in this data, this discussion does not 

attempt to separate these two issues. This data released by the Department of Education looks at outcomes for 

borrowers who missed their income recertification for up to six months. The Department of Education notes that 

this was done in an attempt to distinguish those borrowers who would have benefited from on-time recertification. 

The Department of Education estimates that 15 percent of the borrowers who missed their recertification deadline 

and did not recertify within six months were delinquent at the time of the snapshot.

88 Id. 
33

FIGURE 4: RECERTIFICATION FOR DIRECT LOAN BORROWERS IN IDR89

(NOVEMBER 2013-JUNE 2014)

Federal rules90 for these repayment plans include significant negative consequences for 

borrowers who continue to be eligible for PFH payments and wish to remain enrolled, but for 

whom recertification is not timely, such as: 

 Payment shock. When borrowers’ recertification is not timely, borrowers receive 

billing statements reflecting a monthly payment calculation based on the amount they 

would have owed under the standard 10-year repayment plan prior to entering an 

income-driven repayment plan (known as the permanent standard payment amount).91

 

89 This chart is based on a sample of Direct Loans for which recertification was due between November 2013 and June 

2014. U.S. Department of Education, Sample Data on IDR Recertification Rates for ED-Held Loans (Feb. 2015), 

available at http://www2.ed.gov/policy/highered/reg/hearulemaking/2015/paye2-recertification.xls.

90 See, e.g., 34 C.F.R. §§ 682.215, 685.209, 685.221.

91 “Permanent standard payment” is the industry term used in reference a borrower’s standard payment amount that 

would otherwise be due under a standard 10-year repayment period. 

More than 1-in-3 

borrowers did not 

recertify within six 

months

0% 20% 40% 60% 80% 100%

Percentage of

borrowers who

recertify on time

Percentage of

borrowers who

recertify within six

months

Percentage of

borrowers who do

not recertify within

six months

Nearly 3-in-5 borrowers 

did not certify on time
34

In many cases, this amount can be significantly higher than the amount paid the 

previous month, since it does not reflect borrowers’ financial circumstances. 

 Interest capitalization. Many borrowers enrolled in income-driven repayment plans 

pay less each month than the interest that accrues on their loans. These borrowers’ loan 

balances will grow over time as they continue to make PFH payments. However, these 

plans do offer an important protection for borrowers who recertify on time each year—

unpaid interest does not get added to the outstanding principal balance. Borrowers for 

whom recertification is not timely forfeit this benefit and unpaid interest is capitalized. 

Borrowers enrolled in PAYE or Income-Contingent Repayment (ICR) do have a limited 

protection against the negative effects of interest capitalization—capitalization of unpaid 

interest is limited to 10 percent of the outstanding principal balance.92 There are no 

restrictions on the amount of unpaid interest that may be capitalized for borrowers 

enrolled in IBR.93 For borrowers who may experience PFH for a number of years, 

capitalization of unpaid interest can substantially increase the total cost of their loans.94

 Lost credit toward loan forgiveness. IBR and PAYE offer borrowers loan 

forgiveness after 25 or 20 years of payments, respectively. Borrowers who have high debt 

or low income over a long period of time can still satisfy their financial obligations by 

continuing to make on-time PFH payments, even if these payments are not high enough 

to pay down principal. For these borrowers enrolled in income-driven repayment plans, 

every month that they make a qualifying payment satisfies a prerequisite to obtain loan 

forgiveness. However, if a servicer fails to promptly process an application for either of 

these repayment plans, a borrower may experience two kinds of negative consequences. 

First, a borrower may be forced to pay the higher monthly payment, thus decreasing the 

 

92 For borrowers enrolled in PAYE, capitalization is capped at 10 percent of the principal balance at the time the 

borrower enrolled in PAYE. For borrowers enrolled in ICR, capitalization is capped at 10 percent of the principal 

balance at the time the borrower entered repayment. 34 C.F.R. §§ 685.209(a)(2)(iv)(B)(1) (PAYE), (b)(3)(iv) (ICR).

93 See 34 C.F.R. § 685.221 (IBR for Direct Loans); 34 C.F.R. § 682.215 (IBR for FFELP).

94 See 34 C.F.R. § 685.221(b)(4) (IBR for Direct Loans); 34 C.F.R. § 682.215(b)(5) (IBR for FFELP); 34 C.F.R. § 

685.209(a) (PAYE); 34 C.F.R. § 685.209(b) (ICR).
35

amount entitled to be forgiven.95 Second, delayed processing could force a borrower to 

use forbearance, thus extending the eligibility date for forgiveness by each month that it

takes to approve the recertification application.96 Both of these could result in hundreds 

or thousands of dollars in additional extra payments paid by the borrower. 

 Lost subsidy. For borrowers with subsidized federal loans, both IBR and PAYE feature 

a protection that limits the interest charges for borrowers who demonstrate PFH.97 For 

three consecutive years (36 months) from the date of a borrower’s first enrollment in an 

income-driven repayment plan, any unpaid interest for borrowers making PFH 

payments is paid by the Department of Education. The eligibility period for this benefit 

begins upon initial enrollment and will not halt if a borrower fails to recertify. This 

means that these borrowers forfeit a significant benefit every month during which a 

borrower makes a payment amount at the permanent standard level or uses forbearance 

while waiting for a late recertification to be processed. 98

Commenters identify specific problems related to recertification, including issues involving 

notices, paperwork processing delays, and incorrect information from customer service 

personnel. As outlined above, the costs to borrowers who do not have a timely recertification 

processed by their student loan servicers can be substantial.

Notices of recertification may not be adequate to facilitate successful 

recertification. Federal student loan servicers are required to provide borrowers enrolled in 

income-driven repayment plans with a written notice when the repayment plans are set to 

expire. Department of Education regulations require that borrowers receive notice that they 

 

95 See, e.g., CFPB-2015-0021-5718.

96 See, e.g., CFPB-2015-0021-3472. 

97 See 34 C.F.R. § 685.209(a)(2)(iv)(A)(1) (PAYE); 34 C.F.R. § 682.215(b)(5) (FEELP); 34 C.F.R. § 685.221(b)(4) 

(Direct Loan).

98 For further discussion of the negative consequences associated with failure to timely recertify under an incomedriven repayment plan, see Consumer Financial Protection Bureau, When you make student loan payments on an 

income-driven plan, you might be in for a payment shock (Aug. 2015), available at

www.consumerfinance.gov/blog/when-you-make-student-loan-payments-on-an-income-driven-plan-you-mightbe-in-for-a-payment-shock. 
36

must submit an application, income verification, and documentation no earlier than 90 days 

and no later than 60 days prior to the annual deadline.99 The notice should also contain 

information on how to recertify in order to continue making partial financial hardship payments 

and a deadline by which this information must be received.100 Industry commenters note that 

these regulations establish a floor for borrower communications related to this process and may 

provide additional information to supplement required notices.101

Some comments from borrowers note that they never receive these notices.102 Comments from 

organizations representing individual borrowers also state that borrowers receive notices that 

may not clearly provide information about when an application is due or how to recertify, 

causing them to miss their deadlines to recertify and face the negative consequences outlined 

above. 103 One trade association representing student loan servicers states, when discussing 

limitations of required student loan disclosures: 

“Too many words and not enough pictures” may be overstating and trivializing the 

issue, but it does aptly describe the problem. The issue is really about providing 

borrowers with the right information at the right time, rather than inundating them 

with text-heavy disclosures that are ignored or discarded.104

Borrowers report that recertification paperwork processing delays result in 

missed deadlines. When a servicer obtains a completed application with a borrower’s tax 

return or other income verification, Department of Education regulations require that the 

servicer calculate a new payment amount.105 Moreover, if a borrower submits income 

 

99 34 C.F.R. § 682.215(e)(3); 34 C.F.R. § 685.209(a)(5).

100 Id.

101 See, e.g., CFPB-2015-0021-0355.

102 See, e.g., CFPB-2015-0021-1052.

103 See, e.g., CFPB-2015-0021-0373.

104 CFPB-2015-0021-0357.

105 34 C.F.R. § 682.215(e)(8)(i); 34 C.F.R. § 685.209(a); 34 C.F.R. § 685.221(b)(1).
37

documentation and a recertification application within 10 days of the annual recertification 

deadline, the servicer is required to maintain the current payment amount until the income 

documentation is processed and the new payment amount can be calculated.106 Although this 

regulation protects these borrowers against the payment shock that results from a failure to 

recertify on time, some borrowers could face interest capitalization, forfeited interest subsidy, or 

delayed loan forgiveness, depending on servicers’ policies.107

Comments from student loan borrowers suggest that servicers may not consistently apply the 

protection against payment shock, despite federal regulatory requirements.108 Commenters note 

that borrowers may submit the required paperwork but servicers may take up to two months to 

process an application, during which the borrowers’ annual recertification deadlines may 

pass.109 Comments from borrowers also state that processing delays may cause borrowers’ 

payments to revert to their standard 10-year monthly payments, even if paperwork is received 

by the deadline.110

One trade association states that federal student loan servicers have found that “of the 

borrowers that fall out of IDR plans during the renewal process, most are falling out due to their 

failure to respond to requests from their servicer to complete the necessary documentation to 

[retain a PFH payment].”111 This commenter also states that the current recertification process 

has “fundamental” problems that cannot be fixed solely through "additional communication 

attempts or more disclosures.”112

 

106 34 C.F.R. § 682.215(e)(8)(ii).

107 Id.

108 See, e.g., CFPB-2015-0021-1053. 

109 See, e.g., CFPB-2015-0021-0218.

110 See, e.g., CFPB-2015-0021-1361.

111 CFPB-2015-0021-0859.

112 Id.
38

Some borrowers comment that they are not financially prepared to make a student loan 

payment at the higher standard 10-year monthly payment since that payment amount does not 

reflect their current financial situation.113 If borrowers are unable to afford the higher monthly 

payment, they may be forced to miss payments while the application is pending, possibly 

resulting in negative credit reporting.114

Borrowers enrolled in automatic payments may face additional costs when 

recertification is not processed on time.115 Borrowers enrolled in automatic payments 

(auto-debit) with their servicers report unexpectedly higher payments being withdrawn from 

their bank account automatically when recertification under an IDR is not processed by their 

annual deadline.116 Borrowers who do not maintain a high enough balance in their checking 

accounts to cover an unexpected higher payment may be charged overdraft fees by their 

financial institutions or fees for insufficient funds (NSF) by their servicers if their payments are 

rejected by their banks. 

1.1.2 Forbearance

Forbearance is a common feature of both private and federal student loans through which a 

borrower may request a cessation of payment for a limited period of time. For borrowers 

experiencing short-term problems managing student loan payments, forbearance can be an 

important tool to provide flexibility.117

 

113 See, e.g., CFPB-2015-0021-1052; CFPB-2015-0021-0252.

114 Id. 

115 In Fall 2013, one in five borrowers (more than two million) were making automatic electronic payments. The 

Institute for College Access & Success, Should All Student Loan Payments be Income-Driven? Trade-offs and 

Challenges (Apr. 2014), available at http://ticas.org/sites/default/files/pub_files/TICAS_IDR_White_Paper.pdf. 

116 See, e.g., CFPB-2015-0021-1798; CFPB-2015-0021-1101.

117 For federal student loan borrowers, HEA provides a range of options to suspend monthly payments, including 

deferments and forbearances for borrowers experiencing financial distress. Deferment may feature other benefits in 

addition to cessation of payment, including subsidized interest during periods of non-payment. Forbearances do not 

feature these benefits. When evaluating servicing practices related to income-driven repayment plan utilization as 

they relate to the availability of other benefits, readers should note that there may be economic reasons why a 
39

For both private and federal student loans, interest continues to accrue and may be capitalized 

(added back to borrower’s outstanding principal balance), causing a borrower’s outstanding 

obligation to grow throughout periods of forbearance. Requests to enroll in forbearance may be 

processed either over the phone or through a written application. Policies and procedures 

related to forbearance applications may vary by servicer, by loan type, or based on a borrower’s 

circumstances. Commenters identify a range of problems related to processing forbearance 

applications and servicing accounts during periods of nonpayment. 

Borrowers requesting forbearance may experience processing delays and unclear 

eligibility requirements. In order to apply for forbearance, some servicers require that the 

borrower complete a written application to prove financial hardship, particularly for borrowers 

with private student loans. Federal regulations permit oral or written applications for 

forbearance, generally determined at the discretion of the student loan servicer.118 Borrowers 

describe an array of processing problems, such as servicers placing certain loans into 

forbearance while leaving others in repayment, despite requesting all loans be put into 

forbearance.

Comments from individual borrowers also note that borrowers may complete a forbearance 

application and receive verbal confirmation that their loans are placed in forbearance, only to 

find out days or weeks later that the application was denied.119 Such communication breakdowns 

may lead to missed payments or default. Indeed, in some cases, commenters report borrowers 

receiving approval to enter forbearance, and later discovering that the forbearance was not 

processed only once they are contacted by a debt collector.120

Industry commenters note that administering forbearances involves significant training and 

resources for customer service operations. One industry commenter notes that servicing 

 

borrower would prefer a deferment for a subsidized federal student loan over an income-driven repayment plan 

with a $0.00 monthly payment. 

118 34 C.F.R. § 682.211 and 34 C.F.R. § 685.205.

119 See, e.g., CFPB-2015-0021-1066.

120 See, e.g., CFPB-2015-0021-5458. 
40

personnel “must be fully versed on the complete range of repayment options associated with 

each student loan, including income dependent repayment plans, and be able to explain the 

positives and negatives associated with repayment alternatives, including deferments and 

forbearances. . . . These are specialized areas of knowledge that require a thorough 

understanding of the applicable rules and regulations.”121

Borrowers also report that, for some private student loans, servicers may require 

an unaffordable forbearance application fee. Borrowers comment that some servicers 

require a forbearance fee or “good-faith” payment in order to apply for temporary forbearance 

programs for some private student loans.122 These payments may be a precondition to place the 

loan in forbearance for a three-month period.123 For some borrowers with multiple loans, the 

total cost of forbearance fees in aggregate may be greater than the original loan payment itself. 

Commenters report that these fees may contribute to fragile financial situations for some 

borrowers, driving them deeper into debt. Borrowers state that in some cases, they cannot afford 

either the forbearance fees or their required monthly payment and consequently default on their 

loans.

Industry comments note that no forbearance fees are charged for federal student loans.124 One 

comment from a student loan servicer states that it requires a reduced monthly payment for 

private student loan borrowers during periods of forbearance “to emphasize the terms and 

implications of their decision to use forbearance,” further noting that this reduced monthly 

payment is applied to a borrower’s account consistent with the servicer’s standard payment 

application policy.125 No industry commenters provided information related to how the level of 

fees or reduced monthly payments is determined for borrowers seeking forbearance. 

 

121 CFPB-2015-0021-0974.

122 See, e.g., CFPB-2015-0021-1032. 

123 See, e.g., CFPB-2015-0021-1137. 

124 See, e.g., CFPB 2015-0021-0355.

125 Id.
41

1.1.3 Repayment incentives

As discussed above, private and federal loans feature a range of incentives to encourage 

successful repayment, including interest rate reductions for certain behavior associated with 

future borrower success. For example, Direct Loan borrowers are entitled to an interest rate 

reduction upon enrollment in automatic payments. Student loan servicers generally administer 

these benefits. Commenters report problems related to servicing practices associated with these 

features, including breakdowns in enrollment and processing.

Borrowers note that interest rate reductions associated with certain borrower 

behavior may not be applied to borrowers’ accounts without contacting servicing 

personnel to request an earned benefit. Borrowers may be entitled to a reduced interest 

rate once borrowers complete their programs of study or following a series of on-time monthly 

payments.126 In other cases, borrowers may be entitled to an interest rate reduction following 

enrollment in a servicer’s automatic bill-pay function. Federal regulations permit a range of 

benefits for borrowers with FFELP loans.127 Direct Loan borrowers also receive rate reductions, 

but this incentive is limited to a benefit following enrollment in automatic payments.128

Commenters report borrowers may have to make multiple requests to student loan servicers in 

order to ensure these benefits are appropriately applied or, following the correction of a 

processing error, to ensure that benefits are applied retroactively to the date on which the 

borrower should have qualified.129 One industry commenter notes that it immediately applies an 

interest rate incentive for automatic payment enrollment when automatic payments are 

initiated.130 In addition, the servicer notes that the automatic payment may also be revoked 

following a series of rejected payments due to insufficient funds, in order to protect the 

 

126 These are two examples of borrower benefits found in loans originated under the FFEL program, as authorized in 

34 C.F.R. § 682.200.

127 34 C.F.R. § 682.200; 34 C.F.R. § 685.211.

128 U.S. Department of Education, Master Promissory Note: William D. Ford Direct Loan Program, available at

http://www.direct.ed.gov/pubs/dlmpn.pdf. 

129 See, e.g., CFPB-2015-0021-2014; CFPB-2015-0021-1092.

130 CFPB-2015-0021-0355.
42

borrower against additional NSF fees, and that the associated interest rate benefit is not 

awarded when borrowers automatic payments are suspended.131

1.1.4 Cancellation, discharge, and loan forgiveness

Both private and federal student loans feature a range of loan forgiveness, cancellation, and 

discharge options depending on borrowers’ circumstances. Student loan servicers may provide 

information to borrowers about available options related to cancellation, evaluate eligibility, and 

apply benefits and protections to borrowers’ accounts. 

Borrowers with federal student loans, including borrowers who are disabled, may 

not be made aware of available options to cancel or discharge student debt. 

Commenters note that many borrowers who are disabled continue to repay student loans, even 

under precarious financial circumstances.132 In some cases, commenters note that these 

borrowers provide information about their financial circumstances to servicing personnel, but 

are never informed about options to discharge student debt due to their Total and Permanent 

Disability (TPD).133 In these cases, borrowers who are disabled with limited financial resources 

may make unnecessary extra payments toward their loans.134 Federal regulations require 

servicers to take certain steps to facilitate the claim process once a borrower notifies the lender 

of his intent to pursue a claim, but these regulations do not require affirmative disclosure.135

One industry commenter notes that the federal process for disability discharge has improved 

significantly and is now “more consumer-friendly,” and adding that it expects this process to 

continue to improve as the Department of Education takes steps to match borrowers who are 

 

131 Id.

132 See, e.g., CFPB-2015-0021-0253.

133 See, e.g., CFPB-2015-0021-4400. 

134 See, e.g., CFPB-2015-0021-2647. 

135 See, e.g., 34 C.F.R. § 682.402(c)(2); 34 C.F.R. § 685.213(b).
43

disabled with data provided by the Social Security Administration related to recipients of Social 

Security Disability Income (SSDI).136

Borrowers with private student loans may find no options available to discharge or 

cancel debt if they become disabled, or, for co-signed loans, if the primary 

borrower dies or becomes disabled. Commenters note that there is no equivalent, 

streamlined process for discharging a private student loan upon the death or disability of a 

borrower or co-signer.137 Industry commenters note that similar discharge requirements to 

those in place for federal student loans may be included in some loan contracts or promissory 

notes under certain circumstances, but are not universally available.138 While a number of 

student loan companies do note that they voluntarily offer limited discharges for some 

borrowers under certain circumstances,139 commenters note that, for some servicers, the process 

for applying for these discharges may be unclear and criteria for assessing eligibility may not be 

publicly available. Commenters further note that some borrowers find that attempts to navigate 

this process and obtain discharge are not successful.140 In most cases, student loan servicers are 

responsible for administering discharge programs for private student loans, including 

determinations about eligibility and communications with borrowers.141

Borrowers seeking loan forgiveness under the Public Service Loan Forgiveness 

(PSLF) program report encountering servicing breakdowns that limit available 

benefits and prolong repayment. The PSLF program provides borrowers with Direct Loans 

working for a public service organization with loan forgiveness following 120 on-time monthly 

payments made while enrolled in a qualifying repayment plan. Federal regulations establish 

criteria to determine eligibility for this program, defining qualifying public service 

 

136 See CFPB-2015-0021-0357.

137 See, e.g., CFPB-2015-0021-0861. 

138 See, e.g., CFPB-2015-0021-0355.

139 See, e.g., CFPB-2015-0021-0355.

140 See, e.g., CFPB-2015-0021-0861. 

141 Id.
44

organizations, qualifying repayment plans, and what constitutes a timely qualifying payment.142

The repayment plans that generally provide borrowers with the largest benefit are incomedriven repayment plans.143 Borrowers with FFELP loans may be eligible to pursue PSLF if they

consolidate their FFELP loans into a new Direct Consolidation Loan, but will only be able to 

count payments made under the Direct Consolidation Loan toward loan forgiveness.144

Comments from individual student loan borrowers identify a range of problems related to 

information provided by student loan servicers about the PSLF program, including information 

about qualifying repayment plans145 and qualifying employment.146 Comments from other 

borrowers also discuss the negative financial impact of relying on incorrect information, since 

every monthly payment made under an arrangement that does not qualify for PSLF will result in 

delayed loan forgiveness and may require additional payments by the borrower.147

Borrowers who successfully complete a PSLF Employment Certification Form (ECF) are 

transferred to a new servicer for further assistance. The student loan servicer administering the 

PSLF program on behalf of the Department of Education comments that it invests in additional 

training and ensures that servicing personnel have “a full understanding of the rules for general 

program eligibility, the types of loans that may be eligible for forgiveness, the definitions 

associated with qualifying employment, and the complex rules that define qualifying 

payments.”148 

 

142 34 C.F.R. § 685.219.

143 For further discussion of public service benefits, including PSLF, see Consumer Financial Protection Bureau, 

Public Service and Student Debt (Aug. 2013), available at

http://files.consumerfinance.gov/f/201308_cfpb_public-service-and-student-debt.pdf. 

144 34 C.F.R. § 685.219.

145 See, e.g., CFPB-2015-0021-0937.

146 See, e.g., CFPB-2014-0021-0251.

147 See, e.g., CFPB-2015-0021-0499.

148 CFPB-2015-0021-0974.
45

One comment from an organization representing student loan borrowers suggests that 

economic incentives may not encourage some student loan servicers to provide information 

about this program, stating that “servicers may be reluctant to inform borrowers of PSLF and 

direct them to complete the annual employment certification form for PSLF because doing so 

currently leads to the loan being reassigned to a specialty server.”149

1.2 Servicing transfers

Repaying a student loan can take a decade or more for the vast majority of borrowers. During 

the course of their repayment terms, borrowers may be assigned to different servicers at 

different points in time. As discussed above, borrowers generally do not have control over the 

company that services their loans. A servicing transfer is the process of moving a borrower’s 

account from one student loan servicer to a new servicer. Borrowers generally do not have 

control over the timing of when loans are transferred, or the identity of their new servicer. 

Although the decision to transfer a loan is generally made by the holder of the loan, servicers are 

responsible for executing the transfer.

Servicers may have different policies and procedures related to payment posting, allocation, and 

processing, as well as the administration of certain borrower benefits. As a result, when servicers 

change, borrowers may need to navigate a range of new policies and procedures. In addition, 

when errors occur during servicing transfers, commenters note that this can affect every aspect 

of the student loan repayment process, leading to problems for both borrowers and market 

participants. One commenter suggested:

 

149 CFPB-2015-0021-0356.
46

When a borrower’s loan is transferred, the company transferring the loan and the 

company acquiring the loan must work together to ensure a smooth process for the 

borrower. The borrower and the servicer both lose when a communication lapse 

occurs.150 

Historically, servicing transfers have been a common feature of the student loan market. For 

borrowers with private student loans or federally-guaranteed loans held by private investors 

(commercial FFELP), a student loan servicer may change following the sale of a loan to a new 

loan holder. A transfer may also occur at the discretion of the new loan holder, which may elect 

to service a student loan on its own servicing platform (first-party servicing) or contract out to a 

specialty student loan servicer (third-party servicing). Holders may move loans between 

servicers at their discretion, resulting in multiple loan transfers without a loan sale or change in 

holder. For loans owned by the federal government, servicing transfers may occur at the 

direction of the Department of Education or may be triggered by borrowers seeking loan 

forgiveness through the Public Service Loan Forgiveness program.151 In recent years, a number 

of significant market and policy changes have resulted in elevated levels of servicing transfer 

activity for borrowers with all types of student loans. 

Servicing transfers and the financial crisis

Leading up to and during the immediate aftermath of the financial crisis, there was significant 

disruption in the capital markets as investor demand for asset-backed securities, including 

student loan asset-backed securities (SLABS), declined sharply.152 In the private student loan 

market, this disruption produced a sharp drop-off in new originations and a number of market 

 

150 CFPB-2015-0021-0354. 

151 See also CFPB-2015-0021-0861. 

152 For a further discussion of the relationship between securitization and education finance, see Consumer Financial 

Protection Bureau, Student Loan Affordability (May 2013), available at

http://www.consumerfinance.gov/reports/student-loan-affordability and U.S. Department of Education and 

Consumer Financial Protection Bureau, Private Student Loans (July 2012), 24, available at

http://www.consumerfinance.gov/reports/private-student-loans-report.
47

participants exited the market entirely. Subsequently, private student lending activity became 

concentrated at a number of very large depository institutions.153 As the number of lenders 

originating new private student loans declined, a few remaining market participants acquired 

existing portfolios of private student loans from companies exiting the origination market.154 For 

hundreds of thousands of borrowers with private student loans, the sale of these existing loan 

portfolios triggered a servicing transfer.155

For participants in the market for federally-guaranteed student loans, extraordinary 

intervention by the federal government mitigated the impact of the contraction in the capital 

markets on new originations. In 2008, the Ensuring Continued Access to Student Loans Act 

(ECASLA) was enacted, providing the Secretary of Education, with the consent of the Secretary 

of the Treasury and the Director of the Office of Management and Budget, the authority to 

establish mechanisms to ensure that students and families had continued access to federal 

student loans regardless of conditions in the credit markets.156 ECASLA permitted the Secretary 

of Education to purchase certain FFELP loans, provided that the owners of these governmentguaranteed loans use the proceeds to originate new federal student loans for borrowers.157 By the 

end of 2010, under this authority, the Department of Education acquired $110 billion in loans 

 

153 See generally U.S. Department of Education and Consumer Financial Protection Bureau, Private Student Loans

(July 2012), 24, available at http://www.consumerfinance.gov/reports/private-student-loans-report. 

154 See, e.g., Discover Financial Services, Press Release: Discover Financial Services to Acquire $4.2 Billion of Private 

Student Loans and the Ongoing Business of The Student Loan Corporation (Sept. 17, 2010), available at

http://investorrelations.discoverfinancial.com/phoenix.zhtml?c=204177&p=irol-newsArticle&ID=1472503. 

155 Id. Readers should note that there is no public data on student loan servicing transfers for private, FFELP, or 

Direct Loans.

156 Pub. L. No. 110-227, 122 Stat. 740 (2008). 

157 Id.; see also U.S. Department of Education, Ensuring Continued Access to Student Loans Act (ECASLA) Annual 

Report to Congress at 4 (July 2011), available at

https://studentaid.ed.gov/sa/sites/default/files/fsawg/datacenter/library/July2011ECASLAReport.pdf [hereinafter 

ECASLA Annual Report]. 
48

made by private lenders through the FFELP program and transferred loan servicing to thirdparty servicers under contract with the Department of Education.158

Continued consolidation of federally-guaranteed loans

In 2010, Congress enacted the SAFRA Act, which instructed the Department of Education to 

halt new originations under the FFELP program and shift primarily to direct lending, providing 

federal student loans directly to borrowers under the Direct Loan program.159 The student loan 

servicing business model has high fixed costs and rewards participants able to service a large 

volume of loans. The wind-down of FFELP effectively eliminated the primary source of new 

servicing volume for many specialty student loan market participants, since the Department of 

Education became the only channel for new federal student loan servicing volume. 

Consequently, this statutory change has spurred significant changes in the market for student 

loan servicing, leading to the concentration of the servicing of legacy FFELP loans at a few very 

large specialty student loan servicers.

Recognizing that they could no longer originate FFELP loans, some large depository institutions 

have either reoriented their education finance businesses to focus exclusively on private student 

lending or sought to exit the education finance market entirely. In both cases, these financial 

institutions have sought to sell existing portfolios of commercial FFELP loans.160 In addition, 

non-profit specialty student lenders that had previously used their own servicing platforms 

 

158 See ECASLA Annual Report at 17. For further discussion, see U.S. Department of Education, Loan Servicing 

Update (July 2012), available at

www.ifap.ed.gov/presentations/attachments/NASFAA2012LoanServicingUpdate.ppt.

159 See Pub. L. No. 111-152, §§ 2101-2213, 124 Stat. 1071 (2010). The Direct Loan Program actually began in 1992, see

Pub. L. No. 102-325, 106 Stat. 569 (1992), but Federal Direct Loans constituted only a small portion of Federal 

student lending before the enactment of the SAFRA Act in 2010.

160 For example, in April 2014, CIT Group sold a portfolio of $3.6 billion in FFELP loans to Nelnet, exiting the 

education finance market. In July 2014, Wells Fargo sold a portfolio of $9.7 billion in FFELP loans to Navient, 

reorienting their education finance unit to focus on private education loans. Fitch Ratings, More Institutions Likely 

to Sell US Student Loans (July 2014), available at

https://www.fitchratings.com/gws/en/fitchwire/fitchwirearticle/More-Institutions-Likely?pr_id=839398.
49

continue to outsource student loan servicing to larger third-party servicers.161 These changes 

have resulted in a noteworthy number of servicing transfers.162

Looking forward, observers expect a small number of specialty student loan market participants 

to continue to acquire outstanding portfolios of privately-held loans made under FFELP 

(commercial FFELP) and private student loans, triggering servicing transfers for more student 

loan borrowers.163

In addition, servicing transfers may be an enduring feature of servicing for the Direct Loan 

program. As discussed in Section 1.1.4, borrowers with federal Direct Loans seeking to obtain 

loan forgiveness under the Public Service Loan Forgiveness program or through the Teacher 

Loan Forgiveness program are automatically transferred to a specialty student loan servicer 

contracted by the Department of Education to administer these programs.164

Problems related to servicing transfers can impact borrowers and increase costs 

for market participants. One student loan servicer shared information with the Bureau 

related to common problems affecting borrowers in the aftermath of one very large servicing 

transfer. Readers should note that data provided by a single market participant may not be 

representative of the entire market and readers should not draw conclusions about prevalence 

 

161 See, e.g., Press Release: Access Group, Inc. Selects ACS, A Xerox Company for Loan Servicing (Dec. 23, 2011), 

available at http://www.prnewswire.com/news-releases/access-group-inc-selects-acs-a-xerox-company-for-loanservicing-136159313.html. 

162 See Marian Wang, Student Loan Borrowers Dazed and Confused by Servicer Shuffle, ProPublica (Apr. 23, 2012), 

available at http://www.propublica.org/article/student-loan-borrowers-dazed-and-confused-by-servicer-shuffle

(“The [servicing] switch . . . will ultimately include millions of loans.”). In addition, in 2012, the Department of 

Education chose to terminate its contract with the third-party student loan servicer that, prior to 2009, had served 

as the sole student loan servicer for the Direct Loan program. All loans owned by the federal government and 

serviced by this company, Affiliated Computer Services or ACS, a division of Xerox, Inc., were transferred to other 

servicers under contract with the Department of Education. In December 2013, ACS ceased all servicing operations 

under the Direct Loan Servicing Center brand. These changes resulted in servicing transfers for millions of 

borrowers.

163 See, e.g., American Banker, B of A Bids Adieu to Its Student Loans (Or Does It?) (Feb. 2, 2015), available at

http://www.americanbanker.com/news/national-regional/b-of-a-bids-adieu-to-its-student-loans-or-does-it1072491-1.html. 

164 See also CFPB-2015-0021-0974. 
50

based on this data. However, in the absence of public data related to loan performance and 

servicing transfers, this information may offer helpful context.

In this case, the servicer noted that out of the more than 2.5 million accounts transferred, the 

company encountered problems with more than one out of five borrower accounts. These 

problems largely related to the transfer of records and other basic account information. The 

problems substantially increased costs for the new servicer because of the additional manual 

processing required in order to correct improperly transferred accounts. The cause of many of 

these problems may have originated with servicing errors made by the transferor servicer. Issues 

identified by this company include:

 Incorrect balance information leading to a change in monthly payment 

amount. Resulting from incorrect information about borrowers’ loan balances, more 

than 500,000 borrowers experienced an increase or decrease in monthly payment 

amount following transfer as necessary to ensure borrowers repaid their loans consistent 

with their scheduled loan term. 

 Incorrect balance information that would have produced balloon payments. 

Of the more than 500,000 borrowers identified above, more than 100,000 borrowers 

required significant revisions to amortization schedules, including changes that resulted 

in higher monthly payments. Had the new servicer failed to address this issue on its own, 

these borrowers would have been required to pay balloon payments at the end of their 

scheduled repayment period. The size of the balloon payments varied by borrower and 

thousands of borrowers would have owed balloon payments of $500 or more. 

 Multiple consecutive forbearances prior to transfer. More than 20,000 

borrowers had received multiple consecutive forbearances prior to transfer and, in the 

most extreme cases, borrowers had not been required to make payments for 5 years or 

more.165 These borrowers’ balances had increased significantly due to accumulation of 

 

165 Public comments and input from other market participants also suggest that the widespread use of forbearance for 

certain borrowers may have conflicted with guidance provided by the Department of Education. See 34 C.F.R. § 

685.205 (limiting oral forbearances to 120 days and prohibiting consecutive oral forbearances). For the purpose of 

this discussion, diversity among servicers’ loan handling policies, including practices by a single servicer that may 

result in consumer harm, also illustrate how the process of transferring loans between servicers can identify 

servicing errors and potentially expose servicers or borrowers to additional costs.
51

unpaid interest during this period. The new servicer’s attempts to notify borrowers 

transitioning from forbearance to repayment status reportedly caused borrower distress 

and confusion. 

 Trailing and missing payments. In some cases, the old servicer processed payments 

prior to transfer that it did not apply to borrowers’ accounts. As a result, borrowers 

received bills from the new servicer for payments that were not owed. In some cases, the 

new servicer attempted to debit unnecessary extra payments from borrowers’ checking 

accounts, which were rejected due to insufficient funds. Borrowers also experienced 

incorrect delinquencies and were required to provide additional documentation, 

including proof of payment, to the new servicer in order to correct account errors.

Commenters note that there remains diversity among market participants’ policies and practices 

prior to, during, and following a servicing transfer. In some cases, errors similar to those 

described above may be identified and proactively remediated by a new servicer without the 

borrowers’ knowledge. Commenters also suggest that servicers may not identify problems until 

borrowers contact customer service representatives to request assistance, such as in response to 

an unexpected jump in the monthly payment or a notice of a balloon payment at the end of a 

borrower’s repayment term. 

As described in more detail below, commenters identify a range of different problems related to 

servicing transfers. This section will discuss specific problems identified by commenters related 

to:

 Notice;

 Lost payments and surprise late fees;

 Transfer of repayment benefits and repayment plans; and 

 Access to basic account information, record retention, and continuity of contact.
52

1.2.1 Notice of servicing transfer

Commenters state that notice of servicing transfer is a critical protection for borrowers who will 

be required to use a new company as their primary point of contact for their student loans.166

Following a servicing transfer, student loan borrowers are immediately expected to remit 

payment on-time each month following policies and procedures established by their new 

servicer and, in some cases, this may also include a requirement that the borrower re-enroll in 

automatic payments through their new servicer.167 Timely and accurate notices may benefit 

borrowers entering into a relationship with a new company, serving as a mechanism to help 

inform borrowers about changes in payment processing policies, upward or downward 

adjustments to monthly payment amounts, or any delays or disruptions in automatic payments. 

For borrowers with FFELP loans, federal regulations require notice to be sent by the new 

servicer within 45 days following the transfer, or the date on which the assignee receives a 

legally enforceable right to receive payment from the borrower, in the event of a sale.168 These 

regulations do not require notice prior to transfer. No comparable regulatory requirements exist 

for borrowers with private student loans or Direct Loans. One comment from a student loan 

servicer states that it voluntarily implemented an additional notice regime for servicing transfers 

involving FFELP and private student loans, supplementing regulatory requirements for FFELP 

loans.169

Borrowers report they did not receive notice that their loans were being 

transferred to new servicers. Some comments from individual student loan borrowers state 

that borrowers were unaware that their loans were being transferred to a new servicer.170 Some 

commenters state that they believe communications from their new servicers may have been a 

 

166 See, e.g., CFPB-2015-0021-0861; CFPB-2015-0021-0377.

167 See, e.g., CFPB-2015-0021-0355. 

168 34 C.F.R. §§ 682.208(e), (h).

169 See CFPB 2015-0021-0355.

170 See, e.g., CFPB-2015-0021-1028.
53

mistake or scam.171 Other comments from borrowers state that borrowers did not know where to 

send their payments172 and, as described in further detail below, commenters note that the lack 

of notice contributed to significant payment processing breakdowns, including missing or 

misdirected payments and unexpected delinquencies.173

One student loan borrower told us:

Recently, [my lender] sold off my loans to [another company]. It didn't seem like much 

of a deal. Of course, they didn't inform me it was happening until after [the new 

company] did. At first I was worried it was a scam and that, somehow, someone had 

gotten my loan account information. I ended up calling [my lender] about it, having it 

confirmed as legitimate, and then getting the email telling me it was happening.174

Variation in payment policies across servicers may adversely affect borrowers 

when transferee servicers do not provide advance notice of different policies. 

Borrowers note that they may receive no notice when payment processing policies change, and 

that this may lead to payment processing problems when their preferred payment channels do 

not exist at their new servicer. In such instances, borrowers may make assumptions about 

payment options based on the previous servicers’ practices. 

For example, a borrower may be able to submit same-day payments using a debit or credit card 

under certain servicers’ policies; however, after a servicing transfer, the borrower may be 

required to pay with a check or through an electronic transfer from a checking or savings 

account. Commenters note that changes to payment policies resulting from a change in servicer 

can interfere with the borrowers’ ability to manage their loans, especially without sufficient 

advance notice to allow the borrower to adjust their payment routine.175

 

171 See, e.g., CFPB-2015-0021-0563.

172 See, e.g., CFPB-2015-0021-0712; CFPB-2015-0021-0091. 

173 See, e.g., CFPB-2015-0021-0809.

174 CFPB-2015-0021-0387.

175 See CFPB-2015-0021-1026.
54

One student loan servicer notes that it provides notices before and after transfer, as part of a 

broader initiative for its FFELP and private student loan customers to model its servicing 

transfer policies and procedures on “mortgage transfer rules.”176

Borrowers report that they receive no notice when new servicers’ policies 

regarding alternative repayment arrangements differ from their previous 

servicers’ policies.177 In some cases, servicers elect not to continue certain payment 

arrangements agreed to by the previous servicer.178 While this can present difficulties for 

borrowers by itself, borrowers who do not receive timely and accurate notice of changes in 

repayment arrangements may lose an opportunity to contact their student loan servicers and 

make alternative arrangements, which may hinder their ability remain on track to successfully 

repay their obligations.179 Federal regulations do not require such notices for borrowers with 

FFELP loans and no regulatory notice requirements exist related to servicing transfers for 

private student loans or Direct Loans.180

Commenters tell us that borrowers may experience difficulties when attempting to enroll or 

recertify an income-based repayment plan if a servicing transfer occurs while an application is 

under review. Following a transfer, the new servicer may not process the application or the 

paperwork may not be transferred to the new servicer, causing the borrower’s payment to revert 

to the permanent standard amount. 

One commenter told us that he submitted an application to recertify his income-based 

repayment plan with his prior student loan servicer.181 Following a transfer, his new servicer did 

not process the paperwork and his payment reverted to his permanent standard repayment, 

 

176 CFPB-2015-0021-0355.

177 See CFPB-2015-0021-0387; CFPB-2015-0021-0298; CFPB-2015-0021-1026.

178 See CFPB-2015-0021-0229. 

179 See CFPB-2015-0021-0551; CFPB-2015-0021-0953.

180 34 C.F.R. § 682.208.

181 CFPB-2015-0021-0995.
55

causing his payments to increase dramatically.182 The commenter told us that he did not know 

his payment increased and he continued to submit a payment equal to the income-based 

repayment amount.183 The commenter was surprised to learn that he was delinquent on his 

loans and subsequently lost several qualifying payments toward Public Service Loan 

Forgiveness.184

1.2.2 Payments to previous servicer and disruptions to 

automatic payments 

Following transfer, a number of commenters note significant problems when attempting to 

reconcile payments made toward their loans with current information available about their 

accounts. These problems include payments made to their previous servicer not being posted or 

transferred in a timely manner and disruptions to automatic payments (auto-debit), both of 

which can lead to unexpected late fees and delinquencies. 

Commenters note that following transfer, payments made to the previous servicer 

may be lost or may be processed but not posted to borrowers’ accounts, even when 

borrowers follow servicers’ instructions. Commenters note that their old servicers may 

have accepted and processed payments after their accounts were transferred to a new servicer.185

In these cases, both servicers may not have elected to establish a process to transfer misdirected 

payments in a timely manner. Borrowers may be notified that their accounts are delinquent and 

that they have been assessed unexpected late fees, despite making timely payments that were 

processed by their previous servicer. Commenters also note that borrowers may need to navigate 

customer service departments at both companies in order to reconcile their payment histories, 

reverse late fees, and resolve improper delinquencies.186 Recognizing that there are no 

 

182 Id.

183 Id.

184 Id.

185 See, e.g., CFPB-2015-0021-1779.

186 See, e.g., CFPB-2015-0021-0648; CFPB-2015-0021-0245. 
56

regulatory requirements that govern the handling of payments during transfer, one student loan 

servicer states that it recently implemented a policy “ensuring that payments received by the 

prior servicer are forwarded to [the company] on a timely basis and applied effective on the 

prior servicer’s receipt date.”187

Following transfer, borrowers may also encounter disruptions in automatic 

payments. As discussed further in Section 1.4, automatic payments (auto-debit) are a common 

arrangement for student loan borrowers in repayment. Servicing transfers may pose specific 

risks for borrowers enrolled in automatic payments because these borrowers may take for 

granted that their payment will be debited on-time each month. Commenters note that following 

a servicing transfer, borrowers’ auto-debit enrollment and bank account information may not 

always be transferred to their new servicers.188 This can cause disruptions for borrowers, 

especially when many may not have sufficient warning to modify their payment methods or 

enroll in automatic payments with the new servicers before the next payments are due. In 

addition, some commenters note that following a transfer, their former servicers failed to 

discontinue automatic withdrawal of the borrowers’ monthly payments and the borrowers had 

to contact the old servicers to stop automatic debit and then re-enroll with the new servicers.189

One comment from a borrower states:

 

187 CFPB-2015-0021-0355.

188 See, e.g., CFPB-2015-0021-0861.

189 See, e.g., CFPB-2015-0021-5715. 
57

When my loan was switched to being serviced by [company], I had checked my loan 

information on the Dept. of Education website a few days before my payment was due 

to be automatically withdrawn. What I saw was no balance information, no payment 

information...everything was gone, and I'd received no notification of any kind . . . I 

work for a bank in consumer lending, and we would never make it so difficult for our 

customers who are trying to pay off their debts. Why are students being treated this 

way, when all we're doing is trying to better ourselves with educations and trying to 

pay off our loans?190

One industry comment notes that “smooth transfer is in the servicers’ best interest, as well as 

that of the affected consumers. The timing of the transfer is carefully coordinated to ensure that, 

as much as possible, it does not adversely affect time-sensitive issues such as payment due dates 

and ACH payments.”191

1.2.3 Change in repayment incentives or repayment plans 

Following transfer, student loan servicers calculate borrowers’ monthly payments, administer 

any alternative payment arrangements established by the prior servicer, and apply any 

repayment incentives secured earlier in the repayment process (e.g., interest rate reductions 

awarded following a series of on-time monthly payments), to the extent that they are required 

under regulations or in the promissory note. Commenters note problems when incentives or 

repayment plans do not transfer with a student loan, which may present unique challenges for 

borrowers experiencing financial distress and relying on an alternative repayment plan agreed 

to by their prior servicers.192 There are currently no federal regulations that address practices 

related to repayment incentives or repayment plans during a servicing transfer.

Individual student loan servicers may offer borrowers incentives to encourage 

certain types of repayment behavior. When these features are not included in 

 

190 CFPB-2015-0021-0009.

191 CFPB-2015-0021-0357.

192 See, e.g., CFPB-2015-0021-0671.
58

borrowers’ promissory notes, benefits may vanish following transfer. Some student 

loans feature interest rate reductions, generally after a series of on-time payments or in 

exchange for auto-debit enrollment, as an advertised benefit to encourage timely repayment.193

These benefits may be found in federal regulations, as part of the contractual terms of the loan, 

or may be offered by servicers themselves.194 As discussed in the previous section, when the 

benefits are part of the borrower’s student loan contract, servicers may be responsible for 

evaluating eligibility for these benefits and applying them to borrowers’ accounts. When 

servicing transfers occur, non-contractual incentives offered by the old servicer may not transfer 

with borrowers’ accounts or the new servicer may not automatically apply contractual interest 

rate reductions, leading to increased interest rates.195 One borrower states:

I am majorly confused by my Federal student loans. When I consolidated, I was told a 

certain interest rate and incentives that would lower my interest rate. I really cared 

less about who the servicer is and will be in the future. Now, years later, I am told that 

subsequent servicers have the right to revoke those incentives because new servicers 

did not agree to those terms. That is completely not fair to borrowers. That just seems 

illogical and even illegal to me.196

For example, commenters note that when automatic payments are halted following a servicing 

transfer, any associated interest rate benefit is also suspended.

197 Servicers also may require 

borrowers to re-enroll in auto-debit in order to reapply this benefit, increasing costs in the 

interim.198 Borrowers note that the increased interest rates lead to increased costs over the life of 

loan merely because the loan was transferred to a new servicer. 

 

193 For further discussion, see 1.1.3.

194 See, e.g., CFPB-2015-0021-0355. 

195 See, e.g., CFPB-2015-0021-1049; CFPB-2015-0021-0551.

196 CFPB-2015-0021-0671.

197 See, e.g., CFPB-2015-0021-1495.

198 See, e.g., CFPB-2015-0021-2830; CFPB-2015-0021-1576; CFPB-2015-0021-0937; CFPB-2015-0021-1049.
59

Borrowers pursuing benefits that require servicers to monitor payment histories 

report breakdowns when attempting to reconcile conflicting information 

subsequent to transfer. Some benefits for private and federal student loan borrowers require 

servicers to evaluate borrowers’ payment histories when assessing eligibility. For instance, 

borrowers seeking Public Service Loan Forgiveness are required to make 120 on-time payments 

to qualify for loan forgiveness.199 Alternatively, private student loan borrowers seeking to release 

a co-signer may need to make a certain number of on-time payments to release the co-signer 

from his obligation to repay the loan.200 Therefore, accurate payment histories are necessary for 

borrowers seeking to qualify for these benefits. As one industry commenter notes, when 

explaining how it has voluntarily implemented policies to improve the delivery of service during 

servicing transfers:

[Servicer] has in place policies and procedures that facilitate the smooth and seamless 

transfer of borrower information and documentation in the case of loan transfers. 

[Servicer] provides the transferring lender with a set of procedures and a loan transfer 

checklist that it recommends be followed as part of the transfer process. This includes 

sending the borrower a "goodbye" letter and adhering to procedures that assure that 

all of a borrower's payments, including those made following the loan transfer, are 

credited to the borrower's account.201

Other comments from individual borrowers identify delays and other processing problems when 

trying to ensure basic information about historical payments provided by previous servicers are 

consistent with account information presented by new servicers. One commenter told us:

 

199 As discussed above, upon completion of an Employment Certification Form (ECF), Direct Loan borrowers 

pursuing the Public Service Loan Forgiveness program are automatically transferred to the specialty servicer that 

administers this program. Presently, this company is responsible for validating qualifying employment and 

assessing qualifying payment history, including payment histories documented by previous student loan servicers. 

When the first student loan borrowers are eligible for loan forgiveness under this program on October 1, 2017, this 

servicer will also be responsible for evaluating applications for loan forgiveness. For more discussion on Public 

Service Loan Forgiveness, see Section 1.1.4.

200 For further discussion on co-signer release, see Section 1.5.2. 

201 CFPB-2015-0021-0974.
60

I was required to transfer servicers as a result of PSLF. When my loans transferred . . . 

I lost 3 payments that [my servicer] had tracked/approved, and should have applied 

toward my PSLF payments . . . It is very frustrating because the PSLF is hopefully 

going to be my saving grace someday from the mounting sea of debt that is my student 

loans! . . . Please do something to help students get out of debt faster.202

Borrowers who have negotiated alternative payment arrangements, including 

income-driven repayment plans, with their prior servicers may experience 

disruptions and some borrowers may experience changes in repayment terms. The 

Bureau also heard from borrowers experiencing changes in repayment plans following a change 

in servicer. These borrowers note that documents may not be transferred to their new servicer, 

requiring borrowers to start over on loan modifications or forbearance applications. For 

borrowers experiencing financial hardship, additional processing time caused by lost paperwork 

can increase the likelihood of missed payments, damaged credit, or other negative 

consequences. As one borrower notes:

My loan was bought by [a new company]. I had all my paperwork in place with a 

deferment in place with the previous servicer. However, all communication by [the new 

company] was sent to an old email address to the spam folder. Not checking the email 

often, I had no idea what was going on until it was done. I wished they would have 

used mail or called me about it. I also feel like I should have had a choice about my 

loans being moved.203

1.2.4 Access to information after servicing transfers

Accurate and timely processing of student loan payments may require student loan servicers to 

have a complete understanding of borrowers’ accounts, the terms included in borrowers’ loan 

contracts, and specific instructions provided by borrowers related to payment handling or 

alternative repayment arrangements.204 When servicing transfers occur, commenters note a 

 

202 CFPB-2015-0021-0204.

203 CFPB-2015-0021-0524.

204 For further discussion on payment processing issues, see Section 1.4. 
61

range of problems related to record retention and customer service, and problems resolving 

errors once they are identified. There are no federal regulations that establish specific record 

retention requirements for student loan servicers following servicing transfers. 

Borrowers may experience problems obtaining documents or information from 

their new servicer following a transfer, particularly when all records associated 

with borrowers’ accounts are not transferred to the new company.

205 Basic account 

information, including historical payment records, may not be retained following transfer or 

may not be accessible through the new servicer’s borrower-facing electronic account platform. 

When borrowers are unable to access historical account documentation, they have difficulty 

tracking eligibility toward future benefits and protections that depend on payment history. 

Inaccessible information may also cause problems for borrowers to understand how historical 

payments have been applied and how prior payments affect outstanding principal and interest. 

Borrowers enrolled in payment arrangements without a fixed term, including income-driven 

repayment plans, note that this is particularly important: 

I have a student loan w/ [student loan servicer]. I am on an income based repayment 

program with them and have around $50,000 in debt. When I go to their portal I can 

see my payment history but nowhere does it show how my overall loan balance and 

total loan interest history on a monthly basis. I make payments every month but have 

no idea how it is applied to my loan balance and what the new balance for both interest 

and principle looks like once the payment is applied.206

Comments from two large student loan servicers both identify proactive steps taken to ensure 

documentation is properly transferred during a servicing transfer.207 These practices include 

imposing obligations on transferor servicers in order to ensure that documentation is 

appropriately accounted for and transferred successfully. 

 

205 See, e.g., CFPB-2015-0021-5068. 

206 CFPB-2015-0021-1018.

207 See CFPB-2015-0021-0355; CFPB-2015-0021-0974.
62

Commenters state that, following transfer, borrowers may be unable to contact 

customer service personnel empowered to resolve problems related to missing 

documents or lost information. Comments from individual borrowers state that when basic 

information was unavailable through their new servicers’ online systems, they were also unable 

to obtain contact information for their new servicers’ personnel, who have access to those 

documents.208 Student loan borrowers report that they may be told to contact their old servicers, 

only to be passed back to their new servicers, with no clear way to resolve problems.209

When I started college in 1994 I took the financial advisors' advice and saved all 

paperwork related to every student loan I obtained. At some point, I could no longer 

follow my debt trail. My loans were transferred to various lenders and loan service 

companies and I didn't always understand how they were divided the loans and how 

payments were applied.210

Other commenters report borrowers facing multiple changes in customer service personnel at 

each company, without reaching personnel empowered to handle their situation:

There [were] delays from the time the lending organizations transferred my loans to an 

outside servicing agencies. On many occasions, I was kept in the dark for several 

months until I receive a “notification”. Also, when I tried to follow up with my original 

lenders to get a status update, their answer was always “your loan was transferred to 

an outside servicing agency and therefore you have to wait until they send you a 

notification letter”. I was given the runaround when I tried to figure out why . . . 

211

Many of the specific problems identified in this section are similar in substance to the problems 

identified by commenters elsewhere in this report. Commenters note that servicing transfers 

may leave some borrowers more vulnerable to processing problems and particularly dependent 

 

208 See, e.g., CFPB-2015-0021-0513.

209 See, e.g., CFPB-2015-0021-0522.

210 CFPB-2015-0021-0513.

211 CFPB-2015-0021-0522.
63

on customer service personnel to resolve errors.212 Taken together, the preceding discussion of 

the scale of errors following one large servicing transfer and the problems identified by 

individual commenters in this section, suggests that the current servicing environment may fail 

to serve some borrowers when servicing transfers occur.

1.3 Customer service and error resolution

Servicers’ duties may include responding to borrower inquiries related to any aspect of the 

student loan repayment process, including inquiries related to basic account information, loan 

terms, payment histories, the processing of payments, the application of borrower benefits or 

alternative repayment arrangements, and the furnishing of information to credit reporting 

agencies. 

When problems occur, commenters note that borrowers rely on student loan servicing 

personnel to quickly identify the underlying issues which resulted in the servicing error, resolve 

these issues in a timely manner, and communicate with the borrower once the error has been 

resolved.213 Additionally, commenters note that borrowers rely on servicers to furnish accurate, 

updated information to credit reporting agencies reflecting this resolution. When servicers 

provide conflicting or inaccurate information or fail to resolve errors in a timely manner, 

commenters note that this may undermine borrowers’ trust in servicing personnel and may 

prevent borrowers from accessing tools to avert default.214

Commenters express that many of servicing problems identified in Part One of this report are 

exacerbated by inadequate customer service.215 Comments from individual student loan 

borrowers identify a range of difficulties related to customer service, including:

 

212 See, e.g., CFPB-2015-0021-0378. 

213 See, e.g., CFPB-2015-0021-0354.

214 See, e.g., CFPB-2015-0021-0373.

215 See, e.g., CFPB-2015-0021-0358.
64

 Access to timely and accurate account information; 

 Handling of customer inquiries and complaints; and

 Requests to resolve errors, escalate complaints, and appeal decisions.

1.3.1 Access to timely and accurate account information 

Commenters note that borrowers generally rely on servicing personnel to provide accurate, 

timely information related to account terms and conditions, payment history, and borrower 

benefits and protections, including alternative repayment options.216 Commenters discuss a 

range of problems encountered when borrowers seek to obtain information about their loans 

and associated benefits. For servicers serving borrowers with FFELP loans, there are a series of 

“due diligence” requirements included in the Higher Education Act and implementing 

regulations that mandate certain written disclosures for borrowers in repayment and for 

delinquent borrowers.217 No equivalent disclosure requirements exist in federal regulations for 

the servicing of private student loans or Direct Loans. There are no federal regulatory 

requirements related to accuracy of information provided by student loan servicers.

Borrowers may not be able to access information about their payment history, 

including information about late payments or how individual payments have been 

allocated between interest and principal. Many servicers provide payment histories 

electronically through the borrower’s online account or upon request by the borrower.218

Comments from individual borrowers and organizations representing consumers note that 

access to these records may be limited and that information contained in these records may not 

be sufficiently detailed for borrowers to gain a complete understanding of how their account has 

been serviced. The Bureau has also heard from borrowers who have been denied a complete 

 

216 See, e.g., CFPB-2015-0021-0364.

217 34 C.F.R. § 682.208; 34 C.F.R. § 682.205.

218 See, e.g., CFPB-2015-0021-0974; CFPB-2015-0021-0355.
65

payment history after requesting it from their servicer or who have been provided incomplete or 

partial histories of payments upon request.219

One comment from a student loan servicer notes that access to complete payment histories are 

available electronically through the company’s servicing portal. This company notes that 

information is also available about how payments were applied to specific loans grouped 

together for billing purposes and includes historical information about application to principal 

and interest.220 Other industry comments do not address, in detail, practices related to access to 

payment histories. 

As discussed in greater detail elsewhere in Part One, borrowers may use payment histories to 

monitor and track that they have made the correct number of requisite payments to qualify for 

certain borrower benefits, including the Public Service Loan Forgiveness program221 or co-signer 

release.222 Other commenters note that access to timely and accurate account information is 

particularly important for borrowers seeking to refinance their student loans.

223

Borrowers may not be able to access documentation about their loans, including 

original loan contracts. Some borrowers express frustration that servicers fail to provide 

documents upon request, including original promissory notes or disclosures.224 Commenters 

note that access to these documents enables borrowers to ensure that their loans are being 

properly serviced and all terms and conditions are met.225 However, borrowers state that they 

struggle to obtain this documentation or are told that the servicer does not have the original 

 

219 See, e.g., CFPB-2015-0021-5068. 

220 See CFPB-2015-0021-0355.

221 See Section 1.1.4; see also 34 C.F.R. § 685.219.

222 As discussed in Section 1.5, lenders frequently advertise that a co-signer to a loan may be released from his 

obligation to repay the loan after a certain number of on-time payments of principal and interest. See also CFPB2015-0021-0361; CFPB-2015-0021-0355.

223 See, e.g., CFPB-2015-0021-0985.

224 See, e.g., CFPB-2015-0021-1390; CFPB-2015-0021-3142.

225 See, e.g., CFPB-2015-0021-0861.
66

documentation associated with a borrower’s loans. Borrowers further explain that if a customer 

service representative fails to provide them with the requested information, they do not have a 

formal way to escalate their request for further review or a mechanism to hold their servicer 

accountable for lost documentation.226

Servicing personnel may provide borrowers with conflicting, inconsistent, or 

inaccurate information. Because borrowers may have to make decisions about payment 

plans, benefits, and protections at many points throughout the student loan repayment process, 

commenters note that access to accurate and actionable information from customer service 

personnel is a critical function for servicers. The Bureau has heard from borrowers that are 

unable to get basic information about loan terms and conditions when they contact their 

servicer.227 Commenters note that in some circumstances, they may contact a customer service 

representative only to call back and receive a different answer from another customer service 

representative.228 In other cases, the information provided by customer service personnel may 

not match information provided on consumer-facing websites. Borrowers express frustration 

and raise questions about how to resolve uncertainty when they get inaccurate, incomplete, or 

conflicting information.229 One borrower comments:

I participate in income-based repayment (IBR) and am making payments toward 

public service loan forgiveness (PSLF). Unfortunately, the process of consolidating my 

loans and providing the necessary information to qualify for IBR/PSLF was riddled 

with misinformation and poor communication. Although I am finally making 

payments (and happy to do so), the process took about 6 months for [my current 

servicer] to sort out my paperwork and follow up with me about next steps. On several 

occasions, I received bad information from the phone representatives and at one point I 

 

226 See, e.g., CFPB-2015-0021-0861. 

227 See, e.g., CFPB-2015-0021-0229; CFPB-2015-0021-5714. 

228 See, e.g., CFPB-2015-0021-0218.

229 See, e.g., CFPB-2015-0021-0934. 
67

called three different representatives and was given very different explanations about 

what documentation was needed.230

1.3.2 Requests to resolve errors, escalate complaints, and 

appeal decisions

When problems occur, borrowers may depend on customer service personnel to help them 

understand how issues are resolved, including whether resolution can be obtained during a 

single contact with their servicer or whether resolving an issue requires additional 

documentation or processing.231

Borrowers note that a range of problems can arise when contacting their servicer for assistance. 

Commenters note that even when borrowers attempt to escalate or appeal decisions, error 

resolution processes may not be sufficient to address borrowers’ concerns. One industry 

commenter notes that federal regulations for FFELP loans require servicers to reply to inquiries 

within 30 days.232 There are no equivalent regulatory requirements for Direct Loans or private 

student loans.

Commenters report that servicing personnel may not address borrower concerns, 

either declining to provide requested assistance or failing to deliver on the 

assistance offered to the borrower. Some borrowers report that they contact their servicer 

to ask a question or document an issue with their account, only to be ignored by their servicer.233

When they request help, either through an online platform or via telephone, borrowers 

comment that servicing personnel may not have sufficient knowledge to provide guidance when 

borrowers seek to have an issue addressed.234 After contacting their servicer, some borrowers 

 

230 CFPB-2015-0021-1151.

231 See, e.g., CFPB-2015-0021-1064.

232 See CFPB 2015-0021-0357; see also 34 C.F.R. § 682.208(c).

233 See, e.g., CFPB-2015-0021-0358.

234 See, e.g., CFPB-2015-0021-0359.
68

tell us that, despite assurances from customer service personnel that their issue was being 

handled, there is no way to track next steps performed by the company or assess whether 

resolution was sufficient to resolve the underlying problem.235 Some commenters raise concerns 

that servicing personnel focused on minimizing the length of customer contacts with little 

regard for resolving borrowers’ issues.236

I submitted a payment for $75 and my service processor lost the payment. Somehow 

they were able to send me a letter stating they had received a check but did not know 

which account to apply it to. From there I was instructed to send a copy of the original 

check in reference to the letter. I received no confirmation and my account went into 

default. The people who handled my phone call transferred me from department to 

department and still after 4 years have not been able to remedy the situation because 

my loan has been transferred to 2 different loan services since my initial complaint.237

One industry commenter states that it recently launched a new process for tracking and 

transferring customer requests in order to “provide customers with up-to-date information on 

the status of pending change requests, including account adjustments required due to customer 

request or [servicer] processing error.”238

Borrowers may not know how to initiate a formal review process when attempting 

to resolve an account error. Commenters note that there may be significant variation in 

borrowers’ experiences when attempting to request escalated review by servicing personnel.239

Commenters also note that servicers may not offer an escalated review feature in a uniform or 

 

235 See, e.g., CFPB-2015-0021-0431.

236 See, e.g., CFPB-2015-0021-0373.

237 CFPB-2015-0021-0259.

238 CFPB-2015-0021-0355.

239 See, e.g., CFPB-2015-0021-0861.
69

accessible manner.240 In some cases, borrowers are able to initiate a formal error resolution 

process with their student loan servicer.241

Borrowers may encounter barriers when attempting to escalate inquiries or 

complaints to senior servicing personnel, if the initial error resolution process 

falls short. Commenters tell us that they contact their servicer but are often transferred to 

multiple departments or multiple customer service representatives when seeking assistance.242

When borrowers attempt to escalate their concerns to senior servicing personnel, borrowers 

complain that they experience long wait times in order to speak to a manager or specialized 

personnel with the ability to access certain information on their loans.243 In some cases, 

borrowers may wait days or weeks in order to receive a response. One comment from an 

individual student loan borrower notes:

Most of the time the representatives don't have answers to my questions and they just 

transfer me to different departments and no one can help. Not even the supervisors.244

Industry comments did not generally address escalation or appeals processes for student loan 

borrowers; however, one student loan servicer notes that it “has policies in place ensuring that 

all contacts with and from borrowers are documented and available to customer service 

representatives and others with a need to access such information. [The servicer] has specialized 

teams to research and respond to escalated inquires and customer complaints.”245

 

240 See, e.g., CFPB-2015-0021-0861.

241 See, e.g., CFPB-2015-0021-0861.

242 See, e.g., CFPB-2015-0021-0755.

243 Commenters from the National Consumer Law Center note that this “inferior” customer service may be caused by 

“information systems, staff incompetence, skewed monetary incentives and lack of training” for customer service 

representatives. CFPB-2015-0021-0861; see also CFPB-2015-0021-0755.

244 CFPB-2015-0021-5720.

245 See CFPB-2015-0021-0974.
70

Some private student loan borrowers experiencing financial hardship may not be 

able to obtain a determination from their servicer about eligibility for an 

alternative repayment plan.246 Borrowers express frustration about the process for 

obtaining a decision. Some borrowers explain that customer service representatives are unable 

to identify appropriate personnel who can make a determination about repayment options.247

Borrowers in these circumstances also express frustration when they are denied alternative 

payment arrangements,248 particularly when servicing personnel decline to provide information 

about how a decision was reached.249

Limited ability of some servicers to resolve complaints may drive borrowers to 

submit complaints with regulators and law enforcement agencies.250 Commenters 

also note that customer service personnel may not direct borrowers to appropriate servicing 

personnel, in effect limiting the volume of borrowers able to receive timely and responsive 

assistance.251 When borrowers run into dead ends while trying to obtain assistance, they may 

submit complaints through alternative channels in order to ensure their concerns are 

addressed.252 In some cases, borrowers note that they submit complaints with federal or state 

regulators in order to ensure that appropriate personnel review their account.253 Commenters 

note that, particularly for borrowers experiencing financial distress, added time spent appealing 

to a regulator in order to get the attention of their servicer means further delay. 

 

246 See CFPB-2015-0021-1371. 

247 See CFPB-2015-0021-0975; CFPB-2015-0021-0499.

248 See CFPB-2015-0021-0371; CFPB-2015-0021-0975.

249 See CFPB-2015-0021-0975.

250 See CFPB-2015-0021-3582. 

251 See CFPB-2015-0021-0854; CFPB-2015-0021-0885; CFPB-2015-0021-0364.

252 See, e.g., CFPB-2015-0021-6129. 

253 See, e.g., CFPB-2015-0021-6126. 
71

1.4 Payment processing 

As discussed in the preceding sections, student loan servicers’ policies and procedures can affect

the execution of many aspects of the student loan repayment process. The following section 

discusses payment processing functions common across the student loan servicing market and 

how, when errors related to these functions occur, it can cause substantial problems for 

borrowers seeking to repay student debt.

Payment processing is the term used in this analysis to capture all policies, procedures, and 

practices in place to facilitate the remittance, posting, and application of payments to borrowers’ 

accounts. The following section will focus on three broad categories of practices identified in

public comments and other input received by the Bureau: 

 Payment posting, payment application, and late fees;

 Payment allocation and non-standard payment handling; and

 Billing and payoff statements.

Features of student loan payment processing

Several market features make the processing of student loans payments distinct from processing 

payments for other financial products. These distinctions underpin the following discussion of 

payment processing in this section. 

Billing groups. Typically, a borrower will take out several loans while attending college, 

usually with one or more disbursements each semester. These loans may have different 

principal balances, interest rates, amortization schedules, or other terms and conditions. If these 

loans are serviced by a single company, the servicer may have broad discretion to manage the 

multiple loans. Typically, servicers decide to bundle multiple loans into a single “billing group” 

and consolidate those loans that they service on one periodic statement. 

Student loan contracts or promissory notes generally relate to a single loan with a single set of 

terms, conditions, and features. Although these contracts typically prescribe how a payment 

should be applied to an individual loan, student loan contracts do not usually include provisions 

related to the grouping of loans for billing purposes. Consequently, servicers’ policies and 

procedures determine how payments are divided among loans in a billing group, particularly for 
72

non-standard payments and in circumstances where a borrower has not provided instructions 

related to payment handling. 

Servicers do not generally group loans of different types together. When a servicer handles 

multiple FFELP and private student loans for a borrower, these loans may be serviced on the

same platform and consolidated into a single billing statement, but FFELP and private student 

loans will remain in separate billing groups, with separate monthly payment amounts. In 

contrast, servicers are required by the Department of Education to separate Direct Loan 

servicing from other servicing activity, offering Direct Loan borrowers a different online portal, 

different billing statements and separate customer service operations, even if the borrower has 

FFELP or private student loan handled by the same company.

Paid ahead status. Many student loans include a billing provision that permits (or requires) a 

servicer to advance a borrower’s due date upon receipt of a prepayment, should the prepayment 

be sufficient to satisfy an installment due in one or more subsequent billing cycles. In effect, if a 

borrower makes a payment sufficient to cover multiple scheduled payments, a servicer will 

accept the payment and a borrower’s billing statement will reflect that no payment is due until a 

future date determined by the size of the prepayment. For this period, a student loan is 

considered to be in “paid ahead” status.254 Federal regulations for the servicing of FFELP 

loans255 and Direct Loans256 require servicers to advance borrowers’ due dates upon the receipt 

of prepayments. No similar regulatory requirements exist for the servicing of private student 

loans.

Borrower instructions. Many borrowers provide instructions to student loan servicers in 

order to direct the application of a payment to certain loans or to instruct the servicer to manage 

 

254 The “paid ahead” process may be an automated feature of a servicer’s platform and may be applied to all loans a 

servicer handles. Alternatively, it may be required by contract or by certain regulations governing certain federal 

student loans and may only be applied to eligible segments of a servicer’s loan portfolio.

255 34 C.F.R. § 682.209(b)(2)(ii). 

256 34 C.F.R. § 685.211(a)(3). 
73

an account in a specific manner.257 Borrowers may provide these instructions concurrently with 

each monthly payment or as an individual request to direct handling of a single payment, in 

order to direct a specific handling process. Alternatively, some borrowers attempt to provide 

“standing instructions” to serve as a replacement for a student loan servicer’s default payment 

handling policies and procedures and to direct the application of payments to a borrower’s 

account under circumstances described by the borrower on a recurring basis. 

Industry commenters generally note that servicers can process payments in accordance with 

specific payment processing instructions provided by borrowers.258 However, some servicers 

previously told the Bureau that their information systems do not support standing instructions 

and that borrowers may be required to repeatedly provide instructions alongside each 

payment.259

Payment channels. Student loan servicers generally receive a payment from a student loan 

borrower through one of three channels: 1) as an electronic payment debited by the servicer 

from a borrower’s bank account, either through a single payment made through a servicer’s 

secure web platform or through the servicer’s auto-debit function, 2) as an electronic payment 

sent to a student loan servicer through a third-party electronic bill pay feature (most commonly 

the bill pay feature of a borrower’s bank account), or 3) as a paper check. Market participants 

have noted that a borrower’s ability to provide special processing instructions along with a 

payment may be determined by the payment channel chosen.260 Some servicers permit cosigners to make payments through any of these channels, while others do not permit co-signers 

access to online payment platforms, instead directing co-signers to remit payments through 

 

257 See, e.g., Consumer Financial Protection Bureau, Consumer Advisory: Stop Getting Sidetracked by your Student 

Loan Servicer (Oct. 2013), available at http://www.consumerfinance.gov/blog/consumer-advisory-stop-gettingsidetracked-by-your-student-loan-servicer/.

258 See, e.g., CFPB-2015-0021-0355.

259 See, e.g., Consumer Financial Protection Bureau, Letter from Rohit Chopra on Payment Processing (2014), 

available at http://files.consumerfinance.gov/f/201402_cfpb_letter_payment-processing.pdf.

260 For further discussion, see Consumer Financial Protection Bureau, Letter from Rohit Chopra on Payment 

Processing (Feb. 3, 2014), available at http://files.consumerfinance.gov/f/201402_cfpb_letter_paymentprocessing.pdf.
74

third-party bill pay features or by paper check.261 In addition, third-parties including employers, 

specialty student loan refinance providers and family members, may be directed to remit 

payments through third-party bill pay or paper check. 

The following section discusses circumstances where commenters note that current student loan 

servicing practices can result in increased costs to consumers and other problems. Commenters 

note that the interplay between billing groups, payment channels and borrower instructions can 

lead to significant variation in outcomes for borrowers in seemingly similar circumstances.

1.4.1 Payment posting, application and instructions

Commenters state that the process of receiving and applying payments to borrowers’ accounts is 

a consistent feature of all types of student loan servicing and is the most basic function for a 

student loan servicer.262

Commenters report a range of problems experienced by borrowers who remit monthly 

payments in the amount instructed by their student loan servicer, but continue to encounter 

errors that lead to the payments being treated as missed, unexpected late fees, and surprise 

interest charges. Commenters raised concerns related to practices in three general categories: 1) 

the timing of payments being posted to student loan accounts; 2) the allocation of payments to 

accounts with multiple loans; and 3) payments by third parties, such as co-signers. 

Timing of payment posting

Commenters report delays in the posting of payments, resulting in additional 

accrued interest and late fees. Comments from student loan servicing market participants 

state that, generally, servicers are able to post payments as of the date of receipt.263 These 

commenters note that when a payment is sent by U.S. mail, the payment is posted as of the day 

 

261 For a detailed discussion of payment processing issues encountered by co-signers, see Consumer Financial 

Protection Bureau, 2015 Mid-year update on Student Loan Complaints (June 2015), available at 

http://www.consumerfinance.gov/reports/2015-mid-year-update-on-student-loan-complaints.

262 See, e.g., CFPB-2015-0021-0355; CFPB-2015-0021-0974; CFPB-2015-0021-0364. 

263 See, e.g., CFPB-2015-0021-0355.
75

it arrives to the servicer, and when a payment is made electronically, it is posted to the account 

almost immediately. However, the Bureau has heard from borrowers that some servicers may 

take a week or more to post a payment to a borrower’s account.264 Commenters report that the 

delay may result in additional accrued interest or result in a late fee if the payment is not posted 

promptly.265

For example, one commenter notes: 

[I experienced a] [d]elay of up to 21 days to apply payment received to loans, thus 

accruing a higher amount of interest. This was never adjusted. [And] [n]ot applying a 

payment received at all on one occasion, which, again, took intervention on my behalf 

to fix.

266

Industry comments generally did not address payment posting policies;267 however two industry 

commenters note that they post payments effective on the date received.268

Commenters state that borrowers pursuing certain incentives or consumer 

protections may not be able to receive credit for timely payments due to payment 

posting delays. For borrowers seeking certain student loan repayment incentives, timely 

posting of payments are critical to make progress under these programs.269 For example, posting 

delays can cause payments to be disqualified for the purpose of computing eligibility for loan 

forgiveness, effectively extending borrowers’ repayment terms by requiring borrowers to make 

 

264 See, e.g., CFPB-2015-0021-1123.

265 See, e.g., CFPB-2015-0021-0226.

266 CFPB-2015-0021-1123.

267 See, e.g., CFPB-2015-0021-0859; CFPB-2015-0021-0375; CFPB-2015-0021-0357.

268 See, e.g., CFPB-2015-0021-0974; CFPB-2015-0021-0355.

269 For a detailed discussion of the relationship between on-time payments and loan forgiveness under various 

student loan borrower benefits and consumer protections, see Section 1.1.4.
76

unnecessary additional monthly payments toward a loan that would otherwise be eligible to be 

forgiven.270

Industry commenters did not specifically address the relationship between payment posting 

practices and loan repayment incentives or consumer protections.

Misallocation of payments 

Commenters note payment processing errors when a single payment is submitted 

to cover multiple loans. As discussed above, most servicers combine a borrower’s loans into 

billing groups, sending one periodic statement to cover all loans of a given type serviced by the 

servicer. Commenters explain that servicers may not correctly allocate a payment to loans 

grouped together for billing purposes, even when a borrower makes a payment for the exact 

amount on her billing statement, resulting in unexpected delinquencies or late fees.271

We have heard that some payments may only be allocated to a single loan in a borrower’s 

account leaving a past due balance on the remaining loans. For example, one organization 

representing consumers told us about a borrower whose servicer misapplied her payment which 

resulted in over $800 in late fees on one loan and an overpayment the other loan.272

We have also heard that in some cases when a borrower has private and federal student loans 

with the same servicer, a single payment may be allocated only toward one type of student loans, 

overpaying these loans, while failing to cover the other type of student loans. Borrowers 

complain that they are unaware of the payment allocation error until they receive notice that 

some of their loans are past due and in danger of default. 

 

270 For further discussion of PSLF, see Section 1.1.4. The Bureau has heard from borrowers who submit on-time 

payments only to find out that the servicer failed to accurately process the payment or have not been posted to the 

borrower’s account, leaving borrowers to question whether those payments will still qualify for PSLF. See, e.g., CFPB2015-0021-0204. 

271 See, e.g., CFPB-2015-0021-0581. 

272 CFPB-2015-0021-0358.
77

Payment processing instructions 

Commenters note that they may be unable to direct their servicer to process 

payments in accordance with their instructions. Commenters explain that there are a 

variety of circumstances where specific instructions are needed to ensure that servicers handle 

payments consistent with an individual borrower’s preference.273 As previously stated, student 

loans often have different interest rates and features. Therefore, some borrowers may attempt to 

pay off loans with a higher interest rate or balance by submitting payment instructions to their 

servicer along with their monthly payment. 

One trade association representing depository institutions notes that lenders are not permitted 

to contravene borrower instructions.274 Another industry commenter notes that student loan 

servicers generally follow payment handling instructions provided by borrowers.275

Borrowers in these circumstances report that some servicers did not honor their instructions to 

apply a prepayment toward the specific loan but, instead, proportionally allocated the excess 

funds across all loans.276

In other cases, borrowers report that servicers may ignore borrower instructions provided 

electronically through a financial institution’s “bill pay” function or instructions hand-written in 

the memo field of a paper check.277 Servicers have told us that their information systems may 

not be equipped to process these instructions.278

 

273 See, e.g., CFPB-2015-0021-0861; CFPB-2015-0021-0975. 

274 See CFPB-2015-0021-0370.

275 See CFPB-2015-0021-0357.

276 See, e.g., CFPB-2015-0021-6120.

277 See, e.g., CFPB-2015-0021-0503.

278 For a further discussion of student loan servicing payment processing policies and systems limitations, see

Consumer Financial Protection Bureau, Letter from Rohit Chopra on Payment Processing (2014), available at

http://files.consumerfinance.gov/f/201402_cfpb_letter_payment-processing.pdf.
78

One comment from a borrower said, “On several occasions I have stapled instructions to my 

check, sent multiple checks, each with instructions, and used electronic payments. Numerous 

times my instructions were ignored.”279

Commenters also told us that when they provide customer service personnel with verbal 

instructions and request that these instructions direct payment handling on a standing basis, 

they often encounter inconsistent payment handling. 

Commenters report frustration when standing instructions are accepted, but only 

honored intermittently. One borrower told us that in some months, his payment would be 

applied pursuant to his instructions while in other months his payment would be applied as if he 

had never contacted his servicer.280 Despite repeated attempts to identify how to ensure his 

instructions would be applied to his account consistently, the commenter notes that he needed 

to contact his servicer following each payment and provide new instructions on how the 

payment should be processed.281

Third-party payments

Commenters note that co-signers express frustration when submitting a payment 

for only co-signed loans to then have the payment applied across all of the primary 

borrower’s loans. As noted previously, servicers generally process payments based upon a 

default payment allocation policy, which typically allocates a payment proportionally across all 

loans. However, some co-signers state that they submit payments with specific instructions 

directing a payment to be allocated toward only loans owed by the co-signer, but also note that 

these instructions may be ignored. The Bureau hears from co-signers that they are frustrated 

that the servicer is not well-equipped to accept payment instructions in advance in order to 

process payments remitted by a co-signer only toward the co-signed loans. Co-signers report 

 

279 CFPB-2015-0021-0358. 

280 See CFPB-2015-0021-0320.

281 Id.
79

that they must call each month and instruct the servicer to reallocate the payment in order to 

ensure it applies to the specific debt for which they co-signed.282

Commenters encounter problems when seeking to refinance or pay off an 

individual high-rate loan. As discussed above, servicers are responsible for directing 

payments to specific individual loans associated with a borrower’s account, even when loans are 

grouped together for billing purposes. This is particularly important when borrowers are seeking 

to refinance one or more high-rate loans in a billing group. Commenters note that servicers may 

automatically allocate a payment sent by a refinance provider to all loans on a borrower’s 

account, despite instructions to apply a payment to a specific subset of loans.283 Unwinding this 

type of error may increase costs for student loan servicers and specialty refinance providers. To 

the extent a borrower is required to pay additional interest or make additional payments on 

high-rate debt during this process, this type of error will increase costs for student loan 

borrowers.284

1.4.2 Payment allocation and non-standard payment 

handling

Borrowers report issues when attempting to make non-standard payments, including 

prepayments and partial payments.285 When a consumer remits a non-standard payment (a 

payment for an amount greater or less than the amount due on a billing statement) and chooses 

not to provide specific instructions, a servicer will choose how this payment is applied to loans 

associated with a borrower’s account. As noted above, student loan servicers have different 

 

282 For further discussion, see Consumer Financial Protection Bureau, Mid-year update on student loan complaints

(June 2015), available at http://files.consumerfinance.gov/f/201506_cfpb_mid-year-update-on-student-loancomplaints.pdf.

283 See CFPB-2015-0021-0985.

284 For further discussion, see Consumer Financial Protection Bureau, Mid-year update on student loan complaints

(June 2015), available at http://files.consumerfinance.gov/f/201506_cfpb_mid-year-update-on-student-loancomplaints.pdf.

285 For a detailed discussion of common problems related to payment allocation, see Consumer Financial Protection 

Bureau, Annual Report of the CFPB Student Loan Ombudsman (Oct. 2013), available at

http://www.consumerfinance.gov/reports/annual-report-of-the-cfpb-student-loan-ombudsman-2013.
80

default payment allocation methodologies incorporated into their student loan servicing 

platforms. These default methodologies govern how payments are directed to loans grouped 

together for billing purposes, among other functions. 

For borrowers seeking to prepay a loan, servicers policies related to “paid ahead” status can also 

cause significant confusion and may result in consumers inadvertently forfeiting any interest 

rate savings associated with making a pre-payment. 

Prepayments

Commenters report that servicers’ default payment application policies may 

increase costs for borrowers making payments in excess of the amount due on a 

billing statement. As the Bureau has noted in prior publications, when loans are grouped 

together for billing purposes, generally, applying additional payments to the loan with the 

highest interest rate may lead to the most savings for borrowers over the long term.286

Commenters note that if a borrower does not submit explicit instructions, the servicer will 

generally allocate the extra payment according to a default payment allocation methodology.287

For example, if a borrower submits a payment in excess of the total amount due for that month, 

a servicer may choose to allocate the excess funds pro rata across all loans in a billing group 

instead of applying the prepayment toward the loan with the highest interest rate. This practice 

may result in less interest savings for borrower over the life of the loan.288

Industry commenters note that borrower preferences may vary and that servicers generally 

honor borrower instructions.289 For example, one trade association representing student loan 

servicers states that a borrower may wish to direct prepayments in order to pay down the 

 

286 Consumer Financial Protection Bureau, Stop Getting Sidetracked by your Student Loan Servicer (Oct. 2013), 

available at http://www.consumerfinance.gov/blog/consumer-advisory-stop-getting-sidetracked-by-your-studentloan-servicer/. 

287 See CFPB-2015-0021-0754.

288 For further discussion of the costs associated with different payment allocation methodologies, see Consumer 

Financial Protection Bureau, Annual Report of the CFPB Student Loan Ombudsman (Oct. 2013).

289 See, e.g., CFPB-2015-0021-0357.
81

smallest outstanding loan balances as quickly as possible, minimizing the number of open 

accounts, even if this approach will result in greater interest charges over time.290

Comments describe how borrowers run into difficulty when requesting that their servicer handle 

prepayments in accordance with their instructions. One commenter explains: 

I make automatic payments on my student loans from my bank. My loan servicer 

always applies a higher payment to the lower interest loan...I have to call every month 

to balance the payment so that...more is pai[d] on my higher interest loan.291

In addition, borrowers have told us that servicers’ processing policies may not be able to handle 

small additional payments that borrowers make to try to pay down their debt more quickly.292

“Paid ahead” status

As discussed above, many student loan servicers automatically advance a borrower’s due date 

upon receipt of a prepayment greater than a borrower’s monthly payment. In effect, for each 

multiple of a monthly payment included in a borrower’s prepayment, a student loan servicer 

pushes forward the borrower’s due date for the next payment by the corresponding number of 

billing cycles. 

Federal regulations require student loan servicers handling FFELP loans and Direct Loans to 

advance borrowers’ due dates under these circumstances.293 A Presidential Memorandum 

signed in March 2015 instructs the Department of Education to require Direct Loan servicers to 

 

290 For further discussion, see CFPB-2015-0021-0357.

291 CFPB-2015-0021-0410.

292 See, e.g., CFPB-2015-0021-0236.

293 See 34 C.F.R. § 682.209(b)(2)(ii); 34 C.F.R. § 685.211(a)(3).
82

apply prepayments to the highest interest rate loan balance.294 As one industry commenter 

notes, there may be a conflict between these two requirements: 

Using the highest interest rate rule, those borrowers who believe that they have 

advanced the due date on their entire account would end up being delinquent on all of 

their loans except one, which would be paid far ahead.295

Commenters note significant confusion related to how servicers explain paid ahead status and 

how prepayments are accounted when calculating principal and interest.296 In addition, 

commenters explain that this policy can deter borrowers from paying down loans more quickly 

and potentially disrupt borrowers’ seeking to access certain borrower benefits and 

protections.297 Although no market-wide data is available related to the use of paid ahead status, 

one comment from a student loan servicer notes that “about half of the borrowers who are paid 

ahead consistently make payments thereafter; the other half do not make payments at all or 

make payments in some months and not others.”298

Commenters explain that borrowers in paid ahead status may miss qualifying 

monthly payments toward other borrower benefits and protections. As noted 

elsewhere in this report, loan forgiveness, co-signer release and other borrower benefits and 

protections require a series of on-time monthly payments in order for borrowers to qualify.

Borrowers also suggest that servicers may not adequately inform borrowers of the effect of paid 

ahead status on how servicers count on-time payments. If a borrower receives a $0 bill and 

 

294 See White House, Press Release: Presidential Memorandum on a Student Aid Bill of Rights (Mar. 2015), 

available at https://www.whitehouse.gov/the-press-office/2015/03/10/presidential-memorandum-student-aidbill-rights.

295 CFPB-2015-0021-0357.

296 See CFPB-2015-0021-6115. 

297 Borrowers who make a prepayment attempting to pay down principal and who do not remit subsequent monthly 

payments after receiving billing statements reflecting a zero dollar balance due will effectively undo the benefit of a 

prepayment because of additional interest accrual. This will also ensure that a borrower remains in repayment for 

an additional number of months. 

298 CFPB-2015-0021-0355.
83

subsequently does not submit a payment for that month, servicers may restart the calculation of

consecutive payments for the purposes of computing certain borrower benefits, including cosigner release. In addition, borrowers seeking to maintain a record of on-time monthly 

payments under the Public Service Loan Forgiveness program do not get credit for months 

during which no payment is remitted, even if a prepayment has resulted in a loan being placed 

in paid ahead status and a billing statement reflects that no payment is due.299

Borrowers state that they may wish to opt-out of servicers policies related to paid ahead status, 

in order to ensure billing statements and account information reflect their desire to pay down 

the debt more quickly or earn credit toward these benefits, but they may encounter problems 

when seeking to do so. No industry commenters specifically address the relationship between 

paid ahead status and borrower benefits. 

Partial payments

As noted above, servicers’ use default payment processing methodologies to direct the allocation 

of payments, absent specific instructions from borrowers. Methodologies used to handle nonstandard student loan payments generally cover both prepayments and partial payments 

(payments made by a borrower for less than the total amount due on a periodic statement). 

Therefore, borrowers experiencing financial distress who submit partial payments encounter a 

similar set of obstacles associated with prepayments but with potentially higher stakes. 

Commenters report that borrowers struggling to afford their monthly payments 

may be forced to pay multiple late fees when submitting partial payments. The 

Bureau has heard from borrowers who struggle to make their regularly scheduled monthly 

payment and submit a partial payment. Generally, if a borrower submits a payment for less than 

owed, the borrower will be charged a late fee, either a percentage of the total past due amount or 

a flat fee per loan with a past due balance.300

 

299 34 C.F.R. § 685.219.

300 Commenters note that current policy prohibits servicers in the Direct Loan program from charging late fees to 

student loan borrowers with Direct Loans. See, e.g., CFPB-2015-0021-0861.
84

We have heard from borrowers that when they submit one payment sufficient to cover the 

amount due on one of several loans with the same servicer, but not all loans, they are charged a 

late fee for each loan with a remaining balance.301 Generally, this occurs because the lender or 

servicer allocated the partial payment across all loans, leaving every loan with a remaining past 

due balance and subject to a late fee. This practice has the effect of maximizing the number of 

past due loans and late fees charged to the borrower, if late fees are charged as a flat fee per 

loan.302 The servicer also may furnish information about the borrower’s delinquent loans to 

credit reporting agencies.

There are no federal regulations that require a specific late fee policy for any segment of the 

student loan market and there is no market-wide data available related to prevalence of different 

late fee policies. However, one trade association representing student loan servicers notes that 

servicers’ policies vary, but that the most common approach is to apply late fees as 

proportionately based on the outstanding balance due, rather than a flat fee on a per-loan 

basis.303 This commenter notes that the trade association opposes payment allocation 

methodologies that maximize late fees.304 In addition, one industry commenter notes that the 

Department of Education directs contracted student loan servicers not to charge late fees for

Direct Loans.305

Commenters from organizations representing student loan borrowers and other consumers note 

that a servicer could choose to allocate the payment to satisfy as many loan payments in full as 

 

301 See, e.g., CFPB-2015-0021-0358.

302 Readers should also note that certain payment allocation methods were part of practices found to violate federal 

consumer financial laws under certain circumstances. See, e.g., Consumer Financial Protection Bureau, Press 

Release: CFPB Supervision Report Highlights Risky Practices in Student Loan Servicing (Oct. 2014), available at 

http://www.consumerfinance.gov/newsroom/cfpb-supervision-report-highlights-risky-practices-in-student-loanservicing; Federal Deposit Insurance Corporation, FDIC Announces Settlement with Sallie Mae for Unfair and 

Deceptive Practices and Violations of the Servicemembers Civil Relief Act (May 2014), available at

http://www.fdic.gov/news/news/press/2014/pr14033.html.

303 See CFPB-2015-0021-0357. 

304 Id.

305 See CFPB-2015-0021-0355.
85

possible until the partial payment is exhausted.306 These commenters state that, if flat fees are 

assessed on a per-loan basis, this practice would reduce the number of late fees charged to the 

borrower and may reduce the number of delinquent loans reported to credit reporting 

agencies.307

Commenters report that servicers’ payment handling policies may also increase 

interest charges for borrowers who make partial payments when loans are 

grouped together for billing purposes. As discussed in the preceding section related to 

prepayments, when servicers apply non-standard payments across all loans in a billing group, 

borrowers miss out on an opportunity to pay down higher-rate debt more quickly. When 

borrowers remit partial payments, particularly when servicers do not charge late fees, 

commenters note that it may be in a borrower’s best interest to satisfy the highest-rate debt in 

full first, before applying a partial payment to any other loans in a billing group. One trade 

association representing student loan servicers notes that this is not the most common default 

payment allocation policy in the student loan servicing market and that student loan servicers 

do not generally take this approach, absent borrowers’ instructions.308

1.4.3 Billing and payoff statements

Commenters report that student loan borrowers encounter problems related to statements 

produced by student loan servicers, including periodic billing statements and payoff 

statements.309 Commenters note problems related to both the information provided in 

 

306 See, e.g., CFPB-2015-0021-0975; CFPB-2015-0021-0364.

307 See, e.g., CFPB-2015-0021-0975; CFPB-2015-0021-0364.

308 See CFPB-2015-0021-0357. For further discussion, see Consumer Financial Protection Bureau, Letter from Rohit 

Chopra on Payment Processing (Feb. 2014), available at

http://files.consumerfinance.gov/f/201402_cfpb_letter_payment-processing.pdf.

309 Billing and payoff statements are not the only routine written communications provided by student loan servicers. 

For example, servicers are required to provide information related to interest paid on any qualified education loan 

on an annual basis in order to document payments that may be deductible for tax purposes. 26 C.F.R. § 1.221-1.
86

statements and the timing of statements. The problems discussed below related to payoff 

requests may be particularly problematic for borrowers seeking to refinance a student loan.310

Periodic billing statements

Commenters explain that billing statements may not provide accurate or complete 

information about borrowers’ repayment options. As discussed in Section 1.1, 

borrowers may be entitled to make payments under a range of different repayment plans and 

may also have a legal or contractual right to temporarily suspend payments or to request loan 

cancellation or discharge. Commenters note that billing statements present borrowers with 

instructions to remit an amount due under the borrower’s current payment arrangement, but 

may not provide actionable information related to alternative repayment plans or other loan 

features.311 For example, consider a borrower who is presented with several alternative 

repayment arrangements that all offer options to tie the monthly payment amount to a 

borrower’s income. Borrowers could be presented with a range of options or, alternatively, could 

be permitted to select an option that instructs the servicer to enroll the borrower in the plan 

with the lowest monthly payment. The Department of Education currently uses this approach 

for borrowers completing ED’s enrollment form for income-driven repayment plans, but this 

approach has not been widely-adopted with respect to other borrower communications.312

Commenters express concern that billing statements without actionable information about 

alternative repayment plans or other loan features may result in borrowers experiencing 

financial hardship choosing to forgo making payments entirely, rather than pursuing a 

repayment plan which is better suited to their financial circumstances.313

 

310 For further discussion of “Roadblocks to Refinancing,” see Consumer Financial Protection Bureau, 2015 Midyear 

Update of the CFPB Student Loan Ombudsman (June 2015), available at 

http://files.consumerfinance.gov/f/201506_cfpb_mid-year-update-on-student-loan-complaints.pdf. 

311 See, e.g., CFPB-2015-0021-0861.

312 See, e.g., U.S. Department of Education, Income-Based (IBR)/Pay As You Earn/Income-Contingent Repayment 

Plan Request, available at

http://www.ifap.ed.gov/dpcletters/attachments/GEN1222AttachFINAL1845dash0102Expires20151131.pdf. 

313 Id.
87

One trade association representing student loan servicers notes that certain disclosures related 

to repayment options are required for FFELP borrowers,314 but that “text-heavy” disclosures 

may be contributing to borrower frustration with certain servicer communications and that 

borrowers would be better served by providing the “right information at the right time,” a 

principle which is shared by consumer group commenters and individual borrowers.315

Commenters note that billing statements may not provide clear or complete 

information related to when payments are due, when late fees are assessed, and 

when payments do not qualify for specific borrower benefits and protections. 

Billing statements may clearly provide a due date to borrowers, but may not offer additional 

information related to the consequences should borrowers fail to pay by the indicated date. 

Commenters note that student loans may have several effective due dates in a given billing cycle 

depending on the terms and conditions of a loan.316 For example, a loan may have one due date 

which a servicer may track for the purpose of assessing eligibility for co-signer release or loan 

forgiveness benefits and a second due date after which a borrower may be assessed a late fee.

Commenters note that some borrowers may not receive regular periodic billing 

statements or receive billing statements too close to their due date, creating 

challenges for borrowers seeking to manage their loan payments. Commenters 

explain that, in some cases, servicers may not provide billing statements at regular intervals and 

that, in other cases, billing statements may only be produced a few days before the due date. 

Federal regulations require billing statements at a certain time for borrowers with FFELP loans, 

but no equivalent federal regulatory requirement exists for Direct Loans or private student 

loan.317 For example, one commenter told us: 

 

314 See, e.g., 20 U.S.C. § 1083(e)(1)(I).

315 CFPB-2015-0021-0357; see also CFPB-2015-0021-0975.

316 See generally Consumer Financial Protection Bureau, Supervisory Highlights (Fall 2014), 15-16, available at 

http://files.consumerfinance.gov/f/201410_cfpb_supervisory-highlights_fall-2014.pdf.

317 See 34 C.F.R. § 682.205(a).
88

At the time . . . I was told [by my first servicer] I didn't have to make a payment until 

Fall 2014. [Company] bought out my loans and made me start paying immediately. In 

fact, they let me know 7 days before it was due when I was told I didn't have to make a 

payment for over another year. I had to take a one month deferment.318

Some private student loans and older loans made under FFELP carry variable interest rates. In 

addition, many federal and private student loans offer payment plans with payment levels that 

may adjust periodically, based on changes on borrowers’ income or payment schedule. This may 

result in changes to payment amounts from month-to-month, as benchmark interest rates or 

payment terms change. Commenters explain that borrowers depend on timely and accurate 

periodic statements in advance of their due date in order to financially prepare or account for 

increased student loan payments.319

Payoff requests

When borrowers seek to refinance or pay off a loan, commenters note that 

borrowers may receive inaccurate payoff notices. Borrowers may seek to refinance a 

loan to take advantage of lower interest rates, lowering the borrower’s monthly payments. 

Borrowers may also seek a payoff statement in order to consolidate loans into one monthly 

payment for financial simplicity. However, borrowers report receiving payoff statements with 

incorrect payoff balances. In some cases, borrowers do not discover that their payoff balance 

was incorrect until after they have remitted an incorrect amount, only to find that their account 

remained open with a small remaining balance, accruing interest. Some consumers note that 

unpaid remaining balances may be transferred to a debt collector and result in significant 

damage to their credit. 

Commenters also note that the process for requesting and generating payoff 

statements may involve delays that increase repayment costs. Despite submitting 

written requests for payoff statements in accordance with servicers’ policies, requests may be 

 

318 CFPB-2015-0021-0953.

319 Commenters note that timely and accurate notifications are particularly important for borrowers with incomedriven payment plans. For further discussion of the impact of changing payment levels under these plans. See Part 

One; see also CFPB-2015-0021-0356. 
89

lost, inaccurate or delayed.320 Commenters note that borrowers expect that this process will be 

timely and transparent, however, some note that borrowers discover that significant delays can 

prolong the process of completing a refinancing, resulting in borrowers paying additional 

interest charges on high-rate student loan debt.321

One new entrant to the student loan refinance market identifies a number of these issues in its 

response to the Request for Information. This company explains:

It’s been so problematic for borrowers that we had to develop a program called Pay-Off 

Assist, where we will walk a borrower through the process of getting their payoff 

information, regardless of servicer. As part of Pay-Off Assist, we created a guide for 

our customer service team that enables them to walk a borrower through the process of 

getting pay-off information from any servicer. This should not be necessary. Servicers 

should be held accountable for making payoff information readily available; it 

increases transparency, provides for a seamless experience and improves customer 

service. This should be table stakes, yet it’s not today.322

1.5 Practices impacting specific borrower 

segments

As discussed in previous sections, policies and procedures on student loan servicing may 

significantly impact a borrower’s ability to successfully repay their loans. However, student loan 

servicing may affect certain special populations, such as servicemembers, veterans, and older 

Americans, at an increased level due to unique circumstances associated with these individuals. 

 

320 See, e.g., CFPB-2015-0021-4657.

321 See CFPB-2015-0021-1141.

322 CFPB-2015-0021-0985.
90

Servicemembers, veterans, and families with student loans

Over the past four years, the Bureau has released several reports documenting student loan 

complaints from military borrowers, veterans and their families. 323 Servicemembers continue to 

tell us how they are struggling to exercise the rights, protections, and programs afforded by their 

military service. They also describe how general servicing issues become even more difficult as a 

result of the nature of military life. Many of the characteristics of military life make 

servicemembers and their families especially vulnerable to problematic practices and create 

increased risks to manage their student loan debt. 

Older consumers and co-signers to student loans

Similarly, older consumers have submitted complaints to the Bureau about managing their own 

student loan debt or student loan debt for a child or grandchild.324 Older consumers continue to 

tell us that they are unable to manage their student loan debt or get assistance to manage the 

debt while staying on track to save for retirement or pay for other necessary expenses on a 

reduced retirement income. Older consumers with student loan debt pose distinctive obstacles 

to stay on track to successful repayment of student loans. 

Student loan “debt relief” companies and economically-vulnerable 

consumers

As discussed in Section 1.1, borrowers may encounter obstacles when seeking to obtain a lower 

monthly payment for a federal student loan, despite widely-accessible alternative repayment 

arrangements, including income-driven repayment plans. A number of third-party “debt relief” 

companies have marketed services that charge up-front or recurring monthly fees in order to 

 

323 See, e.g., Consumer Financial Protection Bureau, The Next Front?: Student loan servicing and the cost to our men 

and women in uniform (Oct. 2012), available at http://files.consumerfinance.gov/f/201210_cfpb_servicememberstudent-loan-servicing.pdf; see also Consumer Financial Protection Bureau, Overseas and Underserved: Student 

loan servicing and the cost to our men and women in uniform (July 2015), available at 

http://files.consumerfinance.gov/f/201507_cfpb_overseas-underserved-student-loan-servicing-and-the-cost-toour-men-and-women-in-uniform.pdf. 

324 See Consumer Financial Protection Bureau, Sound off on student loan servicing (June 2015), available at 

http://www.consumerfinance.gov/blog/sound-off-on-student-loan-servicing/.
91

enroll borrowers in IDR plans and other free federal consumer protections. In recent months, a 

number of federal and state law enforcement agencies have taken action against these 

companies for illegal practices. 

The following section discusses circumstances where commenters note that current student loan 

servicing practices can result in increased consumer harm to certain special populations.

1.5.1 Military borrowers

Like their fellow Americans, many servicemembers have student loan debt.325 Congress has 

enacted a number of protections and benefits for servicemembers to help manage their student 

loan debt.326 Unfortunately, the complexities of these provisions, together with problems in loan 

servicing, have created difficulties for many military families when attempting to manage their 

debt.327 The following section discusses some of the common issues military borrowers continue 

to face when dealing with their student loan servicers— specifically, when attempting to use 

benefits afforded to them by virtue of their military service. 

Military borrowers encounter roadblocks when attempting to invoke their rights 

under the Servicemembers Civil Relief Act (SCRA). Servicemembers consistently report 

difficulties obtaining the SCRA interest rate cap of six percent.328 Military borrowers complain 

 

325 According to the Department of Defense, more than 40 percent of servicemembers are paying off a student loan. 

See Department of Defense, News Briefing on Efforts to Enhance the Financial Health of the Force with Secretary 

Panetta (Oct. 2012), available at http://www.defense.gov/transcripts/transcript.aspx?transcriptid=5139/. 

326 See, e.g., 20 U.S.C. § 1087dd(c)(2)(A); 34 C.F.R. § 674.34(h) (detailing the requirements for a military deferment) 

See also 50 U.S.C. App. § 527 (detailing that servicemembers are entitled to reduced interest rate to six percent 

during active-duty service on pre-service obligations); 20 U.S.C. § 1087ee(a)(2)(D); 34 C.F.R. § 674.59 (providing 

for principal reduction for Perkins Loans for each year of military service). 

327 For further discussion, see Consumer Financial Protection Bureau, The Next Front (Oct. 2012), available at 

http://files.consumerfinance.gov/f/201210_cfpb_servicemember-student-loan-servicing.pdf; see also Consumer 

Financial Protection Bureau, Overseas and Underserved: Student loan servicing and the cost to our men and 

women in uniform (July 2015), available at http://files.consumerfinance.gov/f/201507_cfpb_overseasunderserved-student-loan-servicing-and-the-cost-to-our-men-and-women-in-uniform.pdf. 

328 50 U.S.C. App. § 527. In May 2014, the DOJ joined with the FDIC and entered an order providing $60 million in 

compensation for more than 77,000 servicemembers in an action against student loan servicers Sallie Mae and 

Navient (formerly one company) related to their application of benefits under the SCRA to active duty members of 
92

that servicers continue to improperly process these requests and do not clearly convey 

information about the application process and other requirements. 

Servicemembers and their families note the frustration they experience when invoking their 

SCRA protections. Many times it takes a military borrower multiple calls for the servicer to 

properly grant his or her rights, and then additional attempts to keep the SCRA protections in 

place, a doubly challenging process while the servicemember is tending to other pressing 

concerns associated with military life. These military borrowers emphasize their need to be 

mission-focused and free of distractions when faced with impending deployments. 

This frustration extends to family members as well. Military borrowers’ spouses report that 

some servicers would not directly communicate with them regarding an account’s interest rate, 

despite authorization or power of attorney permitting them to access this information while 

their partner is overseas. Many times, it appears that filing a complaint with the Bureau finally 

provided military borrowers or their families with the relief they have been unsuccessfully 

seeking for years.

Borrowers rely on their servicer to provide information on repayment options, 

and servicers may be guiding servicemembers into less favorable options. Military 

borrowers complain that while they may have some sense of the benefits available to them by 

virtue of their military service, they rely on their servicer to fully explain the array of benefits 

and assist them in selecting the most appropriate and favorable option.329 Servicemembers state 

that they were guided into military deferments or forbearance and were not told that their total 

loan debt would balloon at the end of their military service due to accrued interest. While 

deferments or forbearance may provide a short-term solution by postponing monthly payments, 

interest continues to accrue for unsubsidized federal loans, and for private loans. 

 

the military. See U.S. Department of Justice, Justice Department Reaches $60 million settlement with Sallie Mae

(May 2014), available at http://www.justice.gov/opa/pr/justice-department-reaches-60-million-settlement-salliemae-resolve-allegations-charging; see also Federal Deposit Insurance Corporation, FDIC Announces Settlement 

with Sallie Mae for Unfair and Deceptive Practices and Violations of the Servicemembers Civil Relief Act (May 

2014), available at https://www.fdic.gov/news/news/press/2014/pr14033.html.

329 For a further discussion of the trade-offs between various military-specific student loan benefits, see Consumer 

Financial Protection Bureau, The Next Front (Oct. 2012), available at

http://files.consumerfinance.gov/f/201210_cfpb_servicemember-student-loan-servicing.pdf.
93

Servicemembers also note that the servicers guide them into forbearance or deferment, even 

when the borrower is actively seeking information and assistance concerning other forms of 

repayment. One commenter explains how difficult some servicers make it to avoid forbearance, 

even when a savvy consumer knows it’s not in his best interest and tries to avoid it.330

[W]hen I send in my military paperwork, I get a notice about putting my loans in 

forbearance and all I need to do is sign the provided document and return it. I disagree 

with this practice because you think forbearance is great but in actuality it isn't. The 

loans still need to be repaid and interest still accrues during the forbearance period. So 

once repayment time comes, the accrued interest gets capitalized and I'm paying 

interest on top of interest.331

This commenter further reports that even though he never sent back this paperwork to complete 

the request for deferment, he still found his loans placed in the forbearance he never wanted. He 

had to call his servicer to be removed from forbearance, and his servicer confirmed that they did 

not have the required paperwork to have placed him in the forbearance in the first place.

Another servicemember reports calling her servicer to notify them of her orders, only to have the 

servicer place the loan in forbearance while interest accrued at the higher, non-SCRA protected 

rate. 

In cases where a servicemember does seek out a deferment, servicer 

communication may unduly burden the military borrower. Military deferments are an 

option afforded to some active duty servicemembers that allows for postponement of monthly 

student loan payments under certain circumstances.332 Certain borrowers may seek short-term 

 

330 CFPB-2015-0021-1143.

331 Id.

332 In our 2012 report, The Next Front, the Bureau detailed the potential costs associated with military deferments. 

For both unsubsidized federal and private loans, interest will continue to accrue on the outstanding debt while 

monthly payments are postponed. Generally, unpaid interest is capitalized (added to the outstanding principal 

balance) once a borrower begins to repay his or her loan. See Consumer Financial Protection Bureau, The Next 

Front (Oct. 2012), available at http://files.consumerfinance.gov/f/201210_cfpb_servicemember-student-loanservicing.pdf. 
94

flexibility from a military deferment, and if their federal student loans are subsidized 

(subsidized loans are effectively interest-free during periods of military deferment), there may 

be a less impactful financial downside to a deferment. If a deferment or forbearance option is 

available, servicers generally communicate the requirements of that option, and process the 

request itself, should a borrower seek one out. Yet we continually hear from military borrowers 

describing a range of breakdowns and roadblocks related to this repayment option.

Insufficient communication around military deferment often undermines attempts to 

successfully repay loans. Borrowers report that servicers fail to provide essential information 

regarding application criteria and engage in unnecessary delays in processing the paperwork 

prior to deployment. Borrowers also state that their servicers’ denial of the requested military 

deferment lacks clear explanation and may be inaccurate. These issues may lead to surprise 

delinquencies, defaults, and collection efforts upon the completion of military service or upon 

return from a deployment. Because policies and procedures for military deferment differ 

between student loan servicers and between loan types, clear communication is necessary in 

order for military borrowers to successfully navigate these programs and is critical to ensure 

that these borrowers can continue to manage their student loan debt while serving their country.

Veterans who are disabled may be unnecessarily harmed by servicers’ credit 

reporting practices for total and permanent disability discharge (TPD). Some 

borrowers are entitled to discharge federal student loans due to a total and permanent disability 

(TPD).333 Under federal law, veterans that are considered 100-percent disabled by the 

Department of Veteran Affairs stemming from a service-connected disability are entitled to seek 

federal student loan forgiveness.334

If the loan account is current at the time of discharge, the borrower should not experience a 

significant impact or change in the borrower’s credit score. However, we have heard from 

veterans who are disabled that following a discharge due to a service-connected disability, they 

experienced damage to their credit score even though they had never missed a payment. For 

example, one service-disabled veteran described how his credit score fell by 150 points after 

 

333 34 C.F.R. § 685.213(c).

334 34 C.F.R. § 685.213(c)(1). 
95

TPD discharge. His score went from a nearly perfect “super prime” credit score to a much lower 

score simply because he received loan forgiveness.

I am a 100 percent disabled Veteran who has had his credit score ruined by a broken 

credit scoring system. I had my student loans...discharged...in August 2013...I went 

from 800 to 650 in less than 2 months. I am fighting to survive because a company 

from my own country is killing me.335

Depending on how the servicer furnishes information to the credit bureaus, a borrower could 

experience a significant impact to their credit score and their ability to obtain future credit such 

as a mortgage or auto loan. This is because some servicers choose to furnish certain optional 

information, known as special comment codes, to the national credit bureaus. However, some of 

these special comment codes are interpreted by scoring models to reflect a high level of risk and 

therefore negatively impact a borrower’s credit score. Therefore, some veterans who are disabled 

and who apply for loan discharge and to take advantage of a federal benefit may be 

unnecessarily harmed by information furnished from their servicer. 

1.5.2 Older consumers

Although student loans are usually thought of as a younger American issue, in reality, an 

increasing number of older consumers are paying back student loan debt. Many older 

consumers struggle with student loan debt, sometimes forcing them to delay retirement or 

threatening financial security when in retirement.336 Older consumers may hold student loan 

debt because they are still paying off loans that were: accrued when they were much younger, 

 

335 For further discussion, see Consumer Financial Protection Bureau, Veterans: Take advantage of student loan 

forgiveness, but don’t let it damage your credit (Nov. 2014), available at

http://www.consumerfinance.gov/blog/veterans-dont-let-student-loan-forgiveness-damage-your-credit/. 

336 See, e.g., CFPB-2015-0021-0930; see also U.S. Gov’t Accountability Office, GAO-14-866T, Older Americans: 

Inability to Repay Students Loans May Affect Financial Security of a Small Percentage of Retirees (Sep. 10, 2014), 

available at http://www.gao.gov/assets/670/665709.pdf. 
96

acquired during the course of a mid- or late-career switch, or taken out for the education of their 

children, grandchildren, or other family members.337

Older consumers often struggle to pay looming student loan debt; and in instances 

where their federal student loan goes into default, they risk garnishment of their 

social security check.338 Older borrowers in retirement discuss the need to access flexible 

repayment options that consider their reduced retirement income and current financial 

situation.

I will be 66 years old this year and I owe $55,104 in student loans. I am retired and 

living on social security and a pension. My income will not increase and yet I have not 

been able to change my chosen payment plan. I made that request again today for 

another year and pray that it will be approved. I might add that I made each monthly 

payment in the Income Sensitive program but if I’m required to pay the payment that I 

would have to pay on the graduate payment plan, I will not be able to do so and 

regrettably go into default.339

Moreover, older borrowers who default on their own federal student loans face having their 

Social Security income garnished.340 Since over one-third of adults 65 and older rely on Social

 

337 For further discussion, see Consumer Financial Protection Bureau, Sound off on student loan servicing (June 

2015), available at http://www.consumerfinance.gov/blog/sound-off-on-student-loan-servicing/.

338 Forty-one percent of older consumers with a student debt are concerned about being able to pay their loans. See, 

Caroline Ratcliffe & Signe-Mary McKernan, Forever in Your Debt: Who has Student Loan Debt, and Who’s 

Worried? (June 2013), available at http://www.urban.org/sites/default/files/alfresco/publication-pdfs/412849-

Forever-in-Your-Debt-Who-Has-Student-Loan-Debt-and-Who-s-Worried-.PDF.

339 CFPB-2015-0021-0311.

340 See 31 U.S.C. § 3716(c)(3)(A)(i); see also Consumer Financial Protection Bureau, Consumer advisory: Your 

benefits are protected from garnishment (May 2015), available at

http://www.consumerfinance.gov/blog/consumer-advisory-your-benefits-are-protected-from-garnishment/. 
97

Security for 90 percent or more of their income, garnishment will likely result in extreme 

financial hardship for these consumers.341

Many older consumers who co-sign on private student loans state that their 

payments are misapplied to all loans held by the primary borrower, instead of only 

to the loans they co-signed.342 Servicers generally process payments based upon a default 

payment allocation policy, which typically apportions payments across all loans. However, these 

practices may cause particular problems for co-signers. Co-signers have complained that their 

payments are applied across all of the primary borrower’s loans, resulting in improper late fees 

and interest accrual, as well as the misreporting of information to credit reporting agencies. 

In some instances co-signers submit their payments with specific instructions that the payment 

only be applied to the loans they co-signed. Despite these instructions, co-signers state that loan 

servicers continue to misapply their payments. 

Older consumers who co-sign for private student loans state they are often unable 

to access important loan documents and notices. Some co-signers state that loan 

servicers do not provide them with periodic billing statements and notices of missed payments 

until the primary borrower is delinquent. It is only when the primary borrower falls behind that 

the co-signer is notified of the arrears and is required to repay. Often by then, the amount due is 

significant and the co-signer’s credit has been damaged.

Student loan borrowers and co-signers report that servicers provide them 

incorrect information regarding co-signer release and repayment options.343 Many 

market participants advertise and offer a co-signer release from the loan obligation upon the 

 

341 Social Security Administration, Income of the Population 55 and Older, 2012: Relative Importance of Social 

Security for Beneficiary Aged Units 65 or Older, Table 9.A1 (Sept. 2015), available at 

http://www.ssa.gov/policy/docs/statcomps/income_pop55/2012/sect09.html#table9.a2.

342 For further discussion on complaints from co-signers, see Consumer Financial Protection Bureau, Mid-year 

update on student loan complaints (Apr. 2014), available at

http://files.consumerfinance.gov/f/201404_cfpb_midyear-report_private-student-loans-2014.pdf; see also 

Consumer Financial Protection Bureau, Mid-year update on student loan complaints (June 2015), available at

http://files.consumerfinance.gov/f/201506_cfpb_mid-year-update-on-student-loan-complaints.pdf. 

343 See, e.g., CFPB-2015-0021-0325.
98

primary borrower making a certain number of on-time payments and undergoing a credit check. 

Despite being told about this option prior to originating the loan, borrowers state that they 

cannot obtain enough information from the servicer to utilize the release.344 For example, 

borrowers note that their servicer’s website does not provide information on how to qualify or 

apply for co-signer release and/or provide the necessary forms.

In addition, servicers often require the primary borrower to undergo a credit check before 

releasing the co-signer. However, borrowers state that servicers generally do not reveal the 

minimum qualification standards, such as a credit score threshold.345 Borrowers also state that 

they were denied for co-signer release for reasons that were not previously explained. For 

instance, some primary borrowers complain that when electing to enter forbearance, they were 

never told that it would reset the clock for qualifying for the co-signer release. 

Private student loans borrowers tell us that servicers may automatically place 

loans in default upon the death or bankruptcy of a co-signer, even when a 

borrower is paying as agreed. Many private student loan contracts contain provisions that 

provide the lender or servicer the option to place a borrower in default under certain 

circumstances. For instance, contracts have been interpreted to allow a lender or servicer to 

place a loan in default and accelerate the full balance of the loan upon the death or bankruptcy 

filing of a co-signer, regardless of whether the loan was in good standing.346

We have heard from borrowers discovering they are in default when their co-signer, often a 

parent or grandparent passes away.347 Some borrowers assume that death of a co-signer will 

result in a release of the co-signer’s obligation to repay. Borrowers report confusion when they 

receive notices to pay in full since they believed their loan to be in good standing and current.

 

344 See, e.g., CFPB-2015-0021-0295.

345 See, e.g., CFPB-2015-0021-0993.

346 For further discussion, see Consumer Financial Protection Bureau, Mid-year update on student loan complaints 

(Apr. 2014), available at http://files.consumerfinance.gov/f/201404_cfpb_midyear-report_private-student-loans2014.pdf.

347 See, e.g., CFPB-2015-0021-1774; CFPB-2015-0021-1402. 
99

Borrowers also describe how debt collectors threaten to place liens on property or other assets if 

the decedent’s family members or estate administrators do not immediately pay the loan in full. 

Borrowers note debt collectors’ attempts to collect from a co-signer’s estate, even after the estate 

has been closed and settled.348

Borrowers also report becoming startled when they receive phone calls from a debt collector 

claiming their loans are in default because their co-signer filed for bankruptcy protection.349 In 

most of these cases, the borrower was unaware that the co-signer pursued bankruptcy. 

Furthermore, co-signers were surprised to find that the primary borrower’s loans were 

negatively affected due to the co-signer’s decision to pursue bankruptcy. 

Borrowers state that after their co-signer filed for bankruptcy, they stopped receiving 

communications from their servicer and did not receive billing statements, notice of default, or 

were locked out of their online account.350

1.5.3 Student loan debt relief companies

As student loan delinquencies and defaults continue to rise, many borrowers struggling to make 

ends meet will seek assistance. These borrowers are often solicited by third-party “debt relief” 

companies advertising services that claim to provide borrowers with lower monthly student loan 

payments and loan forgiveness. These companies generally enroll borrowers in free federal 

consumer protections, such as income-driven repayment plans, in exchange for up-front or 

recurring fees. In some cases, this assistance may prove illusory, as these companies charge upfront fees to their customers but fail to secure reduced monthly payments.351

 

348 See, e.g., CFPB-2015-0021-5490.

349 See, e.g., CFPB-2015-0021-0883.

350 Id.

351 See, e.g., Complaint for Permanent Injunction, Civil Money Penalties, and Other Relief, Consumer Financial 

Protection Bureau v. College Education Services LLC et al., No. 8:14-cv3078 (M.D. Fla. Dec. 11, 2014), available at

http://files.consumerfinance.gov/f/201412_cfpb_complaint_the-college-education-services.pdf. 
100

In the past 12 months, the Bureau and several state attorneys general and banking regulators 

have taken action against a number of these companies for defrauding student loan 

borrowers.352 In addition, last year, the Bureau published a consumer advisory that warns 

student loan borrowers about common signs of student loan debt relief scams, including highpressure tactics, up-front fees, and solicitations to sign third-party authorizations or powers of 

attorney.353 Earlier this year, the Bureau also alerted search and social media companies and 

shared concerns related to how some of these companies use search and social media to target 

distressed student loan borrowers. 

As discussed previously, federal student loans are unique relative to other consumer financial 

products in that borrowers have a legal right to a monthly payment driven by their income. As 

discussed in Section 1.1, commenters suggest that awareness of these protections among 

borrowers who could potentially benefit is limited, making borrowers in distress particularly 

susceptible to marketing by these debt relief companies.354 Limited awareness also raises 

questions about whether outreach and information provided by student loan servicers is 

sufficient to ensure borrowers are readily able to access these consumer protections. For 

 

352 Last year, the Bureau took action to shut down two companies offering student loan debt relief services, alleging 

that these companies illegally charged borrowers up-front fees to enroll borrowers with federal student loans in 

income-driven repayment plans. See Consumer Financial Protection Bureau, Press Release: CFPB Takes Action to 

End Student “Debt Relief” Scams (Dec. 11, 2014), available at http://www.consumerfinance.gov/newsroom/cfpbtakes-action-to-end-student-debt-relief-scams; see also Illinois Attorney General, Press Release: Madigan Files 

Lawsuits Against Student Loan Debt Relief Scammers (May 2015), available at

http://www.illinoisattorneygeneral.gov/pressroom/2015_05/20150504.html; New York Department of Financial 

Services, Press Release: Investigation by Student Protection Unit finds Direct Student Aid Engaged in Misleading 

and Deceptive Advertising, Other Improper Practices (July 2015), available at

http://www.governor.ny.gov/news/governor-cuomo-announces-student-loan-debt-relief-provider-will-ceaseoperations-after; Washington State Office of the Attorney General, Press Release: AG Sues Firm Over Illegal 

Student Loan Practices (Apr. 7, 2015), available at http://www.atg.wa.gov/news/news-releases/ag-sues-firm-overillegal-student-loan-practices; Office of the Minnesota Attorney General, Press Release: Attorney General Lori 

Swanson Files Lawsuit Against Company Promising Student Loan Debt "Forgiveness" (July 1, 2015), available at

http://www.ag.state.mn.us/Office/PressRelease/20150701StudentAidCenter.asp. 

353 See Consumer Financial Protection Bureau, Consumer Advisory: Student loan debt relief companies may cost you 

thousands of dollars and drive you further into debt (Dec. 2014), available at 

http://www.consumerfinance.gov/blog/consumer-advisory-student-loan-debt-relief-companies-may-cost-youthousands-of-dollars-and-drive-you-further-into-debt.

354 See CFPB-2015-0021-0373; CFPB-2015-0021-0356. 
101

borrowers who do reach out to student loan servicers for advice on alternative repayment 

options, the servicing problems described in this report may also drive borrowers to seek 

assistance from these companies. As one commenter notes:

Servicers’ poor practices have also created an unfortunate side effect: the recent 

growth of “student debt relief” companies. These companies take unfair advantage of 

people overwhelmed by the system, promising to enroll them in income-driven 

repayment plans, consolidate their loans, or even get their debts discharged – all for a 

hefty fee.355

As one state attorney general noted last year:

[T]he companies that engage in these scams are mere symptoms of a larger problem. 

Too many former students are having a hard time paying down their student debt. In 

many cases, they are not aware of the options available to them. Student loan debtors 

can have a hard time getting the right person on the phone. And they are not receiving 

information on the options available to them for repaying their loans. This massive 

confusion provides an easy opening for scammers.356

Commenters note that the relationship between loan servicing problems and the proliferation of 

“debt relief” scams played out similarly in the mortgage market. As the number of American 

families struggling to manage high mortgage payments and avoid foreclosure climbed in the 

wake of the financial crisis, homeowners in distress also sought assistance to find a way to stay 

in their homes. Companies purporting to offer “mortgage rescue” services solicited up-front fees 

from homeowners by promising to secure modified mortgage payments and halt foreclosures. 

In many cases, mortgage rescue companies defrauded their customers by accepting fees and 

failing to provide advertised services. As these scams proliferated, federal and state law 

 

355 See CFPB-2015-0021-0975.

356 The Role of States in Higher Education: Hearing before the S. Comm. on Health, Education, Labor and Pensions, 

113th Cong. 4 (July 24, 2014) (testimony from Illinois Att’y Gen. Lisa Madigan) available at

http://www.help.senate.gov/imo/media/doc/Madigan1.pdf. 
102

enforcement agencies sued and shut-down individual foreclosure relief scams357 and the Federal 

Trade Commission finalized a new federal regulation prohibiting companies from charging fees 

to homeowners until after the company delivers, and the consumer agrees to a written offer of 

mortgage relief from the customer’s lender or servicer.358

Despite action by state and federal regulators and law enforcement agencies, the recent wave of 

mortgage rescue scams did not abate until the economic recovery took hold and the share of 

homeowners in distress began to subside. As discussed above, elevated levels of distress among 

student loan borrowers do not appear to be linked to the business cycle—student loan 

delinquencies remain elevated, despite declining levels of delinquency in other markets. 

Policymakers and market participants contemplating additional action to address illegal 

practices by certain student loan debt relief companies may wish to also focus on the underlying 

market conditions that permit these scams to proliferate. In particular, they should consider the 

extent to which improved conduct by student loan servicers related to income-driven payment 

plans can better assist distressed borrowers searching for a way to stay afloat.

 

357 See, e.g., Illinois Attorney General, Press Release: Attorney General Madigan Sues Chicago Area Mortgage 

Rescue Schemes (July 27, 2011), available at

http://www.illinoisattorneygeneral.gov/pressroom/2011_07/20110727.html.

358 12 C.F.R. § 1015.
103

2. Public input on analogies to 

servicing approaches in 

other markets

In recent years, policymakers have undertaken broad-based legislative and regulatory efforts to 

strengthen applicable federal consumer financial laws protecting consumers in the servicing of 

mortgages and credit cards. However, for student loan borrowers, there is no existing, 

comprehensive federal statutory or regulatory framework providing consistent standards for the 

servicing of all student loans.359 Still, there are limited protections for certain federal student 

loan borrowers360 related to specific aspects of the repayment process.361

Many commenters to the Request for Information on Student Loan Servicing note that the 

issues encountered by student loan borrowers today, as detailed in the preceding section, mirror 

 

359 In 2014, the Bureau expanded its examination program for student loan servicing to supervise both large 

depository institutions and larger nonbank student loan servicers for compliance with federal consumer law, 

including the prohibition against unfair, deceptive and abusive practices under the Dodd-Frank Act. This is the first 

examination program at the federal level focused on both bank and nonbank actors in the student loan servicing 

market. See Consumer Financial Protection Bureau, Education Loan Examination Procedures (Dec. 2013), 

available at http://files.consumerfinance.gov/f/201312_cfpb_exam-procedures_education-loans.pdf.

360 See, e.g., 34 C.F.R. Part 682 for certain disclosures and other requirements for companies servicing FFELP loans.

361 CFPB-2015-0021-0354 (“Although federal loans are a much more consumer-friendly product than private loans, 

there is still room for improvement, especially with respect to the Federal Family Education Loan program (FFEL), 

the now defunct bank-based loan system and Federal Perkins Loans issued and serviced by institutions of higher 

education.”).
104

many of the servicing problems faced by consumers in the mortgage market following the 

financial crisis.362

Comments from individual student loan borrowers, organizations representing borrowers and 

other consumers,363 colleges and universities,364 state law enforcement officials,365 banking 

regulators,366 a Member of Congress,367 and some student loan market participants368 suggest 

that recent changes to mortgage and credit card servicing practices may offer insight on possible 

approaches to remedy student loan servicing concerns. In contrast, some comments from trade 

associations representing industry participants and from individual student loan market 

participants reject this analogy, stating that the differences in underlying terms and features of 

mortgages and credit cards are sufficiently different from student loans so as to make the 

comparison unhelpful to policymakers.369

The following discussion attempts to synthesize this public input, while identifying specific 

mortgage, credit card, and other servicing reforms commenters note as potentially applicable to 

the student loan servicing industry. Reforms discussed in public comments fall into four broad 

categories:

 Practices and protections for struggling or delinquent borrowers;

 Practices and protections related to servicing transfers;

 

362 See, e.g., CFPB-2015-0021-0856; CFPB-2015-0021-0806; CFPB-2015-0021-0808; CFPB-2015-0021-0861; CFPB2015-0021-0860; CFPB-2015-0021-0354. 

363 See, e.g., CFPB-2015-0021-0861; CFPB-2015-0021-0360; CFPB-2015-0021-0373.

364 See, e.g., CFPB-2015-0021-0806.

365 See, e.g., CFPB-2015-0021-0376. 

366 See, e.g., CFPB-2015-0021-0381.

367 See CFPB-2015-0021-0379.

368 See, e.g., CFPB-2015-0021-0355; CFPB-2015-0021-0974; CFPB-2015-0021-0070.

369 See, e.g., CFPB-2015-0021-0357; CFPB-2015-0021-0370; CFPB-2015-0021-0859; CFPB-2015-0021-0361. 
105

 Practices and protections related to requests for information and error resolution; and

 Practices and protections related to the processing of payments.

2.1 Practices and protections for struggling 

or delinquent borrowers

As discussed in Section 1.1, student loan borrowers may experience problems when seeking to 

access or maintain enrollment in alternative payment plans. Comments from organizations 

representing consumers state that loan modifications and other alternative repayment options 

may be beneficial to both borrowers and loan holders because a performing loan, even one that 

is modified, may offer a greater return than recovery of a defaulted loan through collections.370

One commenter cites, for example, a study indicating that home loan modifications may return 

greater value to investors than foreclosures.371 Commenters suggest that student loan borrowers, 

lenders, and investors—similar to the mortgage context—may be better served by modifications 

of certain loans.372 Commenters also suggest that mortgage servicers did not offer modifications 

to borrowers in the past because servicers have had financial incentives to foreclose.373 For 

mortgage servicers, the cost of offering individualized modifications could be more expensive 

than sending borrowers to foreclosure.374 Commenters suggest that, similar to mortgage 

servicers, student loan servicers may have a financial disincentive to offer loan modifications or 

alternative repayment plans.375 Specifically, student loan servicers may not have adequate 

 

370 See, e.g., CFPB-2015-0021-0856.

371 See CFPB-2015-0021-0364.

372 See, e.g., CFPB-2015-0021-0858; CFPB-2015-0021-0364.

373 See, e.g., CFPB-2015-0021-0364.

374 Id.

375 See, e.g., CFPB-2015-0021-0861; CFPB-2015-0021-0364. 
106

economic incentive to provide more expensive loss mitigation outreach and relief to borrowers, 

as opposed to placing them in deferment or forbearance.376

Commenters urge policymakers to consider recent history in the mortgage market—specifically 

the servicing problems surrounding loss mitigation programs that may have been caused, in 

part, by a disconnect between borrowers, servicers, and investors.377

Commenters, including individual borrowers and organizations representing student loan 

borrowers, recommend policymakers evaluate whether certain loss mitigation-related and other 

mortgage servicing requirements in Regulation X under the Real Estate Settlement Procedures 

Act (RESPA) offer a useful analogy when considering protections for student loan borrowers.378

One comment from nearly two-dozen law professors urges policymakers to consider the 

protections of the mortgage servicing rules when developing standards to assist distressed 

student loan borrowers, noting that:

There is every reason to believe that student loan servicing, which represents a 

dramatically increasing share of overall consumer debt, would benefit from similar 

consumer protections. In crafting any regulations governing servicing of student loans, 

we urge [policymakers] to examine the effectiveness of federal agency guidelines and 

contract terms in inducing meaningful mortgage loan servicing. We also urge 

[policymakers] to adopt standards that apply equally to borrowers of both private and

public student loans.379

In contrast, several comments from student loan market participants and industry trade 

associations state that the differences between mortgages and student loans are significant and 

therefore this analogy is inappropriate.380 For example, one trade association representing the

 

376 See, e.g., CFPB-2015-0021-0861; CFPB-2015-0021-0364.

377 See, e.g., CFPB-2015-0021-0364.

378 See, e.g., CFPB-2015-0021-1137; CFPB-2015-0021-0861; see also CFPB-2015-0021-0354.

379 CFPB-2015-0021-0858. 

380 See, e.g., CFPB-2015-0021-0357; CFPB-2015-0021-0370; CFPB-2015-0021-0859; CFPB-2015-0021-0361. 
107

student loan servicing industry rejects this analogy, noting that “the concept of loss mitigation is 

not appropriate to student loans. There is no asset to save.”381

When drawing comparisons between mortgage servicing and student loan servicing, several

commenters specifically highlight the following mortgage provisions:

 Early intervention for struggling borrowers. Mortgage servicers must make a 

good faith effort to establish live contact with a borrower no later than the 36th day of a 

borrower’s delinquency.382 No later than the 45th day of delinquency, a servicer must 

provide a written notice that includes, among other things, a statement encouraging the 

borrower to contact the servicer and, if applicable, a brief description of examples of loss 

mitigation options that may be available.383

 Continuity of contact. Mortgage servicers must maintain policies and procedures 

designed to assign designated personnel to respond to a delinquent consumer’s inquiries 

and, as applicable, assist the consumer with available loss mitigation options.384 This 

provides the consumer the ability to access information about his or her mortgage.385

 Properly disclosing loss mitigation options and reviewing loss mitigation 

applications. Mortgage servicers must adopt policies and procedures reasonably 

designed to ensure that the servicer can (1) identify all loss mitigation options for which 

a borrower may be eligible; (2) provide prompt access to all documents and information 

submitted by a borrower in connection with a loss mitigation option to servicer 

personnel assigned to assist borrowers; (3) identify documents and information that a 

borrower is required to submit to complete a loss mitigation application; and (4) 

 

381 CFPB-2015-0021-0357. 

382 12 C.F.R. § 1024.39(a).

383 12 C.F.R. § 1024.39(b).

384 12 C.F.R. § 1024.40(a).

385 12 C.F.R. § 1024.40(a)(3). 
108

properly evaluate a borrower who submits an application for all loss mitigation options 

for which the borrower may be eligible.386

2.1.1 Early intervention for struggling borrowers

Commenters suggest that early intervention and prompt contact from student loan servicers to 

discuss repayment options could allow a greater number of student loan borrowers to avoid 

default.387

As discussed above, federal student loan borrowers are entitled to enroll in alternative 

repayment plans that cap monthly payments as a percentage of the borrower’s discretionary 

income, called income-driven repayment plans. However, according to commenters, some 

borrowers are unaware of these repayment options and ultimately fall into default.388

In contrast, there are no repayment programs widely available for struggling private student 

loan borrowers that are analogous to the options in place for borrowers with federal loans.389

Some private student loan lenders and servicers offer deferment or forbearance, but 

commenters note that servicers “rarely change the terms of the loan permanently to make the 

monthly payment more affordable for the borrower.”390 Participants in the private student 

lending industry do note broader availability of expanded programs to provide relief for 

borrowers experiencing serious financial hardship, particularly over the past 24 months.391

However, as one policy organization notes, “unlike federal student loan borrowers or many 

 

386 12 C.F.R. § 1024.40(b)(2); see also 12 C.F.R. § 1024.41.

387 See, e.g., CFPB-2015-0021-0354.

388 See, e.g., CFPB-2015-0021-0378; CFPB-2015-0021-6009.

389 See CFPB-2015-0021-0809; CFPB-2015-0021-0354. 

390 CFPB-2015-0021-0354.

391 See, e.g., CFPB-2015-0021-0361. 
109

mortgage borrowers, distressed private student loan borrowers have few affordable, sustainable 

repayment options to help them stay current on their loan.”392

Commenters suggest that student loan borrowers need enhanced assistance from servicers in 

order to prevent delinquency and default.393 One industry commenter does note that pursuant to 

federal regulations, delinquent borrowers with FFELP loans must receive additional written 

disclosures related to alternative repayment plans and other options to cure delinquencies.394

No comparable regulatory requirements exist for servicers handling private student loans or 

Direct Loans. 

Consumer group commenters suggest a potential protection for borrowers based on similar 

standards to those that require mortgage servicers to attempt to contact a delinquent borrower 

and make efforts to contact the borrower again at certain intervals following missed 

payments.395

Commenters further note that mortgage servicing guidelines usually require servicers to contact 

the borrower by phone or other “live” contact instead of other means, such as pre-recorded 

messages.396 Commenters indicate that requiring servicers to connect with borrowers may allow 

servicers to discover the reasons for missed payments and offer appropriate loss mitigation 

options to borrowers.397 According to some commenters, establishing early contact after a 

missed payment would be particularly relevant to student loan borrowers because many student 

loan borrowers are unaware of specific repayment options that could help prevent a long-term 

default.398

 

392 CFPB-2015-0021-0354.

393 See, e.g., CFPB-2015-0021-0354.

394 See CFPB-2015-0021-0357.

395 See, e.g., CFPB-2015-0021-0861; see also CFPB-2015-0021-0354. 

396 See, e.g., CFPB-2015-0021-0861.

397 Id.

398 See, e.g., CFPB-2015-0021-0861; CFPB-2015-0021-0354.
110

2.1.2 Continuity of contact

Comments from organizations representing student loan borrowers suggest adopting standards 

that provide a continuity of contact for delinquent borrowers.399 A trade association 

representing the student loan servicing industry notes that these standards would raise 

operating costs for student loan servicers.400

One consumer group commenter notes that a limited version of similar protections are already 

required for certain federal student loan borrowers, stating that the “Department of Education 

regulations applicable to [FFELP] loans set out minimal ‘due diligence’ requirements for 

servicers to provide information about payment options to borrowers during periods of 

delinquency prior to default.”

401 However, this commenter further explains that no comparable 

federal regulatory requirements exist for private student loans or Direct Loans. This commenter 

states that it is unclear whether the Department of Education has incorporated these standards 

for Direct Loans through contracts and states that the “Department must make clear that these 

guidelines apply to Direct Loans as well.”402

2.1.3 Properly disclosing loss mitigation options and 

evaluating loss mitigation applications

As discussed above, many federal and private student loan borrowers struggle to make their 

scheduled monthly payments, but may not have a complete understanding of available 

repayment arrangements. Commenters suggest that policymakers consider the parallel between 

mortgages and student loans and implement similar loss mitigation-related requirements as 

those in place to assist struggling mortgage loan borrowers.403

 

399 See, e.g., CFPB-2015-0021-0975; CFPB-2015-0021-0861.

400 See CFPB-2015-0021-0357.

401 CFPB-2015-0021-0861; see also CFPB-2015-0021-0354. 

402 CFPB-2015-0021-0861.

403 See, e.g., CFPB-2015-0021-0381; see also CFPB-2015-0021-0808; CFPB-2015-0021-0364; CFPB-2015-0021-0354.
111

Servicers must disclose to borrowers all available loss mitigation options

Commenters highlight that mortgage servicers generally are required to inform borrowers of all 

loss mitigation options that may be available to them.404 However, according to commenters, 

student loan servicers may not provide sufficient information to distressed borrowers because 

servicers may have a financial disincentive to assist borrowers in the process.405

Commenters note that disclosure aspects of rules related to mortgage loss mitigation 

applications could serve as a model for similar student loan servicing standards. For example, 

one private student lender notes that it currently publicly discloses available modification 

options on its website and provides borrowers who identify as experiencing financial hardship 

with this information in inbound and outbound telephone contacts.406 Commenters also suggest 

additional requirements, such as requiring servicers to provide delinquent student loan 

borrowers at certain intervals with applications for all available repayment options, including 

income-driven repayment plans.407

Servicers must review for all available loss mitigation options

One commenter notes that the mortgage servicing rules generally require servicers to evaluate a 

borrower’s loss mitigation application for all available loss mitigation options.408 Another 

commenter representing consumers states that in many instances the loan holder will benefit if 

the terms of the loan are modified to allow the borrower to continue successfully repaying the 

loan on an affordable repayment schedule.409 An organization representing low-income student 

loan borrowers comments that the mortgage servicing rules recognize “that consumers often do 

not know what options they may be eligible for when they ask a servicer for assistance. 

 

404 See CFPB-2015-0021-0354.

405 See, e.g., CFPB-2015-0021-0364.

406 See CFPB-2015-0021-0361. 

407 See, e.g., CFPB-2015-0021-0861.

408 See CFPB-2015-0021-0851.

409 See CFPB-2015-0021-0364. 
112

Therefore, it is reasonable to place the burden on the servicer to ensure that it reviews borrowers 

for all available options.”410

One private student lender states that it has developed a standardized set of options available for 

private student loan borrowers seeking modifications, publishing eligibility criteria on its 

website and training customer service personnel on how to administer these programs when 

contacted by a private student loan borrower experiencing financial distress.411

An organization representing consumers comments that servicers “should be required to 

prioritize options that keep people in repayment, instead of offering forbearances as the first 

option.”412 Another commenter also suggests going beyond the mortgage servicing rules by 

stating that borrowers should be given the right to “submit a new application upon a change in 

circumstances,” even if the borrower has previously submitted a loss mitigation application and 

been reviewed.413

Prohibition on declaring default prior to determination on loss mitigation 

application

Commenters stress that although the default of a student loan is not directly analogous to the 

foreclosure process, the result of a defaulted loan could have significant long-term effects on the 

student loan borrower.414 Commenters note that a defaulted student loan can be significantly 

detrimental to a borrower since a defaulted student loan often occurs early in a borrower’s credit 

history and could ruin the borrower’s ability to obtain subsequent credit.415

 

410 CFPB-2015-0021-0861. 

411 See CFPB-2015-0021-0361. 

412 CFPB-2015-0021-0975.

413 CFPB-2015-0021-0861. 

414 See, e.g., CFPB-2015-0021-0364.

415 See, e.g., CFPB-2015-0021-0364.
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To prevent the negative consequences of placing a loan into default, comments from 

organizations representing consumers urge policymakers to consider applying protections 

similar to those in place for mortgage borrowers that generally prohibit a mortgage servicer 

from completing a foreclosure process without first reviewing a borrower’s loss mitigation 

application.416

Commenters suggest that policymakers consider the “declaration of default as an equivalent of a 

foreclosure sale.”417 Some commenters advocate for standards requiring student loan servicers 

to consider the borrower’s eligibility for all available loan modifications and alternative 

repayment plans before transferring an account to collections.418

Right to appeal loss mitigation review

Comments from organizations representing consumers suggest that after a servicer has 

reviewed the borrower’s eligibility for all available loan modifications or alternative repayment 

programs, the borrower should receive written notice of the servicer’s decisions for all 

options.419 Commenters further suggest that if a student loan servicer denies a request for loss 

mitigation, the borrower should be entitled to a “clear explanation for its decision and provide a 

way for a borrower to appeal the decision,”

420 “at any time while a loan is outstanding” and “be 

able to appeal servicer decisions after default and throughout the post-default collection 

process.”421

 

416 See, e.g., CFPB-2015-0021-0861.

417 CFPB-2015-0021-0861. In contrast to the process in the mortgage market, upon default, federal student loans are 

generally transferred to a debt collector for recovery. Student loan servicers are generally not part of the postdefault collections process for student loan borrowers. For loans held by the Department of Education and loans 

made under FFELP, default ends the business relationship between the borrower and a student loan servicer.

418 See, e.g., CFPB-2015-0021-0975.

419 See, e.g., CFPB-2015-0021-0861.

420 CFPB-2015-0021-0354.

421 CFPB-2015-0021-0861; see also CFPB-2015-0021-0354.
114

Commenters suggest that if a borrower is successful in an appeal of a servicer’s decision that 

leads to an “improper declaration of a default,” then the loan should be taken “out of default, 

even if the loan is subject to a collection action.”422

Additional loss mitigation-related comments

Some industry commenters highlight the unique aspects of student loans in comparison to 

mortgages, especially the fact that student loan servicing does not involve the recovery of 

property, such as a home.423 One industry commenter notes that, as an unsecured loan, the 

analogy to mortgage loss mitigation rules does not apply and these rules should not inform any 

policy approach or practices designed to better facilitate utilization of alternative repayment 

plans for student loans.424

Some commenters note that by adapting loss mitigation-related protections for mortgage 

borrowers to the student loan servicing market, policymakers and market participants may 

establish practices that improve the administration of the consumer protections provided by law 

for borrowers with federal student loans and may better ensure that private student loan 

borrowers in distress are able to access options to the extent they are offered.425

2.2 Practices and protections related to 

servicing transfers

As discussed in Section 1.2, following a servicing transfer, some student loan borrowers may 

experience problems related to lack of notice, lost benefits and protections, misapplied 

payments, and unexpected or inappropriate late fees. Some commenters suggest that the 

 

422 CFPB-2015-0021-0861.

423 See, e.g., CFPB-2015-0021-0357; CFPB-2015-0021-0370; but see CFPB-2015-0021-0861; CFPB-2015-0021-0364.

424 See CFPB-2015-0021-0357.

425 See, e.g., CFPB-2015-0021-0858. 
115

current mortgage servicing rules under RESPA that are relevant to servicing transfer notices and 

transfer of documents and data can be “applied easily in the student loan servicing context.”426

Commenters identify provisions, including: 

 Notice of transfer of loan servicing. If a lender or servicer transfers a loan’s 

servicing to a new servicer, the prior servicer must provide a notice to the borrower no 

less than 15 days before the effective date of transfer, and the transferee servicer must 

provide a notice not more than 15 days after the effective date of transfer, with limited 

exceptions.427

 Prohibition on treating the consumer as late. During the 60-day period beginning 

on the effective date of transfer, the servicer cannot treat a consumer’s payment as late 

for any purpose (and cannot charge a late fee) if the consumer has made a timely 

payment to the prior servicer.428

 Timely transfer of documents and information to new servicer. Mortgage 

servicers are required to maintain policies and procedures reasonably designed to 

facilitate the transfer of information during servicing transfers.429 These policies should 

be tailored to ensure timely transfer of all documents and information in the possession 

or control of the prior servicer relating to the transferred loan to the new servicer.430

2.2.1 Notice of transfer of loan servicing

As described in Section 1.2, some student loan borrowers may be unaware that their loans have 

been transferred to a new servicer, which commenters note can lead to disruptions in payments, 

unexpected late fees, and other challenges for borrowers and servicers. According to 

 

426 CFPB-2015-0021-0861.

427 12 C.F.R. § 1024.33(b)(3).

428 12 C.F.R. § 1024.33(c)(1).

429 12 C.F.R. § 1024.38(b)(4).

430 12 C.F.R. § 1024.38(a).
116

commenters, there are no uniform notice requirements for student loan servicing transfers, 

which contribute to borrower confusion and frustration.431

Comments from organizations representing consumers and from market participants suggest 

that one approach to mitigate student loan transfer or servicing problems could be modeled on 

requirements similar to those in mortgage rules related to disclosure and notice of servicing 

transfers.432 Some commenters suggest that one approach may be to require notice be provided 

to the borrower before a servicing transfer.433

While there are no market-wide requirements for conduct related to student loan servicing 

transfers, commenters do note that there are some protections offered to certain federal student 

loan borrowers with FFELP loans, including a joint notice from the transferee and transferor 

servicer not later than 45 days after a transfer has occurred.434 However, no comparable 

regulatory notice requirements related to servicing transfers exist for borrowers with private or 

Direct Loans. In addition, no federal regulatory requirements for student loans require any 

specific notice or disclosure prior to a servicing transfer.435

One large student loan servicer endorses providing additional notices during servicing transfers, 

commenting that it voluntarily provides notices to its FFELP and private student loan customers 

before and after the transfer.436 In addition, this commenter states that it already adopted the 

 

431 See, e.g., CFPB-2015-0021-0354; CFPB-2015-0021-0378.

432 See, e.g., CFPB-2015-0021-0975; see also CFPB-2015-0021-0355.

433 See, e.g., CFPB-2015-0021-0975.

434 See, e.g., CFPB-2015-0021-0357; CFPB-2015-0021-0370.

435 Readers should note that federal student loan borrowers with Direct Loans and FFELP loans have a contractual 

right to notice in the event of loan transfer, but this notice clause does not specify whether notice must occur prior 

to or following transfer. For Direct Loan borrowers, this notice requirement is only triggered if there is a change in 

the address to which the borrower must send payments or direct communications. See, e.g., U.S. Department of 

Education, Federal Family Education Loan Program (FFELP) Stafford Loan Master Promissory Note, available 

at http://www.ifap.ed.gov/dpcletters/attachments/FP0608StaffApp2008.pdf; U.S. Department of Education, 

Master Promissory Note: William D. Ford Direct Loan Program, available at

http://www.direct.ed.gov/pubs/dlmpn.pdf.

436 See CFPB-2015-0021-0355.
117

practice of following other relevant portions of the mortgage servicing transfer-related rules for 

its FFEL and private student loan customers.437

2.2.2 Prohibition on treating the consumer as late

Following a servicing transfer, some borrowers may submit payments to their old servicer or 

send payments to their new servicer that include the account information from their prior 

servicer, which may in turn delay payment processing or result in late fees. Commenters state 

that “without a reliable process, a borrower may not be clear on where to send their payment 

and, as a result the new servicer may not receive payment.”438

To assist borrowers following a servicing transfer, a comment from more than 100 consumer, 

civil rights, labor, and student groups suggests that policymakers look to mortgage rules that 

govern payment processing following a servicing transfer.439 The mortgage servicing rules 

prohibit treating a consumer’s payment as late for any purpose or charging late fees for 60 days 

beginning on the effective date of the servicing transfer if the consumer has made a timely 

payment to the prior servicer.440 Commenters emphasize that “this waiting period allows the 

borrower two billing cycles to make sure they have the correct payment information.”441

Comments from organizations representing consumers also urge policymakers to consider 

implementing new rules and guidance concerning misdirected payments during servicing 

transfers, such as requiring servicers to “affirmatively notify borrowers if payments are made in 

error” to the wrong servicer and “allow[ing borrowers] to use their old account information to 

access their new, transferred accounts during the adjustment period with their new student loan 

servicer.”442

 

437 Id. 

438 CFPB-2015-0021-0354.

439 See CFPB-2015-0021-0856. 

440 12 C.F.R § 1024.33(c)); see also CFPB-2015-0021-0354.

441 CFPB-2015-0021-0354.

442 CFPB-2015-0021-0358. 
118

One industry commenter states that ensuring smooth servicing transfers are in servicers’ best 

interest.443 In addition, this commenter states that in the event of a transfer, “the existing and 

future servicers work intensively together in the 3 to 6 month period prior to the transfer to 

ensure that it is as seamless and problem-free as possible,” ensuring that servicing transfers do 

not adversely impact borrowers’ due dates.444

2.2.3 Timely transfer of documents and information to new 

servicer

Commenters suggest that policymakers consider standards to address document retention 

issues, particularly during student loan servicing transfers.445 Commenters point to the 

mortgage servicing rule requiring retention of documents for at least one year after the transfer 

of servicing.

446 Commenters also state that student loan servicers should be “required to 

maintain key documents, including but not limited to payment histories, payoff statements, 

communications with borrowers, and any supplemental materials the borrowers have submitted 

in relation to a complaint or request.”447

Commenters also point to mortgage servicing rules requiring “a transferor servicer to have 

policies and procedures reasonably designed to provide for the timely transfer of all information 

and documents in its possession or control to a transferee servicer in a manner that ensures the 

accuracy of the information and documents transferred.”448 One consumer group commenter 

 

443 See CFPB-2015-0021-0357. 

444 CFPB-2015-0021-0357. 

445 See, e.g., CFPB-2015-0021-0975. 

446 See, e.g., CFPB-2015-0021-0354.

447 CFPB-2015-0021-0975.

448 CFPB-2015-0021-0861; see also CFPB-2015-0021-0354.
119

recommends that the Bureau require all records to be transferred to the new servicer before 

borrowers are required to submit their first payment to the new servicer.449

A comment from one large student loan servicer notes that “[a]n important step in adding 

transparency, clarity, and simplicity to student loans would be to align certain policies across the 

three loan types. For example, policies regarding . . . the definitions and standards for loan 

transfers should all be consistent across loan types.”450

2.3 Practices and protections related to 

customer service and error resolution

As discussed in Section 1.3, student loan borrowers express frustration that they are unable to 

get accurate or timely information related to their student loans. Borrowers also explain that 

when they experience a servicing error, they do not know where to turn or how to fix the 

problem.451

2.3.1 Error resolution and requests for information

Commenters note that account errors can have a substantial impact on a borrower’s financial 

ability to successfully repay a loan, such as increased costs or negative impacts on a borrower’s 

credit report.452 For these reasons, some commenters suggest that “student loan servicers should 

be required to resolve errors promptly” and within the same timelines as are currently required

for mortgage servicing errors.453

 

449 See CFPB-2015-0021-0975.

450 CFPB-2015-0021-0974. 

451 See, e.g., CFPB-2015-0021-0861.

452 See, e.g., CFPB-2015-0021-0354. 

453 CFPB-2015-0021-0354.
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Commenters urge the Bureau to “require servicers to follow . . . error resolution procedures 

similar to the RESPA requirements” for mortgage loans.454 These commenters note that the 

mortgage servicing rules include “detailed procedures for borrowers to seek correction of 

account errors and to request information related to their loans.”455 Commenters note that 

several aspects of the mortgage servicing rules related to error resolution and requests for 

information may be particularly helpful for student loan borrowers. One organization 

representing consumers comments that policymakers should consider the following mortgage 

borrower protections:

 the ability to request information about the identity of the loan owner, subject to an 

expedited response schedule; 

 a clear declaration in the rules that the servicer cannot charge fees in connection with a 

response; 

 the inclusion of a “reasonable efforts” requirement pertaining both to the duty to 

investigate to correct an error and the duty to find requested information; 

 the right of the borrower to ask for the documents that the servicer relied upon in 

refusing to correct an error; and 

 the requirement that the servicer respond to a notice of error before conducting a 

foreclosure sale as long as the servicer receives the request at least seven days before the 

sale and the error involves a “dual tracking” violation.456

Currently, there are no uniform requirements for student loan servicers to respond, investigate, 

or provide information related to a borrower’s student loan.457 Commenters suggest that some of 

 

454 CFPB-2015-0021-0975; see also CFPB-2015-0021-0861; CFPB-2015-0021-0354.

455 CFPB-2015-0021-0861.

456 See CFPB-2015-0021-0861.

457 Commenters note that “regulations under the Higher Education Act require that borrower inquiries be responded 

to in 30 days.” CFPB-2015-0021-0357. However these requirements are limited to FFELP loans and do not provide 

the consumer protections that are afforded to mortgage borrowers, such as an investigation, appeal, or information 

in connection with the dispute.
121

the mortgage requirements noted above could have direct applicability to the student loan 

industry.458 For example, when a borrower inquires about an error on her student loan account, 

rules could require the servicer to investigate and correct the problem or respond to the 

borrower within a specified time frame.

In addition to the right to an investigation into servicing errors, commenters also suggest that 

the borrower should have the right to appeal “a wide range of servicer decisions.”459 One 

consumer group commenter suggests that the policymakers consider modeling the appeal 

process after other federally-run loan programs that allow for “informal review, mediation, and 

a formal administrative hearing” before a neutral decision-maker.460

One commenter that provides legal assistance to mortgage borrowers suggests that student loan 

borrowers should have access to high-quality customer service.461 This commenter further states

that, based on observations made assisting mortgage borrowers, “front line staff communicating 

with borrowers must be well trained, extremely knowledgeable and adequately supervised.”462

One large student loan servicer states that it has made significant investments in its customer 

service operations, including as it relates to processing and tracking borrower complaints.463

This company emphasizes that these changes require servicing personnel to provide customers 

with responses on pending information requests and error resolution processes within specific 

timeframes.464

 

458 See, e.g., CFPB-2015-0021-0861.

459 CFPB-2015-0021-0861.

460 Id. 

461 See CFPB-2015-0021-0808.

462 Id.

463 See CFPB-2015-0021-0355.

464 Id.
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2.3.2 Streamlined complaint system

Consumer group commenters note that there are some circumstances where student loan 

borrowers may need to access a complaint system administered by government agency or 

neutral third-party. One commenter suggests that a “robust complaint system is essential to 

allow borrowers the opportunity to get relief when servicers fail to perform and to track 

common issues and evaluate servicer performance.”465 Commenters further note that “there is 

also a need for one streamlined complaint system where student loan borrowers are encouraged 

to submit complaints . . . with a clear expectation of timely response from the loan servicer.”466

2.4 Practices and protections related to the 

processing of payments

Commenters note that there is significant diversity in servicing practices related to student loan 

payment processing. As discussed in Section 1.4, student loan contracts and promissory notes 

are generally silent on many of the payment processing issues outlined in this section. Beyond 

the relatively limited payment application requirements, the handling of borrowers’ student 

loan payments is governed by a patchwork of practices established by lenders, investors, and 

student loan servicers. Depending on the company selected to service a borrower’s loans, these 

practices may vary significantly. One very large student loan servicer comments:

 

465 CFPB-2015-0021-0861, see also CFPB-2015-0021-0975.

466 Id.; see also CFPB-2015-0021-0356.
123

Compounding this issue are inconsistencies in rules across loan types. In federal loans, 

there are differences in rules applicable to FFEL and Direct student loans. Rules 

governing private student loans are generally less defined by regulators. An important 

step in adding transparency, clarity, and simplicity to student loans would be to align 

certain policies across the three loan types.467

Other commenters suggest that the absence of a consistent, market-wide set of standards for 

payment processing leaves borrowers vulnerable to practices that may be designed to maximize 

servicers’ revenue rather than facilitate borrower success.468

In contrast, some industry commenters suggest that the current regulatory framework for 

student loan servicing provides substantial protections for student loan borrowers and that 

further regulation would increase costs without meaningfully improving quality.469 These 

comments emphasize the importance of preserving borrower choice as a tenet of high-quality 

student loan servicing.470

Commenters note that the CARD Act established a number of specific conduct requirements for 

companies servicing credit cards that may offer policymakers and market participants an 

analogous framework for how to better align industry practices to protect consumers and 

facilitate successful repayment.471 Provisions in the credit card market specifically highlighted by 

commenters include: 

 

467 CFPB-2015-0021-0974. 

468 See, e.g., CFPB-2015-0021-0373. 

469 See, e.g., CFPB-2015-0021-0357; CFPB-2015-0021-0361; CFPB-2015-0021-0362. 

470 For example, one trade association representing servicers’ legacy FFELP servicing and private student loan 

servicing business units states it “support[s] the idea of transparency and believe[s] that each servicer should clearly 

disclose their payment application methodology so that a borrower may request a different payment application 

rule if that is not what he/she wants.” CFPB-2015-0021-0357; see also CFPB-2015-0021-0861.

471 See, e.g., CFPB-2015-0021-0364; CFPB-2015-0021-0975. 
124

 Timely posting of payments.

472 Credit card companies generally must credit all 

payments as of the day they are received if payments are received by 5 p.m. that day.473 If 

they are received by 5 p.m. on the due date, payments are generally considered to be ontime. 

 Periodic billing statements.

474 Credit card companies generally must have 

reasonable procedures designed to ensure that billing statements are mailed or delivered 

at least 21 days before a payment is due.475 In addition, credit card companies generally 

must disclose on the billing statement how long it would take and the total cost to the 

consumer to pay the full balance on the card by making only the required minimum 

payments.476 The statement generally must also disclose the monthly payment required 

to repay the full balance in three years, and the resulting total cost to the consumer, 

assuming no additional transactions.477

 Application of payments.

478 Credit card companies, upon receipt of a payment in 

excess of the minimum payment amount due, generally must first apply the excess to the 

card balance bearing the highest interest rate, and then to each successive balance 

bearing the next highest rate of interest, until the payment is exhausted.479

 

472 See CFPB-2015-0021-0364; CFPB-2015-0021-0975; CFPB-2015-0021-0377. 

473 15 U.S.C. § 1666c(a).

474 See CFPB-2015-0021-0364; CFPB-2015-0021-0975; CFPB-2015-0021-0377. 

475 15 U.S.C. § 1666b(a).

476 15 U.S.C. §§ 1637(b)(11)(B)(i)-(ii).

477 15 U.S.C. § 1637(b)(11)(B)(iii).

478 See CFPB-2015-0021-0364; CFPB-2015-0021-0975; CFPB-2015-0021-0377. 

479 15 U.S.C. § 1666c(b)(1). 
125

 Assessment of certain fees.

480 Credit card companies are only permitted to assess 

penalty fees that are “reasonable and proportional” to a consumer’s action, when a 

consumer violates terms or other requirements of a credit card account.481

 “Lookbacks” for rate increases on credit cards.

482 Credit card companies are 

required to conduct periodic “lookbacks” on accounts where the rate has been increased 

because of credit risk of the consumer, market reasons, or other factors to evaluate 

whether the reasons for the increase have changed and, if so, to reduce the rate.483

In addition, a number of commenters identify the following protections included in Regulation 

X under RESPA and the Truth in Lending Act (TILA) and its implementing regulation, 

Regulation Z, related to mortgage servicing as a potential guide: 

 Timely posting of payments. Mortgage servicers generally must credit payments to a 

borrower’s account as of the date of receipt, except when a delay in crediting does not 

result in any charge to the consumer or in the reporting of negative information to a 

consumer reporting agency.484

 Periodic statements. Mortgage servicers generally must provide borrowers with 

periodic statements on a monthly basis.485 These statements must include certain 

additional information for delinquent borrowers.486

 

480 See CFPB-2015-0021-0364.

481 15 U.S.C. § 1665d(a). 

482 See CFPB-2015-0021-0975.

483 15 U.S.C. § 1665c; 12 C.F.R. § 1026.59.

484 12 C.F.R. § 1026.36(c)(1)

485 12 C.F.R. § 1026.41. 

486 12 C.F.R. § 1026.41(d)(8). 
126

 Payoff statements.

487 A servicer must provide a payoff statement, specifying the 

amount needed to pay the loan in full as of a particular date, within seven business 

days after receiving the consumer’s written request.488

2.4.1 Timely posting of payments

Industry and consumer group commenters note that policymakers should consider applying to 

student loans the mortgage servicing or credit card servicing rules that require servicers to 

credit payments to the borrower’s account as of the day of receipt.489 As discussed in Section 1.4, 

commenters emphasize that student loan borrowers experience “unnecessary uncertainty” if 

there is a delay in crediting a payment to a borrower’s account which could result in 

unwarranted late fees.490

One trade association representing depository institutions highlights that most large student 

loan servicers use advanced technology to track the “effective date” of the payment or the date in 

which the payment is received.491 This commenter notes that large servicers are able to use this 

effective date to retroactively credit the payment to the account if the servicer is unable to post 

the payment on the day of receipt.492 This commenter further states that “although no doubt 

occasional errors or delays arise, modern technology has made payment delays rare.”

493

One trade association representing student loan servicers notes that servicers are already 

subject to payment handling requirements for electronic payments under the Electronic Funds 

 

487 See CFPB-2015-0021-0364; CFPB-2015-0021-0861; CFPB-2015-0021-0857; CFPB-2015-0021-0985.

488 12 C.F.R. § 1026.36(c)(3).

489 See, e.g., CFPB-2015-0021-0974, (discussing requirements under the CARD Act); and CFPB-2015-0021-0861 

(discussing requirements under 12 C.F.R. § 1026.36(c)(1)).

490 CFPB-2015-0021-0354; see also CFPB-2015-0021-1026. 

491 CFPB-2015-0021-0370. 

492 Id.

493 Id.
127

Transfer Act (EFTA), implemented by Regulation E, and rules related to electronic payments 

required by NACHA.494 For these reasons, this organization does not recommend new payment 

posting requirements for student loan servicers.495

2.4.2 Periodic billing statements

As discussed in Section 1.4, commenters state that student loan borrowers may not always 

receive accurate or timely information on billing statements or receive information on the 

current status of their loans.496 Borrowers also state that they may receive billing statements 

near the payment due date and they are unable to successfully remit timely payment, resulting 

in late fees or forbearance.497 If borrowers do not receive a billing statement with sufficient time 

before the due date, borrowers may not have enough time to collect funds and make 

arrangements to satisfy their monthly payment obligations. 

Commenters suggest policymakers look to the CARD Act for provisions to regulate periodic 

billing statements.498 These commenters recommend that the Bureau require student loan 

servicers to implement reasonable procedures designed to ensure the mailing or delivery of 

statements 21 days before the payment due date, similar to requirements for credit card 

issuers.499

Consumer group commenters also urge policymakers to consider the mortgage periodic 

statement provisions under TILA and Regulation Z, which generally require mortgage servicers 

to provide a periodic statement to borrowers on a monthly basis.500 These commenters also 

 

494 See CFPB-2015-0021-0357.

495 Id. 

496 See also CFPB-2015-0021-0861; CFPB-2015-0021-0354. 

497 See, e.g., CFPB-2015-0021-0953.

498 See, e.g., CFPB-2015-0021-0975; CFPB-2015-0021-0364.

499 See, e.g., CFPB-2015-0021-0975; CFPB-2015-0021-0364.

500 See, e.g., CFPB-2015-0021-0861 (referencing 12 C.F.R. § 1026.41). 
128

suggest mandating special periodic statement requirements for delinquent borrowers, offering 

additional information on the consequences of default and the amount needed to bring the loan 

current, as well as information about available options for restructuring payments and 

correcting a delinquency.501

Some industry commenters note that federal regulations currently require certain disclosures 

for delinquent FFELP loan borrowers related to income-driven repayment plans and other 

options to lower or suspend payment, and further comment that additional requirements are 

unnecessary.502 One comment made by an organization that represents low-income student loan 

borrowers notes that these regulatory requirements do not apply to borrowers with private 

student loans or Direct Loans.503

2.4.3 Payment allocation

The CARD Act included a provision governing payment allocation associated with credit cards 

that commenters suggest may be applicable to student loan borrowers. Commenters analogize 

the allocation of payments in excess of the minimum payment in the credit card market to 

payment processing for student loans because credit card customers and student loan borrowers 

“may have balances with several different interest rates.”504

As discussed in Section 1.4, when a borrower has several loans with multiple interest rates and 

seeks to make a prepayment, a borrower can save more money over the life of her loans if a 

prepayment is allocated to the loan with the highest interest rate first. Commenters note that 

after the implementation of the CARD Act, credit card issuers generally are required to allocate 

payments in excess of the minimum payment to the balance with the highest interest rate, 

potentially saving credit card borrowers money in the long-run.505 Commenters from 

 

501 See, e.g., CFPB-2015-0021-0861.

502 See, e.g., CFPB-2015-0021-0357. 

503 See CFPB-2015-0021-0861.

504 CFPB-2015-0021-0364. 

505 See, e.g., CFPB-2015-0021-0364; CFPB-2015-0021-0975; CFPB-2015-0021-0860.
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organizations representing consumers propose that policymakers require student loan servicers 

to follow similar provisions in order to save student loan borrowers interest over the life of the 

loan.506

Industry and consumer group commenters state that borrower instructions related to the 

allocation of prepayments should supersede a servicer’s default methodology for payment 

allocation.507 Furthermore, consumer group and industry commenters note that any new 

standards for the handling of prepayments should also account for borrower preference and 

require servicers to follow borrower instructions.508

Industry commenters note that servicers’ payment allocation policies may vary.509 As discussed 

in Section 1.4, one trade association representing student loan servicers further state that the 

“application of this credit card rule to the student loan market might have unintended 

consequences,” explaining that servicers’ policies with regard to “paid ahead status” (and federal 

regulatory requirements for FFELP loans) may conflict with any new requirements that 

mandate application of prepayments first to loans with the highest interest rates.510 For these 

reasons, this organization opposes the application of standards to the student loan market for 

the allocation of prepayments based on the CARD Act’s approach.511

Commenters also raise concerns regarding some student loan servicers’ current practices related 

to the handling of partial payments.512 Consumer group commenters suggest that borrowers 

would benefit from specific servicing standards related to this process.513 One comment from an 

 

506 See, e.g., CFPB-2015-0021-0975.

507 See, e.g., CFPB-2015-0021-0357; CFPB-2015-0021-0974; CFPB-2015-0021-0355; CFPB-2015-0021-0364.

508 See, e.g., CFPB-2015-0021-0357; CFPB-2015-0021-0974; CFPB-2015-0021-0364.

509 See, e.g., CFPB-2015-0021-0357; CFPB-2015-0021-0974; CFPB-2015-0021-0355. 

510 CFPB-2015-0021-0357. 

511 See id.

512 See, e.g., CFPB-2015-0021-0364.

513 See, e.g., CFPB-2015-0021-0975.
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organization representing consumers suggests servicers’ payment allocation rules require the 

allocation of partial payments in a manner that satisfies in-full as many loans on a borrower’s 

account as possible.514

2.4.4 Late fees

Student loan borrowers raise concerns related to the size of late fees and policies regarding

assessment of late fees, as further discussed in Section 1.4. Commenters suggest that “excessive 

late fees make it much harder for a borrower to get back on track with their payments.”515

Some commenters discuss how late fees were problematic for credit card borrowers prior to the 

CARD Act.516 One commenter explains that prior to the CARD Act, “credit card issuers began to 

charge increasingly more and larger late fees” and the “fees morphed from proportionate” to a 

substantial cost which the commenter characterized as essentially resulting in a penalty.517

Commenters suggest that student loan borrowers encounter problems related to certain 

servicers’ late fee practices, in light of recent actions by regulators.518 For example, the FDIC 

determined that the servicer violated federal law by inadequately disclosing its payment 

allocation methodologies to borrowers while allocating borrowers’ payments across multiple 

loans in a manner that maximizes late fees.519

Commenters propose that policymakers consider similar provisions to those in the CARD Act as 

standards for student loan servicers, particularly the requirement that late fees and other 

 

514 See CFPB-2015-0021-0364. 

515 CFPB-2015-0021-0354.

516 See, e.g., CFPB-2015-0021-0860. 

517 CFPB-2015-0021-0364.

518 See, e.g., CFPB-2015-0021-0364. 

519 Federal Deposit Insurance Corporation, Press Release: FDIC Announces Settlement with Sallie Mae for Unfair 

and Deceptive Practices and Violations of the Servicemembers Civil Relief Act (May 13, 2014), available at 

https://www.fdic.gov/news/news/press/2014/pr14033.html. 
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penalty fees be “reasonable and proportional to the consumer’s action.”520 Commenters further 

note that there is also a need for standard treatment of late fees across the student loan market, 

such as limiting fees to one late fee per account.521 One industry commenter states that servicers 

with contracts to service loans made under the Direct Loan program are not permitted to assess 

late fees to these borrowers under current Department of Education policy.522

2.4.5 Payoff statements

As previously mentioned in Section 1.4, commenters report that some student loan borrowers 

have difficulty obtaining accurate payoff statements and also that they experience payment 

processing breakdowns as they attempt to refinance certain loans.523

Discussing the central role payoff statements play for borrowers seeking to refinance, one 

student loan refinancing company comments that servicers should be expected to make payoff

information “readily available,” noting that it “increases transparency, provides for a seamless 

experience and improves customer service.”524

Commenters note that mortgage servicers generally are required to respond within seven 

business days after receiving a written request by a borrower for a loan payoff statement.525 One 

comment from an organization representing student loan borrowers states that “given the 

flexible nature of student loan payments, borrowers need a prompt and reliable means to obtain 

information about the status of their accounts. Along with periodic statements . . . a requirement 

to provide a payoff statement upon request is appropriate in the student loan context.”526

 

520 CFPB-2015-0021-0364.

521 See, e.g., CFPB-2015-0021-0377.

522 See CFPB-2015-0021-0355. 

523 See, e.g., CFPB-2015-0021-0985. 

524 CFPB-2015-0021-0985.

525 See, e.g., CFPB-2015-0021-0861; see also 12 C.F.R. § 1026.36(c)(3).

526 CFPB-2015-0021-0861.
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A different student loan refinancing company also states that some servicers do not follow the 

payment instructions accompanying a payoff payment and “servicers sometimes miss or ignore 

our specific payoff instructions to apply a payment to the higher interest loans (which [are 

designated] by account number) and thus apply payments to the wrong loans.”527 This industry 

commenter states that these payment processing breakdowns cause “unwanted payments on 

specific groups of loans, confusing the borrower.”528

 

527 CFPB-2015-0021-0857.

528 Id.
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3. Recommendations

In the preceding section, commenters identify a number of options for policymakers and market 

participants to consider when evaluating ways to improve student loan servicing practices, 

promote borrower success, and minimize defaults. 

Comments from student loan servicers and organizations representing consumers suggest529

taking additional steps to realign incentives for student loan servicers in order to encourage 

better outcomes for borrowers.530 While federal student loans feature an array of flexible 

repayment options, these commenters state that it is not clear whether third-party student loan 

servicers have adequate economic incentives to enroll borrowers in these options to avoid 

default.531

For both private and federal student loans, the compensation model used in most third-party 

 

529 See, e.g., CFPB-2015-0021-0355 (“The fundamental questions for policymakers are whether the level of 

investment in loan servicing is adequate to achieve program goals and whether there are better ways to align 

servicer incentives with borrower and taxpayer interests.”); CFPB-2015-0021-0373; CFPB-2015-0021-0377; CFPB2015-0021-0356.

530 The March 2015 Presidential Memorandum on a Student Aid Bill of Rights provides that “The Director of the 

Office of Management and Budget and the Secretary of Education shall convene quarterly an interagency task force 

consisting of the Department of the Treasury, Department of Education, Office of Management and Budget, and 

Domestic Policy Council to monitor trends in the student loan portfolio, budget costs, and borrower assistance 

efforts. No later than August 1, 2015, the task force shall review recommendations for the Department of Education 

from its members and the Consumer Financial Protection Bureau on best practices in performance-based 

contracting to better ensure that servicers help borrowers responsibly make affordable monthly payments on their 

student loans.”, available at https://www.whitehouse.gov/the-press-office/2015/03/10/presidentialmemorandum-student-aid-bill-rights.

531 See, e.g., CFPB-2015-0021-0355; CFPB-2015-0021-0373; CFPB-2015-0021-0377; CFPB-2015-0021-0356.
134

servicing contracts provides student loan servicers with a flat monthly fee per account 

serviced.532 Although this fee may adjust based on a loan’s repayment status,533 fees are 

generally fixed on a monthly basis and do not rise or fall depending on the level of service a 

particular borrower requires in a given month. In effect, this fee structure may create an 

economic disincentive to address borrower default, since compensation remains fixed 

irrespective of the services a borrower needs, and the servicer will likely incur unreimbursed 

costs when seeking to mitigate default. 

When taking further action to improve borrower outcomes and mitigate defaults, including 

potential steps to develop minimum baseline standards for certain student loan servicing 

practices, policymakers, loan holders, and student loan servicers should also pursue steps to 

adjust economic incentives to encourage these outcomes.534

 

532 This monthly servicing fee may be set as a flat dollar amount per month per account, or set based on a percentage 

of a borrower’s aggregate principal balance. In both cases, the fee paid to student loan servicers may vary depending 

on repayment status (generally rising as borrowers transition from “in school” to “in grace” to “in repayment”) but 

generally do not vary depending on the level of service provided in a given month. See, e.g., First Marblehead 

Corporation, Prospectus Supplement: The National Collegiate Student Loan Trust 2007-3 (Sept. 17, 2007), 

available at http://www.snl.com/interactive/lookandfeel/4094003/NCSLT_2007_3_FPS.PDF; U.S. Department 

of Education, Title IV Redacted Contract Awards 12-13, available at https://www.fbo.gov/spg/ED/FSA/CA/FSATitleIV-09/listing.html. Contracts fix monthly compensation on a per-borrower basis, and the compensation 

depends on the repayment status of each borrower being serviced. See also U.S. Department of Education, Student 

Aid Administration Fiscal Year 2015 Request, at AA-15, available at

http://www2.ed.gov/about/overview/budget/budget15/justifications/aa-saadmin.pdf (estimating the average cost 

per-borrower to be $1.67 per month, based on the contractual prices and the proportion of borrowers with different 

repayment statuses). 

533 Generally, these adjustments coincide with the lifecycle of a student loan, increasing servicers’ compensation as 

borrowers progress from “in school” to “in grace” to “repayment” status. In contrast, the Department of Education 

implemented a declining compensation structure, decreasing servicers’ compensation as borrowers’ delinquency 

increases in severity.

534 On August 28, 2015, an intergovernmental Task Force, consisting of the Department of the Treasury, Department 

of Education, Office of Management and Budget, and Domestic Policy Council, released recommendations “to 

ensure that contractors providing student loan servicing help borrowers responsibly make monthly payments on 

their student loans,” developed in consultation with the Bureau and other stakeholders. These recommendations 

suggest specific changes to the compensation structure and performance measurements included in federal Direct 

Loan servicing contracts. These recommendations also endorse minimum service-level and borrower 

communications requirements, recognizing that while necessary, realigned incentives alone may be insufficient to 

achieve these agencies’ goals. U.S. Department of Education, Recommendations on Best Practices in PerformanceBased Contracting (2015), available at http://www2.ed.gov/finaid/loans/repay/best-practices-
135

Framework for student loan servicing reform

The following recommendations synthesize common themes and offer a roadmap for 

policymakers and market participants when evaluating ways to manage costs and improve the 

customer experience. As one financial institution notes:

Accurate and timely application of payments, access to information, delivery of 

important notices and disclosures, and resolution of any account errors are essential 

service level expectations in the financial services industry. There is no reason those 

expectations should be any lower for student loan borrowers than they are for home 

loans, credit cards, or other consumer debts.535

Based on the analysis and commentary offered in this report, the Bureau identified four general 

principles that should inform any future action in this market, which are discussed in greater 

detail below. These principles are also reflected in a joint policy statement published in tandem 

with this report by the Department of Education, the Department of the Treasury, and the 

Bureau.536 At minimum, student loan servicing should be:

 Consistent;

 Accurate and actionable;

 Accountable; and

 Transparent.

 

recommendations.pdf. Policymakers, loan holders and student loan servicers may wish to consider whether certain 

aspects of these recommendations are appropriate for servicing contracts in other segments of the student loan 

market. See U.S. Department of Education, Another Step Forward Under the Student Aid Bill of Rights (Aug. 28, 

2015), available at http://www.ed.gov/blog/2015/08/another-step-forward-under-the-student-aid-bill-of-rights/. 

535 CFPB-2015-0021-0070. 

536 See Appendix A. To the extent that the recommendations contained in this section augment the Joint Statement of 

Principles on Student Loan Servicing, these recommendations have not been endorsed by the Department of 

Education or the Department of the Treasury and readers should treat them as recommendations offered by the 

Bureau alone. 
136

These general principles for reform reflect input shared by stakeholders, including student loan 

market participants, organizations representing student loan borrowers, law enforcement 

officials and state regulators, colleges and universities, and academics. Taken together, the 

Bureau believes these principles should guide any attempt to develop a set of baseline standards 

of conduct to strengthen student loan servicing.537 

3.1 Consistent

Student loan borrowers would benefit from a clear and consistent set of baseline standards for 

student loan servicing functions common to the entire market. Student loan borrowers 

reasonably expect that policies and practices be consistent across all market participants and for 

all types of student loans, while accounting for and recognizing varations in loan features, terms 

and borrower protections. This is not currently the case. 

Differing approaches to common functions may create obstacles for borrowers. 

The student loan servicing market shares common elements, irrespective of the identity of the 

loan servicer or the type of student loan. Borrowers and loan holders expect student loan 

servicers to process payments, respond to customer inquiries, resolve errors, and provide basic 

information about benefits and alternative payment options. As noted above, servicing practices 

related to these functions may vary significantly between companies, and may also vary between 

business units of the same company. Many of the comments discussed in the preceding sections 

suggest that servicers’ differing approaches to common functions may create significant 

problems for borrowers, particularly when loans are transferred between servicers or for 

borrowers with multiple loans serviced by different companies. 

Baseline standards for conduct related to common market features should be clear 

and consistent. Comments suggest that both borrowers and loan holders may not be well 

 

537 Many commenters also emphasize that any baseline standards for conduct for the student loan servicing industry 

should not prevent loan holders, state legislatures, and others from requiring higher levels of service from student 

loan servicers. Notably, the Department of Education has taken steps to improve standards for Direct Loan 

borrowers and may continue to require its contractors to exceed any floor for conduct required market-wide. See 

CFPB-2015-0021-0861.
137

served by a market where practices related to many of these functions vary significantly between 

companies and where expectations for conduct may not be clear. Should baseline standards for 

adequate conduct be established market-wide, student loan servicers may be able to realize 

efficiencies, particularly as loan holders, including the Department of Education, expand 

requirements for conduct related to certain types of loans. One large specialty student loan 

servicer notes that:

Student loans are unique financial instruments . . . Despite this uniqueness, basic 

principles of loan servicing remain applicable to student loans. Borrowers must be fully 

informed of their debt, have access to informed, trained customer service personnel, 

receive timely notice of required actions, have access to user-friendly online tools, and 

understand all of their options for repaying their obligation. Servicers must post 

payments promptly and must maintain and be able to retrieve information about 

borrower accounts and ensure that billing and payment application are accurate. . . . 

Overall, [the company] supports applying similar standards [as those that apply to 

mortgage and credit cards] to student loans, as long as the unique characteristics of 

student loans are taken into consideration.538

Baseline standards may also better align borrower needs with the service 

delivered by market participants. As noted above, variations in product features and terms 

may result in servicers adopting different processes to perform common functions. In some 

cases, borrower frustration may be the result of a borrower experiencing a different process with 

another company and expecting similar treatment across student loan servicers.

Benefits of consistent baseline standards may exist even when product features differ 

significantly. For example, a borrower in distress may contact his federal student loan servicer 

and his private student loan servicer seeking options to reduce his monthly payment. His federal 

student loan servicer provides information about an income-driven repayment plan to which the 

borrower has a legal right under federal law. 

His private student loan servicer provides information about existing proprietary modification 

options offered by the owner of his loan. In this case, both student loan servicers identified that 

 

538 CFPB-2015-0021-0974. 
138

this borrower was experiencing financial distress and presented him with available options to 

avoid default. This borrower would benefit from, for example, consistent disclosure 

requirements about alternative repayment options, even if product features vary significantly. 

When considering ways to improve the quality of service delivered to student loan borrowers, 

policymakers should ensure that any standards consider variations in product features, terms, 

borrower protections, and borrower preferences, but, to the extent practicable, be consistent 

across all loan types.

3.2 Accurate and actionable

As discussed in Part One of this report, commenters note the complexity of student loan 

repayment relative to other consumer financial products. In particular, commenters note that 

FFELP loans and Direct Loans feature a range of statutory consumer protections, borrower 

benefits, and other features that have evolved over time. These loan features are designed to 

encourage successful repayment, ensure that student loan borrowers are able to afford monthly 

student loan payments, and provide relief when borrowers struggle to repay due to difficult 

financial circumstances. Borrowers’ success may depend, in part, on servicers’ effective 

disclosure and administration of these loan features.

Student loan borrowers should be able to expect that information provided by 

their servicer is accurate. As discussed in Part One, borrowers depend on information 

provided by student loan servicers when seeking to manage their loans, lower costs, or access 

borrower benefits and consumer protections. In many cases, borrowers seek to access loan 

features that involve evaluating trade-offs between competing benefits. For example, a borrower 

working in public service may need to decide whether to enroll in a negatively-amortizing 

income-driven repayment plan that may increase her total debt burden in the short-term, in 

pursuit of loan forgiveness after 10 years of qualifying payments. Alternatively, a borrower with 

a co-signed private student loan may need to decide whether to make low, interest-only 

payments early in his repayment period, even if those payments may later preclude him from 

releasing his co-signer from her obligation early in his term. As these examples illustrate, when 

servicers’ practices do not allow the borrower to be informed when making a decision that may 

increase costs or otherwise inhibit borrower success. 
139

Student loan borrowers should be able to expect that information provided by 

their servicer is actionable. Given the complexity of many of the programs and protections 

discussed in this report, policymakers and market participants may wish to consider the 

medium and means through which servicers provide information to student loan borrowers.539

As noted above, simply providing accurate information about the full breadth of programs and 

benefits associated with a student loan may not be sufficient to empower a borrower to make 

decisions in his or her financial interest.

Consider loan servicing for borrowers experiencing financial distress. Servicers may be required 

to offer certain modification options for private student loan borrowers under certain 

circumstances.540 Servicers also facilitate the enrollment in certain income-driven repayment 

plans that are provided for in Title IV of the Higher Education Act for borrowers with 

commercial FFELP loans or Direct Loans.541 In all cases, the servicer may also offer certain 

forbearance options for borrowers experiencing financial hardship. However, simply offering 

the options may not be enough for some borrowers. From the perspective of a consumer with 

limited knowledge of the availability and terms of these programs, the differences between 

various modification options may be less important than the desired outcome: actionable 

information about how to obtain an affordable monthly payment and a path to long-term 

financial success. 

Policymakers and other stakeholders looking to develop new disclosure approaches to assist 

student loan borrowers in repayment should seek to present information in a manner that 

emphasizes the best information for most consumers. In contrast to an approach that pursues 

completeness alone, the relative emphasis on specific information presented in disclosures is 

critical to facilitate borrower understanding and empower effective decision-making. 

 

539 The Department of Education is currently conducting several pilot programs related to certain aspects of the 

student loan repayment process, taking steps to test alternative mechanisms to communicate information about 

income-driven repayment plans to student loan borrowers. 

540 See, e.g., CFPB-2015-0021-0974.

541 See 34 C.F.R. § 685.209 (PAYE, only available for Direct Loans or loans consolidated into Direct Loans); 34 C.F.R. 

§ 685.221 (IBR under the Direct Loan program); 34 C.F.R. § 682.215 (IBR under FFELP).
140

Additionally, user testing of disclosures may help in crafting disclosures that ensure that the 

information provided meets borrowers’ needs.

When contemplating standards of conduct related to the disclosure of information about loan 

terms, features, and consumer protections, policymakers and market participants should ensure 

that any disclosure approaches consider borrowers’ need for both accurate and actionable 

information.

3.3 Accountable

Baseline standards for conduct in the student loan servicing market should make it more likely 

that, for the vast majority of student loan borrowers, servicers will “get it right the first time” 

and provide, at minimum, adequate service across all servicing functions. However, given the 

size of the market and the complexity of the product, policymakers and market participants 

must also recognize that, to some degree, some borrowers may still encounter servicing 

problems. 

As discussed in detail in Sections 1.3 and 2.3, error resolution (the process through which 

borrowers self-identify and seek correction of servicing problems) is a critical feature of any 

well-functioning market for loan servicing. Additionally, servicers should implement robust 

quality assurance and compliance management functions, in order to ensure individual issues 

identified by consumers are evaluated and, to the extent related problems exist for other 

borrowers; servicers have the information necessary to proactively identify and address issues. 

Beyond error resolution for individual borrowers, a healthy student loan servicing market must 

also be subject to rigorous oversight by state and federal regulators. In addition, regulators and 

law enforcement agencies should have access to appropriate mechanisms to identify potential 

violations or other issues and obtain remediation for consumers.

Student loan borrowers need servicers to resolve errors when they occur. 

Borrowers depend on servicers to offer an error resolution process that is accessible, effective, 

and transparent. Adequate customer service and error resolution is especially important in the 

student loan market, where the consequences of borrowers’ failure to satisfy an obligation can 
141

be particularly injurious, given many borrowers’ limited credit history.542 When errors occur and 

are not quickly addressed, harm to borrowers may not be limited to problems with the 

individual loan or loans in question. Increasingly, consumer credit profiles serve as a 

precondition to employment, housing, and access to credit, and consequently, servicing errors 

can have spillover effects on many other aspects of borrowers’ lives and livelihoods. Student 

loan borrowers would benefit from an orderly process through which borrowers can receive 

answers to questions and inquiries.

As one organization notes on behalf of its low-income student loan borrower clients:

Requests to correct errors and to provide information about an account have obvious 

application in the student loan context. Student loan borrowers should be able to use a 

clearly defined procedure to correct errors in areas such as setting payments under an 

income-sensitive plan, applying payments, and assessing fees. Similarly, borrowers 

need to have a reliable system for obtaining information such as the type of program 

guidelines applicable to their loan, the available payment options, and data about their 

account history. Servicers and the loan owner should benefit from such a system as 

well.543

State and federal regulators and law enforcement officials should be able to 

identify violations and obtain remediation for consumers when servicing practices 

violate consumer financial laws. Historically, state and federal regulatory agencies have 

largely overseen student loan servicers as service providers to or as affiliates of financial 

institutions under their purview. This may have fragmented oversight responsibilities and 

inadvertently created barriers for regulators and law enforcement agencies seeking to 

understand and improve practices for all student loan borrowers. 

As one state banking regulator notes, when discussing authorization of the first state-level 

licensing and examination program for student loan servicers earlier this year:

 

542 As commenters note in the preceding sections, many student loan borrowers depend on the student loan 

repayment process to help establish their credit histories.

543 CFPB-2015-0021-0861. 
142

Robust enforcement authority over all student loan servicers at the state level is 

necessary in order to allow states to protect their student borrowers and identify issues 

that may be unique to that state, to an individual servicer’s instate practices, or to a 

particularly relevant borrower population. States have a unique ability to work on a 

granular level while simultaneously spotting trends and systemic issues at a state or 

regional level. States cannot see the national picture with sufficient detail; they must 

share their knowledge and experience with the Bureau, who can develop that picture 

and disseminate it to the public.544

Recognizing that servicing errors may occur, even in a well-functioning student loan market, 

servicers should expect to be accountable for their conduct. Policymakers should consider steps 

to ensure borrowers have access to appropriate mechanisms to resolve errors. Furthermore, 

when violations of law occur, federal and state agencies should identify issues, correct conduct, 

and obtain remediation for borrowers. 

3.4 Transparent

As policymakers, regulators, market participants, and other stakeholders acknowledge, both in 

response to the Bureau’s Request for Information and in other forums, there is insufficient 

public data related to the performance of student loans, which may magnify risks for 

borrowers.545 Increased transparency, including periodic public reporting of servicer-level data 

on student loan performance, is critical to ensure that stakeholders have a more complete 

understanding of borrower behavior in order to effectively address the underlying factors 

driving elevated levels of student loan delinquency. Improved public access to data on student 

 

544 CFPB-2015-0021-0381. 

545 See Susan Dynarski, We’re Frighteningly in the Dark About Student Debt, New York Times (Mar. 20, 2015), 

available at http://www.nytimes.com/2015/03/22/upshot/were-frighteningly-in-the-dark-about-studentdebt.html; Federal Reserve Bank of New York, Opening Remarks at the Convening on Student Loan Data 

Conference (Mar. 4, 2015), available at http://www.ny.frb.org/newsevents/speeches/2015/dud150304.html; see 

also CFPB-2015-0021-0370.
143

loan performance will also allow stakeholders to anticipate future problems for borrowers 

repaying student loan debt. 

Current public data on student loan performance is inadequate. Commenters note 

that current requirements for publication of student loan data are quite limited.546 As one 

commenter notes:

Shortcomings in available student loan data have two main effects. First, the gaps 

hamper efforts to identify student loan trouble spots. Second, they hinder servicing 

improvement. The net result is a system that treats all borrowers the same while also 

not constructing the repayment system in a way that sufficiently assists those who need 

greater help.547

The Department of Education compiles and maintains administrative loan level performance 

data for all student loan borrowers with federal student loans through the National Student 

Loan Data System, the primary information system used by the Department, colleges and 

universities, market participants and others to administer federal loan programs.

548 However, 

historically, public access to this data has been limited. The Department of Education has taken 

steps in recent months to expand the summary information available for the Direct Loan 

program, including the publication of the first servicer-level information on loan performance, 

but significant gaps remain. There is no equivalent souce of information available to the public 

related to the performance of private student loans or FFELP loans. 

Policymakers and market participants should look to the availability of mortgage 

data as a potential guide. Policymakers and the public have access to increasingly robust 

data about the performance and origination of mortgages through a number of sources. Data 

from housing GSEs and mortgage-backed securities filings shed significant light on loan-level 

performance. The Office of the Comptroller of the Currency regularly publishes a mortgage 

 

546 See, e.g., CFPB-2015-0021-0860. 

547 CFPB-2015-0021-0354; see also CFPB-2015-0021-0356. 

548 20 U.S.C. § 1092b; see also http://nslds.ed.gov/.
144

metrics report detailing loan modification performance and other key servicing data.549 In 

addition, most loan-level mortgage origination data is currently subject to public disclosure, 

stripped of borrower-identifiable information, under the Home Mortgage Disclosure Act.550

In contrast, available public data about student loans is limited. The Federal Financial 

Institutions Examination Council collects reports from insured depository institutions on 

balance sheet holdings, but student loans are aggregated with many other types of nonmortgage credit products.551 The U.S. Securities and Exchange Commission filings from large 

financial institutions rarely contain reporting of key data on student loans, which may be 

combined in public filings with information about the performance of other consumer loans. 

Student loan ABS filings and servicer performance reports are much less granular than similar 

mortgage reports.

As Federal Reserve Bank of New York President William Dudley noted earlier this year at a 

conference on student loan data:

[T]here are many important questions still left unanswered. . . . What attributes are 

associated with borrowers who are more successful at repaying their student loans? . . . 

What are the best interventions to help borrowers avoid the consequences of 

delinquency and default, and to limit any default costs to taxpayers? Do borrowers 

who use programs like income-based repayment eventually succeed in paying off their 

debts?. . . These are important questions for the nation, as the human capital of our 

 

549 See, e.g., Office of the Comptroller of the Currency, Mortgage Metrics Report for 2013 Q4 (Mar. 2014), available 

at http://www.occ.gov/publications/publications-by-type/other-publications-reports/mortgage-metrics2013/mortgage-metrics-q4-2013.pdf.

550 The Bureau developed and maintains a web tool to allow the public to access and analyze mortgage origination 

data released pursuant to HMDA. See Consumer Financial Protection Bureau, The Home Mortgage Disclosure Act, 

available at http://www.consumerfinance.gov/hmda.

551 See Federal Financial Institution Examination Council, Central Data Repository: Reports of Condition and 

Income (Call Report), available at https://cdr.ffiec.gov/public/. 
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citizens is far and away our most important asset, and student loans are an important 

mechanism for financing needed investments in that asset.552

Significant improvements in market transparency may permit student loan borrowers, market 

participants, regulators, and law enforcement agencies to better understand the student loan 

market in order to identify emerging risks and effectively target resources to address problems, 

encourage borrower success, and mitigate defaults. 

 

552 Federal Reserve Bank of New York, Opening Remarks at the Convening on Student Loan Data Conference (Mar. 4, 

2015), available at http://www.ny.frb.org/newsevents/speeches/2015/dud150304.html. 
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Conclusion

Adequate student loan servicing can empower consumers to satisfy their financial obligations 

and participate fully in the economy. The servicing practices discussed in this report, when 

taken together, raise serious questions about whether more than 41 million American 

consumers with student loan debt have access to the services, information, and protections they 

need in order to lead healthy financial lives. 

As policymakers consider proposals to address the key drivers of rising student loan debt, 

including potential changes to the structure of higher education financing for future generations 

of student loan borrowers, the thousands of comments that informed this report should serve as 

a public reminder that millions of current student loan borrowers may not be well-served by the 

status quo. 

Policymakers and market participants should consider the framework for reform outlined in this 

report as they take necessary action to protect student loan borrowers from illegal practices, 

realign incentives to encourage better outcomes and seek to improve the level of service 

provided market-wide. The Bureau intends to continue to monitor the student loan marketplace 

closely using all appropriate tools to ensure that borrowers are treated fairly and to improve 

servicing outcomes for borrowers.
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Contact information

CFPB’S STUDENT LOAN OMBUDSMAN:

Email: students@cfpb.gov

Webpage: http://www.consumerfinance.gov/students

Address: Consumer Financial Protection Bureau

1700 G St NW

Washington, DC 20552

TO SUBMIT A COMPLAINT:

Webpage: http://www.consumerfinance.gov/complaint

Toll-Free: (855) 411-CFPB (2372)

Español: (855) 411-CFPB (2372) 

TTY/TDD: (855) 729-CFPB (2372)

Fax: (855) 237-2392

Address: Consumer Financial Protection Bureau

PO Box 4503

Iowa City, Iowa 52244

FOR ADDITIONAL RESOURCES TO ASSIST STUDENT LOAN BORROWERS:

Repay Student Debt web tool: http://www.consumerfinance.gov/paying-for-college/repaystudent-debt

Paying for College suite of tools: www.consumerfinance.gov/paying-for-college/

Ask CFPB: http://www.consumerfinance.gov/askcfpb/

FOR PRESS & MEDIA REQUESTS:

Email: press@consumerfinance.gov
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APPENDIX A:

Joint statement of principles on 

student loan servicing

United States Department of the Treasury

United States Department of Education

Consumer Financial Protection Bureau

Joint statement of principles on student loan servicing

The U.S. Department of Education, the U.S. Department of the Treasury, and the Consumer 

Financial Protection Bureau have developed this Joint Statement of Principles on Student Loan 

Servicing as a framework to improve student loan servicing practices, promote borrower 

success, and minimize defaults.553

 

553 On March 10, 2015, the President signed a Presidential Memorandum on a Student Aid Bill of Rights to Help 

Ensure Affordable Loan Repayment. The President directed the Secretary of Education, in consultation with the 

Secretary of the Treasury and the Director of the Consumer Financial Protection Bureau, to issue a report by October 

1, 2015 on, among other things, recommendations concerning private and federal student loan servicing standards, 

flexible repayment opportunities for all student loan borrowers, and changes to bankruptcy laws. This Joint 

Statement of Principles on Student Loan Servicing will inform this required report.
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General principles for student loan servicing554

Consistent with their respective authorities, responsibilities, and missions, the Departments and 

the Bureau are committed to working together so that all student loan borrowers have access to 

(1) the information they need to repay their loans responsibly and avoid default; (2) protections 

so that they will be treated fairly even if they are struggling to repay their loans; and (3) 

mechanisms so that errors are resolved expeditiously and assurances that student loan servicers, 

both in the marketplace and through federally-contracted companies, are held accountable for 

their conduct. The following principles have been developed to advance these goals.

There are four main types of postsecondary education loans under which borrowers have 

outstanding balances. Direct Loans are federal loans made directly to borrowers by the U.S. 

Department of Education through the William D. Ford Federal Direct Loan program. Federal 

Family Education Loan Program (FFELP) loans were originated by private lenders and 

guaranteed by the federal government. Federal Perkins Loans, which are co-funded by 

institutions of higher education and the federal government, are originated and administered by 

participating institutions. Direct Loans, Perkins Loans and FFELP loans are made pursuant to 

Title IV of the Higher Education Act of 1965, as amended (HEA). The SAFRA Act, enacted in 

2010, ended new loan originations under the FFEL program in 2010, but a significant number 

of loans remain outstanding. Private student loans are made by depository and non-depository 

financial institutions, states, institutions of higher education, and other entities. Private loans 

are not governed by HEA, but are subject to other federal and state laws. All Federal Direct 

Loans and some FFELP loans are held by the Department of Education and serviced pursuant to 

contracts with loan servicers and collection contractors. Servicing for Perkins Loans, privatelyheld FFELP loans, and private student loans is provided at the direction of the current loan 

holder, and servicing activities for Perkins and FFELP loans are governed by rules and 

regulations laid out by law and through the U.S. Department of Education. The economic 

 

554 On September 29, 2015, the Consumer Financial Protection Bureau published Student Loan Servicing: Analysis of 

Public Input and Recommendations for Reform, analyzing comments the Bureau solicited from stakeholders 

including student loan borrowers, federal student loan servicers, private student loan market participants, policy 

experts, and state law enforcement officials and regulators as part of the Departments’ and the Bureau’s joint efforts 

to identify initiatives to strengthen student loan servicing. 
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incentives to provide servicing that best serves borrowers’, loan holders’, and taxpayers’ needs 

vary across the different types of student loans. 

In addition, the respective loan types come with varying levels of consumer protections and 

special benefits. Direct Loans, in general, offer borrowers more protections than private or 

FFELP loans. Borrowers with FFELP loans continue to consolidate into the Direct Loan 

program to access certain protections and benefits including the Public Service Loan 

Forgiveness Program, the nonaccrual of interest for servicemembers serving in areas of 

hostilities, and certain income-driven repayment plans. For federal loans, pursuant to 

provisions in the HEA, institutions of higher education are required to provide certain 

disclosures to borrowers that provide them with clear and helpful information about their loans 

and repayment options as part of schools’ statutorily required entrance and exit counseling 

duties.

The Departments and the Bureau intend to work closely with one another, consistent with their 

respective authorities, to strengthen servicing protections for student loan borrowers, and will 

seek to ensure that student loan servicing is, where appropriate:

 Consistent. Student loan borrowers and servicers alike would benefit from a clear set of 

expectations for what constitutes minimum requirements for services provided by 

student loan servicers and servicer communications with borrowers, including adequate 

and timely customer service. Student loan borrowers should expect effective student loan 

servicing, including, but not limited to, conduct related to payment processing, servicing 

transfers, customer requests for information, error resolution, and disclosure of 

borrower repayment options and benefits. uch conduct should account for and recognize 

variations in loan features, terms, and borrower protections.

 Accurate and actionable. Student loan borrowers often depend on servicers to 

provide basic information about account features, borrower protections, and loan terms. 

It is critical that information provided to borrowers by student loan servicers be accurate 

and actionable. Information, including explanation and instructions regarding 

borrowers’ loans and repayment options, should be presented in a manner that best 

informs borrowers, helps them achieve positive outcomes, and mitigates the risk and 

costs of default. 
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 Accountable. Student loan servicers, whether for-profit, not-for-profit, or government 

agencies, should be accountable for serving borrowers fairly, efficiently, and effectively. 

If servicers fall short and violate federal or state consumer financial laws, the HEA, 

contractual requirements, or federal regulations, then borrowers, federal and state 

agencies and regulators, and law enforcement officials should have access to appropriate 

channels for recourse, as authorized under law.

 Transparent. The public, including student loan borrowers, may benefit from 

information about the performance of private and federal student loans and the practices 

of individual student loan lenders and servicers, including information related to loan 

origination, loan terms and conditions, borrower characteristics, portfolio composition, 

delinquency and default, payment plan enrollment, utilization of forbearance and 

deferment, the administration of borrower benefits and protections, and the handling of 

borrower complaints. The federal government already makes much of this information 

available for federal student loans, and private-sector lenders and servicers should follow 

suit. Portfolio performance data, including data at the individual servicer level, should be 

available for all types of student loans.