Thursday, August 11 2022

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The Consumer Financial Protection Bureau on Friday pledged a crackdown on student loan administrators who violate the rules for forgiving government employee loans.

The government agency said it “plans to prioritize oversight of student loans in the coming year,” with a “specific focus” on monitoring how service providers work with federal borrowers on government loan forgiveness, according to a Compliance Bulletin.

This forgiveness program, created in 2007, allows nonprofit and government employees to forgive their remaining government student loans after 120 payments (or 10 years).

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Problems have plagued the program, and few borrowers have received the promised relief, often for confusing or technical reasons.

The CFPB, formed after the 2008 financial crisis, found that some loan servicers — who manage student loan accounts — had misled borrowers about their ability to qualify for government loan forgiveness, according to the memo released Friday.

The Biden administration loosened the program’s rules in October and offered a waiver that essentially gave borrowers who were excluded from forgiveness a second chance. The US Department of Education estimates the move could affect 550,000 borrowers.

But there are certain steps many must take before Oct. 31 to qualify, and the CFPB is concerned that service providers may not be providing accurate and complete information to borrowers.

(For example, to receive benefits, some borrowers must apply to consolidate their federal loans into a specific type of loan, called a direct loan, and submit a forgiveness form by Oct. 31.)

“Illegal behavior by a student loan administrator can be ruinous for borrowers who miss the opportunity for debt relief,” CFPB Director Rohit Chopra said in Friday’s announcement. “We will work closely with the US Department of Education to ensure that public service loan cancellation promises are honored.”

Rohit Chopra, director of the Consumer Financial Protection Bureau, at a House Financial Services Committee hearing on October 27, 2021.

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Chopra, who was appointed by President Joe Biden, oversaw student loans at the office during the Obama administration.

The Dodd-Frank Act, signed in July 2010, established the CFPB to protect consumers from unfair, abusive and deceptive financial practices in response to the risky lending that plunged the US into a deep recession.

The office oversees banking, mortgages, student loans, collections, credit cards, credit reports, and payday loans, among other things. This broad consumer oversight had not previously been the primary focus of any federal agency.

The regulator will focus its review of federal loan officers on a few areas, according to its compliance bulletin: whether firms are providing full and accurate information about the waiver, whether they have adequate mechanisms in place to determine when borrowers are interested in the program, or whether borrowers are eligible refer to the appropriate resources and whether companies are advertising the benefits of the waiver to such borrowers.

The crackdown on compliance comes as the White House weighs actions it may be able to take to forgive federal student-loan debt. The Department of Education said Thursday it had forgiven a total of $415 million in debt to nearly 16,000 borrowers who attended nonprofit schools.

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