The report: Annual Report of the CFPB Student Loan Ombudsman
The survey: CFPB Survey Reveals Impacts of Student Loan Debt Relief and Repayment Challenges
Source: Consumer Financial Protection Bureau (CFPB)
Why we picked them: Student loans, of course, rarely have a direct impact on financial institutions — but the indirect impact is resoundingly powerful. An individual’s ability or lack thereof to make regular monthly payments can affect their ability to successfully take out loans of other kinds. Even more concerning is the likelihood of their defaulting on student payments, particularly following the Covid-19 pause on student loan payments and interest, in addition to campaigns from the Biden administration, which promised to sweepingly forgive large portions of student debt per individual. (For more, read Matt Doffing’s: Student Loan Payments Return = Consumer Credit Thunderstorm?) The results of this student loan repayment movement can not be ignored by any financial institution.
Executive Summary
America’s student loan crisis has reached a critical juncture, with more than 40 million Americans facing mounting challenges managing their educational debt. As total student loan debt surpasses $1.745 trillion, two major federal reports released in November 2024 reveal the breadth of the problems plaguing borrowers and the student loan system itself.
The CFPB investigation uncovered widespread servicing failures affecting millions of borrowers, while a separate survey by the CFPB’s Office of Research found that nearly two-thirds of borrowers struggle to make their payments. Together, these reports provide unprecedented insight into a system that appears to be failing many of the Americans it was designed to help.
Key Takeaways
- 63% of student loan borrowers report having difficulty making payments, with higher rates among Black and Hispanic borrowers and those with less than a four-year degree
- At least 3.9 million borrowers received misleading or inaccurate billing statements in the past year
- More than 80% of borrowers affected by the Covid-19 payment pause reported at least one positive impact from the temporary relief
- The median household income for borrowers receiving debt relief was between $50,000 and $65,000, well below the national median of $75,000
What we liked about the two reports (and why we put them together): The two CFPB reports complement each other effectively by providing both broad statistical evidence and detailed documentation of specific problems. The Student Loan Borrower Survey’s strength lies in its methodologically sound sampling of over 3,100 borrowers, while the Ombudsman’s report excels by offering granular analysis of over 18,000 complaints, documenting specific servicing failures and providing concrete evidence of financial harm through detailed case studies.
What we didn’t: Both report and survey would have benefited from more longitudinal data to show how student loan borrower experiences evolve — and have evolved — over time.
Key Findings Paint a Troubling Picture
The research paints a stark picture of the student loan landscape. As noted above, nearly two-thirds of all borrowers report having difficulty making their payments, a problem that extends far beyond those who actually default. This difficulty is particularly pronounced among Black and Hispanic borrowers, as well as those who left school before completing a four-year degree.
The problems run deeper than simple affordability. The CFPB’s investigation found that at least 3.9 million borrowers received misleading or inaccurate billing statements in the past year alone. Meanwhile, the temporary relief provided by the Covid-19 payment pause demonstrated just how much student loan payments affect borrowers’ financial lives – more than 80% of affected borrowers reported that the pause allowed them to improve their financial situation in some way.
The CFPB’s Student Loan Borrower Survey reveals that payment difficulties transcend simple delinquency rates. While 37% of borrowers have missed at least one payment, the true scope of the struggle is much broader. The survey found a particularly troubling pattern of disparate impact among vulnerable populations.
Black borrowers face the greatest challenges, with more than three-quarters reporting difficulty making payments. Hispanic borrowers and those with incomplete degrees also struggle at disproportionate rates. The data suggests that student loans — rather than serving as a pathway to economic mobility — may actually be exacerbating existing economic disparities.
The real-world impact of these struggles is severe and far-reaching. The survey found that many borrowers are making painful sacrifices to keep up with their loan payments. Almost one-third of borrowers reported going without basic necessities like food or medicine because of their student loan obligations. Even more troubling, the burden of student debt is forcing many Americans to delay major life milestones, with nearly half putting off homeownership and more than a quarter postponing starting a family.
The Covid Pause: A Natural Experiment
The Covid-19 payment pause provided an unprecedented look at how borrowers might fare with relief from their student loan payments. In good news, the vast majority of borrowers used the breathing room constructively, with nearly two-thirds paying down other debts and about half managing to save or invest money they would have otherwise put toward student loans.
More than just providing temporary financial relief, the pause enabled many borrowers to make significant life changes. Two out of five borrowers reported that the pause allowed them to make major life decisions they would have otherwise delayed. Some changed jobs, others relocated, and many were able to pursue additional education or start families.
However, the end of the pause has brought new anxieties. As payments resumed, borrowers across the income spectrum reported having to make difficult adjustments to their budgets. The survey found that even middle-income borrowers anticipated having to cut back on basic necessities to make their payments, highlighting the burden these loans place on household finances.
Dig deeper:
- Gen Z 30% More Likely to Open New Savings Account — What’s Driving Their Choices?
- Are Financial Wellness Products Merely Window Dressing for Banks?
- Most Americans Want to Retire Early, But Few Have Plans to Get There
A System in Crisis: Servicing Failures and Their Impact
The CFPB’s investigation into servicing practices reveals a system plagued by fundamental problems. Analyzing over 18,000 borrower complaints, investigators found pervasive issues with payment processing, communication and customer service.
Payment processing errors run the gamut from minor inconveniences to major financial disruptions. Some borrowers reported unauthorized withdrawals from their accounts, while others found their payments were never applied to their loans. In particularly troubling cases, borrowers faced years-long delays in receiving loan cancellation they had earned.
The financial impact of these servicing failures is substantial. In a detailed analysis of just 73 borrower complaints, the CFPB found over half a million dollars in collective financial harm, averaging nearly $14,000 per affected borrower. Perhaps even more concerning were the collective delays in resolving these issues, totaling 401 months – or 33 years – of borrowers’ time wasted trying to navigate a broken system.
The Challenge of Income-Driven Repayment
Lastly, one of the most troubling findings from both reports concerns the implementation of income-driven repayment (IDR) plans, which are supposed to be a safety net for struggling borrowers. By October 2023, there were over 1.25 million pending IDR applications, with many borrowers waiting months for their applications to be processed.
The problems with IDR go beyond mere processing delays. Borrowers reported incorrect payment calculations, difficulties with annual recertification requirements, and a general lack of clear information about their options. These issues are particularly concerning because IDR plans are often the only way many borrowers can afford their payments.
The Public Service Loan Forgiveness (PSLF) program presents a particularly telling example of both the promise and problems within the current system. The survey found that PSLF is reaching its intended audience –—public service workers with significant educational debt but modest incomes. Most PSLF recipients had household incomes between $80,000 and $100,000, with only a small percentage earning over $175,000.
However, the path to forgiveness is often unnecessarily difficult. The CFPB investigation documented numerous cases of multi-month delays in discharge processing, missing payment counts, and incorrect information about eligibility. These problems can add years to a borrower’s journey toward forgiveness, despite having fulfilled their end of the program’s requirements.
Editor’s note: This article was prepared with AI language software and edited for clarity and accuracy by The Financial Brand editorial team.