Wells Fargo will fork over more than $3.6 million to the Consumer Financial Protection Bureau to settle claims over what the regulator called illegal student loan servicing practices, according to a release from the CFPB Monday.
In addition to the $3.6 million civil penalty, the bank will pay $410,000 in restitution to consumers. It will also be required to improve practices involving billing and processing of student loan payments.
The CFPB said Wells Fargo's student lending division violated federal consumer protection laws by processing borrower payments to collect higher fees, providing incorrect information on the value of partial payments and charging illegal late fees, among other practices.
“Wells Fargo hit borrowers with illegal fees and deprived others of critical information needed to effectively manage their student loan accounts,” said the bureau's director, Richard Cordray, in a statement. “Consumers should be able to rely on their servicer to process and credit payments correctly and to provide accurate and timely information, and we will continue our work to improve the student loan servicing market.”
The Consumer Financial Protection Bureau's student loan ombudsman released a report Thursday documenting consumer complaints about needless hassles borrowers face in applying for income-based repayment of student loans. The report said delays in applications can leave students with thousands in extra costs.
"Too many student loan borrowers are struggling to take advantage of their right to pay based on how much money they make," said Ombudsman Seth Frotman. "Services who want to better serve their customers can take the immediate steps recommended in this report to clean up this broken process."
About five million borrowers had enrolled in income-based repayment plans as of the first quarter of this year, according to a release from the CFPB. But the agency says many more eligible borrowers are not benefiting from the program, leading to needless defaults. The CFPB has produced a "fix it form" for loan servicers to provide borrowers seeking income-based repayment with a clearer understanding of the status of their application or the reasons for rejection.
The National Consumer Law Center sent a letter to Education Secretary John King today asking the Department of Education to track the relationship between student loan debt and racial inequality. The letter follows efforts by the group to obtain the release of data on how federal debt collection practices are affecting minority student borrowers in particular.
It was signed by 39 other legal aid, civil rights and public advocacy groups, including the American Civil Liberties Union, the Institute for College Access and Success, and the Center for Responsible Lending.
“It is unacceptable that, for nearly a decade, the department has known that student loan debt disproportionately harms borrowers of color, and despite this knowledge, has failed to even track this problem, let alone address the issue,” said Persis Yu, director of National Consumer Law Center’s Student Loan Borrower Assistance Project.
Under King, the department has taken steps to add more consumer protections for student loan borrowers, including the creation of a Student Aid Enforcement unit. But the groups who signed on to the letter say having data on race and student debt is needed to be sure that new protections are benefiting all borrowers.
The NCLC earlier this year filed a Freedom of Information Act lawsuit along with the ACLU and the Massachusetts ACLU seeking data on racial impacts of firms collecting federal student debt. The department said in response to a FOIA request that it was not keeping data responsive to the issue.
A higher education advocacy group is looking to bring attention to student debt relief companies marketing to borrowers services they could be getting free from the federal government.
Student Debt Crisis, a group that advocates on student loan issues through petitions and outreach efforts, says debt relief companies, while legal, often aggressively market services to borrowers that the federal government offers for free -- including help with loan forgiveness, consolidation and refinancing.
The Department of Education has warned borrowers to be wary of companies charging for help with student loans. And the Consumer Financial Protection Bureau has taken enforcement action, including barring student debt relief companies that it said misrepresented services and tricked customers into paying large up-front fees from working in the industry.
Student Debt Crisis has released the results of a survey conducted last month with NerdWallet of 6,363 student borrowers from the group’s 800,000-person email list. Among the findings in the survey, the report says that respondents with the highest amounts of student debt were better informed about options for managing their debt than those with smaller amounts of debt.
The Department of Education today released details of a pilot program announced last month that will allow some institutions to require loan counseling for student borrowers.
The pilot program, developed through the department's experimental sites authority, is designed to test the effectiveness of more flexible loan counseling for those borrowers. College students who take out federal loans are required to receive counseling when they take out the loan and again when they go into repayment, but not in between -- a source of complaints from financial aid administrators.
Institutions selected for the pilot may choose one of three loan counseling approaches, according to a release from the Department of Education: the department's counseling tool, a third-party counseling service or tool, or counseling developed by the institution itself that meets minimum requirements. Each of those colleges or universities will require a randomly selected group of student borrowers to go through the chosen counseling program once in an academic year. That group will be compared to a control group of student borrowers who receive only the entrance and exit loan counseling already required.
Colleges or universities interested in applying to participate in the pilot program must demonstrate that the added loan counseling does not impede borrowing students need to pay for college and must disclose to all borrowers that they are participating in the program, among other requirements.
The U.S. Department of Education this week asked colleges and universities not to move up their deadlines for applying for financial aid. In theory, colleges could do so this year because of the adoption by the government of "prior prior year," a policy in which students may apply for financial aid based on family income from a year earlier than has been possible in the past. A letter sent to colleges by Ted Mitchell, the under secretary of education, asked colleges to publicize this change, and to use the change to provide students with earlier information on their aid eligibility. But the letter also asked colleges not to move up any of their key deadlines in the aid process. Moving up aid deadlines could "put undue pressure on high school seniors to rush through the financial aid and college admissions process." And such changes, Mitchell wrote, could particularly hurt low-income students, "who often have the least amount of information" about applying to college and seeking aid.
A statement from the National Association of Student Financial Aid Administrators suggested that the Education Department's request may be problematic to many colleges. "The letter does not address the inherent conflict that can arise between advising schools to provide students 'with financial aid packages as early as possible' but also telling them to 'not to move any priority financial aid deadlines earlier than your deadlines for recent years.'" the statement says. "For many schools, particularly those with institutional aid, providing a package without moving a priority deadline is not functionally possible, with the alternative being first-come, first-serve packaging -- a detrimental option for low-income students. If having a priority deadline means the school does the bulk of its packaging after the deadline, a later deadline precludes early award packages."
An Education Department review of Ashford University's compliance with federal financial aid rules has resulted in a fine of $137,695 for a handful of violations, Bridgepoint Education, which owns Ashford, announced Tuesday. The review, initiated in 2014, found that Ashford had awarded financial aid in excess of some students' need, and disbursed more loan funds than the maximum allowed.
A new national survey finds that student debt has an impact on how people view relationship potential. IonTuition.com, which advises colleges and businesses on student debt issues, commissioned a survey of 1,000 adults. The survey found that 75 percent view student debt of a potential partner as "baggage." How significant is that baggage? For 12 percent, student debt was viewed as more troublesome baggage than being divorced, having a child from a previous relationship or having a record as a nonviolent felon. More than 70 percent said that they would feel obliged to help significant others pay off their student loan debt.
Since student debt, free tuition and debt-free higher education have emerged as presidential campaign-level issues, a narrative has begun to emerge among elite news media that the rising price of college and ever-increasing student debt are phantom problems given the overall lifetime benefits of a college degree. Unfortunately that narrative, which has been highlighted over the past few weeks to varying degrees by major media outlets, including NPR and Vox, rests on a pretty narrow set of assumptions about college and its benefits. And, in fact, it misunderstands the entire point behind the push for debt-free public college.
For instance, a recent editorial in The Washington Post titled “Democrats’ Loose Talk on Student Loans” makes the case that we have more of a nuisance than a crisis on our hands. It argues that bold reforms to address student debt -- including the plan offered up by Hillary Clinton’s campaign -- are overkill and that we should presumably make large investments in other areas (like paying down the national debt). Unfortunately, however, like other news media these days, the Post editorial board appears to have overlooked some crucial facts, many of which have been reported by its own newspaper.
It is absolutely true that some form of postsecondary education and training has become more important, and nearly essential, in today’s workforce. Unemployment rates for college graduates are consistently low, and the average lifetime earnings boost remains high relative to a high school degree. Anyone who argues that college “isn’t worth it” is doing so with anecdotal examples or bad data.
But the reason college is so important is not because earnings for college graduates keep rising. In fact, bachelor’s degree holders earn about the same amount as they did 30 years ago. Earnings for everyone else -- including those with only some college experience -- have gone down rapidly. In effect, a degree has become more a necessary insurance policy than an investment.
This matters because students are now on the hook for financing more and more of their own education than ever before. As a result, graduates are taking on rising levels of debt while contending with stagnant incomes and the rising cost of health care and child care, all while attempting to save for retirement or for their own child’s education.
And they are some of the best-off of the bunch -- they’re able to stretch and make their minimum monthly payments. The true crisis in student loans is among those who take on student debt but do not graduate, many of whom attend high-cost for-profit institutions. Those students are more likely to default or become delinquent on student loans, potentially setting themselves up for a lifetime of economic hardship. But while some argue that what we really have is a “completion crisis,” college completion is no better or worse than it’s been in decades.
The difference now is that, unlike the early 1990s, most students must borrow for a degree. In other words, we have increased the risk of attending college, simultaneously telling students that they must go to college to ensure financial security while dialing up the potential for financial catastrophe if they cannot complete.
Completion and debt are also not mutually exclusive, as some people might have you believe. Students drop out of college for many reasons, but the most common reasons cited are financial -- debt, high cost, the need to attend part-time while juggling a full-time job. That means if we care about increasing college attainment, we must first deal with the financial pressure facing students who either decide not to go or feel they cannot finish. Guaranteeing a debt-free pathway to a degree can lower the risk of not graduating and help more students graduate.
On a macro level, the Post and others have seized on a report from the White House Council of Economic Advisors, the key takeaway of which was that providing students with access to loans allowed many to go to college during the recession, leaving them much better off than had they not attended at all. This report tells us much of what we already know: 1) providing a financing mechanism for students is better than nothing at all, and 2) student loans make up a relatively small share of the overall economy, yet 3) for many students (including the seven million in default), it has become a crisis.
But those arguing that this means student debt is not a major policy problem have the counterfactual all wrong. Essentially, the report is arguing that providing students money to pay tuition bills and thus go to college is a good bet. But this is more true of need-based grant and scholarship aid than it is of loans. Grants have proven time and again to increase access, retention and completion, while research on loans is mixed. Further, grant aid, since it does not need to be paid off, does not carry with it the risk of student loans -- an extremely important difference in an era of stagnant college completion rates and stagnant incomes for graduates.
And unfortunately, the news media often misses that student debt is a problem with a color and class element. We know that black borrowers take on thousands more in debt for the same degree as white students and are more likely to drop out with debt. Four in 10 black borrowers drop out with debt and no degree, including two-thirds of those at four-year for-profit colleges.
Moreover, black and Latino students do not see the same benefits of a degree. Unemployment for black college graduates is the same as white high school graduates, average earnings are lower for black workers than white workers at every level of education, and the average wealth of a black college graduate equals that of a white high school dropout. Read that sentence again.
The fact that half of young black households have student debt, and are more likely to have student debt than young white households, means that even if they are better off going to college than not, white families will continue to have an unearned leg up in the economy. Regardless of the amount they have taken on, borrowers of color are the face of this crisis.
Society benefits from an educated population, which is why we invest in it. It’s why the GI Bill, warts and all, returned $7 for every $1 invested and is considered a massive success. It’s why public investment in a degree reaps tens of thousands of dollars in return.
When we individualize the benefits of college, we miss the forest for the trees. It’s striking that we do this for college and no other forms of education. We do not send 5-year-olds home from kindergarten with $20,000 tuition bills, justifying it by saying that the alternative of not going to school is worse. We do this because it’s in the public interest to send students to school without financial barriers and that the alternative would impose massive barriers based on race and class.
It is, of course, important that we provide relief to those who are most likely to struggle with debt and those who do not see the returns from college. The concept of debt-free college does just that, by asking students to work hard and maybe take on a part-time job, states to chip in like they did for previous generations, and the federal government to treat higher education as a public good again. It is progressive -- asking the wealthy to pay their fair share while eliminating unmet need that cripples the ability of low-income students to pay tuition bills. It reduces risk and expands opportunity.
Those of us concerned with student debt are not saying that students should avoid college, any more than we would complain about high rent and recommend homelessness instead. Instead, we want to remove the financial burden from those most afflicted and ensure that the next generation making college-going decisions doesn’t avoid it because their families can’t afford it.
Mark Huelsman is senior policy analyst at Demos, a nonprofit public policy organization focused on economic equality.
One-fifth of undergraduates did not apply for any financial aid during the 2011-12 academic year -- typically because they thought they could afford college without it or did not believe they would qualify, according to a report from the U.S. Education Department's National Center for Education Statistics.
That number was even higher at public two-year institutions, where 30 percent of students did not apply for financial aid. At public four-year institutions, 18 percent said they did not apply, according to the report.
The NCES report was based on data from the 2011-12 National Postsecondary Student Aid Study, a national survey that collects data on what grants, loans or other types of aid students apply for and receive.