Banking and Finance Law Daily Older student debt jeopardizing long-term financial security
Thursday, January 5, 2017

Older student debt jeopardizing long-term financial security

By John M. Pachkowski, J.D.

The Consumer Financial Protection Bureau has released a report that takes a closer look at complaints from older borrowers about their student loan debt. The CFPB’s Snapshot of Older Consumers and Student Loan Debt noted that, in the last decade, the number of older student loan borrowers has quadrupled and the amount of debt per older borrower has roughly doubled, as many borrowers take out loans for children or grandchildren. The Snapshot also noted that, in 2015, nearly 40 percent of federal student loan borrowers age 65 and older were in default.

The Snapshot, which looked at complaints from older consumers with private and federal student loans, stated that problems arise from, among other things, co-signing private student loans and difficulties accessing protections guaranteed under federal law for many federal student loan borrowers.

Specific complaints cited in the Snapshot included:

  • delaying or prohibiting enrollment in income-driven payment plans;
  • incorrectly applying co-signer payments to other loans owed by the primary borrower;
  • failing to provide borrowers access to loan information; and
  • threatening to offset private student loan borrowers’ federally protected benefits, such as Social Security benefits.

Financial insecurity. Commenting on the Snapshot, CFPB Director Richard Cordray stated, "It is alarming that older Americans are the fastest growing segment of student loan borrowers." He added, "Many of these older Americans are helping to finance their children’s or grandchildren’s education while living on a fixed income. We are concerned that student loans are contributing to financial insecurity for many older Americans and that student loan servicing problems can add to their distress."

Other student loan initiatives. The Snapshot comes on the heels of a number of recent actions taken by the bureau. For instance, there was the CFPB’s August 2016 consent order with Wells Fargo Bank, N.A., the country’s second-largest private student lender, to resolve the bank’s private student loan servicing practices that resulted in violations of the Dodd-Frank Act’s prohibition on unfair and deceptive acts and practices, as well as the Fair Credit Reporting Act. Wells Fargo agreed to pay at least $410,000 to compensate consumers for illegal late fees and also to pay $3.6 million to the CFPB’s Civil Penalty Fund (see Banking and Finance Law Daily, Aug. 22, 2016).

The CFPB’s Student Loan Ombudsman also reported that one-third of student loan borrowers whose defaults are rehabilitated are likely to default again within the next two years (see Banking and Finance Law Daily, Oct. 17, 2016).

Finally, the bureau noted in its Fall 2016 Supervisory Highlights of its revised education loan exam procedures to address servicing practices affecting borrowers, from payment processing and routine communications to the handling of requests for payment relief by distressed borrowers (see Banking and Finance Law Daily, Nov. 1, 2016).

Congressional concerns. The issue of older student loan debt has also caught the attention of Congress. In late 2016, Senators Elizabeth Warren (D-Mass) and Claire McCaskill (D-Mo) released a report prepared for them by the Government Accountability Office that showed student loan debt was escalating rapidly, and tens of thousands of senior Americans were currently having their Social Security benefits cut below the poverty line to recoup defaulted student loan debt. One of the report’s findings indicated that more than 70 percent of garnished Social Security benefits were going toward fees and interest, and not paying down seniors’ principal balances, leaving many seniors with a reduced standard of living, in a cycle of debt they could not escape.

"This report shows us that seniors clearly aren’t immune to the student loan crisis—they’re deeply impacted by this issue to the point that it’s leaving many of them in a dire financial situation," McCaskill said. "We could have hundreds of thousands of American seniors living in poverty due to garnished Social Security benefits if this trend continues, and we shouldn’t allow that to happen." Warren added, "The hard-earned Social Security checks that are the sole source of income for millions of seniors should not be siphoned off to pay interest and fees on student loan debt."

Companies: Wells Fargo Bank, N.A.

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