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Federal Register / Vol. 86, No. 16 / Wednesday, January 27, 2021 / Notices
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created new short-term payment relief options for consumers. Private loan forbearance options and implementation of FFELP disaster forbearance programs often evolved as the extent of the economic impacts from the pandemic became more apparent. In general, servicers did not require any documentation to enroll borrowers into COVID19 related forbearances.
Between March and May 2020, servicers reported that the number of delinquent commercial FFELP and private student loans across all servicers reviewed fell from 270,000 to 146,000.
Servicers faced a number of significant challenges. In March and April 2020, they quickly implemented the CARES Act for federally owned loans, identified and made available a variety of private and commercial FFELP payment relief options, and complied with local shelter-in-place or stay-at-home orders. Many servicers reported operational constraints and service interruptions, consistent with other servicing sectors. Finally, examiners observed that a large percentage of calls from commercial FFELP and private student loan borrowers related to the CARES Act even though they were not eligible for the benefits. For example, consumers often expressed confusion and frustration after receiving bills when they believed their loans should have been automatically placed into CARES
Act forbearances. Other consumers inquired about how to enroll in the forbearances they heard about in the news.
Consumer Risk Examiners review of student loan servicers PA responses, which related to federal and private student loans, indicated several issues that raise the risk of consumer harm, described below.
One servicer provided incorrect or incomplete information about available payment relief options in written communications to numerous consumers. For example, some borrowers received inaccurate notices indicating that interest would capitalize at the conclusion of the natural disaster forbearances when, in fact, it would not.
In another instance, private student loan borrowers received notices suggesting that they were eligible for natural disaster forbearances with certain terms when, in fact, the borrowers receiving these notices were ineligible. In both of these situations the servicer sent written communications informing affected borrowers of the error.
Multiple servicers failed to routinely discuss all available repayment options with borrowers requesting payment
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assistance. While borrowers were eligible to enroll in various forbearances in the wake of the COVID19 pandemic, they have other options as well. For example, commercial FFELP borrowers are eligible for income-based repayment, which may be a better option for many borrowers. Additionally, private loan borrowers may also be eligible for nonstandard repayment plans that can provide long-term payment relief. In these cases, consumers were never informed about alternative repayment options when they requested payment assistance.
Operational challenges resulted in one servicer failing to maintain regular call center hours. While operational disruptions were common across the industry, during this period most call centers stayed open at least part of the time. The complete or partial closure of call centers created a range of problems for consumers who were unable to talk with representatives, particularly in connection with payment relief-specific guidance.
One private loan holder was not responding to consumers forbearance extension requests. Many loan holders authorize servicers to grant initial forbearances for consumers that call to request payment assistance. However, some loan holders require that servicers seek their approval for any forbearance extension. Examiners observed that thousands of extension requests were delayed and ultimately denied because the loan holder never responded. This challenge needlessly hinders consumers abilities to make broader financial decisions and may cause certain consumers to believe the loan holder will evaluate the applications and that extensions are likely.
One servicer provided inaccurate information related to the number of payments eligible for repayment, rehabilitation, or forgiveness programs.
Unlike under most forbearances, months that federally owned loans are enrolled in the forbearance authorized by the CARES Act are considered eligible under a variety of programs. However, when providing information to consumers about the total number of eligible payments, one servicer failed to include these months in the count.
Examiners observed some payment allocation errors when servicers applied voluntary payments to accounts enrolled in CARES Act forbearances.
The servicers allow consumers to direct payments to individual loans within their accounts through individual instructions or standing orders. Many consumers use standing orders to establish a payment methodology that directs payments to loans with the
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highest interest rates. When consumers do not provide allocation instructions, servicers use their own default methodologies. Some servicers default methodologies allocate payments based on the interest rates of the loans. The CARES Act stopped all interest accrual on loans owned by ED, and in these loans, some servicers failed to comply with allocation methodologies or instructions that relied on loan-level interest rates. In one situation, a servicer did not comply with consumers standing payment instructions to allocate payments towards the highest interest rate loan first. Rather, representatives incorrectly used the CARES Act temporary interest rates and split payments evenly across the consumers loans despite underlying differences in interest rates. While the error was not systematic in that case, if uncorrected, consumers highest interest rate loans will not be paid down as much as they would be if servicers applied payments based on the permanent interest rate, so when payments and interest accrual resume, these borrowers would end up paying more over time.
Some servicers failed to prevent preauthorized electronic funds transfers following forbearance approval for loans that are not federally owned. For example, due to manual errors, one servicer failed to timely enroll consumers in forbearances that they approved over phone calls and failed to cancel the relevant preauthorized fund transfers as well. In other examples, servicers failed to cancel preauthorized electronic funds transfers when consumers requested and were granted forbearances that halted all required payments.
One servicer provided inaccurate information to consumers regarding the information required to evaluate forbearance applications for loans that are not federally owned. The servicer advised consumers that providing the date range related to the COVID19
impact was acceptable. In fact, the servicer denied forbearance requests for consumers who provided date ranges rather than precise dates of COVID19
impact.
Certain servicers allow commercial FFELP consumers to enroll in natural disaster forbearances through their websites or automated phone systems.
Examiners observed that one servicer failed to prevent certain ineligible borrowers in technical default more than 270 days delinquent from enrolling in forbearances. This resulted in the servicer confirming enrollment in forbearances that were not actually provided to consumers. Consumers may
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