April 24, 2017

Richard Cordray, Director

Consumer Financial Protection Bureau

1700 G. Street, N.W.

Washington, D.C. 20552

Re:        Comments on “Student Loan Servicing Market Monitoring”

Dear Director Cordray:

The undersigned scholars study and have written extensively about the role of the Federal government in financing higher education to facilitate access to our ever-more-diverse student population. We write in support of the data collection proposal described in the Comment Request that the Consumer Financial Protection Bureau (the “Bureau”) published in the Federal Register on Feb. 23, 2017. The proposal is especially timely in light of recent allegations of misconduct that adversely affected thousands of borrowers whose loans were serviced by Navient Corp. In addition, we are writing to encourage the Bureau to make the servicing data available to researchers.

Given the limited options available to borrowers who may be served poorly by student loan servicers, the importance of informed action by the CFPB is great. And, given the increasingly important role that borrowing plays in making higher education accessible, collection of information that can lead to better designed, more effective policy interventions in higher education finance is imperative.

In its request for comment, the Bureau posed four questions:

  1. Whether the collection of information is necessary for the proper performance of the functions of the Bureau, including whether the information will have practical utility;
  2. The accuracy of the Bureau's estimate of the burden of the collection of information, including the validity of the methods and the assumptions used;
  3. Ways to enhance the quality, utility, and clarity of the information to be collected; and
  4. Ways to minimize the burden of the collection of information on respondents, including through the use of automated collection techniques or other forms of information technology.

Given our collective interest as members of the academy in understanding the effects of student lending policies and practices, in this letter we devote our attention to the first and third of these questions.

Data on the conduct of student loan servicers and on student borrower outcomes are essential for the Bureau’s effort to conduct meaningful monitoring of markets. In the absence of collection and analyses of data on servicers’ performance, the Bureau is hamstrung: its ability to identify best and worst practices, to recognize patterns indicating disparate effects on particular classes of borrowers, to assess the impact of changes in policy or practice, all will be severely undermined. The paragraphs that follow expand upon these arguments.

Monitoring of servicers

The proposed servicing metrics will help the CFPB infer whether servicers have provided information to borrowers about available repayment plans, eligibility for loan forgiveness, and the availability of deferment or forbearance, if necessary, in light of a borrower’s difficult life circumstances.

For example, if a servicer has a relatively high percent of borrowers in flexible repayment plans in which monthly payment obligations vary based on borrower income, that would indicate that the servicer did a good job informing borrowers of their repayment options. Likewise, evidence that a disproportionate percent of borrowers had entered loan forgiveness programs, prepaid their loans, or changed servicers would suggest that the servicers made sure borrowers were well-informed.

Another test of the quality of loan servicing would be examinations of how servicers treat borrowers’ excess payments. If a servicer allocates the excess of any monthly payments to loans bearing the highest interest rates, that would suggest the servicer is acting in borrowers’ best interests, while allocating to lower-rate loans does not.

If servicing metrics suggest that servicers are not accurately presenting options to borrowers, the trend would give the Bureau reason to delve more deeply into the servicers’ practices. For example, forbearance and deferment can be very costly for borrowers, and are particularly concerning if the borrowers would be eligible for income-driven repayment. Thus, relatively high rates of borrowers in deferral or forbearance status could merit additional regulatory scrutiny.

Rates of student borrower delinquency and default, as well as of loan rehabilitation, also enable identification of servicers that have developed more and less effective practices. Higher rates of delinquency and default should draw further investigation, as should lower rates of loan rehabilitation. Such evidence is inconsistent with servicers using their best efforts to promote positive borrower outcomes.

The servicing data can be the basis for the Bureau to gather institutional information about servicers with the best outcomes and encourage wider adoption or even mandate use of those practices by servicers with weaker track records.

Discrimination

To the extent that the aggregated data can be broken down by protected class status, the CFPB will be able to recognize any patterns that correlate with protected student borrower characteristics, including race, to identify deliberate or inadvertent discrimination. Given that, for complicated socio-economic reasons, students of color are less likely to complete their undergraduate educations and, thus, cannot obtain the economic returns to a degree, it is particularly important to insure they are not also the victims of discrimination in servicing.

 

Linking CFPB data with other sources of data

Although there are efficiency gains from collecting aggregated data, we do have some concerns about the Bureau gathering only aggregated data. Data on individual borrowers—whether a sample or data on every borrower—could provide unique insights, particularly when merged with other data sets. For example, if CFPB could link student loan data to credit bureau data, it could determine whether servicers are accurately reporting the amounts and terms of students’ debts, which is critical to any assessment of servicers’ performance of their core function. If borrowers’ loan information is inaccurate and/or unverifiable, the quality of servicers’ management of student loans cannot be independently assessed.

Making anonymized data available to researchers

A number of the academics that have signed this letter have attempted to engage in empirical studies of student loan borrowers, servicers and borrower outcomes. They have been handicapped by a lack of access to data. Policy-makers, universities, and borrowers would all benefit from rigorous research in this field. We encourage the Bureau to make available any data they collect from servicers.

The benefits would be numerous. Researchers could use servicers’ records of borrowers who encounter repayment difficulty to develop methods to identify future borrowers who are more likely to be at higher risk of default. Repayment information could also be linked with other demographic information from borrowers’ former institutions to hopefully highlight factors that contribute to repayment risk. This last category of information could also help colleges and universities improve their support of student borrowers.

We recognize that making student loan data available to researchers poses concerns about privacy. The CFPB could restrict researchers to using anonymized data. If a project required the merging of data from servicers with information from colleges and universities, the data could be merged at CFPB and then anonymized.

The virtues of a multifaceted approach to studying student borrower outcomes and servicer practices are evident in recent, highly valuable and influential research conducted by scholars who merged Education Department data with Internal Revenue Service data on earnings to better understand the characteristics of borrowers in general and borrowers who default in particular. The result of that study is A Crisis in Student Loans? How Changes in the Characteristics of Borrowers and the Institutions they Attend Contributed to Rising Loan Defaults, a Brooking Institution report that took on the conventional wisdom about student borrowing and default.

Current Education Department data and policies are inadequate to permit the kind of analysis described in the preceding paragraphs. Although the Education Department’s Guidance on the Use of Financial Aid Information for Program Evaluation and Research (“Guidance”) explicitly allows for provision of data to third-party researchers, the data does not allow for meaningful longitudinal analyses.

Conclusion

In summary, the data collection proposal that the Bureau is considering is critical to effective monitoring of the conduct of student loan servicing entities to ferret out and respond to wrongdoing, as well as to the development of strategies and tactics that promote positive borrower outcomes. The Trump Administration has withdrawn memoranda promulgated by the Obama Administration that called for the Education Department to assess the quality of services performed by servicers, which makes the role of the Bureau as monitor and enforcement agent that much more important.

The availability of this data, appropriately anonymized, to researchers seeking to better understand how different servicer practices affect borrowers is similarly critical to improvement of federal policy in this area. And colleges and universities will be better able to recognize profiles of students likely to encounter repayment challenges if they have data that permits identification of characteristics that correlate with risk. Thus, the information sought very directly serves the larger goal of promoting access to higher education.

Should your or any member of your staff wish to discuss these comments with us, please feel free either to contact Professor Engel at (617) 994-6831 or Professor Glater at (949) 824-3710, or to contact any of the signatories directly. The institutional affiliation of each signatory is included below for ease of identification; each of us writes, however, in our private, individual, and personal, rather than institutional, capacity.

Thank you for your consideration.

Sincerely,

Kathleen Engel[1]

Research Professor of Law

Suffolk University                

Jonathan Glater

Professor of Law

University of California, Irvine

Additional Signatories

Sandy Baum

Higher education economist

Margaret M. Clancy

Policy Director, Center for Social Development  

Washington University in St. Louis 

Jennifer A. Delaney

Associate Professor

University of Illinois at Urbana-Champaign College of Education

William Elliott III
Director, AEDI

Associate Professor

University of Kansas School of Social Welfare

Terri Friedline, PhD
Assistant Professor

University of Kansas School of Social Welfare

Susan E. Hauser
Professor of Law
North Carolina Central University School of Law

Nicholas Hillman

Associate Professor

University of Wisconsin-Madison

Dalié Jiménez

Associate Professor & Jeremy Bentham Scholar

University of Connecticut School of Law

Creola Johnson

President’s Club Professor of Law

The Ohio State Univ.

Daniela Kraiem

Practitioner-in-Residence

American University Washington College of Law.

Patricia A. McCoy

Professor of Law

Boston College Law School 

Rafael I. Pardo

Robert T. Thompson Professor of Law

Emory University

Ann Shalleck

Professor of Law and Carrington Shields Scholar

American University, Washington College of Law


[1] Kathleen Engel serves on the Consumer Advisory Board of the Consumer Financial Protection Bureau. She submits these comments in her personal capacity. The views are her own, not those of the Consumer Advisory Board, the Consumer Financial Protection Bureau or the United States.