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Financial Services Law Insights and Observations

CFPB addresses risks facing student loan borrowers when payment suspension ends

Federal Issues CFPB Consumer Finance Student Lending Covid-19 Income-Driven Repayment

Federal Issues

On April 14, the CFPB’s Office of Research released a special issue brief addressing risks facing student loan borrowers once federal Covid-19 payment suspensions end later this year. The report documented the status of millions of student loan borrowers during the pandemic and found that borrowers most at risk include those who are 30 to 49 years of age and who live in low-income, high-minority census tracts.

The report examined data from its Consumer Credit Panel (a sample of nearly 34 million student loan borrowers, including those with private loans and loans which had not yet entered repayment as of February 2020) to identify the types of borrowers who may struggle to resume scheduled loan payments once the payment suspension ends. Analysis identified five potential risk factors: (i) pre-pandemic delinquencies on student loans; (ii) pre-pandemic payment assistance on student loans; (iii) multiple student loan servicers; (iv) delinquencies on other credit products since the start of the pandemic; and (v) new third-party collections during the pandemic. Researchers found that over five million borrowers had at least two of the five potential risk factors considered in the report, and that borrowers with multiple risk factors were more likely to live in low-income or high-minority census tracts. For instance, the report found that approximately 17 percent of student loan borrowers in the sample had multiple servicers for their loans before the pandemic. While having multiple servicers does not necessarily result in greater repayment difficulties, the report noted that some of these borrowers could face “increased risk of confusion or payment difficulties while coordinating communication and payments with multiple entities,” and cited previous findings which pointed to some student loan servicers denying or failing to approve qualified borrowers for income-driven repayment plans. Researchers also concluded that there are other borrowers outside the scope of the report who may not struggle immediately after the payment suspension ends but may face difficulties later.