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Financial Services Law Insights and Observations


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  • Education Dept. rolls out new plan for IDRs

    Agency Rule-Making & Guidance

    On April 19, the Department of Education announced additional changes to the federal student loan program designed to reduce or eliminate federal student loan debt for many borrowers. In particular:

    • To address long-term forbearance steering, Federal Student Aid (FSA) will conduct “a one-time account adjustment that will count forbearances of more than 12 months consecutive and more than 36 months cumulative toward forgiveness” under the income-driven repayment (IDR) and Public Service Loan Forgiveness (PSLF) programs.
    • Borrowers “steered” into shorter-term forbearances may file a complaint with the FSA Ombudsman to seek an account review.
    • FSA will also partner with the CFPB to conduct regular audits of servicers’ forbearance use, and will seek to improve oversight of loan servicing activities.
    • Loan servicers’ ability to enroll borrowers in forbearance by text or email will be restricted.
    • FSA will conduct a one-time revision of IDR-qualifying payments for all Direct Student Loans and federally-managed Federal Family Education Loan Program (FFEL) loans, and will count any month in which a borrower made a payment toward IDR, regardless of the payment plan. Borrowers who meet the required number of payments for IDR forgiveness based on the one-time revision will receive automatic loan cancellation. Moreover, months spent in deferment prior to 2013 will count towards IRD forgiveness (with the exception of in-school deferment) to address certain data reliability issues.

    In addition, FSA plans to reform its IDR tracking process. New guidance will be issued to student loan servicers to ensure accurate and uniform payment counting practices. FSA will also track payment counts on its own systems and will display IDR payment counts on beginning in 2023 so borrowers can monitor their progress. The Department also plans to issue rulemaking that will revise the terms of IDR and “further simplify payment counting by allowing more loan statuses to count toward IDR forgiveness, including certain types of deferments and forbearances.”

    Agency Rule-Making & Guidance Department of Education CFPB Student Lending Consumer Finance Debt Cancellation Forbearance Student Loan Servicer Income-Driven Repayment

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  • CFPB addresses risks facing student loan borrowers when payment suspension ends

    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.

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

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  • CFPB examines student loan borrowers enrolled in IDR plans

    Federal Issues

    On November 22, the CFPB released a new Data Point report from the Office of Research titled “Borrower Experiences on Income-Driven Repayment,” which examines, among other things, the types of student loan borrowers who participate in income-driven repayment (IDR) plans, the evolution of borrower delinquencies, and borrower experiences with enrollment recertification processes. According to the Bureau, while student loans are currently the largest non-mortgage form of debt held by U.S. consumers, “there remains limited evidence of how this growing debt burden affects the use of other financial products and services.” Key findings of the report include:

    • Delinquencies decreased 19 to 26 percent after one year into IDR enrollment for borrowers who received partial payment relief as compared to the quarter before enrollment, and the share of borrowers actively in repayment on their loans was 27 percent higher at the end of the first year of being enrolled in IDR than prior to entering IDR.
    • Delinquent borrowers who enrolled in IDR showed a 17 percent reduction in their delinquencies on other credit products, however, the Bureau noted that “one in five such borrowers were still behind on their payments on these other credit products one year later, reflecting persistent financial struggles for some borrowers.”
    • Roughly two-thirds of borrowers who recertified their IDR enrollment for a second year did so either immediately or within two months after the initial IDR period ended, with an additional 12 percent entering forbearance or deferment. The Bureau stated that borrowers who do not recertify on time after their first year may face persistent difficulties, and reported that delinquencies more than tripled for these borrowers.
    • More than 80 percent of borrowers enrolled in IDR “sought out prolonged payment relief beyond a single year.”

    According to the Bureau, the data “helps the Bureau and other researchers and policymakers understand how consumers repay their student loans and how that behavior affects their use of other financial products.”

    Federal Issues CFPB Student Lending Income-Driven Repayment

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