WASHINGTON—Numerous student loan servicers and university-owned lenders are violating federal law with some of their policies, according to a new report from the CFPB.
The findings are included in a special edition of the Bureau’s Supervisory Highlights on recent examination findings covering the practices of student loan servicers and schools that lend to students directly. The exams found that these schools had improper blanket policies of withholding transcripts to force students to make payments, the CFPB said.
The findings come after the CFPB announced earlier this year that it would examine the operations of colleges that operate lending businesses.
Access Hampered
The CFPB said its exams also found that student 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.
The CFPB had earlier directed servicers to act to remediate these issues.
According to the Bureau, many in-house lenders employ a practice of withholding transcripts when a student borrower has an outstanding debt.
“Transcript withholding is designed to gain leverage over borrowers and coerce them into making payments, as it is difficult to seek employment or transfer education credits to another school without an official transcript,” the CFPB said. “Even when borrowers enter into payment agreements with a school, the transcript might not be released until the debt is paid in full.”
The CFPB said its examinations further found the blanket withholding of transcripts to pressure borrowers is an “abusive practice” under the Consumer Financial Protection Act.
Improper Denials
The examinations also found many cases where federal loan servicers improperly denied borrower applications for loan cancellation through Teacher Loan Forgiveness or Public Service Loan Forgiveness. Servicers illegally misrepresented borrowers’ eligibility dates and the number of payments the borrower needed to make to qualify for relief, according to the Bureau.
In addition, servicers provided misinformation about borrowers’ entitlement to progress toward loan forgiveness during the pandemic payment suspension, the CFPB said.
The CFPB has directed servicers to address consumer harm caused by these actions, and added that it will continue to monitor servicers’ practices to ensure that student loan borrowers are not illegally excluded from relief provided for them under federal law.
Review of Records Transfer
Separately, the CFPB reviewed the transfer of millions of borrower account records to different servicers, including the nine million borrower accounts transferred in July 2021 after the student loan servicers PHEAA and Granite State announced they were ending their contracts with the Department of Education.
The CFPB said it partnered with the Department of Education and many state regulators in oversight of these account transfers to identify and address points of concern.
Read the Supervisory Highlights Student Loan Servicing Special Edition.