It's been said that a war doesn't determine who is right, but rather, who is left.
Although there's been much talk of an epic battle between states and the federal government that will determine the scope of federal preemption in the student loan space, it's not going to be much of a fight if only one side shows up. If current trends hold, it looks like states will be left to dominate the legal landscape of consumer protection.
In the wake of statements by the resigning student loan ombudsman at the Bureau of Consumer Financial Protection that current political leadership has repeatedly undermined the Bureau's efforts to protect consumers, there are no less than four actions by attorneys general pending against Navient for alleged improper servicing and numerous private actions pending against Navient and other servicers. These suits, in turn, create the prospect of burnishing a template for yet more litigation against lenders and servicers. With each new suit of a similar nature, the chances of plaintiffs' success may increase. To quote a brilliant war strategist: Know thy self, know thy enemy. A thousand battles, a thousand victories.
There is opportunity, however, for lenders and servicers to learn from these conflicts and employ best practices going forward to avoid similar trouble. We spoke with an industry professional, Barbara Thomas, Executive Vice President of Education Loan Finance (ELFI), to get her views on these and other issues.
Industry Professional's Advice on Sound Servicing Practices and Debt Relief
At Credit Chronometer, we've compared the allegations against Navient to those against pre-crisis sub-prime mortgage servicers. They echo similar concerns of borrowers not being adequately informed of repayment options. How can lenders and servicers ensure borrowers have the best experience?
A high level of service should be maintained throughout the loan origination process. For example, at ELFI, we have a Personal Loan Advisor assigned to each of our customers throughout the process of refinancing their student loans to ensure excellence in customer service. The consistency in communication to the borrower is key to their understanding and contributes to a good borrower experience. Time and time again, ELFI's Trust Pilot reviews (currently rated "Excellent") from our customers speak to the superior level of service we provide.
What do you think should be the most significant area of focus to improve student loan servicing and potentially head-off future litigation?
Given that student loans are one of the most complex consumer lending products in terms of the varying interest rates, terms, borrower benefits, income based repayment programs, deferment and forbearance programs, etc., providing more in depth education of the repayment options and the potential impact of the borrower's decision on their loan payoff should be paramount.
Given the amount of litigation and press around the student loan debt burden, generally, how important is it for lenders and servicers to play a part in facilitating or fostering debt relief programs?
It could be very beneficial for public and borrower perception – a halo of sorts to activities – in addition to helping to do the right thing. For example, we offer, "ELFI for Business", a unique employee benefit program for companies to provide debt relief to their employees while retaining and attracting top talent through their support financially of their employees' student loans. Through our program, employers provide much needed debt relief through a one-time payment or ongoing contributions toward their employees' student loans in order to provide debt relief.
While there remains much unresolved litigation against Navient and uncertainty over the outcome of the battle between states and federal government, there exists an opportunity for savvy lenders and servicers to reap the benefits of improved practices and participate in creative debt relief ideas. But as debt relief programs become more prevalent, they have the potential to disrupt ABS expectations and performance. Thomas points out that, "[The existence of numerous] debt relief will most likely impact the prepayment speeds (CPRs) of outstanding ABS student loan securitizations and the ABS bonds."
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