The CFPB Annual Report on Student Loans, Consumer Complaints and Debt Relief Scams – What You Need To Know

• The Consumer Financial Protection Bureau (CFPB) just released its annual report of the Private Education Loan Ombudsman, detailing statistics of complaints relating to student loans over the past two years (through August 2019)
  

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• The report bases its findings on data from the CFPB’s Consumer Complaint Database. The database, typically updated daily, holds information on complaints about consumer financial products and services that were submitted to the CFPB and forwarded to the relevant companies to get their response.
  

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• The CFPB cautions borrowers about student loan debt relief scams, offers a list of red flags, and suggestions on how to avoid getting scammed and what to do if you think you’re already a victim of such a scam.
  

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• Worried you have been victim of a scam or know someone at risk?  Jump directly to this section of the article and learn the action you can take now.

A young woman takes out $67,000 in student loans. Then, health issues force her to drop out of school. Debt collectors call, threatening to take away her dad’s pension (he had cosigned her loans). Finally, her 84-year-old grandfather gives every penny he has to get her loans current, but her balance is still thousands more than she borrowed. She’s now paying 20% of her $32,000 annual salary for loans taken out to pay for an education she never got.

A young man borrows $140,000 to pay for school in California. After graduating, he pays $700 a month until he’s laid off. He recounts how collectors start calling five times a day, sometimes as early as 5 AM. Explaining he can’t pay makes no impression. When he complains to state regulators, the collections called stop, but Sallie Mae and Navient Credit Finance sue him for immediate repayment of $73,000 in student loan balances. His lawyer is trying to negotiate a settlement.

These and other stories show how student loans, intended to let young people of limited means get a college degree with its promise of higher lifetime earnings, instead devastate countless students’ lives. These debts force them to put off marriage, kids, home-buying, or even enjoying something as simple as going out with friends.

Student Loan Debt Is Second in Size only to Mortgages

The 40-year stagnation of wages for most Americans caused consumer debt as a whole to balloon to $13.86 trillion, according to 2019-Q2 data from the New York Federal Reserve Bank. Mortgage plus home equity debt, at $9.81 trillion, accounts for 71% of consumer debt. However, student loan debt is second highest at .48 trillion or 11%, ahead of auto loan debt ($1.3 trillion, 9%), and credit card debt ($0.87 trillion, 6%).

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CFPB’s Annual Report Now Available

The CFPB just released its annual report of the Private Education Loan Ombudsman, detailing statistics of complaints relating to student loans over the past two years (no report was published in 2018).

What Is the CFPB?

With consumer spending accounting for over 2/3 of the US economy, anything that threatens our ability to buy goods and services can cause a recession. In 2007, the Great Recession resulted from a variety of abuses and irresponsible corporate behaviors, including lenders taking advantage of lax oversight, making misleading promises of low payments and selling so-called “liar loan” mortgages to borrowers who couldn’t afford to repay them. By the time everything unwound, home values plummeted, the stock market tanked, unemployment shot up, and millions of families lost their homes.

As part of the recovery process, President Obama proposed in 2009 a new agency to protect consumers, consolidating government oversight and responsibility for consumer protections that was up to that time scattered among many government agencies. In 2010, Congress passed, and President Obama signed into law, the Dodd-Frank Act (also known as the “Consumer Financial Protection Act of 2010”). Title X of the Act established the Consumer Financial Protection Bureau (CFPB), tasking it with protecting American consumers from unfair, deceptive, and abusive financial practices.

Source of Data Used in the Report

The report bases its findings on data from the CFPB’s Consumer Complaint Database. The database, typically updated daily, holds information on complaints about consumer financial products and services that were submitted to the CFPB and forwarded to the relevant companies to get their response. Complaints are only published once the company responds confirming that it had a commercial relationship with the consumer, or after 15 days, whichever happens earlier. The database very likely isn’t comprehensive, since not all consumers submit complaints even if they experience complaint-worthy treatment by a financial firm. The CFPB also states that it doesn’t verify all allegations made by consumers in their complaint narratives. Some complaints are referred to other regulators (e.g., if relating to depository institutions such as banks with less than $10 billion in assets). Such referred complaints are excluded from the CFPB’s database.

The database allows site visitors to view complaint data in their browser, download the data and API and analyze on their own, and/or read complaint reports.

Main Report Highlights

The report covers the two-year period ending August 31, 2019 (no report was released in 2018). The report details the number of complaints, broken down by type of loan or action the complaints refer to; the geographic breakdown of complaints; highest number of complaints by loan servicer; enforcement action results; and recommendations to policy makers.

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Breakdown of Complaints by Type

During the two-year period, the CFPB handled about 20,600 complaints relating to student loans including about 6700 private loans, 13,900 federal loans, and 4600 debt-collection complaints relating to student loans.

Period	Number of Private Student Loan Complaints	Approximate Percentage Change vs. Prior Year	Number of Federal Student Loan Complaints	Approximate Percentage Change vs. Prior Year
Aug 2017 – Aug 2018	3800	-50%	7200	-44%
Aug 2018 – Aug 2019	2900	-25%	6600	-8%

 

Servicers with the Highest Number of Complaints

As seen in the two figures from the CFPB report, Navient, with 1319 complaints (52%), has the most complaints by far in the private student loan arena, and “leads” the pack in complaints related to federal student loans with 2050 complaints (39%). American Education Services/ Pennsylvania Higher Education Assistance Agency (AES/PHEAA) is in second place for most complaints relating to both private and federal loans, at 180 (7%) and 1658 (32%), respectively.

One should consider that servicers with more loans in general could expect to see more complaints than ones with fewer loans. However, the report provides data normalized to the number of loans, which show that the rate of complaints per 10,000 borrowers are still highest for Navient (3.2) and AES/PHAA (2.1). However, note that even the highest rate, at 3.2 per 10,000, is a small fraction of a percent.

Geographic Breakdown of Complaints

The report includes a breakdown of complaints by state and the District of Columbia. The table below identifies the top and bottom states by number of complaints related to private student loans, federal student loans, and both types combined.

However, the raw number of complaints isn’t very useful by itself, since you can expect the number of complaints from a state like New York or California, with large populations, to be significantly higher than the number of complaints from say Washington DC. To address this, the bottom of the table identifies the top and bottom states by complaint rates, relative to the national average. The complaint rates are calculated by normalizing the raw number of complaints by the number of students from each state. For this normalization, we use the most recent data on total fall enrollment in degree-granting post-secondary institutions from the National Center for Educational Statistics.

Top 5 and Bottom 5 States by Number and Normalized Rate of Student Loan Complaints (September 1, 2018 to August 31, 2019) 

	Private Student Loans	Federal Student Loans	All Student Loans
Top 5 Complaint States	CA (236) NY (222) FL (197) TX (149) PA (138)	CA (660) TX (393) FL (380) NY (361) PA (269)	CA (896) NY (583) FL (577) TX (542) PA (407)
Bottom 5 Complaint States*	WY (4) HI/ND (5) AK/MT (6)	AK/WY (8) ND/SD (9) VT (12)	WY (12) AK/ND (14) SD (17) HI/VT (19)
Top 5 Complaint Rate States**	CT (222%) NJ (182%) AK (181%) PA (156%) FL (149%)	DC (216%) GA (156%) NV (156%) MD (148%) WA (144%)	DC (179%) CT (158%) GA (148%) NV (148%) MD (145%)
Bottom 5 Complaint Rate States**	UT (29%) WV (40%) IA (40%) KS (42%) NE (48%)	UT (29%) IA (41%) NE (51%) ND (58%) SD (58%)	UT (29%) IA (41%) NE (50%) WV (58%) KS (59%)

*   Due to tie for fifth-lowest number of complaints, six states are shown for “All Student Loans.”

**  Normalized by 2017 total fall enrollment in degree-granting post-secondary institutions, by state or jurisdiction per https://nces.ed.gov/programs/digest/d18/tables/dt18_304.10.asp, where 100% is the nationwide average.

While the highest total number of complaints is from California, New York, Florida, Texas, and Pennsylvania, after adjusting for number of enrolled students, none of these states is in the top 5 states by complaint rates. Similarly, while the lowest numbers of complaints from any state are from Wyoming, Alaska, North and South Dakota, Hawaii, and Vermont (the last two are tied, which is why we list six states in this category), none of the six makes it into the 5 states with lowest complaint rates.

In the normalized data, the highest states or districts in total complaints are Washington DC (179% of the national average rate), Connecticut (158%), Georgia (148%), Nevada (148%), and Maryland (145%). The lowest are Utah (29%), Iowa (41%), Nebraska (50%), West Virginia (58%), and Kansas (59%).

Note that the number of complaints from states in the lowest-5 list is so small, that the difference between them and the next few higher states by number of complaints is not statistically significant.

Thus, for example, Nebraska, South Dakota, Vermont, and West Virginia, could have been in the group with the lowest number of private student loan complaints, but for a statistical fluke. Indeed, two of these states made it into the list of lowest complaint rates in that category. Similarly, Hawaii and Montana had numbers of federal loan complaints that were not higher by statistically significant margins relative to Vermont; and Montana’s total number of complaints was not higher by a statistically significant number compared to Hawaii and Vermont.

The same limitation applies to the complaint rate data, where several states ended up close enough to the cutoff that the five lowest-rate states could have been a different group but for statistical fluctuations. The states close enough that they might have made it into the lowest-rate groups are:

• Private loan complaint rates: Hawaii, Idaho, Louisiana, North Dakota, Oklahoma, and Wyoming
• Federal loan complaint rates: Hawaii, Idaho, Kansas, New Mexico, and West Virginia
• Total loan complaint rates: Hawaii, Idaho, New Mexico, North Dakota, and South Dakota

On the higher end, the complaint rates could also suffer statistical fluctuations such that the following states might have escaped the top-five groupings:

• Private loan complaint rates: Alaska, Pennsylvania, and Florida
• Federal loan complaint rates: Maryland, Nevada, and Washington
• Total loan complaint rates: Georgia, Maryland, and Nevada

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Number of Complaints Trend over Four Years

The number of complaints per year, as mentioned above, changes from year to year. The following table shows that trend, with a large increase from 2015/16 to 2016/17, followed by a continuous decreasing trend for each year thereafter.

Year	Private Student Loans	Federal Student Loans	All Student Loans
Sep 2015 – Aug 2016	4100	2500	6600
Sep 2016 – Aug 2017	6600	10,200	16,800
Sep 2017 – Aug 2018	3400	5900	9300
Sep 2018 – Aug 2019	2500	5200	7700

 

The report authors suggest that the number of complaints in the second year may be significantly higher due to a major enforcement action taken against a large student loan servicer in 2017. The report does not offer definitive information as to why the number of complaints in subsequent years is lower despite increases both in the number of borrowers and amounts borrowed, but speculated this may be due to better practices by servicers, improved consumer outreach regarding various requirements, insufficient outreach on where to file complaints, and/or unnamed other factors.

Student Loan Debt Relief Scams

The report authors caution borrowers about student loan debt relief scams, though they take care to point out that there are legitimate credit counselors and others who do perform valuable services.

Highlights Regarding Student Loan Debt Relief Scams

The main points made in the report include the following.

• Government agencies and loan servicers offer many free tools to help consumers navigate repayment of their debts
• Student loan debt relief companies do not have any special access or relationship with the government or loan servicers
• Unscrupulous student debt relief companies use aggressive marketing techniques, misrepresent their services, and charge thousands of dollars in upfront and monthly fees for things borrowers can do for themselves free of charge
• These scams include offering consolidation of federal loans into direct loans, and charging borrowers for these “services” even if the loans in question aren’t eligible for consolidation; and without disclosing to borrowers that consolidation may result in higher monthly payments, loss of grace periods, and/or loss of benefits available to the original loans
• Scammers may take over the consumer’s accounts with loan servicers, changing contact and login information, essentially preventing direct communication between the borrower and his or her loan officer, who is the one who could actually help the borrower
• In some cases, the scammers reduced the borrowers payments to $0, without telling them that this will result in interest continuing to accrue, gradually increasing the balance owed
• Borrowers aren’t the only ones being scammed, and government investigators have found cases where income and family size are mis-stated to get borrowers approved for income-driven repayment (IDR) plans.

Red Flags that a Student Loan Debt Relief Company May Be Trying to Scam You

Here are the main red flags that a student loan debt relief company may be a scam, though there may be others, and some of these may be legitimate in certain limited circumstances.

1. Aggressive high-pressure sales pitches
2. Warning you that the forgiveness plan will expire
3. They initiate contact that you did not solicit (except that sometimes a loan servicer may change or if you default you may get calls from collections agencies)
4. Promising fast loan forgiveness, and/or that they will definitely reduce or eliminate your student debt, and/or that they will immediately reduce your monthly payments, and/or that they will repair or improve your credit score
5. Saying or implying that they are involved in the approval process for forgiveness, modification, and/or consolidation of your loans
6. Charging large upfront and/or monthly fees; this is illegal and should be reported
7. Asking for your credentials such as your FSA ID (used to log into US Dept. of Education websites), and/or Social Security number, and/or your bank account information; do not share these
8. Asking for power of attorney and/or third-party authorizations
9. Telling you that your loan servicer will not help you, and/or that they will take over as your loan servicer, and/or telling you to not contact your loan servicer or lender
10. Pretending to be affiliated with the government, the Dept. of Education, or your loan servicer(s)
11. Telling you to send payments through them or another third party rather than directly to your loan servicer

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What to Do Before Signing on, and What to Do If You Think You’ve Been Scammed

Before signing on with any student loan debt relief company, check with your state’s attorney general and state consumer protection agency if they have received complaints about the company you’re considering working with. You can also find out if your state’s regulator requires the company to have a license to work in your state, and if it does, whether it has such a license. You should also check with the Federal Trade Commission (FTC) if the company is on their list of people and companies banned from providing debt relief services.

If you believe you’re the victim of one of these scams, do the following:

• File reports with:
  • The CFPB
  • The FTC
  • Federal Student Aid Feedback System
  • State law enforcement officials
• Ask your bank or credit card issuer to halt payments to the company you suspect of having scammed you
• For federal loans, change your FSA ID and don’t share the new ID with anyone
• Revoke any powers of attorney and/or third-party authorizations filed with your servicer and verify there haven’t been any unwanted actions on your loans

The Difference Between a Credit Counselor and a Debt Settlement Company

As stated in the report, credit counselors are usually non-profit organizations who advise you and provide free educational materials regarding your money and debts. They may set up agreed payment plans with your creditors who won’t pursue collection and/or charge late fees as long as you keep your commitments under the agreement. They won’t typically be able to reduce how much you owe (which means there won’t usually be tax implications), but they might be able to reduce your monthly payments.

Legitimate debt settlement companies are for-profit organizations who, for a fee (that must be collected only after they carry out their task) will offer to arrange settlements with your creditors and/or debt collectors. These companies will usually advise you to stop paying your creditors until they negotiate a settlement. This could hurt your credit score, may result in your being sued, and if any of the debt is forgiven there may be tax implications as this could be considered taxable income.

If a debt settlement company suggests that you save up to be able to provide a lump-sum payment against your debts:

• The savings must be administered by a third party rather than the debt settlement company
• The account must be under your control
• You must be allowed to withdraw any or all of the funds at any time with no penalty

The FTC has several rules about payments to debt settlement companies that must be met before they can charge you a fee:

1. They must have renegotiated, settled, reduced, or otherwise changed the terms of at least one of your debts
2. You have to agree to the plan negotiated by the debt settlement company with your creditor or debt collector
3. You must have made at least one payment to the creditor or debt collector under the new agreement negotiated by the debt settlement company

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The Bottom Line

The CFPB recently released their Private Education Loan Ombudsman Annual Report, covering the two-year period ending August 31, 2019. The report provides information on student loan debt complaints, including how many were received, how they break down by loan type, loan servicer, and geography. The report also shows the multi-year trend of the number of complaints by loan type.

The CFPB cautions borrowers about student loan debt relief scams, offers a list of red flags, and suggestions on how to avoid getting scammed and what to do if you think you’re already a victim of such a scam.

Disclaimer: This article is intended for informational purposes only, and should not be considered financial advice. You should consult a financial professional before making any major financial decisions.