Student-loan companies have 'illegally hampered' debt relief for borrowers through targeted repayment and forgiveness programs, consumer watchdog says




  • In Business
  • 2022-10-04 17:19:05Z
  • By INSIDER
 
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  • A CFPB report found student-loan companies have allegedly been engaging in deceptive and illegal behavior.

  • For example, it says companies have wrongfully denied borrowers to targeted loan forgiveness programs.

  • They also failed to properly track borrowers' payments, pushing them off track for relief, per CFPB.

Student-loan companies aren't abiding by the law - and it's hurting borrowers, a top consumer watchdog says.

Last week, the Consumer Financial Protection Bureau (CFPB) released a report analyzing the behavior of student-loan companies when it comes to carrying out targeted loan forgiveness programs, facilitating servicer transfers, and engaging with borrowers who hold institutional student debt, or debt owed to a specific school. Specifically, the agency found that loan servicers "illegally hampered borrowers' access to federal student loan payment relief and cancellation programs including Income-Driven Repayment, Public Service Loan Forgiveness and Teacher Loan Forgiveness," per the press release. The CFPB says those actions have blocked borrowers from accessing the debt relief they qualified for.

"In many instances, examiners have identified servicers that have failed to provide access to payment relief programs to which students are entitled," the report said, adding that "in most cases the conduct constitutes the same unfair, deceptive, or abusive act or practice regardless of what entity holds the loan."

The report did not identify which loan companies specifically were engaging in the referenced behavior.

When it comes to Teacher Loan Forgiveness - a debt relief program for full-time teachers - the CFPB alleged loan companies were improperly denying applications to the program even when a teacher taught at a qualifying for school for five years, but filled out the application formatting dates as MM-DD-YY instead of MM-DD-YYYY.

"These wrongful denials resulted in substantial injury to consumers because they either lost their loan forgiveness or had their loan forgiveness delayed," the report said, noting that oftentimes the borrowers who were denied may have refrained from submitting another application to get the debt relief.

Similar issues arose with the Public Service Loan Forgiveness (PSLF) program, which is intended to forgive student debt for government and nonprofit workers after ten years of qualifying payments. According to the report, payments toward forgiveness were inaccurately tracked, and borrowers were wrongfully denied relief because the servicer claimed the applications were incomplete, when that was not the case. Additionally, at least one servicer was found to have "excessively delayed processing PSLF forms," putting borrowers significantly off track toward relief - with the same thing happening to those enrolled in income-driven repayment plans.

These findings come at a critical time for millions of student-loan borrowers. At the end of August, Biden announced up to $20,000 in debt cancellation for federal borrowers making under $125,000 a year, and the application for that relief is set to become live in October, which loan companies will be tasked with implementing. On top of that administrative task, borrowers enrolled in PSLF have less than one month to enroll in expanded benefits the Education Department implemented last year, including a waiver expiring on October 31 that allows any past payments to count toward forgiveness progress.

As Insider previously reported, a number of student-loan companies have expressed the lack of information they have when it comes to implementing the recently announced relief, but the CFPB and Biden's administration have said they will oversee how the companies are implementing this relief and take action on any improper behavior.

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