Skip to main content

Prepared Remarks of CFPB Director Richard Cordray on Student Loan Servicing Press Call

July 20, 2016

I am pleased to join Secretary King and Deputy Secretary Raskin to take this step toward reforming the student loan servicing market. This is an important milestone in our continued efforts to better protect consumers by addressing the many student loan servicing problems that we have highlighted in recent years. Looking out for student loan borrowers has been a priority for the Consumer Bureau since we opened our doors five years ago. We oversee private lenders, debt collectors, and loan servicers, which are the companies that manage your payments and billing. 

Last year, we released a report identifying widespread concerns across the student loan servicing market. This report was informed by over 30,000 public comments. Many consumers described slipshod practices that spur financial hardship and help drive struggling borrowers into default. The report raised urgent concerns about the consequences of servicing failures for one of our most precious resources – the human potential of the next generation. And it contributed to today’s announcement that outlines the rights of student borrowers to high-quality service.

About 43 million consumers now owe money on student loans, and one-in-four student loan borrowers are past due or in default on a student loan. When this happens to a young person, the damage that is done to their credit can disrupt their lives in unexpected and troubling ways. It can make it hard even to pass an employment background check, much less buy a home or a car or save money for any purpose, including retirement. Even borrowers who are managing to repay their loans may pay a substantial price in terms of their ability to form a family or afford a home of their own.

This should not be the case. If you take out a federal student loan to pay for college and later have trouble paying it back, you have a right under the law to arrange a lower payment based on your income. Cash-strapped borrowers should not be driven to default on a federal student loan. But we continue to see a vast disconnect between the experience of many borrowers and the protections created by the law, which include the right to pay nothing at all if you are out of work or your wages are low.

Student loan servicers are paid to manage student loan accounts and have a responsibility to inform borrowers – especially troubled borrowers – about options for affordable monthly payments and to help them get on track. But increasingly, the evidence suggests that servicers too often fail to meet that responsibility. For example, a recent government report found that 70 percent of borrowers in default on a federal student loan actually had an income that could qualify them for a lower monthly payment.

For some student loan borrowers, high-quality servicing can be the difference between getting by and going broke. But for too many consumers, this level of service has proved elusive. Unlike mortgages and credit cards, student loan servicing is subject to a number of state and federal laws, but the market lacks consistent standards that cover the servicing of all private and federal student loans. 

So today’s announcement, which specifies the rights of student loan borrowers to receive high-quality service and to expect clear, consistent, and personalized information about repayment plans, marks a notable commitment by the Department of Education to make a major investment in student loan servicing that will drive stronger practices and better outcomes for borrowers.

These student loan servicing standards build on our joint efforts over the past year. The Joint Statement of Principles on Student Loan Servicing that our agencies released offered the framework for servicing reforms. The Consumer Bureau also announced that we were prioritizing our work to stamp out illegal actions in this market, and that we would explore other policies to strengthen this market, including potential rulemaking. Now, we are working closely with our state counterparts to determine how we can partner more effectively in bringing further oversight to this industry.

We continue to work with our federal partners on prototype disclosure forms that we call the student loan “Payback Playbook.” Through it, servicers can give borrowers clear, personalized information about repayment options, especially for those in financial distress. Borrowers need information about what happens to their money when they send in a payment, or how problems are resolved if they call in a complaint.

When fully implemented, these servicing standards will bring us closer to more consistency, transparency, actionability, and accountability in this important marketplace.  We look forward to continuing our work with partner agencies to better understand the economics of student loan servicing, and how to make sure borrowers are not steered toward outcomes that are not in their best interests or the public interest. And we stand ready to support the Department of Education’s public commitment to implementing the servicing standards announced today, coupled with a dynamic, performance-based compensation structure that will help borrowers succeed. 

We also remain committed to taking immediate action to protect consumers in this market, and we will use our enforcement and supervisory tools to address illegal student loan servicing practices. This pledge we share with state law enforcement and state regulatory agencies across the country. I am pleased to be joined here today by Illinois Attorney General Lisa Madigan, who has long been a close friend and partner to the Consumer Bureau. She is a true champion on these issues, who, along with Washington Attorney General Bob Ferguson, has been leading a determined fight to achieve better results for student loan borrowers.

Student loans play a crucial role in young people’s lives as they seek an education and establish their creditworthiness, and can affect their ability to finance their first major purchases. So amid the debate about this nation’s higher education policy, we must do all we can to address the challenges facing the millions of Americans carrying student loan debt today. With so much at stake both now and in the future, we cannot afford to ignore the student loan default problem and its many harmful consequences. Thank you.

The Consumer Financial Protection Bureau is a 21st century agency that implements and enforces Federal consumer financial law and ensures that markets for consumer financial products are fair, transparent, and competitive. For more information, visit