Student Lending Remains a Hot Issue for 2015

Last week, President Obama signed a Presidential Memorandum introducing his Student Aid Bill of Rights.  According to White House press release, the Memorandum directs the Department of Education and other federal agencies, presumably the CFPB, to work together to improve student loan affordability.  The President’s initiative directs, among other things, the Department of Education to establish a complaint portal by July 1, 2016 and requiring enhanced disclosures and “stronger consumer protections throughout the repayment process.” The President’s announcement comes on the heels of the CFPB’s Winter 2015 Supervisory Highlights which identified in its examinations of debt collectors issues with the collection of Department of Education student loans – specifically, that collection agents overstated the benefits of federal student loan rehabilitation.  See CFPB: Supervisory Highlights (February 2015), pp. 6-7.   Along the same front, it was widely reported a few weeks ago that the Department of Education had terminated its contracts with five debt collection agencies after its review and audit discovered similar transgressions to the ones reported by the CFPB.  Three of those collection agencies have filed complaints with the United States Court of Federal Claims which, while filed under seal, appear to dispute the Department of Education’s termination of their contracts.

So what does this all mean?  Student Loan reform is likely to remain a hot issue in 2015.  Specifically, we can anticipate:

• A push for additional legislative reform:
  • In its October 2014 Report of the CFPB Student Loan Ombudsman, the CFPB made the following recommendations:
    • Modify the Bankruptcy Code to eliminate or further limit the nondischargeability provisions that currently apply to student loans;
    • Policymakers should consider adding requirements to servicers in the student loan market, similar to those proposed for the servicing of credit cards and mortgages; and
  • President Obama has similarly called for requiring enhanced disclosures in his Student Aid Bill of Rights
• An increase in enforcement actions concerning student lending:
  • With President Obama’s directive that the Department of Education create its own portal for complaints by July 1, 2016, consumers will now have opportunities to file complaints with both the CFPB and the Department of Education; and
• Additional burdens and requirements placed on debt collection agencies collecting on student loans which are likely to be more restrictive than those required by the FDCPA. This will likely increase the cost of collection and drive some agencies from the market; and
• Continued cooperative efforts between the CFPB and the Department of Education.