http://other98.com
July 13th, 2015
Monica Jackson
Office of the Executive Secretary Consumer Financial Protection Bureau 1700 G Street NW.
Washington, DC 20552
RE: Requests for Information: Student Loan Servicing (Docket No. CFPB-2015-0021)
Dear Ms. Jackson, The Other 98%1
appreciates the opportunity to comment on the matters identified in the above-captioned Request for Information (“RFI”), issued by the Consumer Financial Protection Bureau (the “CFPB”).
I. Introduction
The over $1.2 trillion in outstanding student debt in the United States should be a great source of shame to policymakers and regulators alike. Politicians are quick to claim that an education is the ticket to a better future. But the ongoing lack of tuition-free public higher education shows that the political establishment in United States is largely uninterested in much more than rhetoric. The lack of funding for public higher education in the United States isn’t for lack of literature or proposals outlining how it may be accomplished. As demonstrated by the activist group Strike Debt’s “How Far to Free” plan2, the costs of providing free public higher education could be largely offset by eliminating existing government support of for-profit colleges, re-directing existing tax credits, and a little extra annual spending. In addition, the profits the government makes on its portfolio of students loans could work to offset the costs of making public higher education tuition-free. But even if we eliminated student debt at public institutions prospectively, the 40 million Americans who currently owe student debt deserve the protection of strong
servicing regulations. And while we commend the Bureau, the Department of Education and the U.S. Treasury for beginning the conversation, this RFI must be quickly followed by proposed rulemakings to bring student loan servicing out of chaos.
We have several general recommendations for how to improve student loan servicing, which we present in Section II. Section III provides more granular answers to specific questions from the RFI. Because this RFI is part of a “joint effort with the U.S. Department of Education and the U.S. Department of the Treasury to identify initiatives to strengthen student loan servicing,”
1 The Other 98% (http://other98.com) is both a non-profit organization and a grassroots network of activists that focuses on economic injustice, undue corporate influence, and making America work not just for the elite, but also 2 Strike Debt, How Far to Free?, Oct 17, 2014, available at http://strikedebt.org/how-far-to-free
there are comments in this letter that are directed to the Department of Education (the “Department”), and to the U.S. Treasury in addition to suggestions made of the CFPB.
II. General Recommendations
a. Student Loan Servicing should be a Government Function
Student loans servicing today is incredibly complicated: there are multiple repayment options that servicers do not effectively communicate to borrowers, from Income-Based repayment to Pay As You Earn. One clear example of just how complicated it is for borrowers to navigate their options was the overwhelming response to the three-day-long “Borrowers Hotline”3
organized by labor and student advocacy groups. The hotline took well over 300 calls4 by student debtors confused about their options. The need for a hotline such as this one simply underscores the vast shortcomings in the information that servicers are providing to borrowers.
Servicing complexity is furthered by ongoing failures of communication on behalf of the Department of Education. The Department has failed to meaningfully notify borrowers of their options to seek debt cancellation. One example is the Public Service Loan Forgiveness program. The Department and student loan servicers lack of communication to borrowers about this program led to the non-profit Jobs with Justice to create an entire website, “Forgive My Student Debt,”5
aimed at educating the general public about this program.
The burden of navigating a complicated repayment process and figuring out which program is best falls heavily on borrowers, and the advocacy groups seeking to assist them. It shouldn’t be the job of non-profits to create stopgaps for the failings of student loan servicers. Unfortunately, news reports have shown that rather than aiding them in their attempt to navigate this
complicated system, servicers actively obstruct it. Servicers were found to have deliberately maximized late fees6
and over-charged borrowers7
who were in income-based repayment plans. Sallie Mae was reported to have hounded family members for huge sums of money following the death of a loan’s co-signer8
. And Navient was sued9
by the Department of Justice for systematically overcharged members of the military.
The terrible servicing many borrowers receive is a by-product of the lack of regulations in the space, and underscores the need for the Bureau to write strong student loan servicing rules. But
3 http://theborrowers.org
4 Sarah Ann Lewis (@SmashEsquire). “We've been able to help 300+ folks with their #StudentDebt here at
#TheBorrowers Couple more hours left to call in! 1-855-462-6335.” May 21, 2015, 1:55 p.m. Tweet, available at
https://twitter.com/SmashEsquire/status/601446217793474561
5 http://forgivemystudentdebt.org
6 Eric Reed, Student Loan Servicers Deceived Borrowers and Manipulated Payments to Maximize Late Fees, Main Street, Oct 31, 2014, available at https://www.mainstreet.com/article/student-loan-servicers-deceived-borrowers-and-manipulated-payments-to-maximize-late-fees
7 David K. Randall, Federal Program Overcharging Some Repaying Student Loans, Forbes, Mar 22, 2010, available
at http://www.forbes.com/2010/03/22/income-based-repayment-overpay-personal-finance-student-loan-income.html
8 Shahien Nasiripour, Sallie Mae Torments Faithful Student Borrowers After Co-Signers Die, Huffington Post, May 21, 2014, available at http://www.huffingtonpost.com/2014/05/21/sallie-mae-death-default_n_5360905.html
9 UNITED STATES OF AMERICA v. SALLIE MAE, INC., available at
poor servicing is also a by-product of the perverse profit motive servicers have to keep racking up fees, and cut corners when borrowers fall into delinquency—the very moment when
borrowers need help and guidance the most.
This same perverse incentive exists in the mortgage servicing space, and was highlighted by the former Associate Director for Research, Markets, and Regulation at the Bureau, Raj Date, during his testimony before the House Financial Services Committee in 2011:
“[T]he current structure of servicing fees creates a strong incentive to underinvest in adequate technology, people, and processes to handle cyclical spikes in
delinquencies…when it became clear that servicers had taken on riskier than expected portfolios, they did not simply internalize the higher costs of servicing in an adverse credit environment. Instead, many servicers, when faced with an upswing in mortgage delinquencies, cut corners, often loosening operational protocols and putting inadequate resources into dealing with troubled homeowners.”10
While regulations can work to minimize the perverse incentives that exist in the servicing space, the boldest and most straightforward response to address it would simply be to end private servicing of student loans. The government does not outsource the collection of taxes. And since 2010, the government guarantees all student loans. Why is it allowing private companies to profit off of loans that the government ultimately guarantees—especially when the industry has
demonstrated over and over its poor ability in performing this basic function? The Department should meaningfully consider ending the practice of hiring private companies as contractors to service student loans, and instead, consider turning student loan servicing into a government function. The Obama Administration has already explored bringing debt collection in-house, and the Education Department noted that they could do the same for student loan servicing, as “the Secretary could determine that it wasn't practicable for the department to use servicers to collect loans and do that directly using federal employees”11.
There are downsides for borrowers to government loan servicing—the debt collection power of the federal government is stronger than that of private companies, which may make it even more difficult for distressed borrowers to miss payments when they are facing economic emergencies. But in many ways, the powers of the government are already deployed to collect on student debt—both private and federal student debt remains largely un-dischargable through the bankruptcy process; wages, social security, disability and tax payments can be garnished if borrowers are in default; and the Obama administration has allowed debt collectors to call cell phones to collet on debt12
. Thus, it is worth exploring if loan servicing could be improved by
10 Raj Date, Testimony Before the Subcommittee on Financial Institutions and Consumer Credit and the Subcommittee on Oversight and Investigations Committee on Financial Services United States House of Representatives Thursday, July 7, 2011, available at
http://financialservices.house.gov/uploadedfiles/070711date.pdf
11 Ryan Grim and Shahien Nasiripour, Obama Administration Explores Ways To Collect Student Loan Payments
Without Middlemen, Huffington Post, Nov 13, 2014, available at
http://www.huffingtonpost.com/2014/11/13/student-loan-debt-collectors-pilot_n_6148330.html
12 Ben Popken, Obama's Debt Reduction Plan Includes Letting Debt Collectors Robo-Call Cellphones To Collect
On Federal Student Loans, The Consumerist, Oct 4, 2011, available at
ending the outsourcing of it to private companies that have shown little aptitude for helping borrowers navigating an increasingly complex student debt space.
b. The CFPB should consider writing rules that allow borrowers to choose a new servicer
As Raj Date, the former Associate Director for Research, Markets, and Regulation Consumer Financial Protection Bureau, noted in testimony before the House Financial Services Committee, the mortgage servicing market is “especially prone to the risk of consumer harm” because
borrowers do not typically choose their servicer:
“[I]n the vast majority of cases, consumers do not choose their mortgage servicers. Mortgage servicing rights can be, and quite frequently are, bought and sold among servicers irrespective of the borrowers’ consent. There are certainly legitimate and desirable aspects to the liquidity of mortgage servicing rights, but it has a practical disadvantage as well. Let me illustrate with an example. Last week, I had a prescription filled. If my pharmacist had made me stand in a long line, or if she was rude to me, or if she repeatedly lost my prescription paperwork, or if she was impossible to find on the phone, or if she gave me guidance that conflicted with my doctor’s, or if she tried to give me the wrong medicine, then next time, I would simply go to a different pharmacist. That’s how most consumer-facing markets work. But I get to choose my pharmacist. I don’t typically get to choose my mortgage servicer.”13
The same risks Date identified for the mortgage servicing also applies to student loan servicing. Apart from when you consolidate certain loans, borrowers are otherwise unable to choose their loan servicer. This problem has been underscored by recent data14
released by the Department of Justice that shows that service members were systematically overcharged by the loan servicer Navient, in violation of the Service members Civil Relief Act (SCRA). The Justice Department found that Navient overcharged approximately 19,000 service members. But in their own probe of Navient, the Department of Education did not review call records (as the Justice Department did), and news reports15
have indicated that the Education Department’s review was incomplete. The Department of Education cleared Navient of wrongdoing and retained its loan servicing contract with the company. Service members who were previously wronged, or service members wary of being wronged in the future, are without recourse should their loans be serviced by Navient—they are unable to request a new servicer.
Holly Petraeus, the Assistant Director for Service Member Affairs at the Consumer Financial Protection Bureau, had a particularly stark assessment of loan servicers as it relates to their treatment of the military:
13 Raj Date, supra.
14 U.S. Department of Justice, Nearly 78,000 Service Members to Begin Receiving $60 Million Under Department of
Justice Settlement with Navient for Overcharging on Student Loans, May 28, 2015, available at
http://www.justice.gov/opa/pr/nearly-78000-service-members-begin-receiving-60-million-under-department-justice-settlement
15 Shahien Nasiripour, Education Department Vastly Undercounted Troops Overcharged By Student Loan Giant,
New Data Show, Huffington Post, Jun 24, 2015, available at
“If [service members are] relying on their loan servicer to tell them about their benefits, unfortunately that has not proven to be either an accurate or fully informational source.”16
The CFPB must create strong new rules that ensure that service members are affirmatively
notified of their benefits under the SCRA, and the Department should create efforts to ensure that servicers are properly trained in those benefits, and punish contractors who act in violation of them—not give them a pass, as the Department recently did with Navient.
In addition to being able to choose a new servicer, borrowers should have the right to opt-out of servicing transfers. When a servicing transfer is about to occur, borrowers should be notified of the upcoming change, and be given the option of staying with their current servicer.
III. Answers to Specific Questions
Question 1: Please describe the extent to which issues related to the following common student loan servicing policies and procedures should inform policymakers and market participants considering options to improve the quality of student loan servicing, including but not limited to: d. The complaint resolution process (including the consumers' ability to adequately request and receive accurate and timely responses for information and corrections related to their account);
While the Department has been directed by the White House to create a system for tracking consumer complaints17
about student loan servicing, an effective, proven system for such
complaint-tracking already exists at the Bureau. It is a waste of resources and taxpayer dollars to re-invent the wheel. The CFPB’s consumer complaint system should simply be expanded to also allow borrowers to submit complaints regarding federal student loans—and establish any needed Memorandums of Understanding with the Department of Education in order to share the
information received through the complaint database.
Question 2: Please describe the extent to which issues related to the following common student loan servicing policies and procedures should inform policymakers and market participants considering options to improve the quality of student loan servicing for borrowers in distress, including but not limited to:
f. The adequacy and clarity of communication regarding certain borrower rights to discharge debt (e.g., in cases of school misconduct, borrower disability).
The Bureau, the Department and the Treasury must all closely consider the inadequate history of communication regarding borrower rights to discharge in the case of school misconduct.
Although Department of Education regulations have existed for decades that allow borrowers to
16 Shahien Nasiripour, Troops Can't Trust Student Loan Servicers, Top Regulator Says, Huffington Post, Jul 8, 2015,
available at http://www.huffingtonpost.com/2015/07/08/cfpb-troops-student-loan-servicers_n_7757582.html
17 Secretary Arne Duncan, The Student Aid Bill of Rights: Enhancing Protections for Student Loan Borrowers, White House Blog, Mar 10, 2015, available at https://www.whitehouse.gov/blog/2015/03/10/student-aid-bill-rights-enhancing-protections-student-loan-borrowers
assert a defense to repayment (on both Direct Loans18
and FFELP loans19
), until recently there has been virtually no communication to borrowers about the availability of these avenues to pursue discharges. What’s worse, when legal advocates have submitted defense to repayment applications on behalf of clients in the past, both servicers and the Department itself improperly denied borrowers. The National Consumer Law Center reported in a May 5th letter20 to Education Secretary Arne Duncan that both Navient and the Department of Education itself had improperly denied a client of the New York Legal Assistance Group (NYLAG)’s application for defense to repayment—actions that led the Department of Education to apologize21
for “incorrect” statements.
Despite years of inadequate, unclear information, the Department has finally begun to acknowledge that it does indeed have regulations that allow borrowers to assert defenses to repayment. In a Notice published on June 10th
to the Federal Register22
, the Department noted that it has requested—and received—emergency approval from the Office of Management and Budget to change the language on the Federal Student Aid website “to facilitate the collection of information for borrowers who believe they have cause to invoke the borrower defenses against repayment of a loan as noted in regulation.”23
To justify the emergency review, the Department said:
“Prior to 2015, the borrower defense identified above was rarely asserted by any borrowers and no specific methods of collecting information was defined or found necessary. In the 20 years prior, the Department received 5 claims for borrower defense. Over the last several months, the Department has received over 1000 such claims due to
a building debt activism movement as well as the notoriety of Corinthian's collapse,
creating a need for a clearer process for potential claimants. This exponential increase in demand was unexpected and outside of the Department's control.”24
The debt activism movement the Department cites is that of the Debt Collective, a group of volunteer organizers25
. The Debt Collective created a web app26
that allowed Corinthian borrowers to provide basic information about the school they attended, describe
misrepresentations the school made to them, and assert a defense to repayment against their
18 34 CFR § 685.206(c).
19 Starting on Jan. 1, 1994, the FFEL master promissory note (MPN) included language making loan holders subject to borrower defenses to repayment. These provisions were codified in the federal regulations in 2007, at 34 C.F.R. § 682.209(g) (published in 72 Fed. Reg. 32,410 (June 2, 2007)); See also 60 Fed. Reg. 37,768, 37,769 (July 21, 1995) (quoting 59 Fed. Reg. 42,646, 42,649 (Aug. 18, 1994)) (discussing FFELP loans).
20 Letter from National Consumer Law Center to Secretary Arne Duncan, May 5, 2015, available at http://www.studentloanborrowerassistance.org/wp-content/uploads/2013/05/letter-duncan_052015.pdf
21 Shahien Nasiripour, Obama Administration Improperly Denies Student Loan Debt Relief, Huffington Post, May 8, 2015, available at
http://www.huffingtonpost.com/2015/05/08/federal-student-loans-defense-against-repayment_n_7242136.html
22 Comment Request; Borrower Defenses against Loan Repayment, 80 Fed. Reg. 111, Jun 10, 2015. 23 Id.
24 Id. (emphasis added).
25 The Other 98%’s Communications Director Alexis Goldstein is among the volunteers who’ve done work with the Debt Collective. However, nothing in this letter represents the views of the Debt Collective; they are solely the opinions of The Other 98%.
26 Karissa Mckelvey, Volunteer Coders Force The Dept Of Education To Actually Help Debtors, Civicist, Jul 6, 2015, Available at http://civichall.org/civicist/what-the-dept-of-education-should-have-done-years-ago/
loans. Only after the Debt Collective submitted over 1,400 defense to repayment applications submitted through this web app did the Department move to meaningfully acknowledge these regulations that have existed by law for decades.
It should not have taken the work of unpaid activists, organizers and harmed students to compel the Department to acknowledge and act on decades-old regulations. The Department’s denial of the defense to repayment applications previously submitted by NYLAG leads one to question the accuracy of their assertion that they’d only received five borrower defense to repayment claims prior to the Debt Collective’s organizing. In addition, the fact that it took such intense activism by organizers and students to force the Department into action begs the question of where the authority over student consumer protection should lie. While it is likely outside the scope of this RFI, the Other 98% would nonetheless like to ask the question: perhaps the consumer protection responsibilities that are currently housed at the Department of Education should be shifted to the Consumer Financial Protection Bureau?
The Department of Education Must Immediately Train Servicers on Available Debt Discharge Options
The National Consumer Law Center reported in the above-mentioned May 5th
letter that servicers were advising borrowers to “contact the National Consumer Law Center with questions about possible closed school discharges or other relief.”27
It is clear that the Department is not
instructing loan servicers on how to help students navigate the debt discharge process, and as a result, servicers are directing students to already over-burdened non-profit advocacy groups. The Department should consider bringing loan servicing in-house for all students at for-profit schools that have begun to assert their right to a defense to repayment of loans; this would save the Department the time of needing to train all of the separate loan servicers in the intricacies of debt discharges. An even better solution would be for the Department to use its compromise and settlement authority28
to proactively discharge the debt of all former students of Corinthian Colleges, Inc, thus avoiding the need altogether of training servicers to help students navigate the defense to repayment process.
As it stands today, servicers are disseminating misinformation regarding borrowers rights to debt discharges. The Other 98%’s Communications Director Alexis Goldstein spoke with a former Corinthian student who was told by a Great Lakes representative that she had to be in class the day Corinthian shut down in order to be eligible for a closed school discharge. Another former Corinthian student received an email from Nelent that said “during your forbearance, interest will not accrue on your current principal balance,” which is in direct contraction to the information posted on the Federal Student Aid website, which states that interest will accrue29 while a borrowers’ defense to repayment application is being adjudicated. The Department must act immediately to ensure that servicers are giving accurate information to borrowers searching
27 Letter from National Consumer Law Center to Secretary Arne Duncan, May 5, 2015, available at http://www.studentloanborrowerassistance.org/wp-content/uploads/2013/05/letter-duncan_052015.pdf 28 20 USC § 1082(a) (6) (HEA) and 34 CFR § 30.70(h) OR 31 USC § 3711(a)(2) (Federal Claims Collection Act); For a further elaboration of the authority, see Id. Attachment A.
29 Federal Student Aid, About Forbearance and Stopped Collections, accessed Jul 13, 2015, available at https://studentaid.ed.gov/sa/about/announcements/corinthian#forbearance-stopped-collections
for answers on debt discharge options.
The Department and the Bureau Must Affirmatively Notify Eligible Students of Avenues to Debt Discharge
It is unclear if the Department of Education has directed servicers to notify students of their options regarding debt discharges, or if the Department has notified students itself. The CFPB, on the other hand, sent an email30
to its military list that outlined students’ options to pursue debt cancellation. The Department must do the same—it has the capacity to reach, through its own contact lists and through the servicers it oversees, each of the estimated 500,000 former students of Corinthian Colleges, Inc., students who can and should assert their right to a defense to repayment of debt, given the schools’ demonstrated history of fraud, misrepresentations and abuse. The fact that only 6,000 Corinthian borrowers have requested debt discharges31
—at least 1,400 of them coming from the Debt Collective’s defense to repayment submission, and
presumably the other 4,600 came from requests for closed school discharges32
(a mere fraction of the at least 16,000 students eligible33
) is undoubtedly a by-product of a poor outreach strategy by the Department of Education. Since the Department has not yet chosen to take responsibility for its lax oversight of Corinthian prior to its collapse, it must at a bare minimum contact all
Corinthian borrowers and inform them, as the CFPB has done through email communications, of their rights to pursue debt discharges.
In the past, the Department has vociferously opposed34
legal aid groups’ requests that it notify harmed borrowers of their right to pursue discharges. It must not repeat this mistake again. For its part, the CFPB should continue its outreach to affected borrowers, and make the excellent information sent via email to its military list and also make it available on its main website and blog.
The Department and the Treasury Must Act to Freeze Garnishments While Defense to Repayment Claims are Evaluated
The Department has given former Corinthian students the option of having their loans placed into administrative forbearance or stopped collections if they intend to file a defense to repayment claim. This isn’t enough; the Department should also direct servicers to freeze all interest payments when a borrower asserts their right to defense to repayment.
30 CFPB email, Advisory: The Department of Education is offering debt relief to students, Jun 30, 2015, 10:26 a.m. 31 Stephanie Gleason, Education Dpt. to Delay Some Corinthian Student-Loan Collection, Wall Street Journal, Jul 13, 2015, available at http://www.wsj.com/articles/education-dpt-to-temporarily-stop-collections-on-defaulted-corinthian-student-loans-1436561194
32 Allie Bidwell (@alliebidwell). “As of June 23, @EDUnderSec gives new #Corinthian #'s: 4500 closed school discharge requests, 1400 defense claims b4 6/8 announcement (1/2),” Jun 25, 2015, 3:14 p.m. Tweet, available at https://twitter.com/alliebidwell/status/614149684953776129
33 Michael Stratford, Corinthian Closes for Good, Inside Higher Ed, Apr 27, 2015, available at
https://www.insidehighered.com/news/2015/04/27/corinthian-ends-operations-remaining-campuses-affecting-16000-students
34 Eileen Connor, Student Loan Victims Pay the Price of ED Inaction, Huffington Post, Apr 2, 2015, available at http://www.huffingtonpost.com/eileen-connor/student-loan-victims-pay-_b_6987224.html
The Treasury should similarly act to freeze any of tax refund, social security or disability
seizures for any Corinthian borrower who asserts, or has said that they intend to assert, a defense to repayment.
Further, since the Department has stated it plans to pursue group discharges for Corinthian students “wherever possible,”35 the Department and the Treasury should freeze collections and garnishment and suspending interest accumulation for all former Corinthian students.
The Treasury Must Ensure There is No Tax Burden to Borrowers who Receive Debt Cancellation
Any student that receives debt cancellation, be it through a closed school discharge, a successful assertion of defense to repayment, or through another means of debt discharge, must not be subject to taxation on this cancellation of debt income. The Treasury must work to clarify this is not the case. Students of schools that have violated state and federal laws have already lost their time invested in worthless degrees; they must not be punished again with a tax burden once they are finally rid of debt from a fraudulent school.
IV. CONCLUSION
The student loan servicing landscape looks similar to what mortgage servicing looked like ten years ago—confusion and misinformation abounds, and there are no clear rules to ensure protections for consumers. In the subprime crisis, borrowers became little more than collateral consequences when the crisis hit. The Bureau, the Department and the Treasury jointly have a key opportunity to avoid the mistakes of the subprime crisis, and ensure that borrowers are not sacrificed to the profit margins of student loan servicers. We sincerely hope that they use it. Thank you. Sincerely, /s/ The Other 98%
35 U.S. Department of Education, Fact Sheet: Protecting Students from Abusive Career Colleges, Jun 8, 2015,
