Student Loan Servicers Still Looking for Clarification on Reporting ObligationsThere is surprisingly little guidance for student loan servicers when it comes to credit reporting. The only recent guidance directed at loan servicers came by way of an announcement from the U.S. Departments of Education and Treasury and the Consumer Financial Protection Bureau (CFPB) on April 28, 2016 (DoE Fact Sheet). The DoE Fact Sheet provides few specifics and, instead, lists broad concepts that the Department of Education desires to implement “as part of its new vision for serving student loans.”

The time frame for the initiative was “the coming months,” but no updated credit reporting system was released by the Obama administration. Student loan servicers face further uncertainty from the Trump administration, which has not yet released any information revealing its approach to federal student loan programs. Although the guidelines for student loan servicers remain obscured, CFPB enforcement is on the rise.

Per the CFPB’s February 2017 Monthly Complaint Report, “Student loan[s]” and “Credit reporting” are, respectively, the second and third most-complained about consumer financial products and services currently. In a year-to-year comparison examining the three-month time period of November to January, the CFPB noted that student loan complaints increased by 388 percent. Moreover, in January 2017, the CFPB announced a lawsuit against the nation’s largest servicer of both federal and private student loans. One specific allegation highlighted by the CFPB was Navient’s alleged “misreport[ing] to the credit reporting companies that borrowers who had their loans discharged under [the federal Total and Permanent Disability discharge] program had defaulted on their loans when they had not.”

Approximately 11.3 percent of federal borrowers who entered repayment in fiscal years 2012 or 2013 (Oct. 1, 2011 and Oct. 1, 2012) defaulted within three years. With 593,182 borrowers defaulting in that period alone, credit reporting of student loans is becoming an increasingly salient issue, and borrower-driven litigation may also increase under the Fair Credit Reporting Act (FCRA). To state a claim under FCRA, most federal circuits require a plaintiff to prove the following elements: 1) the reporting of an inaccuracy or misleading information by a furnisher of information to a consumer reporting agency (CRA); 2) that plaintiff disputed the inaccurate or misleading information to the CRA, who, in turn, alerted the furnisher of information; and 3) the furnisher of information failed to conduct a reasonable investigation into the plaintiff’s dispute. Although whether information is factually inaccurate is often the most important inquiry, allegations contending that reported information is misleading are much more fact-dependent and difficult to defend against. Depending on the judicial jurisdiction, vague and unclear guidance from the Department of Education and the CFPB could prove problematic if raised by borrowers in affirmative litigation.

Although the Department of Education proclaimed a need for standardized credit reporting across borrowers, the DoE Fact Sheet references a few potential ways that credit reporting of student loans could vary based on the originating program and whether the loan is tracking towards a forgiveness program. The Department of Education also noted its preference for student loan servicers to report borrowers who invoke their right to a forbearance period unrelated to financial hardship distinctly from borrowers experiencing financial distress—an apparent effort to distinguish the reporting of student loans from other credit services such as mortgages. A FCRA plaintiff could argue that these differences, if not incorporated into a student loan servicer’s internal reporting guidelines, make existing reporting “misleading.” By issuing a statement emphasizing the need for loan servicers to incorporate student loan specific information into the otherwise standardized process of credit reporting, the Department of Education has invited confusion and error.

Student loan servicers are in dire need of clarification about their specific obligations. Until the current administration takes further action, there is little student loan servicers can do but monitor their practices and procedures to ensure they have a comprehensive plan to handle student loan servicing credit disputes. Student loan servicers should take into account the CFPB’s recent Supervisory Highlights Consumer Reporting Special Edition, which identifies common weaknesses in the policies and procedures of furnishers of information generally. More importantly, student loan servicers should train their staff to understand the specific product serviced. By training employees in the specificities of student loans, as well as in responding to disputes, communicating with borrowers, and recordkeeping in general, student loan servicers will be better able to recognize potential inaccuracies in information reported and respond to disputes before borrowers or the CFPB take action.