We support today’s action taken by the CFPB and the Florida Attorney General to shut down College Education Services and in a separate CFPB action to file a lawsuit against Student Loan Processing.US, student loan “debt relief” businesses.
NCLC highlighted concerns about the student “debt relief” industry in its 2013 report Searching for Relief: Desperate Borrowers and the Growing Student Loan “Debt Relief” Industry. Since then we have unfortunately seen student loan debt relief business grow and engage in even more abusive practices. Too many of these companies charge even higher fees for services that borrowers can get for free. The NCLC report documented how borrowers, including some of the most vulnerable borrowers, stand to lose a lot of money and important rights if they sign up with these companies.
We are alarmed at the proliferation of these companies, particularly the use of new and more aggressive marketing tactics. The allegations in the CFPB and Florida Attorney General actions, as well as claims in the recent complaints filed by the office of Illinois Attorney General Lisa Madigan, demonstrate the broad reach of these companies and harm to consumers.
Here is an example from one company’s email to a borrower:
“I wanted to follow up with you just in case your current student loan servicer has reached out to you in an attempt to help you reduce your current loan payments and I want to say DON’T DO IT. The programs they can offer you are not nearly as beneficial to you as what the government has established for you, that’s what [name deleted] will get you an approval for. At [name deleted] we only enroll our clients into government approved programs run by the Department of Education that provide true debt forgiveness, these programs are complex but don’t worry we can help.”
This example is one of many counters to the industry’s arguments that borrowers are knowingly choosing to pay for services they can get for free, just like tax preparation. Perhaps the comparison might make some sense in an ideal world where the companies were providing quality service, accurately informing borrowers that they can contact their servicers and get into the same programs for free, informing borrowers that the “debt relief” companies have no special access and do not offer any special programs, and encouraging borrowers to check in with their servicers. As demonstrated in these recent enforcement actions, the real world industry is much different than this ideal.
In its announcement, the CFPB focused on the connection between the growth of the debt relief industry and problems with student loan servicers. On the federal loan side, the government contracts with a number of for-profit and non-profit companies to help borrowers manage their debt. According to the CFPB, “As student loan borrowers run into roadblocks while trying to get help from their servicers, such as lost paperwork or payment processing problems, they may grow discouraged with their prospects of an alternative payment plan.”
We call on federal policymakers and regulators to make significant improvements in the student loan servicing system so that borrowers can get quality service and might be less likely to turn to these unfortunate “debt relief” alternatives. NCLC’s Student Loan Borrower Assistance Project created principles to improve federal student loan servicing, which include the following actions:
- Incentivize quality servicing and create real competition
- Provide relief for borrowers and information about relief options, and
- Punish the bad actors.