The Consumer Financial Protection Bureau, the agency tasked with safeguarding consumers from “unfair, deceptive or abusive practices,” recently made a shocking discovery concerning the practices of student loan servicers retained by the federal government to oversee the repayment process for hundreds of thousands of borrowers.
Specifically the CFPB found that many of these private companies are regularly — and illegally — denying student loan borrowers the ability to make lower monthly payments.
In general, the law provides that qualifying individuals with federal student loan debt have the right to enroll in what are known as income-driven repayment programs, which are designed to limit a borrower’s monthly payment to a percentage of their income.
Furthermore, the law provides that those borrowers who make a minimum of 20 years of regular payments under their income-driven repayment plans are eligible for debt forgiveness.
The CFPB indicates that the illegal practice of denying otherwise eligible applicants the right to participate in these income-driven repayment programs actually increases the likelihood of delinquency or even default, as they are stretched beyond their means.
In order to rectify this situation, the CFPB called upon offending student loan servicers to do the following:
- Take steps to enroll applicants wrongly denied admission into income-driven repayment programs
- Strengthen existing policies for assisting borrowers who submit incomplete applications for income-driven repayment programs
- Enhance efforts to notify program participants of the annual need to re-certify their status in order to maintain eligibility
- Establish monitoring programs to supervise income-driven repayment programs, and ensure that applications are being properly screened
Here’s hoping these measures prove effective and that we see the necessary reform within the student loan sector.
Individuals facing serious financial troubles– including student loan debt — should consider speaking with a skilled legal professional who can examine their situation, answer their questions and outline all of their options from bankruptcy to its alternatives.