The Government Accountability Office (GAO) is recommending that the Consumer Financial Protection Bureau (CFPB) clarify which financial institutions have the authority to offer private student loan rehabilitation programs.
Private student loans, which are not guaranteed by the federal government, are offered by many banks. But the largest banks that provide private student loan told the GAO that they do not offer private student loan rehabilitation programs. Loan rehabilitation programs allow financial institutions to remove reported defaults from credit reports after borrowers make a number of consecutive, on-time payments. The banks do not offer them because they say few private student loan borrowers are in default and they already offer existing repayment programs to assist distressed borrowers.
Additionally, while some nonbank private student loan lenders do offer rehabilitation programs, others do not because they believe the Economic Growth, Regulatory Relief, and Consumer Protection Act does not allow them to do so.
Thus, the GAO said clarification by the CFPB, which oversees credit reporting and nonbank lenders, is necessary to allow more borrowers to participate in these programs. Specifically, the GAO said the director of the CFPB should provide written clarification to nonbank private student loan lenders on their authorities to offer private student loan rehabilitation programs that include removing information from credit reports. The GAO also said the CFPB, after consulting with the prudential regulators and relevant industry groups, should provide written clarification on what information in a consumer’s credit report constitutes a private student loan reported “default” that may be removed after successful completion of a private student loan rehabilitation program.
The CFPB, however, does not plan to take action on the first recommendation and said it was premature to take action on the second recommendation. The GAO maintains that both recommendations are valid, as discussed in this report.