Request for Information Regarding Student Loan Borrower Communications

AGENCY:

Bureau of Consumer Financial Protection.

ACTION:

Notice and request for information.

SUMMARY:

The Bureau of Consumer Financial Protection (Bureau or CFPB) is seeking comments from the public related to consumer decision-making when repaying student loans, including the presentation of information about alternative repayment options. The submissions to this request for information will assist policymakers and market participants when considering potential options to enhance, supplement, or revise written communications made to student loan borrowers by student loan servicers, related to repayment options. The Bureau is seeking public comments about how these communications could reduce defaults, improve borrower outcomes, and spur innovation.

DATES:

Comments must be received on or before June 12, 2016.

ADDRESSES:

You may submit comments, identified by Docket No. CFPB-2016-0018, by any of the following methods:

• Electronic: http://www.regulations.gov. Follow the instructions for submitting comments.
• Email: FederalRegisterComments@cfpb.gov. Include Docket No. CFPB-2016-0018 in the subject line of the message.
• Mail: Monica Jackson, Office of the Executive Secretary, Consumer Financial Protection Bureau, 1700 G Street NW., Washington, DC 20552.
• Hand Delivery/Courier: Monica Jackson, Office of the Executive Secretary, Consumer Financial Protection Bureau, 1275 First Street NE., Washington, DC 20002.

Instructions: All submissions should include the agency name and docket number for this proposal. Because paper mail in the Washington, DC area and at the Bureau is subject to delay, commenters are encouraged to submit comments electronically. In general, all comments received will be posted without change to http://www.regulations.gov. In addition, comments will be available for public inspection and copying at 1275 First Street NE., Washington, DC 20002, on official business days between the hours of 10 a.m. and 5 p.m. eastern time. You can make an appointment to inspect the documents by telephoning (202) 435-7275.

All comments, including attachments and other supporting materials, will become part of the public record and subject to public disclosure. Sensitive personal information, such as account numbers or social security numbers, should not be included. Comments generally will not be edited to remove any identifying or contact information.

FOR FURTHER INFORMATION CONTACT:

For general inquiries, submission process questions, or any additional information, please contact Monica Jackson, Office of the Executive Secretary, at 202-435-7275.

Authority: 12 U.S.C. 5511(c).

SUPPLEMENTARY INFORMATION:

This Request for Information Regarding Student Loan Borrower Communications seeks feedback from the public on a series of potential borrower communications—Student Loan Payback Playbooks—developed by the Bureau in coordination with the Department of Education and the Department of the Treasury. The Bureau also seeks public comment about the role that written communications play in enabling successful student loan repayment.

The submissions to this request for information may assist market participants and policymakers when considering potential options to enhance, supplement, or revise written communications provided to student loan borrowers, related to repayment options. Submissions will further inform stakeholders' understanding of the relationship between written communications and borrower decision-making related to student loan repayment, particularly as a means to reduce delinquencies and defaults. Comments submitted in response to this request for information may also be used to inform the development of certain disclosures required of the Department of Education by the Presidential Memorandum on a Student Aid Bill of Rights, signed on March 10, 2015. The deadline for submission of comments is June 12, 2016.

The Bureau encourages comments from the public, including:

• Student loan borrowers;
• Organizations representing students and student loan borrowers;
• Innovators, technology providers, and recent entrants into the student loan market;
• Institutions of higher education and affiliated parties;
• Financial services providers, including but not limited to lenders and servicers in the student loan market;
• State law enforcement agencies and regulators;
• Participants in the consumer data industry, including credit reporting agencies;
• Debt collectors;
• Organizations promoting financial education;
• Civil rights groups; and
• Nationally recognized statistical rating organizations.

Please note that the Bureau is not soliciting individual student account information in response to this notice and request for information, nor is the Bureau seeking personally identifiable information (PII) regarding student accounts.

All comments, including attachments and other supporting materials, will become part of the public record and subject to public disclosure. Sensitive personal information, such as account numbers or social security numbers, should not be included. Comments generally will not be edited to remove any identifying or contact information.

Part A: Accurate and Actionable Information Related to Student Loan Repayment

In May 2015, the Bureau, in coordination with the Department of Education and the Department of the Treasury, launched a public inquiry into student loan servicing practices that sought input from the public related to potential barriers to student loan repayment. A broad cross-section of respondents, including consumers, student loan servicers, consumer advocates, and others, highlighted the lack of information regarding student loan repayment options as one of the potential barriers to borrower success. Commenters emphasized that accurate and actionable information about various consumer protections and borrower benefits could improve borrower decision-making.

Approximately 42 million Americans owe student loan debt. In less than a decade, the volume of outstanding federal student loan debt has more than doubled, rising from $516 billion in 2007 to greater than $1.2 trillion in the first quarter of 2016, surpassing all other categories of consumer debt aside from mortgages.

Unlike other types of consumer debt, which have realized reduced levels of delinquency and default compared to highs reached following the Great Recession, the student loan market continues to show signs of distress. The Bureau estimates that a quarter of student loan borrowers are, collectively, either delinquent or in default on approximately $200 billion in student debt. Elevated levels of student loan borrower distress exist despite the availability of a range of protections for borrowers that are designed to mitigate delinquency and default, including income-driven repayment plans provided for by law for the vast majority of borrowers with federal student loans. Given the growing share of consumers managing student loan debt, consumers, policymakers, consumer advocates, market participants, policy experts, and other stakeholders have recognized the critical importance of consistent, accurate, and actionable information in order to facilitate successful repayment.

According to data recently released by the Department of Education regarding Direct Loans, borrowers in Pay As You Earn (PAYE) and Income-Based Repayment (IBR) (the most generous income-driven repayment plans at the time of the snapshot) had the lowest delinquency rates. In contrast, borrowers enrolled in a standard 10-year repayment plan had delinquency rates nearly seven times higher than borrowers enrolled in PAYE (Figure 1).

However, evidence suggests that borrowers who could benefit from these arrangements may end up in delinquency or default instead. One recent analysis by the Government Accountability Office found that 70 percent of borrowers in default had income that would entitle them to a reduced monthly payment under one of these plans. Additionally, borrowers told us how inconsistent and incomplete information from servicers can be a direct impediment to successful repayment, noting that current written communications do not provide the information necessary to make informed decisions about various repayment options. Student loan servicers note that the expansion of income-driven repayment plans and other alternative options has introduced new challenges for servicers seeking to counsel borrowers about how to navigate loan repayment. One trade association representing the student loan servicing industry observed that the breadth of options available to consumers is “so confusing as to be counter-productive,” noting that this may lead to borrowers “giving up or not taking action at all.”

These observations, taken together with other academic research, findings by state law enforcement agencies, and public comments from consumers reporting servicing problems, raise serious questions about the adequacy of current servicing practices related to enrollment in income-driven repayment plans.

In response, the Bureau engaged in a joint effort with the Department of Education and the Department of the Treasury to develop a vision for market-wide reform, including an emphasis on the importance of accurate and actionable information for borrowers seeking to make decisions about student loan repayment. In early 2016, in support of this effort, the Bureau engaged in a series of structured interviews with individual student loan borrowers in order to better understand the barriers student loan borrowers face when repaying their loans, and to identify opportunities for improving borrower communications about repayment options. The Bureau's initial observations include:

• Borrowers respond more favorably to actionable information. Borrowers explained that they are seeking actionable information regarding available repayment options. Borrowers stated that billing statements are difficult to understand, and not indicative of available alternative repayment options.
• Personalized communications may be more effective. Borrowers indicated that they would respond most favorably to personalized billing written communications that provide actionable repayment information reflective of a borrower's actual income and family size.
• Routine electronic communications may present an opportunity for targeted outreach. Borrowers described that they may be more likely to take action in response to monthly email communications containing personalized repayment information, rather than written statements instructing borrowers to log in to review their account or to call a customer service representative to discuss available options.
• Once borrowers fall behind, they may be less likely to engage with their debt. Delinquent borrowers described how they need some prompting to re-engage with a past-due debt; written communications that suggest “business as usual” are often ignored.

These observations, along with other qualitative and quantitative inputs, including responses to our May 2015 Request for Information on Student Loan Servicing, consumer complaints, consultation with state law enforcement officials, and discussions with consumer advocates, individual market participants, and organizations representing participants in the student loan servicing market, informed the development of a series of potential borrower Payback Playbooks developed by the Bureau, in coordination with the Department of Education and the Department of the Treasury. The Bureau is seeking comments discussing how these Playbooks could affect borrowers when evaluating available alternative repayment plans and facilitate enrollment in alternative repayment plans, when appropriate. The Bureau requests comments in response to three documents:

• Payback Playbook A: Personalized information about alternative repayment options (.pdf attachment or image).
• Payback Playbook B (variant of Payback Playbook A): Alternate approach to personalized information about alternative repayment options (.pdf attachment or image).
• Payback Playbook C: Information about income-driven repayment options for borrowers likely at risk of default (.pdf attachment or image).

Part B: Questions About Written Communications to Student Loan Borrowers

The Bureau is seeking general feedback on a series of draft Payback Playbooks that student loan servicers would send to borrowers, developed in collaboration with the Department of Education and the Department of the Treasury, as well as responses to the specific questions below. Section I of this Part provides a set of questions for respondents related to these draft Playbooks. Section II of this Part provides a set of questions directed to student loan borrowers related to Playbooks A and C. Section III of this Part provides a set of questions for respondents about the general communication of information related to student loans.

Section I: Specific Questions About Elements of Payback Playbooks A, B, and C

The Bureau, in coordination with the Department of Education and the Department of the Treasury, developed three potential Payback Playbooks designed to assist student loan borrowers when selecting between alternative repayment plans. Playbooks A and B present three options to consumers: (1) Their current repayment arrangement; (2) one alternative repayment arrangement with an amortizing payment schedule (e.g., graduated repayment, extended repayment, extended-graduated repayment); and (3) one income-driven repayment plan (e.g., Pay As You Earn, Income-Based Repayment, Income-Contingent Repayment). In contrast, Playbook C presents a single income-driven repayment plan to consumers. Policymakers and market participants may wish to consider whether a combination of these approaches is appropriate in order to best serve a broad cross-section of student loan borrowers in various stages of repayment, experiencing varying levels of distress, and reflecting variations in risk levels between different segments of servicers' loan portfolios.

Payback Playbooks A and B

Playbooks A and B are identical, other than the description of income information and estimated payment amount under an income-driven repayment plan. These designs present two approaches to personalization. One approach offers a more precise estimate of a monthly payment under this plan and informs the borrower that this estimate was derived from actual information about his or her income and family size. The alternative approach provides a rounded estimate of a borrower's likely monthly payment, based on similar information about income and family size used to populate Playbook A. Estimated payment amounts indicated in either communication require that the borrower's servicer have access to information about the borrower's income and family size. The Bureau understands that such information could potentially be available through various channels, including other government agencies. The Bureau encourages respondents to provide general feedback related to both approaches, as well as responses to any of the specific questions included below.

1. Please provide general feedback related to Playbook A and Playbook B, including any relevant information related to how these written communications could affect consumer decision-making regarding student loan repayment options and mitigate defaults.

2. Please provide feedback related to specific elements of Playbook A and Playbook B, including, for example, feedback related to:

a. The language used to introduce the communication;

b. The number and selection of repayment plans presented to consumers;

c. The relative emphasis on specific repayment plans;

d. The emphasis on lowering the borrower's monthly payment amount;

e. The presentation of the advantages and disadvantages to student loan borrowers associated with an alternative repayment plan with an amortizing repayment schedule (e.g., graduated, extended, or extended-graduated plans);

f. The presentation of the advantages and disadvantages to student loan borrowers associated with income-driven repayment plans (e.g., Income-Based Repayment, Pay As You Earn, and Revised Pay As You Earn);

g. The presentation of information about the terms and conditions of specific repayment plans;

h. The presentation of information regarding how borrowers can obtain more information about repayment options;

i. The presentation of current and future monthly payment amounts for each repayment plan;

j. The description of the costs associated with each repayment plan, including the depiction of future monthly payment levels and description of the impact of repayment plan selection on total lifetime loan costs;

k. The visual representation of information contained in these communications; and

l. The means by which a borrower is provided with this information (e.g., periodic statement, routine email communication, standalone written communication, online payment portal, etc.).

3. The Bureau seeks feedback on the appropriate audience for these Playbooks. In particular, please provide feedback related to the efficacy and applicability of these Playbooks to specific populations of student loan borrowers, including, for example:

a. Borrowers who are current on their student loans (i.e., have no past-due student loan balance);

b. Borrowers who are at risk of delinquency;

c. Borrowers who are delinquent on one or more student loans;

d. Borrowers who have missed multiple monthly student loan payments;

e. Borrowers who are at imminent risk of default;

f. Borrowers who have previously been in default, including borrowers who have successfully rehabilitated defaulted loans;

g. Borrowers who have high levels of student loan indebtedness;

h. Borrowers who have not completed a program of study;

i. Borrowers who attended certain categories of institutions of higher education (e.g., four-year college, community college, for-profit college, vocational school);

j. Borrowers who are currently enrolled in an income-driven repayment plan;

k. Borrowers who are in school or in a grace period;

l. Borrowers with Direct Loans;

m. Borrowers with Federal Family Education Loan Program (FFELP) loans;

n. Borrowers with Perkins loans;

o. Parents with loans made through the PLUS program; and

p. Borrowers with Federal Consolidation Loans or Direct Consolidation Loans.

Payback Playbook C

Payback Playbook C provides borrowers with information on a single income-driven repayment plan, including a personalized description of the estimated monthly payment under this arrangement, similar to the approach used to describe income-driven repayment plans in Playbook A. Respondents are encouraged to evaluate this communication in the context of the specific needs of borrowers who are at risk of default, potentially including borrowers who have missed multiple monthly payments, borrowers who have not completed a program of study, or borrowers who exhibit other criteria predictive of future financial distress. When evaluating this communication, including the proposed approach to personalization, respondents are encouraged to consider the advantages, disadvantages, and risks associated with enrollment in an income-driven repayment plan, as well as the potential costs to borrowers resulting from delinquency and default.

1. Please provide general feedback related to Playbook C, including any relevant information related to the extent to which these written communications could affect consumer decision-making regarding student loan repayment options and mitigate delinquencies or defaults.

2. Please provide feedback related to specific elements of Playbook C, including, for example, feedback related to:

a. The language used to introduce the communication;

b. The number and selection of the repayment plan(s) presented to consumers;

c. The relative emphasis on a specific repayment plan;

d. The emphasis on lowering the borrower's monthly payment amount;

e. The presentation of the advantages and disadvantages to student loan borrowers associated with income-driven repayment plans (e.g., Income-Based Repayment, Pay As You Earn, and Revised Pay As You Earn);

f. The presentation of information regarding how borrowers can obtain more information about repayment options;

g. The presentation of the current and future monthly amount for the repayment plan;

h. The description of the cost associated with the repayment plan, including the depiction of future monthly payment amount and description of the impact of repayment plan selection on total lifetime loan costs;

i. The visual representation of information contained in these written communications; and

j. The means by which a borrower is provided with this information (e.g., periodic statement, routine email communication, stand-alone written communication, online payment portal, etc.).

3. The Bureau seeks feedback on the appropriate audience for this Playbook. In particular, please provide feedback related to the efficacy and applicability of this Playbook to specific populations of student loan borrowers, including, for example:

a. Borrowers who are current on their student loans (i.e., have no past-due student loan balance);

b. Borrowers who are at risk of delinquency;

c. Borrowers who are delinquent on one or more student loans;

d. Borrowers who have missed multiple monthly student loan payments;

e. Borrowers who are at imminent risk of default;

f. Borrowers who have previously been in default, including borrowers who have successfully rehabilitated defaulted loans;

g. Borrowers who have high levels of student indebtedness;

h. Borrowers who have not completed a program of study;

i. Borrowers who attend certain categories of institutions of higher education (e.g., four-year college, community college, for-profit college, vocational school);

j. Borrowers who are currently enrolled in an income-driven repayment plan;

k. Borrowers who are in school or in a grace period;

l. Borrowers with Direct Loans;

m. Borrowers with Federal Family Education Loan Program (FFELP) loans;

n. Borrowers with Perkins loans;

o. Parents with loans made through the PLUS program; and

p. Borrowers with Federal Consolidation Loans or Direct Consolidation Loans.

Section II. Specific Questions to Borrowers About Elements of Payback Playbooks A and C

To supplement this request for information, the Bureau launched a consumer-facing landing page soliciting feedback on these prototype Payback Playbooks. The Bureau developed the following specific questions for individual student loan borrowers, in order to better understand how the Playbook could most effectively serve their needs. Although all commenters are encouraged to review this request for information in its entirety, consumers should consider following questions when evaluating these prototype borrower communications:

1. How would the Playbook help you understand and evaluate the options you have to pay your student loan if it reflected your likely payments based on your actual income?

2. How could the Playbook better provide you with important information about your repayment options?

3. How would it be best to see the Playbook (e.g., in monthly billing statements, when you log on to your account online, etc.)?

4. At what point during repayment would you like to receive personalized information about available repayment options (e.g., during your grace period, during repayment, etc.)?

Section III: General Questions About the Communication of Information to Student Loan Borrowers in Repayment

The following questions solicit input from the public about the effects of increased disclosure of information regarding repayment options in written communications to student loan borrowers from student loan servicers.

1. How could personalized information related to repayment options, including income-driven repayment plans, affect consumer decision-making? Personalized information means repayment information based on a borrower's personal information, including income and family size.

2. Please provide any additional relevant information related to written communications with student loan borrowers regarding repayment options, including, for example:

a. Examples of existing written communications provided to student loan borrowers;

b. Information about the advantages and disadvantages of such communications, including any relevant information related to implementation, operations, and maintenance associated with dissemination of these communications;

c. Information related to privacy and data security considerations when populating and disseminating information about borrowers' loans, income information, or other sensitive financial or personal information, including protecting the privacy of borrowers in electronic communications like email or text message;

d. Feedback about information systems and other technical considerations when populating and disseminating personalized information about student loans, including any feedback about existing information systems that provide accurate, personalized information to consumers with student loans;

e. Information about the availability, cost, and accuracy of potential data sources that include the income and family size of student loan borrowers; and

f. Information about the use of consumer data, in order to populate information contained in personalized communications.

3. How could the communication channel (e.g., U.S. Mail, email, SMS, online portal) used to deliver borrower communications affect borrower engagement (e.g., email open rates, click-through rates, inbound telephone calls)?

4. How could personalized information obtained to populate written communications be adapted to enhance oral communications with consumers?

5. Please provide any relevant information about the applicability of personalized communications to different segments of the student loan market (i.e., private student loans, guaranteed loans made under the Federal Family Education Loan Program, and Direct Loans).

6. How could the visual presentation of information, including the presentation of additional or supplemental information in electronic communications, affect consumer decision-making when repaying student loans?