The Consumer Financial Protection Bureau (CFPB) recently published a report highlighting the difficulties military personnel encounter when dealing with servicers of student loans. Driven by the receipt of over 1,300 complaints from servicemembers regarding the collection and servicing of their student loans, the CFPB’s report (Overseas & Underserved: Student Loan Servicing and the Cost to Our Men and Women in Uniform) details the unique challenges military personnel face when dealing with student loan servicers and asserting protections provided to them based on their military service.
The report provides a full description of the complaints, which tended to be centered on the following central issues:
- Student loan deferments are administered improperly. In some cases, the servicers are failing to provide the reasons for the denial of a deferment. In other cases, the deferments are approved over the telephone, yet not applied to the loan account. Servicemembers have encountered late fees and defaults as a result.
- Student loan servicers have not clearly communicated with both military personnel and their families. There is uncertainty as to whether a disability discharge applies to both federal loans and to private student loans. Co-signers, who are often family members, of student loans made to servicemembers also wonder whether they too may receive a discharge or alternative payment arrangements following the death or disability of the primary borrower who is a servicemember.
- Service transfers have resulted in a termination or disruption of benefits. The CFPB has received numerous complaints from military personnel whose military deferments, and other protections, have been lost in the shuffle when a student loan is transferred between servicers. The servicemembers’ special status has not always been communicated along with the transfer of other account information.
- The protections afforded to servicemembers by the SCRA continue to confuse student loan servicers. Ineffective communication relating to these benefits and inconsistent application of SCRA protections by student loan servicers often leaves servicemembers frustrated and without the protections created for their benefit.
The CFPB’s report underscores the importance of clear and consistent communications with military borrowers. Errors made by servicers have the potential to exacerbate the frustration of servicemembers who are fully engaged with deployments and other stresses associated with military life. The CFPB seems keenly aware of the problems encountered by military personnel and poised to take action to provide assistance. Servicers of student loans should review their policies and procedures with the goal of eliminating inconsistencies and clarifying communications.