CFPB Supervisory Highlights: Student Lending

CONSUMER FINANCIA L PROTE CTION BU REAU | DECEMBE R 2024 S upervis ory Highlights: Special Ed itio n Student Lendin g Issue 36 (Wi nter 2024)

S UPERVISORY HI GHLIGHTS: SPECIAL EDITION STUDENT LENDING, ISSUE 36 (WINTER 2024) 1 SUPERVISOR Y HIGHLIGHTS: SPECIAL EDITION STUDENT LENDING ISSUE 36 (WINTER 2024) Table of c ontent s Table of contents......................................................................................................... 1 1. Introduction........................................................................................................... 2 2. Supervi sory Observ ation s................................................................................... 4 2.1 Refinancing student l oans........................................................................ 4 2.2 Illu sory benef its of fered by privat e lenders............................................. 7 2.3 Not ehol der liabil ity rel ated t o claims of s choo l miscondu ct................... 9 2.4 Illegal loan col lectio n tact ics.................................................................. 12 2.5 Federal student loan servicing dur ing the ret ur n to repayment........... 16

S UPERVISORY HI GHLIGHTS: SPECIAL EDITION STUDENT LENDING, ISSUE 36 (WINTER 2024) 2 SUPERVISOR Y HIGHLIGHTS: SPECIAL EDITION STUDENT LENDING ISSUE 36 (WINTER 2024) 1. Introd ucti on Student l oans rep resent the second - larg est form of U.S. consum er debt a t around $1.7 7 trillio n in tot al outstandi ng balances. While f ederal student loa ns compris e the vas t majority o f the student l ending ma rket, private stu dent loan s present n otable ri sks. The r efinanc e market, fo r example, may offer ce rtain be nefits, bu t refinanc ing or conso lidati ng federal loans t hrough a privat e lender re sults in the l oss of impo rtant fed eral prot ections. An d in stitutional lending products – pr ivate lo ans made by the bor rower’ s school di rectly to t he student – warrant special atte ntion because of the uniq uely close relationship between st udent and sc hool. Add itionally, the term s of privat e student loans are not stand ardized, and examiners h ave found cert ain loan terms problem atic fo r consum ers. Because o f these s ubstantial r isks, the Consumer Financial Protecti on Burea u (CFPB) is actively engaged in vigorous oversig ht of all area s of the stu dent loan ma rket to ensu re that enti ties compl y with Fed eral consum er financial law s, including the Consum er Financial P rote ctio n Act (CFPA), 1 the Elect ronic Fund T ransf er Act and its implementin g regulation, R egulation E, 2 and the Truth in Le nding Act and its implem enting regulat ion, Re gulation Z. 3 This edition of Supervisory Hig hlights focuses on significant finding s across the entire s tudent loan market. The first group of fin dings relates to the refinance marke t. Examiners id entified abusive misleadin g statemen ts regard ing loss of f ederal bene fits as w ell as regula tory viol ations in connec tion with the refinanc ing and c onsolid ation of loans. T he se con d gro up i nvolve s the offering by priva te lenders of illuso ry benefits, inc luding unemploymen t and disability protect ions as well as rat e reduction s fo r autopay. The third group in volves noteholde r liability for claims of scho ol misconduc t. Examine rs iden tified violat ions relat ed to private stu dent loan service rs’ treatm ent of borr owers who se loan con tracts ha ve provisi ons allowi ng them t o assert any cl aims and def enses they have again st their sc hool, such a s for frau d, again st the subs equent noteholder. T he fourth group of fin dings involv es illegal collecti on tacti cs, such as c ontract provisi ons allowi ng scho ols to with hold acade mic transc ripts of d elinq uent b orro wers. The fifth and last group of findings relat e to the servicing of f e deral studen t loans. F or over t hree years, pa yments on these loa ns were paus ed due t o the COVID - 19 pandemic. During tha t time, appro ximately 20 mi llion bor rower accoun ts were tra nsferr ed to different fede ral stude nt loan 1 12 U.S. C. § 54 81 et s eq. 2 15 U.S.C. § 1 693, et seq: 1 2 C.F. R. Part 1005, et s eq. 3 15 U.S.C. § 1 601, et s eq: 12 C.F.R. Par t 10 26, et s eq.

S UPERVISORY HI GHLIGHTS: SPECIAL EDITION STUDENT LENDING, ISSUE 36 (WINTER 2024) 3 SUPERVISOR Y HIGHLIGHTS: SPECIAL EDITION STUDENT LENDING ISSUE 36 (WINTER 2024) service rs. In Septembe r 2023, inte rest beg an accruing on ne arly $1.5 t rillion in fe derally owned loans o wed by approxi mately 43 million co nsumers. In O ctob er 20 23, loan payment obligatio ns resumed for around 28 milli on b orro wers – includ ing more than 6 million enteri ng rep ayment for the first time. Ma ny of these borrowe rs app lie d fo r inco me - d riven repayme nt (IDR) plans t o reduce t heir month ly payment amounts. Our rec ent super visory work i dentifie d significa nt and pe rvasive vi olation s related to s ervicers’ handling of the re turn to repayme nt. These violations inc lude fai ling to provide appropriate avenu es for consu mers to co mmunica te with the ir servic e rs, sending d eceptive bil ling statem ents, withd rawing excess amoun ts from b orrowers ’ deposit a ccounts, a nd numer ous problem s related to process ing of IDR applica tions. To mainta in the an onymity of the supe rvised ins titution s discuss ed in Supervisory H ighlights, refere nces to i nstitutions ge nerally are in the plural and the related findings may p ertain to o ne or more in stitution s. 4 We invit e readers with quest ions or com ments abo ut Supervis ory Highligh ts to con tact us a t CFPBSupervision@cfpb.gov. 4 If a supervisory mat ter is referred t o the Office of Enforcement, Enforcement may cite ad ditional violations base d on t hese facts or uncove r additional information that could impact the conclusion as to what violations may exist. <a href="mailto:CFPBSupervision@cfpb.gov">

S UPERVISORY HI GHLIGHTS: SPECIAL EDITION STUDENT LENDING, ISSUE 36 (WINTER 2024) 4 SUPERVISOR Y HIGHLIGHTS: SPECIAL EDITION STUDENT LENDING ISSUE 36 (WINTER 2024) 2. Supervi sory O bservati ons 2.1 Refinanci ng student lo ans Refina ncing stud ent loan s poses risk s for borr owers, incl uding lo ss of benefi ts tied to fed eral student l oans. In a ddition to other ben efits, f ede ral stud ent loans off er access to various forgiv eness progra ms. Fo r example, un der the Pu blic Servi ce Loan Forgiven ess progra m, eligi ble borrowe rs can have their rem aining loan balanc e for given after m aking 120 quali fying lo an payme nts on an I DR p lan, wh ile w orking for a qual ifying public servic e employer. Under the Teache r Loan Forgi veness pr ogram, t eachers may b e elig ible to have a portion o f their loans forgiven aft er working for five yea rs in low - inc ome public s chools. When borr owers refi nance o r co nsoli date these lo ans th rou gh a p riv ate lende r, the y lo se th ese ben efit s and p ro tecti ons. 2.1.1 Deceptive repre sentatio ns abou t eligibi lity fo r forgivenes s upo n refinanc ing fe deral stud ent lo ans Exami ners found that pri vate lend ers offerin g to refina nce federa l studen t loans engaged i n decepti ve acts or pra ctices wher e their ma rketing a nd disclosu re materia ls giv e a misleadin g net impress ion that ref inancing fe deral lo ans mig ht no t result i n forfeitin g access to federa l forg iven ess p rog rams, when, in fact, it was a certainty. A representa tion, omis sion, act, or practic e is decepti ve when: (1) the rep resentation, omis sion, act, or practic e misleads or is likely to mislea d the consu mer; (2) the consum er’s int erpretati on of the re presenta tion, omi ssion, act or prac tice is reas onable under the ci rcumstan ces; an d (3) the mislea ding rep resentati on, omission, act or p ractice is ma terial. 5 Exami ners observ ed that the lender s repeatedly disclose d some of t he benefits borrower s would lose acc ess to if th ey refina nced their f ederal loan s into pri vate loan s, but omi tted the fact that borrow ers would l ose access to forgiv eness pla ns. In one instance, the lender s said borr owers “may” l ose access t o federa l benefits, d espite i t being a cer tainty. In phone calls about refi nancing feder al loans, the lenders scr ipted respo nses to dire ct questions about loan forgiv eness that omitted the loss of for given ess benefits upon re finance. 5 12 U.S. C. § 5531.

S UPERVISORY HI GHLIGHTS: SPECIAL EDITION STUDENT LENDING, ISSUE 36 (WINTER 2024) 5 SUPERVISOR Y HIGHLIGHTS: SPECIAL EDITION STUDENT LENDING ISSUE 36 (WINTER 2024) Thes e stat ement s were m islea ding becaus e they creat ed the n et im pressi on that borr owers c ould refinanc e their loa ns with t he lenders without lo sing acce ss to forgi veness pr ograms, w hich is false. T he borrow ers’ int erpretation of the re presentati ons was rea sonable, as borrow ers are entitl ed to accept s tatemen ts on the len ders’ webs ite and th e lenders’ r espon ses to direct question s in asse ssing the pro s and con s of refina ncing fede ral student l oans. The repres entations a re materi al as they m ay affect borrower s ’ decisions re garding whet her to refi nance their federal loans. 2.1.2 Abusive p ractic e in con nectio n with t he loss o f forgivenes s ben efits up on refin anci ng federal studen t loans Exami ners also fo und insta nces of abusi ve acts or practic es by privat e lender s in co nnection with mi sleading st atements abou t federal fo rgiveness in connectio n with ref inancing fe deral loans by p rivate l enders. An abusive act or practi ce: (1) mat erially in terfere s with the a bility of a consume r to under stand a term or cond ition of a c onsumer fi nancial product or s ervice; or (2) takes unreasonab le advantage of: a lack o f understandi ng on the p art of the consumer o f the materia l risks, c osts or con ditions of the product or servic e; the ability of the cons umer to protect the interes t of the con sumer in sel ecting o r using a fina ncial pro duct or s ervice; or t he reasonab le relianc e by the cons umer on a covere d person t o act in the interest of the consume r. 6 Examiner s found that the le nders eng aged in abusive acts or practices by taking unre asonable advanta ge of a lack of understa nding on the part of b orrowers regardin g the mate rial risks, costs, or conditions o f refinancing f ederal loans into private loans. The lende rs took unreas onable adva ntage of b orrowers where th eir repres entations m isled borr owers ab out the federal b enefits a t risk when borrow er s refinan ce their stu dent loan s. Here, th e lenders c reated the impre ssion th at refinancing federal lo ans may no t resu lt in forfe iting access to federal forgiv eness program s. The le nders profite d from borro wers payi ng the full amou nt of their loans, whe n the bor rowers otherwi se potentially could have had so me or all of those loans for given. They als o gained custom ers who mig ht not oth erwise refin ance th eir loans wi th the lend ers, expan ding their market share. And t hey in creased loa n amounts when bor rowers con solidated f ederal loa ns with private loans, wh ich increased the ir revenu e from in terest on th e loans. B orrower c omplaints 6 12 U.S.C. § 55 35(a)(1)(B). See als o CFPB Policy on Abusiv e Acts or Practices, April 3, 2023, avail abl e at: https: //www.con sumer fina nce.go v/co mplia nce/s uper visor y - guidance/policy - statement - on - abusiveness/#1

S UPERVISORY HI GHLIGHTS: SPECIAL EDITION STUDENT LENDING, ISSUE 36 (WINTER 2024) 6 SUPERVISOR Y HIGHLIGHTS: SPECIAL EDITION STUDENT LENDING ISSUE 36 (WINTER 2024) evide nced a lack of understand ing about the impact o n eligibili ty for lo an forgiveness and confusi on based on the lend ers’ repre sentati ons. 2.1.3 Failure t o re - amortiz e consol idated l oans af ter borrowers’ reques ts to exclude certain loans Exami ners found that studen t loan o riginators engaged in unf air acts or practices by failin g to re - amorti ze or offer to re - amortize a co nsolidate d refinance d student loan when the borrower requested a modifi cation to th e loan pac kage to exclud e certai n loans duri ng the three - day cance llation pe riod. An act o r practice i s unfair w hen: (1) i t causes or i s likely to cau se substan tial inju ry to consu mers; (2) th e injury is n ot reas onably avo idable by consumer s; and (3) the inj ury is n ot outweighe d by counte rvailing benefits t o consumer s or to com petition. 7 When s eeking to re finance pri vate stud ent loans, borrower s noticed t hat lender s erroneou sly includ ed federal s tudent loans i n the ref inance packag e and reque sted, with in the app licable thre e - day cance llation per iod, to h ave the fede ral loans excluded. Lend ers f ailed t o exclu de th e loans fr om the refi nance package before th e new loan fund ed and the lenders had paid off th e feder al loans. Upon realizing t hat the y should not hav e included the federal loans in the package, the l ender s sub sequ ently r emov ed the f ede ral loans and recoupe d the payoff amounts. But rat her than re - am ortizing or of fering to re - amortize the re financed loan, they mere ly reduced t he princi pal. Th is tactic low ered the am ount ow ed and shor tened th e loan term but did not change t he monthly p a yme nt. This practice was unfair because it caus ed or was li kely to cause substantia l injury to borrow ers beca use they we re charged monthly p ayments large r than what they would h ave been char ged had the federal loan s no t been inc luded and not give n a choice about how to alloc ate the ir funds. Borro wers could not reasonably av oid the injuries bec ause the y coul d not cont rol lend ers’ decisi ons not to re - a mort ize or offer to re - am ortize the loa ns. T he inju ries ou tweig hed an y countervailin g benefits to con sumers or compe titio n. 2.1.4 Failure t o cance l loans du ring th ree - day cancell ation period Exami ners found that studen t loan o riginators violated Reg ulation Z 8 by not allowi ng borr owers to canc el private education loans with out pena lty before m idnight of t he third bu siness da y 7 12 U.S.C. §§5531 and 5536. 8 12 C.F.R. § 1 026.48 (d).

S UPERVISORY HI GHLIGHTS: SPECIAL EDITION STUDENT LENDING, ISSUE 36 (WINTER 2024) 7 SUPERVISOR Y HIGHLIGHTS: SPECIAL EDITION STUDENT LENDING ISSUE 36 (WINTER 2024) followin g the date on wh ich the borrower rec eived the dis closur es as requ ired. 9 Specific ally, lender s violated the regulati on by f ailing to c ancel the refi nancing of f ederal loans as requested by borro wers with in the three - day canc ellation per iod. 2.2 Illusory benefits offered by private lenders 2.2.1 U nfai r deni al of disabil ity benefi ts Exami ners found that lend ers engage d in unfair acts or pra ctices by d enying bo rrowers’ appli cations for d ischarge b ased on Total and Permane nt Disabi lity for reasons other than those ident ified in the l oan note w here th ey oth erwis e satis fied t he cri teria f or discharg e based on Total and Permane nt Disabilit y. Exami ners observe d that b orro wers ’ loan no tes provided for Total and Permane nt Disabi lity dischar ge based o n the criterio n that borro wers were u nable to e ngage in any sub stantial gai nful activ ity due to a p hysical or mental impair ment of a certai n type. The lenders de nied applications for Total and Permane nt Disabili ty dischar ges based o n criteria not included in the loan not e. This pra ctice cau sed substa ntial injury becaus e borrowers w ere requi red to con tinue to ma ke loan paym ents on lo ans that should have bee n discharged ac cording to t he contrac t terms. Borrower s may be req uired to p ay down loan balanc es of th ousands of dollars e ach. The in jur y is not reaso nably avo idable because borrow ers have no way to prev ent th e len ders fr om appl ying addit ional crite ria to their d ischarge applications. The inju ry does not outweigh any countervailin g benefits to con sumers or competi tion. 9 12 C.F.R. § 1026.47(c).

S UPERVISORY HI GHLIGHTS: SPECIAL EDITION STUDENT LENDING, ISSUE 36 (WINTER 2024) 8 SUPERVISOR Y HIGHLIGHTS: SPECIAL EDITION STUDENT LENDING ISSUE 36 (WINTER 2024) 2.2.2 Deceptive misreprese ntations regarding auto pay discount Exami ners found that pri vate student l enders en gaged in d eceptive ac ts or prac tices by inaccu rately repre senting th at the ir autopay dis count wa s not availa ble to bo rrowers wit h certai n types of loans when in fact t hey were eligi ble. The lenders had policies provi ding qualifying bor rowers with a dis count of 0.25% on t he ir student loan interest rate if t hey si gn up for autopay. O n their onl ine borrow er portal s, the lender s represente d that ce rtain type s of loans d id not qua lify for an autopa y rate reduction, just befo re a lin k to en roll i n auto pay. Ho wev er, thes e typ es of l oans ha d bec ome elig ibl e for the autopa y discoun t five years ea rlier. This rep resentati on misl ed or was lik ely to misl ead borro wers, as it m isstated t hat certain borr owers were n ot eligi ble f or the a utopa y disc ount when t hey we re, in fact, eli gible. Borrowe rs’ interpr etatio n of the represent ation was reasonable, as it is re asonable for borrow ers to take at face valu e an expr ess claim on their lend er’s porta l regardi ng its poli cies for a utopay elig ibility. The rep resentati on is mater ial, as b orrowers often enroll in autopa y to rece ive the disc ount on their studen t loan inter est rate. So me borr owers w ho beli eve th ey are inelig ible f or the a utopay rate red uction be cause they accepted t he lenders ’ misleadi ng misrep resentation s may no t sign up for autopay, and t hey may pay mo re in inte rest than the y would have otherwise. 2.2.3 Illusory unempl oyment pr otections Privat e st ude nt l oan or iginators adver tised on th eir websit e s and on pho ne calls wit h borrow ers that priva te studen t loan borr owers coul d suspend their loan payments if t hey lost th eir job. Exami ners found that the lend ers contin ued to ad vertise thi s as a n attri bute of their private student l oans, ev en after the lenders un ilateral ly replac ed the unempl oyme nt program w ith a less generous one tha t only all owed borr owers to reduce thei r payments du ring unempl oyment, but only if the borr ower met n ew ability - to - pay el igibility cri teri a. Exami ners identif ied two l aw violati ons related t o adverti sing this unemplo yment progra m, unilate rally eli minating the benefit, and then faili ng to ho nor it. Exami ners found that enti ties offering pri vate stu dent l oa ns e ngaged i n deceptive act s or pr actice s by false ly advertising th at private student loan b orrowe rs co uld susp end thei r payme nts for short periods of unemployment when, in fact, the lende r s no longer allowe d borrow ers to do so.

S UPERVISORY HI GHLIGHTS: SPECIAL EDITION STUDENT LENDING, ISSUE 36 (WINTER 2024) 9 SUPERVISOR Y HIGHLIGHTS: SPECIAL EDITION STUDENT LENDING ISSUE 36 (WINTER 2024) The st atem ents w ere lik ely to misl ead rea sona ble borr ower s into believing that suspension of the paym ents woul d be avail able if th ey lost thei r job. In fact, af ter a point, the len der s no longer offer ed thi s benef it. Borrowers may rea sonably ta ke the we bsites and l ender s’ sta tement s at face value r egarding t he abilit y to suspend t heir pay ments durin g unempl oymen t. These repr esenta tions were ma teri al bec ause t hey we re lik ely to af fect b orrowers’ cho ice to or igi nate or refi nance their student loans bas ed on the av ailabilit y of the advertised benefit. Examiner s also found that p rivate student l oan originators engaged in abusive act s or practic e s by taking unreasonab le advant age of borro wers ’ inabil ity to prot ect their o wn interest in selectin g or using a consume r financia l product or servic e by promin ently adve rtising unemplo yment protec tions and the n elimi nating or not prov iding tho se protect ions after th e borrower had already el ected the l o ans. L enders t ook unrea sonable a dvantage of borrow ers by prom oting th e ability to s uspend payment s for perio ds of un employmen t to attrac t borrow ers, and then reducing c osts by signifi cantly roll ing back the unempl oyment prot ections. S ome pri vate stud ent loan b orrowers were una ble to pro tect their int erests b ecause th e lenders did n ot elimin ate the une mploymen t benef it until afte r the borr ower had taken out the loan. Once t hey w ere une mploy ed, bo rrowe rs also h ad few options to refi nance their pr ivate lo ans with a no ther le nder. And the bo rrowers ha d no cont rol over th e lenders’ d ecision to discontinu e the prot ections. 2.3 Noteholder liabi lity related to claims of school misconduc t St ude nt loa n borrow ers sometim es allege t heir scho ols fraudul ently in duced them t o enroll a nd to secur e private s tudent l oans to financ e their education. These borr owers may be able to discharg e certain loans d ue to their s chool’s mis conduct un der num erous sta te and f ederal laws and prot ections. For ex ample, t he Borrower - Defense - to - Repayment re gulatio n, 34 C.F.R. §§ 685.400 et seq, all ows borro wers to chal lenge th e validity of federal loans tha t they beli eve were origina ted due to sc hool mi sconduct. I f the borr ower is su ccessful, t he borrow ers’ federal stude nt loans are complete ly expunged and any amou nts they paid on those lo ans refunded. As of May 1, 2024, the U.S. D epartme nt of Education ha d discharg ed $ 28.7 billion dollars for 1.6

S UPERVISORY HI GHLIGHTS: SPECIAL EDITION STUDENT LENDING, ISSUE 36 (WINTER 2024) 10 SUPERVISOR Y HIGHLIGHTS: SPECIAL EDITION STUDENT LENDING ISSUE 36 (WINTER 2024) million borrowe rs who were c heated by t heir scho ols, saw thei r institut ions preci pitously close, or ar e cover ed by r elate d cou rt set tlemen ts. 10 T he Bor rower - Defe nse - to - Rep ayment regula tion does no t apply to private stud ent loan s. Ho wever, o ther legal p rotection s may allow b orrowers t o seek to ha ve their private stu dent loans discharg ed based on school mi sconduc t. Many pr ivate studen t loans inc lude a cont ractual guarante e in the pr omissory note – which ma y be required by the F eder al T rade C ommission ’s Ho lder - in - Due - Cou rse Ru le 11 – that th e borrow er can asser t against an y subse quent loan h older any cl aim the borr ower has a gainst thei r school. In other w ords, pro visions i n borrower s’ private student l oan cont racts often en sure tha t a borrow er can ass ert school m isconduc t as a basi s fo r loan dis charge re gardless of who holds the loan. Exami ners identif ied two viol ations r elated to p rivate stude nt loan servicer s’ treatment of borrow ers whose loa n con tracts have provisi ons allowi ng them to challenge the ir loans ag ainst subsequ ent notehold ers and who alle ge mi sconduct b y their s chools. 2.3.1 Misleadi ng borr owers ab out the ir contract ual ri ghts to challenge fraudul ent loans Examiner s revi ewed priv ate stu dent loan servicers’ p ractices in conn ection wi th borrowe r co ntrac ts that co nt ai n ed lan guage statin g that any holder of th e contrac t is subject t o all cla ims and def enses that t he borrow er would ha ve been a ble to asse rt against th e ir sch ool. They f ound that th e servicer s engaged i n deceptive a cts or pra ctices wh en they im plied to these borrowers that the y could no t challenge their lo ans using claims or def enses the y could have had against their scho ols. In ema il resp onses to bor rower com plaint s (both th os e m ade di rec tly to serv ice rs and to c omplaints r eferred by the CFPB), servi cers stated t hat ther e was no dis charge prog ram available to these borrowers. In fact, provision s in their l oan note s guarante ed their rig ht to allege f raud by th eir schools a s a claim o r defense a gainst repay ment. This stat ement wa s likely to mislead borrower s b y implying that they could not challenge the ir loans us ing clai ms or defenses they could h ave had ag ainst thei r schoo l. The bo rrower s’ interpr etatio n of the state ment to me an that they h ad no ave nues for ch allenging their pr ivate loans ba sed on thei r school’s c onduct is reasonabl e under th e circumstan ces, as t hey are enti tled 10 Press Releas e, U.S. Department of E ducation, Bid en -Ha rris Administration A pproves $6.1 Billion Group Stude nt Loan Discharge for 317,000 Borrowers Who Attended The Art Instit utes, (May 1, 2024) (https://www.ed.gov/about /news/press - release/b iden - harris - admin istr ation - approves -61- billion - grou p - student - loan). 11 16 C.F.R. § 433.2.

S UPERVISORY HI GHLIGHTS: SPECIAL EDITION STUDENT LENDING, ISSUE 36 (WINTER 2024) 11 SUPERVISOR Y HIGHLIGHTS: SPECIAL EDITION STUDENT LENDING ISSUE 36 (WINTER 2024) to acce pt that their servic ers are provi ding ac curate info rmation ab out the bo rrower’s ri ghts. Th e service rs’ repres entation s were mate rial becau se they li kely affec ted the bo rrowers’ d ecisions regardin g whether to pursu e their claims. 2.3.2 Failure t o consi der bo rrowers’ allegati ons of fraud in contraventi on of contrac t Exami ners found that pri vate student l oan servi cers enga ged in an unfair act or prac tice by failin g to conside r most borr owers’ c hallenges t o their l oans relate d to school miscondu ct, using claims o r defense s they could have had aga inst th eir school s. The ser vicers l acked polici es and procedu res to effe ctively conside r most bo rrowers ’ ch allen ges regardin g their schools and failed to do so even t hough pro visions in the borrow ers’ loan notes gu aranteed the borrowers’ rig ht to assert s uch challenges. Se rvice rs consider ed borrow ers’ claims a gainst t heir school s only if the bor rowers retained attorneys. This pra ctice resu lted in su bstantial injury to consumers because it ca used bo rrowers to forgo furth er attempts t o challen ge their l oans or re quired them to in cur the co sts nece ssary to obtai n an attorn ey. Borr owers c ould not reasonabl y avoid the in jury beca use they could not kn ow that the ser vicer would disreg ard contrac tual prov isions in their loan notes pr oviding tha t any hold er of the con tract is su bject to all claims an d defenses tha t the bo rrower woul d have be en able to assert ag ainst the s eller. T he injury i s not outw eighed by an y counterva iling b enefits to consume rs or competit ion. 2.3.3 Corrective ac tions -- p rocess fo r consid ering bo rrowe r claims of school misconduc t To addre ss these U DAAPs rela ted to n otehold er liability, Supe rvision di rected the priva te student loan len ders and servi cers to maintain and p ublicize a robust process to consider borrow er claims o f miscon duct by thei r school. M ore specifically, Supervision direct ed th e entitie s to impl ement a claim s - revi ew process tha t is not unduly burdensome for the borrow ers and gives due defe rence to fi ndings of the U.S. Depart ment of Educ ation or cou rts regard ing claims of miscondu ct, fra ud, or misr epresenta tion by a bo rrower’s s chool; that is public and eas ily a cce ssib l e; and th at ensu res any denials are individualize d and detailed. With respect to privat e student l oans wher e the entity had actual not ice that the U.S. Departme nt of Educat ion or a cour t had made a f inding of f raud, mis conduc t, or misre presenta tion by the school t hat result ed in discha rge of loan s to attend that schoo l, Supervision further dir ected the entities to su sp e nd collecti ons until they prov ided the b orrower wit h a detaile d reason why their priva te loans we re not th e result of sim ilar miscond uct.

S UPERVISORY HI GHLIGHTS: SPECIAL EDITION STUDENT LENDING, ISSUE 36 (WINTER 2024) 12 SUPERVISOR Y HIGHLIGHTS: SPECIAL EDITION STUDENT LENDING ISSUE 36 (WINTER 2024) 2.4 Illegal loan collection tactics 2.4.1 False thr eat of l egal actio n Exami ners found that pri vate student l oan servi cers enga ged in dec eptive a cts or prac tices when they included language in co llectio n letters th at gave the m isleading impressio n that the service rs would take legal act ion agains t borrow ers who fell behind on l oan pay ments. Se rvicers sent lett ers to bor rowers that i ncluded languag e about enfor cing coll ection of debts and addi ng legal co sts to borrow ers’ debts if the borro wers did not pay. In fact, th e servicers had n o practice of bri nging legal ac tions and inc urred n o legal cos ts associat ed with pu rsuing pa st due amoun ts during the exam peri od. I ns tead, th e se rvice rs ret urne d sever ely del inqu ent a ccoun ts back to the noteho lder. This act o r practice was lik ely to mislea d borrow ers because t hey could r easona bly unders tand the lette rs to mean that the se rvicer may bring le gal action against borrowers w hen, in fa ct, the service r had no p olicy of bring ing legal a ctions. T his unde rstan ding is reaso nable bec ause bor rowers have no way of knowing that the serv icers do not bring legal actions to collec t debts as a matte r of policy. T he repres entation is m ateria l because it i s likely t o affect bor rowers’ decis ions regardi ng making paym ents o n the ir d eb ts. In re spons e to th ese fin din gs, ser vicer s remov ed the l angua ge ref erenc ing l egal ac tions f rom their l etters. 2.4.2 W ithholdin g trans cripts as a re medy for default Academic transcri pt s are cer tified record s of a student over their cours e of study. They prov ide informa tion abou t cours es taken, c ourses com pleted, grad es, cre dits earne d, certain c redentia ls like ma jors or min ors, and gra duation s tatus. T ranscripts p rovide ess ential documenta tion of consume rs’ post - sec ondary ed ucation hi stories. When requ ested, ins titution s provide, o r authori ze third parties to p rovi de, official trans cripts to prospe ctive emplo yers, state licensin g or credent ialing age nc ies, and o ther po st - secondary instituti ons. Employ ers or licen sing agen cies requ ire officia l transcri pts for a ran ge of rea sons. For example, some empl oyers may requir e transcri pts to confi rm the acc uracy of a pplica nts’ resume s, and licensin g author ities use th em to dem onstrate tha t applica nts obtai n ed the requisit e training. Consum ers also n eed transcri pts when a pplying t o other post - secondary institu tions as tran sfer student s or for hi gher level de grees or c redentia ls. Student s may ne ed to demon strate t heir

S UPERVISORY HI GHLIGHTS: SPECIAL EDITION STUDENT LENDING, ISSUE 36 (WINTER 2024) 13 SUPERVISOR Y HIGHLIGHTS: SPECIAL EDITION STUDENT LENDING ISSUE 36 (WINTER 2024) comple ted course work to obtain credi t for that ed ucation a nd progre ss toward a terminal de gree or creden tial. Mo reover, even when c onsumers d o not need or wish to receive c redit for a ny prior edu cation, s ome post - secondary institu tions still require th e co nsumer to p rovide official transc ripts prior to enrol lment. During examinations of entiti es that creat ed and d istributed model reta il install ment cont racts to sch ools, examiners i dentified co ntracts th at containe d language th at allowe d for the withhol ding of tra nscripts i n situation s where stu dent borr owers wer e in defaul t on their educat ion loans. Th e model cont racts co ntained language allow ing educatio nal instit utions, as a remedy for default, to “ wit hh old [the s tude nt] ’s tr anscripts [or] cours e completi on certifi cates.” S choo ls used these m odel con tracts to orig i nate insti tutional loans and re assigned th e loans back t o the entitie s for servic ing. Examiner s fou nd tha t the entiti es risked engaging i n an abusiv e act or pra ctice by taking unreas onable adva ntage of c onsumer s’ inabil ity to pr otect their in terests w hen they created and dis tri bute d to th eir cl ient s ’ contrac ts for institu tion al student l oans that c ontained l anguag e allowing, as a reme dy for def ault, uncond itional withh olding o f official t ranscripts as a blanke t po l ic y. 12 The entiti es risked gaining unreasonab le advantage from the ac t or practice of creat ing contra cts that perm itted educational instituti ons to enga ge in bla nket withhol ding of tra nscripts. Eve n tho ugh the entitie s did not d irectly b enefit from t he contra ct provisi on, the p rovision enabled their partn er schools to engage in st rong - a rm collecti on tactic s and could p rovide them with an adv antage by boosting their m arket shar e or rev enue. Borrowe rs were una ble to prot ect their int erests b ecause at th e time they n eeded an of ficial tra nscript fo r a job, creden tial, or access to continue d education, they were u nable to pro tec t th emse lves by se eki ng ano ther educ ation elsew here o r seekin g cr edit el sewh ere, si nce ot her len ders w ere un likel y to pr ovide credit to borrower s of these sc hools wh o are in this p osition. Nor coul d the bor rower s h ave protect ed themsel ves by ch oosing an a lternativ e provid er at the time of origin ation of t he loan, as they ca nnot barga in ove r transcri pt withhold ing provi sions, an d borrow ers are unlik ely to select a s chool or loa n based on these prov isions, as oppose d t o factors rel ating to the e ducation itse l f. 12 Examiners previously found that institutions engaged in abusive acts or practices by withholding official transcri pts as a blanket policy in conj unction with the extension so credit. See CF PB Supervisory Highlights, Issue 27 (Fall 2022), ava ilabl e at: https:/ /files.consumerfinance. gov/f/documents/cfpb_ student - loan - servic ing -su pervisory- highli ghts - special - edition re port 2022 - 0 9. pdf.

S UPERVISORY HI GHLIGHTS: SPECIAL EDITION STUDENT LENDING, ISSUE 36 (WINTER 2024) 14 SUPERVISOR Y HIGHLIGHTS: SPECIAL EDITION STUDENT LENDING ISSUE 36 (WINTER 2024) In resp onse to thes e findi ngs, the enti ties rem oved the con tract lan guage and advised th eir client school s to cease uti lizing th e contract p rovision. 2.4.3 Preventing acce ss to ed ucation as a r emedy of defa ult Exami ners conduct ed reviews of entiti es that cr eated and di stribut ed model r etail insta llment contrac ts to schoo ls who the n originate d instit utional loans and th en assig ned the loans to the entities for s ervicing. The model con tracts requir ed repayment durin g the in - schoo l per iod and contai ned language allowing, as a remed y for default, educ ational inst itutions to “d eny Buyer access t o classes, c omputer s, final exa ms, and ot her educa tion servi ces at the Sc hool, ter minate or suspe nd Buyer’s enrollment, deny or canc el Buyer’ s registrat ion for ad ditional classes, […] and tak e other simil ar action s affectin g Buyer’s s tatus as a student a t the Sch ool[.] ” Exami ners found that entiti es risked en gaging in unfair a cts or pra ctices by distributin g to the ir cli ents contra cts for ins titution al student l oans whic h required repaym ent during the in - s choo l peri od that co ntain language stating th at a remed y for defau lt is to deny s tudents ac cess to classes o r other se rvices rel ated to on going educa tion. This language create d a risk of injury to consume rs because if t hey default ed, then school s could deny t hem access t o education progr ams that cons umers had alread y paid for, in cluding po tentially with other l oans or sav ings. Addition ally, sinc e jobs t hat require a dvanced educati on generall y pay more, this practi ce reduces t he chance s that con sumers can earn thei r degree, a nd in turn reduces c onsumers’ pote ntial earning s, maki ng repaymen t of the un derlying d ebt more dif ficult. B orrowers a re unlik ely to select a school or l oan based on these pr ovisions, a s opposed to facto rs relating t o the educati on itself. Consum ers generall y do not exp ect to default, d o not consi der cons equ ences of defau lt whe n making product decis ions, and cannot b argain over cont ractual te rms. O nce t he consume r default s, there is no way t o avoid the inj ury of missin g class es and oth er education benefi ts beca use the school control s access to class es. The injury caus ed by th e practic es were not outweig hed by counter vailing bene fits to consumers or com petition. In resp onse to thes e findi ngs, the enti ties rem oved the con tract lan guage and advised th eir cli ent school s to cease uti lizing th e contract p rovision. 2.4.4 Debiting fu nds early Many stud ent - loan bor rowers make payments th rough auto debits, known as elect ronic fund transf ers. Unde r Regulation E, the servi cer, or d esignated pa yee, must obtain written

S UPERVISORY HI GHLIGHTS: SPECIAL EDITION STUDENT LENDING, ISSUE 36 (WINTER 2024) 15 SUPERVISOR Y HIGHLIGHTS: SPECIAL EDITION STUDENT LENDING ISSUE 36 (WINTER 2024) authori zation befo re transferrin g funds from con sumers’ acco unts. 13 The wri tten auth orizati on specifi es the date the paymen t will be wit hdrawn. Examin ers found tha t service rs violated t his provisi on when they obtain ed written auth orization s to withdraw f unds on a specified da te but instea d withdrew t he amounts one to thre e days pri or to the dat e in the wri tten auth orization. Because the funds w ere not wi thdrawn on the date in the writt en autho rization, t he payee di d not have written a uthoriz ation for t he transfer s and violat ed Regula tion E. In respons e to these findings, s erv icers are revising th eir policies and d eveloping a remed iatio n plan. 2.4.5 Failing t o notify consume rs of c hanged p reauth orized electroni c funds transfe r amoun ts Examiners cont inue to identify i ssues with failur es to notify consu mers of preaut horized elect ronic fund t ransfers th at vary in amo unt. 14 Consum ers entered in to agre ements to wi thdraw the mon thly paym ent amount, a nd the s ervicer to ok the mont hly paymen t amount, but did not infor m consumers whe n that amount had changed from the previous mo nth. Regul ation E requi res the de signa ted pa yee of a preauth orized el ectronic fun d transf er from a con sumer’ s accoun t to provid e the con sumer with wri tten noti ce of the am ount and da te of th e transfer a t least 10 da ys befor e the sch eduled tran sfer date if the amoun t will vary f rom the p revious transf er under t he same auth orization or from th e preauthor ized amo unt. 15 Examiner s found that se rvicers viol ated thi s provision when th ey did not pr ovide writ ten notic es to consum ers before withdrawin g an amoun t that exc eeded the pr evious tran sfer und er the same authori zation. In respons e to these fin dings, se rvicers a re revis in g their poli cies and develo ping a remed iation p lan. 13 12 C.F.R. § 1 005.10 (b). 14 Supervisory Highlights, Iss ue 34 S ummer 20 24 is a vaila ble a t: Su pervis ory Hi ghl ights: S ervic ing a nd Collection o f Consumer Debt, Issue 34 (Sum mer 2024) | Consu mer Financial Prot ection Bureau 15 12 C.F.R. § 1 005.10 (d)(1).

S UPERVISORY HI GHLIGHTS: SPECIAL EDITION STUDENT LENDING, ISSUE 36 (WINTER 2024) 16 SUPERVISOR Y HIGHLIGHTS: SPECIAL EDITION STUDENT LENDING ISSUE 36 (WINTER 2024) 2.5 Federal student l oan servicing dur ing the return to repay ment 2.5.1 Extended f ailur e to prov ide ade quate ave nues f or borrower s to m anage key loan issues by phon e Feder al st udent l oan serv icers opera te call c enters throu gh which they offer borrower s variou s service s to addres s key loa n issues by ph one. Thes e issues in clude resol ving d isputes, in quiring about ac count stat us, enrolling in federal r epayment p rogr ams, and making loan p aymen ts. Despi te purp orting to offer the a bility to ad dress key loan issues by phone, servicers fa iled to provide, for exten ded tim e periods, ad equate a venues for borrowers to mana ge key aspects of their l oans over th e phone. Durin g the r eturn to rep aymen t in t he fall o f 202 3, exa miner s revi ewed m etrics the s ervicer s provided on a biweekly b asis regardin g how they handled incom ing calls from student loan borrow ers. These metric s covered av erage call - hold tim e, abandonme nt rate, callb ack spee d, and call - center staff ing levels. In this period, borro wers calli ng their s ervicers fa ced key a verage call hold times of 40 - 58 minut es. Average hold t imes exc eeded 30 minu tes during 57 - 9 1 percent of oper ating hours. And more than 41 perce nt of borrow ers abandon ed their calls before connect ing with an ag ent. The periods of u navailabi lity laste d multip le weeks. Examiner s conclu ded that that a la ck of over sight contr ibuted t o these fail ures. Servi cers’ boa rds did not provid e for the appropria te staffing levels to handle the influx of calls generated fr om the federal r eturn to r epayment p rocess. Supervi sion foun d that t he servicers’ failur es to provid e, for an ext ended p eriod, an a dequate avenu e for borrow ers to timely resolv e disputes, in quire a bout accoun t status, o r in enroll in feder al repayment programs, whe n they offe red the opti on of addr essing the se issues by phone amounte d to unfair ac ts or pr actices i n violation o f 12 U.S.C. §§ 5531 and 5536. The failures caused or were like ly to cause borrowers s ubstantial inju ry by w asting ti me, delaying infor mation, and de la ying their abili ty to apply for be nefits, w hich can re sult in incre ased payment a mounts o r delayed l oan forgi veness. Bo rrowers ca nnot avoid this injury because t hey do not c hoose thei r loan servi cer and ha ve no con trol over its le vel of servi ce, and oth er me th ods of see king assist ance like onli ne accou nt access or callbacks were unav ailable or ineffec tive. And they cannot reso lve individu alized i ssues throu gh other channe ls such as online acc ounts. Th is injury is n ot outw eighed by a ny counter vailing b enefits to b orrowers o r comp etition.

S UPERVISORY HI GHLIGHTS: SPECIAL EDITION STUDENT LENDING, ISSUE 36 (WINTER 2024) Supervi sion als o foun d that these failures violate d the CFPA’s prohib ition against abusive ac ts or practic es. 16 The servi cers took u nreasonable ad vantage o f the borrowe rs’ inab ility to pr otect their own interes ts. Borr owers could n ot protec t their own interest s because th ey do not cho ose their l oan service r, nor ca n they cont rol their s ervicer’s l evel of se rvice. T he serv ice rs’ co nd uct prevent ed borrow ers atte mpting to pr otect thei r own inte rests in tim ely res olving dis putes or in accessin g benefi t progra ms by reachin g out to th eir servi cer — as inst ructed — from actually spea king t o a repr esenta tive who cou ld hel p them. Man y borrowers a lso could n ot protect their intere sts in avoid ing exte nsive hold tim es becau se they cou ld not resol ve some of their individ ualized is sues thr ough altern ative chan nels, su ch as onlin e account s. The servi cers gain ed an unreaso nable adv antage as they saved on operat ional expe nses, including fro m understaf fing their ca ll center s, which resul ted in ext ensive wa it times t hat many b orrowers c ould not avo id. In resp onse to thes e findi ngs, Supe rv i sio n directe d servicers to maintain adequat e avenu es for borrow ers to tim ely resolve d isputes, inquire a bout acco unt status, and enrol l in federal repayme nt programs by phone (inc luding by ensuring agai nst unreaso nably long ave rage call - hold times and unre asonably high call - drop ra tes for any extended period); develop and maintain p lans to address re asonably fore seeable s pikes i n borrower co mmunications demand to ensur e that, rega rdless of demand, borrower s consisten tly have adequate ave nues to manag e their l oans; identif y the borr owers who a ttempte d to call th eir servic ers, waite d more than an hour be fore abando ning their call, and wit hin three months took s ignificant act ion on the ir loan; and prov ide informat ion on bor rower re med iatio n. 2.5.2 Dec eptive bi llin g statem ents Exami ners found that federal s tudent loa n servic ers engaged in a dece ptive act or practic e by providi ng borrower s with inac curate payme nt amounts and d ue dates on billing st atements and disclosu res. Feder al student lo an servicers provided bo rrowers inacc urate month ly payme nt amounts due to both syst em weakn esses an d miscalcula tions. So me of the mi scalculati ons were due to the service rs misap plying federal poverty g uidelin es, using t he wrong fa mily siz e or income, or failin g to include spousal debt. Examin ers also r eviewed bil ling state ments or di sclosu res with incorr ect payment du e dates. These in cluded pro viding borrow ers incorre ct due dates pr ior to Octobe r 1, 2023, th e end of t he federal student l oa n paym ent pause, and giving repayment dates 16 12 U.S.C. § § 5531 an d 5536. 17 SUPERVISOR Y HIGHLIGHTS: S PECIAL E DITION STUDENT L ENDING ISSUE 36 (WI NTER 20 24)

S UPERVISORY HI GHLIGHTS: SPECIAL EDITION STUDENT LENDING, ISSUE 36 (WINTER 2024) 18 SUPERVISOR Y HIGHLIGHTS: SPECIAL EDITION STUDENT LENDING ISSUE 36 (WINTER 2024) to borr owers with p ending a nd approve d borrow er defens e applicati ons. Borro wers with pending or approve d borrower def ense applic ations sho uld have bee n in a forbe arance unt il the discharg e or deci sion proces s was com pleted. These mis represen tation s were likely to mislea d borrowe rs about the a mount th ey owed an d when thei r paymen t was due. Bo rrowers r easonab ly inter preted bill ing statem ents and disc losures from their fede ral student loan servi cers as an acc urate and reliable s ourc e of informa tion on th e amoun t due and due date for t heir paymen ts. Expre ss misre presentati ons or misre presentati ons regar ding centra l charact eristi cs such as co st or paym ent due da tes are material. 2.5.3 Debi ting u naut horized am ounts Regulat ion E require s the des ignated payee to obtain w ritte n authoriz ation before transferring funds from consumers ’ accounts. 17 Examiner s obser ved that studen t loan se rvicers obtai ned author izations that allowed them to with draw the monthly p ayment amo unt but the s ervicers then wi thdrew amount s that e xceeded the written payme nt amount, i n some cases instead withdr awing th e ent ire out standing loan balance. Be cause the authoriz ations allo wed the service rs to with draw only the monthly pa yment a mounts, t he preauth oriz ed electr onic funds transf ers were not a uthoriz ed in writin g and th erefore vi olated Regula tion E. In othe r instances, consum ers signed au thoriza tions tha t allowe d servicers to withdraw monthly payme nt amounts for certain loans from o ne deposi t account and monthly p ayment amounts for other lo ans from a different de po sit accoun t. The se rvicers t hen withd rew payment s for all the loan s from on e of the tw o de pos it accounts. B ecause the authoriz ation on ly allowed t he servic ers to withd raw the month ly payme nt amounts for specific lo ans and they instead w ithdrew monthl y payment a mounts fo r other loa ns, the pre authorize d electroni c funds tra nsfers w ere not aut horized in w riting and therefo re viola ted Regulati on E. 17 12 C.F.R. § 1005.10(b).

S UPERVISORY HI GHLIGHTS: SPECIAL EDITION STUDENT LENDING, ISSUE 36 (WINTER 2024) 19 SUPERVISOR Y HIGHLIGHTS: SPECIAL EDITION STUDENT LENDING ISSUE 36 (WINTER 2024) 2.5.4 Excess ive delay s in pr ocessi ng of appl ications for income - drive n repayme nt plans Feder al stude nt lo an borrowers are eligi ble for a numbe r of rep ayment plans that base month ly payme nts on their income and f amily size; these plans ar e calle d IDR plans. To enroll i n IDR plans, c onsumer s must submi t applicati ons to t heir servic ers who pr ocess the a pplication s. Exami ners found that servic ers engage d in unfair acts or pra ctices when t hey caus ed consum ers to exp erience exc essive dela ys in proces sing time s for IDR a pplication s. In m any review ed files, it took m ore than 90 calenda r days for ser vicers t o process th e I DR appli cations. Thes e delay s caused or w ere likely to cause substa ntial inj ury as inte rest contin ued to ac crue while servicers process ed IDR ap plicatio ns, so excess ive dela ys likely re sulted in unn ecessa ry accrued in terest. In addit ion, the delays may hav e prevented borr owers from making paym ents which count towards l oan forgi veness. T hese delay s also cau sed borrower s consid erable fru stration and wasted ti me as they r epeatedly tried to o btain inf ormation f rom servi cers abou t the statu s of their a pplication s. Co ns um e rs could not re asonably avoi d the injury be cause th ey do not ch oose their se rvicer an d have no con trol of how long it takes serv ice rs to rev iew a nd eval uate borrow ers’ applic ations. The injury to consume rs was not out weighe d by counter vailing b en efits to consu mers or to c ompetition. 2.5.5 Improper d enial s of appl ication s for inc ome - d riven repaymen t Exami ners found that servic ers engage d in unfair acts or pra ctices when t hey impro perly den ied consume rs’ IDR a pplicati ons. Examin ers foun d that se rvicers den ied consu mers’ appli cations for failing to provide sufficient income docum entation despite consume rs p roviding suffi cient docum entation of in come. Ex aminers a lso found that servi cers deni ed consum ers’ ap plications because they had i neligible lo an types, when in fact t he consumer s had eligible loans. T hese impro per denial s caused or w ere likely to cause substantial injur y because c onsumers who are improper ly denie d paid or were at risk of payi ng highe r monthly pay ments. Ad ditionally, some consume rs may ha ve spent tim e and reso urces ad dressing th e denials. C onsum ers could n ot reasonab ly avoid the injury b ecause servi cers are r esponsibl e for proce ssing IDR applica tions in accorda nce with processi ng require ments and c onsumers do not choos e their se rvicers. And the injury to con sumers is not outw eighed by counterv ailing benefits to con sumers or competi tion.

S UPERVISORY HI GHLIGHTS: SPECIAL EDITION STUDENT LENDING, ISSUE 36 (WINTER 2024) 20 SUPERVISOR Y HIGHLIGHTS: SPECIAL EDITION STUDENT LENDING ISSUE 36 (WINTER 2024) 2.5.6 Providing inacc urate d enial rea sons in r espons e to incom e - dr iven - repayme nt appli cations Exami ners found that servic ers engage d in decep tive acts or practic es by providi ng inaccu rate denial re asons to consumers who applied fo r IDR plans. The den ial let ters m isled o r wer e likely to mislead bo rrowers as the deni al reasons we re not accur ate, and in multiple cases, erron eously denied e li gib le cons umer s. It is reason able for borrowe rs to expect s ervicer s to properly ev aluate their eligibility for IDR pla ns and for denial letters to ac curately ex plain th e reasons w hy service rs deni ed th eir ID R appl ic ations. The misl eading re presenta tions we re materia l as the inaccura te denial reasons we re likely to influenc e borrow er choices with resp ect to apply ing for IDR plans by, for example, le ading to borr owers’ confu sion about eligibili ty criter ia and discou rag ing borr owers from re - applying for an IDR plan by te lling them to f ind and prov ide unneces sary addi tional inform ation in order to qualify. 2.5.7 Failure t o advis e consum ers of the option to v erbally provide i ncome in connec tion with incom e - driven - repaymen t appli cations During the COVID - 19 pandemic and t hrough Febru ary 29, 20 24, the Department of Educati on allowe d consumers to apply for IDR plans b y providing an at test ation of inco me over the ph one or in writi ng, this process wa s referre d to as self - certification. Exami ners found that servic ers engage d in unfair acts or pra ctices by fail ing to adv ise consume rs that th ey could self - certif y their inco me when app lying for an IDR plan. Cons umers contac ted their s ervicers to discuss t heir pendi ng IDR ap plications that we r e dela yed due to missing in come doc umen tation, but the servic er represen tatives di d not advis e consume rs that they c ould provide the missing informatio n by making an oral attest ation during the call. T hese acts or p ractices ca used or we re likely to cause sub stantial i njury beca use it caus ed servic ers to deny con sumers’ ap plication s, preven ting lowe r payment a mounts, potentia l interest su bsidies, and cre dit towards l oan forgi veness. C onsumers c ould not avo id this inj ury beca use they do n ot choose th eir serv icers an d rel ied on t he service rs to provid e relevan t inform ation rega rding IDR applica tions. T he injury t o consumer s is not outw eighed by countervail ing ben efits to con sumers or com petition.