[Federal Register Volume 87, Number 40 (Tuesday, March 1, 2022)]
[Rules and Regulations]
[Pages 11286-11289]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-04266]


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BUREAU OF CONSUMER FINANCIAL PROTECTION

12 CFR Chapter X


Bulletin 2022-03: Servicer Responsibilities in Public Service 
Loan Forgiveness Communications

AGENCY: Bureau of Consumer Financial Protection.

ACTION: Compliance bulletin and policy guidance.

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SUMMARY: The Consumer Financial Protection Bureau (CFPB) is issuing 
this Compliance Bulletin and Policy Guidance (Bulletin) regarding the 
servicing of Federal student loans, including Federal Family Education 
Loan Program and Perkins loans, for borrowers who may be eligible for 
Public Service Loan Forgiveness (PSLF). The Limited PSLF Waiver 
announced by the Department of Education on October 6, 2021 (PSLF 
Waiver) significantly changes the program's eligibility criteria for a 
limited period. In communicating with borrowers about the PSLF program, 
servicers should consider taking certain actions to ensure compliance 
with the Dodd-Frank Wall Street Reform and Consumer Protection Act's 
(Dodd-Frank Act's) prohibition on unfair, deceptive, or abusive acts or 
practices (collectively, UDAAPs). In its oversight, the CFPB will be 
paying particular attention to whether student loan servicers provide 
complete and accurate information to consumers about the benefits they 
can receive under the PSLF Waiver and eligibility for PSLF generally.

DATES: This bulletin is applicable on March 1, 2022.

FOR FURTHER INFORMATION CONTACT: Matt Liles, Counsel, Office of 
Supervision Policy at 202-435-7435 or Carolyn Hahn, Senior Counsel, 
Office of Enforcement at 202-435-7212. If you require this document in 
an alternative electronic format, please contact 
[email protected].

SUPPLEMENTARY INFORMATION:

I. Background

    Student debt in the United States recently topped over $1.75 
trillion. PSLF is a benefit provided by Congress to Federal student 
loan borrowers to earn forgiveness of their Federal student loans after 
10 years of public service. The U.S. Department of Education estimates 
that over 1.3 million student loan borrowers work in jobs that qualify 
for PSLF; moreover, hundreds of thousands of these borrowers have 
expressed interest in PSLF by filing forms to certify their public 
service employment.\1\
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    \1\ PSLF Report, September 2021 available at https://studentaid.gov/sites/default/files/fsawg/datacenter/library/pslf-sep2021.xls.
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    The CFPB's supervisory work has revealed unfair or deceptive 
practices by student loan servicers that prevented many borrowers from 
making progress towards forgiveness. Accordingly, the CFPB is issuing 
this Bulletin to highlight the significant changes to PSLF eligibility 
criteria under the new waiver and the CFPB's supervision and 
enforcement priorities with respect to PSLF and the PSLF Waiver.

The Public Service Loan Forgiveness Program

    To qualify for PSLF under the original requirements, a borrower had 
to make 120 on-time payments on a Direct Loan, while on a qualifying 
repayment plan, and while working in a qualifying public service 
job.\2\ In 2018, Congress created Temporary Expanded Public Service 
Loan Forgiveness (TEPSLF) which allows some borrowers to qualify for 
forgiveness based on payments made under repayment plans that were 
previously ineligible.
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    \2\ 34 CFR 685.219(c).
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The PSLF Waiver

    In October 2021, in response to the COVID-19 national emergency, 
the Department of Education announced a temporary easing of some PSLF 
program requirements to help many previously ineligible borrowers 
receive forgiveness based on their qualifying public service employment 
regardless of their loan type or repayment plan.\3\ Importantly, the 
PSLF Waiver allows borrowers with Federal Family Education Loan Program 
(FFELP) and Perkins loans to consolidate into a Direct Loan and receive 
credit toward loan forgiveness under PSLF for periods of repayment on 
the earlier loan(s). It also provides the same benefit to existing 
Direct Consolidation Loan borrowers resulting

[[Page 11287]]

in the forgiveness of tens of thousands of borrowers' loans 
automatically.\4\ The PSLF Waiver credits any month that a Federal 
student loan borrower worked in public service and was in active 
repayment towards the 120 payments required for PSLF. The PSLF Waiver 
is intended to address several common problems borrowers have 
experienced in obtaining loan forgiveness, including where the 
borrower:
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    \3\ See Press Release, Federal Student Aid, Public Service Loan 
Forgiveness Limited Waiver Opportunity, available at https://studentaid.gov/announcements-events/pslf-limited-waiver.
    \4\ See Press Release, Federal Student Aid, U.S. Department of 
Education Announces Transformational Changes to the Public Service 
Loan Forgiveness Program, Will Put Over 550,000 Public Service 
Workers Closer to Loan Forgiveness, available at https://www.ed.gov/news/press-releases/us-department-education-announces-transformational-changes-public-service-loan-forgiveness-program-will-put-over-550000-public-service-workers-closer-loan-forgiveness 
(estimating these borrowers will discharge $1.74 billion in student 
loan debt).
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     Worked in a qualifying public service job but had Federal 
loans that were not Direct Loans;
     made payments on a Direct Loan while working in a 
qualifying public service job, but not on a qualified repayment plan;
     made payments on a Direct Loan while working in a 
qualifying public service job and on a qualifying repayment plan, but 
made underpayments or late payments;
     made 120 qualifying payments while working in public 
service but applied for forgiveness after having left public service; 
\5\ or
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    \5\ PSLF requires borrowers to not only work in public service 
when they make the 120 qualifying payments, but also when they apply 
for forgiveness and when it is granted. 34 CFR 685.219(c)(1)(ii)(B-
C).
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     was a member of the military who did not receive credit 
for periods of deferment or forbearance while serving on active duty.
    The impact of the PSLF Waiver could be large and far-reaching. But 
many borrowers who could benefit under the PSLF Waiver will need to 
take affirmative action before the October 31, 2022 deadline. To take 
advantage of the PSLF Waiver, borrowers without Direct Loans (such as 
Perkins loans or FFELP loans) must consolidate into a Direct 
Consolidation Loan and then file a PSLF form certifying their previous 
public service employment. Most borrowers who have Direct Loans and 
want credit for previously non-qualifying payments will need to file 
PSLF forms certifying their previous periods of public service 
employment. The Department of Education estimates that 27,000 Direct 
Loan PSLF borrowers could receive $2.82 billion in forgiveness merely 
by certifying periods of prior public service employment that were 
previously ineligible.\6\
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    \6\ Press Release supra n. 4.
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II. Unfair and Deceptive Acts or Practices Related to PSLF

    The CFPB has authority to oversee student loan servicing, including 
citing servicers for unfair, deceptive, or abusive acts or 
practices.\7\ As described in previous Supervisory Highlights, CFPB 
examiners have uncovered deceptive student loan servicing practices, 
including the following with respect to PSLF.
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    \7\ See title X of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act Public Law 111-203, 124 Stat. 1376 (2010) 
(establishing the CFPB's authority). Under the Dodd-Frank Act, all 
covered persons or service providers are prohibited from committing 
unfair, deceptive, or abusive acts or practices in violation of the 
Act. An act or practice is unfair when (i) it causes or is likely to 
cause substantial injury to consumers; (ii) the injury is not 
reasonably avoidable by consumers; and (iii) the injury is not 
outweighed by countervailing benefits to consumers or to 
competition. Id. at sections 1031, 1036; 12 U.S.C. 5531, 5536. 
Whether an act or practice is deceptive is informed by decades of 
precedent involving Section 5 of the Federal Trade Commission Act. 
See CFPB Exam Manual at UDAAP 5.
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Deceptive Statements to FFELP Borrowers About Consolidating Into a 
Direct Loan

    Prior to the PSLF Waiver, only payments made on Direct Loans 
qualified for progress towards loan forgiveness under PSLF.\8\ Any 
payment a borrower made on other types of Federal loans--such as 
Perkins Loans or FFELP loans--did not count towards the 120 payments 
required to achieve forgiveness. Instead, to pursue PSLF, Federal 
student loan borrowers who did not have Direct Loans had to first 
consolidate those loans into a Direct Consolidation Loan before their 
payments would begin to count towards forgiveness. Thus, prior to the 
PSLF Waiver, borrowers could convert their FFELP or Perkins loans into 
Direct Consolidation Loans to benefit under the PSLF program.
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    \8\ 34 CFR 685.219(c)(1)(iii).
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    CFPB examiners have determined that servicers misled borrowers 
about their loan's PSLF eligibility.\9\ For example, examiners have 
found that servicers committed a deceptive practice by leading FFELP 
borrowers to believe that they had no potential course of action to 
become eligible for PSLF, when the borrowers could consolidate their 
FFELP loans into a Direct Consolidation Loan and pursue PSLF.\10\
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    \9\ If a supervisory matter is referred to the Office of 
Enforcement, Enforcement may cite additional violations based on 
these facts or uncover additional information that could impact the 
conclusion as to what violations may exist.
    \10\ Supervisory Highlights, Issue 24--Summer 2021 at 35-37 
available at https://www.consumerfinance.gov/data-research/research-reports/supervisory-highlights-issue-24-summer-2021/.
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Deceptive Statements About Qualifying Public Service Employment

    CFPB examiners also uncovered potentially deceptive statements to 
PSLF borrowers about whether their jobs qualified for PSLF. For 
example, examiners have found that servicers risked committing a 
deceptive practice by telling borrowers that only non-profit jobs 
qualify for PSLF even though government jobs also qualify.\11\
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    \11\ Id. at 36-37.
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Misrepresenting the Effect of Filing an Employment Certification Form 
(ECF)

    Borrowers previously submitted ECFs signed by their employers to 
verify their periods of public service employment.\12\ CFPB examiners 
found that servicers committed a deceptive act or practice by 
misrepresenting the effect of filing the ECF for borrowers who had 
FFELP loans, but who did not have any Direct Loans. Servicer employees 
represented to FFELP borrowers that if they submitted an ECF they would 
learn whether their employment qualified for PSLF. However, borrowers 
would not receive a determination about employer eligibility because 
the ECF would be immediately denied because of their ineligible FFELP 
loans.\13\
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    \12\ Borrowers now certify their employment and apply for PSLF 
on a single consolidated PSLF form.
    \13\ Supervisory Highlights, Issue 24--Summer 2021 at 35-36.
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III. The CFPB's Supervision and Enforcement Priorities

    Prior supervisory observations and consumer complaints show that 
servicers were not adequately complying with the law, and were making 
deceptive representations about PSLF before the PSLF Waiver went into 
effect.\14\ As servicers administer the new PSLF Waiver, the CFPB 
expects servicers to comply with Federal consumer financial protection 
laws. The CFPB plans to prioritize student loan servicing oversight 
work in deploying its enforcement and supervision resources in the 
coming year with a specific focus on monitoring engagement with 
borrowers about PSLF and the PSLF Waiver. Where the CFPB

[[Page 11288]]

finds entities have committed UDAAPs related to PSLF and the PSLF 
Waiver, the CFPB will hold them accountable.
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    \14\ See Consumer Financial Protection Bureau (CFPB), Staying on 
Track While Giving Back (June 2017), available at https://www.consumerfinance.gov/data-research/research-reports/staying-track-while-giving-back-cost-student-loan-servicing-breakdowns-people-serving-their-communities/.
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    In its student loan servicing oversight work, the CFPB plans to pay 
particular attention to:
    1. Whether servicers of any federal loan type provide complete and 
accurate information about the PSLF Waiver when discussing PSLF or loan 
consolidation in any communications;
    2. Whether servicers have adequate policies and procedures to 
recognize when borrowers are expressing interest in PSLF or the PSLF 
Waiver or whose files otherwise demonstrate their eligibility and to 
direct those borrowers to appropriate resources;
    3. Whether servicers take steps to promote the benefits of the PSLF 
waiver to borrowers who express interest or whose files otherwise 
demonstrate their eligibility.

IV. Compliance Management Program Expectations

    To prevent unfair, deceptive, or abusive acts or practices, 
entities should consider enhancing their compliance management systems 
to develop and implement policies and procedures to ensure that all 
borrowers receive accurate and complete information about the PSLF 
Waiver and representatives facilitate their enrollment,\15\ including 
by:
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    \15\ The U.S. Department of Education has issued guidance to 
FFELP and Perkins loan participants directing them to provide 
interested borrowers with accurate information about the PSLF 
Waiver. U.S. Dept. of Ed., Office of Fed. Student Aid, GEN-21-09, 
Guidance for FFEL and Perkins Loan Program Participants on the 
Limited Public Service Loan Forgiveness Waiver (Dec. 7, 2021), 
available at https://fsapartners.ed.gov/knowledge-center/library/dear-colleague-letters/2021-12-07/guidance-ffel-and-perkins-loan-program-participants-limited-public-service-loan-forgiveness-waiver.
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     Improving training to make sure representatives 
effectively identify borrowers who may be pursuing PSLF, who have 
provided information suggesting that they may benefit from the PSLF 
Waiver, or who are expressing interest in PSLF or the PSLF Waiver;
     improving training to make sure representatives accurately 
describe PSLF and the PSLF Waiver, their benefits, the process for 
applying for PSLF, using the Waiver, and the need to act before the 
October 31, 2022, deadline, including for representatives that interact 
with borrowers of FFELP and Perkins loans;
     updating call scripts to prompt representatives to inform 
borrowers who have provided information suggesting they may benefit 
from the PSLF Waiver about the benefits of the PSLF Waiver, and the 
importance of consolidating and filing a PSLF form for every job with 
an eligible employer before the October 31, 2022, deadline;
     enhancing existing communication tools, such as:
    [cir] Posting a dedicated PSLF Waiver information page on the 
servicer's website that stresses the benefits of the waiver, explains 
who is eligible for the waiver, provides the steps for using the 
waiver, and emphasizes the need to apply for the waiver by October 31, 
2022;
    [cir] posting a temporary banner on the servicer's main web page 
and account log-in web page advertising the PSLF Waiver and linking the 
borrower to the dedicated PSLF Waiver information page, and
    [cir] including information on the PSLF Waiver on automated hold 
messages;
     tracking borrower interest in using the PSLF Waiver to 
allow for targeted follow up;
     monitoring representatives' communications with borrowers 
about PSLF;
     evaluating these issues through the servicer's quality 
control/assurance program, compliance testing program, and audit 
program at appropriate intervals;
     actively monitoring for and addressing systemic issues--
such as excessive call hold times--that inhibit PSLF borrowers from 
getting information from the entity about PSLF;
     regularly reviewing consumer complaints regarding PSLF and 
ensuring there is an appropriate channel for receiving, investigating, 
determining root causes, and properly resolving consumer complaints 
relating to misinformation about PSLF;
     ensuring that borrowers' consolidation decisions are 
honored timely, including by processing consolidation applications and 
providing payoff amounts timely; and
     ensuring that borrowers' PSLF forms are processed timely.
    Generally, self-identification of Federal consumer financial law 
violations and developing an effective corrective action plan that 
includes complete identification of affected populations and complete 
remediation for injured consumers are important elements of a strong 
compliance management system. When these violations relate to providing 
false or misleading information about PSLF, a robust and affirmative 
outreach strategy to all potentially eligible consumers about the PSLF 
Waiver, tailored to the borrower's loan type, may be an important 
component of a corrective action plan. These actions also factor into 
the CFPB's decision about whether specific violations should be handled 
through supervisory or enforcement action.

CFPB Consideration of Proactive Efforts by Servicers To Promote the 
PSLF Waiver

    In exercising its supervisory and enforcement discretion, the CFPB 
will consider the extent to which entities engage in proactive measures 
to promote the benefits of the PSLF Waiver to borrowers. For example, 
servicers can update call scripts to prompt representatives to 
affirmatively ask borrowers if they work or have worked for a nonprofit 
or government organization. In addition, servicers already use the 
Defense Manpower Database Center (DMDC) or other comparable means to 
identify military borrowers for purposes of ensuring that borrowers 
receive the benefits of the Servicemembers Civil Relief Act; they could 
engage in similar efforts with respect to the PSLF Waiver. Servicers 
can also identify consumers who previously submitted Teacher Loan 
Forgiveness applications and then target those groups with PSLF Waiver 
communications.
    The CFPB notes that time is of the essence since the PSLF Waiver 
closes at the end of October 2022. After the PSLF Waiver closes, direct 
payments to borrowers may be the primary means of remediating relevant 
UDAAPs.

V. Conclusion

    The CFPB will continue to review closely the practices of student 
loan servicers for potential UDAAPs, including the practices related to 
PSLF described above. The CFPB will use all appropriate tools to hold 
entities accountable if they engage in UDAAPs in connection with these 
practices.

VI. Regulatory Requirements

    The Bulletin constitutes a general statement of policy exempt from 
the notice and comment rulemaking requirements of the Administrative 
Procedure Act (APA). It is intended to provide information regarding 
the CFPB's general plans to exercise its supervisory and enforcement 
discretion for institutions under its jurisdiction and does not impose 
any legal requirements on external parties, nor does it create or 
confer any substantive rights on external parties that could be 
enforceable in any administrative or civil proceeding. Because no 
notice of proposed rulemaking is required in issuing the Bulletin, the 
Regulatory Flexibility Act also does not require an initial or final 
regulatory flexibility analysis. The CFPB has also determined

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that the issuance of the Bulletin does not impose any new or revise any 
existing recordkeeping, reporting, or disclosure requirements on 
covered entities or members of the public that would be collections of 
information requiring approval by the Office of Management and Budget 
under the Paperwork Reduction Act.

Rohit Chopra,
Director, Consumer Financial Protection Bureau.
[FR Doc. 2022-04266 Filed 2-28-22; 8:45 am]
BILLING CODE 4810-AM-P