CFPB Student Loan Ombudsman Highlights Problems with Federal Re-Defaults

October 17, 2016

On Monday, October 17, 2016, CFPB Student Loan Ombudsman Seth Frotman released his annual report on student lending.  In addition to outlining student loan related complaints received by the CFPB, this year’s edition focused on federal student loan borrowers’ transition from default to income-driven repayment.  According to the Bureau, one-third of rehabilitated borrowers who would qualify for zero payments under income-driven repayment are likely to re-default.  The Ombudsman identified debt collection and servicing practices as contributing factors and called on policymakers to update the law to better align incentives with reducing the number of re-defaults.

“Too many student loan borrowers are being left behind due to breakdowns in the federal programs designed to provide them a fresh start, including an affordable monthly payment and a path to long-term success,” said Frotman in a release. “This report offers further evidence that industry practices and needless red tape can turn a student loan into an unbearable burden. Policymakers should work to reform the programs that are failing those borrowers that need help most,” he added.