NCHER 2017 Knowledge Symposium New Orleans, LA November 6-8, 2017 Ask the Attorneys A Review of the CFPB’s Annual Student Loan Ombudsman Report

Overview Dodd-Frank established a student loan ombudsman within the CFPB. Ombudsman is directed to make reports and recommendations. Latest report is from October, 2017 12,000 federal student loan complaints 7,700 private student loan complaints 2,300 debt collection complaints related to private and federal student loans

Findings The Report is entirely focused on servicing, not origination The Report mostly deals with federal loans; particularly issues with IDR Private loan issues: Limited options for borrower payment relief during periods of financial stress Borrowers and cosigners with severe disabilities have limited payment relief options Borrowers have difficult in accessing borrower benefits

Findings, con’t. Denial of cosigner release requests with inadequate explanations of how to qualify for release. Problematic results when borrower intends one payment to cover multiple loans.

Observations CFPB views federal loans as the relevant benchmarks for evaluating private loans. No recognition that private loans are direct, unsecured closed-end credit. Other forms of consumer credit do not have borrower protections.

Observations, con’t. Notwithstanding how other types of consumer credit are structured, the implication is that a failure to include borrower protections in private loans that track federal loans is problematic. But if borrower financial distress is the problem, wouldn’t the sale of ancillary products be the answer?

Future of Servicing The CFPB has made the same points repeatedly, so why no servicing rules? Once a priority; servicing rules (rather than supervisory or enforcement actions) have been deferred. Would there be a value to having explicit rules?

Final Thoughts Private education loans are complex products (interim proceeds, deferments, borrower benefits). This complexity is self-imposed to imitate federal loans. Complexity leads to disclosure, contractual, servicing issues. Is it worth it?

Arthur J. Rotatori McGlinchey Stafford (216) 378-9932 arotatori@mcglinchey.com