As regulatory pressure on student loan servicing continues to increase, servicers are paying close attention to the steady stream of news and publications issuing from the CFPB and the Department of Education. The most recent of these publications is the CFPB Student Loan Ombudsman’s Midyear Update on Student Loan Complaints. The Midyear Update gives an overview of the roughly 7,400 complaints received since October and focuses on complaints related to income driven repayment (IDR) plan applications.
The Midyear Update highlights borrower complaints related to IDR plan applications, many of which are eerily reminiscent of complaints that were common for mortgage loan servicers in the wake of the financial crisis. For example, borrowers complain that servicers require borrowers to communicate with multiple customer service representatives who provide conflicting information about eligibility criteria for alternative repayment programs. Borrowers also complain that servicers fail to timely process applications for alternative repayment plans and reject incomplete applications without informing borrowers of missing or inaccurate information or offering an opportunity to correct it.
The ombudsman’s recommendations signal three steps servicers can take now to address borrower complaints related to IDR plan applications:
- Deny IDR applications only under three limited circumstances. This recommendation is derived from the Department of Education’s Policy Direction on Federal Student Loan Servicing that was released last month. Specifically, servicers should deny an application for an IDR plan only when (a) the borrower is ineligible for the plan specified; (b) the borrower’s information is insufficient and does not indicate partial financial hardship (and the plan specified requires such hardship); or (c) the borrower fails to respond within 60 days to notices that the application was deficient.
- Allow corrections or supplemental information to be provided over the phone. Where an application is incomplete because of typos or minor missing information that can be provided over the phone, servicers should communicate directly with borrowers to allow the application to be completed over the phone.
- Use the “fix it form” to help borrowers complete IDR applications. When a borrower submits an incomplete application with either alternative documentation of income or a written attestation of no income, servicers should provide borrowers clear, actionable instructions for completing the application and a clear list specifying exactly what information is needed. A prototype “fix it form” is included as an appendix to the Midyear Update. The two-page form tells borrowers if their application is accepted, denied, or incomplete, and what additional information is needed.
The takeaway here is that servicers should be clear, simple, and timely in communicating with borrowers. Borrower complaints regarding servicer communications have been raised in virtually every context, not just IDR plan applications. Servicers should review the Midyear Update and the Department of Education’s policy guidance, as well as their own policies and practices. As regulatory action in the student loan field continues to increase, the time to review these issues is now.