PRIVATE STUDENT
LOANS
Clarification from
CFPB Could Help
Ensure More
Consistent
Opportunities and
Treatment for
Borrowers
Report to Congressional Committees
May 2019
GAO-19-430
United States Government Accountability Office
United States Government Accountability Office
Highlights of GAO-19-430, a report to
congressional c
ommittees
May 2019
PRIVATE STUDENT LOANS
Clarification
from CFPB Could Help Ensure More
Consistent
Opportunities and Treatment for
Borrow
ers
What GAO Found
The five largest banks that provide private student loans—student loans that are
not guaranteed by the federal government—told GAO that they do not offer
private student loan rehabilitation programs because few private student loan
borrowers are in default, and because they already offer existing repayment
programs to assist distressed borrowers. (Loan rehabilitation programs
described in the Economic Growth, Regulatory Relief, and Consumer Protection
Act (the Act) enable financial institutions to remove reported defaults from credit
reports after borrowers make a number of consecutive, on-time payments.)
Some nonbank private student loan lenders offer rehabilitation programs, but
others do not, because they believe the Act does not authorize them to do so.
Clarification of this matter by the Consumer Financial Protection Bureau
(CFPB)—which oversees credit reporting and nonbank lenders—could enable
more borrowers to participate in these programs or ensure that only eligible
entities offer them.
Private student loan rehabilitation programs are expected to pose minimal
additional risks to financial institutions. Private student loans compose a small
portion of most banks’ portfolios and have consistently low default rates. Banks
mitigate credit risks by requiring cosigners for almost all private student loans.
Rehabilitation programs are also unlikely to affect financial institutions’ ability to
make sound lending decisions, in part because the programs leave some
derogatory credit information—such as delinquencies leading to the default—in
the credit reports.
Borrowers completing private student loan rehabilitation programs would likely
experience minimal improvement in their access to credit. Removing a student
loan default from a credit profile would increase the borrower’s credit score by
only about 8 points, on average, according to a simulation that a credit scoring
firm conducted for GAO. The effect of removing the default was greater for
borrowers with lower credit scores and smaller for borrowers with higher credit
scores (see figure). Reasons that removing a student loan default could have
little effect on a credit score include that the delinquencies leading to that
default—which also negatively affect credit scores—remain in the credit report
and borrowers in default may already have poor credit.
Simulated Effects of Removing a Student Loan Default from Borrowers’ Credit Reports
Note: A VantageScore 3.0 credit score models a borrower’s credit risk based on elements such as
payment history and amounts owed on credit accounts. The scores calculated represent a continuum
of credit risk from subprime (highest risk) to super prime (lowest risk).
View GAO-19-430. For more information,
contact
Alicia Puente Cackley at (202) 512-
8678 or
Why GAO Did This Study
The Economic Growth, Regulatory
Relief, and Consumer Protection Act
enabled lenders to offer a rehabilitation
program to private student loan
borrowers who have a reported default
on their credit report. The lender may
remove the reported default from credit
reports if the borrower meets certain
conditions. Congress included a
provision in statute for GAO to review
the implementation and effects of
these programs.
This report examines (1) the factors
affecting financial institutions’
participation in private student loan
rehabilitation programs, (2) the risks
the programs may pose to financial
institutions, and (3) the effects the
programs may have on student loan
borrowers’ access to credit. GAO
reviewed applicable statutes and
agency guidance. GAO also asked a
credit scoring firm to simulate the effect
on borrowers’ credit scores of
removing student loan defaults. GAO
also interviewed representatives of
regulators, some of the largest private
student loan lenders, other credit
providers, credit bureaus, credit
scoring firms, and industry and
consumer advocacy organizations.
What GAO Recommends
GAO is making two recommendations,
including that CFPB provide written
clarification to nonbank private student
loan lenders on their authority to offer
private student loan rehabilitation
programs. CFPB does not plan to take
action on this recommendation and
stated that it was premature to take
action on the second recommendation.
GAO maintains that both
recommendations are valid, as
discussed in this report.
Page i GAO-19-430 Private Student Loans
Letter 1
Background 4
No Banks Are Offering Rehabilitation Programs, and Authority Is
Unclear for Other Lenders 11
Private Student Loan Rehabilitation Programs Would Likely Pose
Minimal Risks to Financial Institutions 17
Private Student Loan Rehabilitation Programs Would Likely Result
In Minimal Improvements in Borrowers’ Access to Credit 20
Conclusions 25
Recommendations for Executive Action 26
Agency Comments and Our Evaluation 26
Appendix I Objectives, Scope, and Methodology 30
Appendix II Comments from the Consumer
Financial Protection Bureau 38
Appendix III Comments from the National
Credit Union Administration 41
Appendix IV GAO Contact and Staff Acknowledgments 42
Table
Table 1: Results of VantageScore Solutions, LLC, Simulation of
the Effect on a VantageScore 3.0 Credit Score of Adding
a Student Loan Delinquency to and Removing a Student
Loan Default from Borrowers’ Credit Profiles 34
Figures
Figure 1: Student Loan Market, September 2018 5
Figure 2: Example of Credit Reporting for a Borrower in a Private
Student Loan Rehabilitation Program 8
Contents
Page ii GAO-19-430 Private Student Loans
Figure 3: Example of Simulated Effects on a Borrower’s
VantageScore 3.0 Credit Score of Removing a Student
Loan Default 22
Abbreviations
the Act Economic Growth, Regulatory Relief, and
Consumer Protection Act
CFPB Consumer Financial Protection Bureau
CRA consumer reporting agency
FCRA Fair Credit Reporting Act
FDIC Federal Deposit Insurance Corporation
Federal Reserve Board of Governors of the Federal Reserve System
FFIEC Federal Financial Institutions Examination Council
FICO Fair Isaac Corporation
NCUA National Credit Union Administration
nonbank nonbank financial institution
nonbank state nonprofit state-affiliated lender
lender
OCC Office of the Comptroller of the Currency
VantageScore VantageScore Solutions, LLC
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Page 1 GAO-19-430 Private Student Loans
441 G St. N.W.
Washington, DC 20548
May 24, 2019
Congressional Committees
As of September 2018, nearly $120 billion in private student loan
balances (that is, all student loans that are not guaranteed by the federal
government) was outstanding in the United States.
1
Private student loans
can supplement federal student loans and other financial aid and help pay
for tuition, fees, books, and living expenses.
2
However, unlike federal
student loans, private student loan lenders may not offer as many flexible
relief options during periods of financial hardship. Borrowers who default
on any type of student loan can face serious consequences, including
damaged credit ratings and difficulty obtaining affordable credit in the
future.
After the passage of legislation in 1992, the Department of Education
established a loan rehabilitation option for federal student loans in default
(generally those 270 days past due).
3
Under this option, borrowers have
the default removed from their credit reports after making nine on-time
monthly payments within 10 months. To facilitate private student loan
borrowers’ access to comparable programs, in 2018 Congress passed
the Economic Growth, Regulatory Relief, and Consumer Protection Act
(the Act), which amended the Fair Credit Reporting Act (FCRA) to allow
1
Throughout this report, we use the term “private student loans” to mean the same as
“private education loans.” A private education loan is defined as, among other
requirements, a loan provided by a private educational lender that “is issued expressly for
postsecondary educational expenses to a borrower….” 15 U.S.C. § 1650(a)(8)(A)(ii). This
estimate is from MeasureOne, a company that compiles data from 17 student loan lenders
and holders that represented about 62 percent of outstanding U.S. private student loan
balances as of September 30, 2018. MeasureOne, The MeasureOne Private Student
Loan Report (San Francisco, Calif.: Dec. 20, 2018).
2
Private student loans can be in-school, refinancing, or consolidation loans. In-school
loans are underwritten to fund a student’s academic year needs. Refinancing loans are
loans in which the lender pays off existing federal or private student loans and replaces
them with a new private student loan with a lower interest rate. Consolidation loans are
like refinancing loans and are used to pay off the balances on other loans. The Consumer
Financial Protection Bureau generally recommends that student loan borrowers exhaust
the availability of federal student loans before taking out private student loans because
federal student loans usually carry more flexible protections in the case of hardship and
offer fixed interest rates.
3
34 C.F.R. § 682.405; 20 U.S.C. § 1085(l); 34 C.F.R. §§ 682.200(b) and 685.102(b).
Letter
Page 2 GAO-19-430 Private Student Loans
financial institutions to offer rehabilitation programs.
4
The Act does not
require financial institutions to offer a rehabilitation program to their
private student loan borrowers, but financial institutions that are overseen
by one of the federal banking regulators must obtain approval of their
program’s terms and conditions from their regulator before offering a
program.
5
Rehabilitation programs provide student loan borrowers who
have previously defaulted on their loan an opportunity to demonstrate to
their lender a renewed willingness and ability to repay the loan by making
a certain number of consecutive, on-time monthly payments. After
completing these payments, borrowers may request that their financial
institutions remove the previously reported default on their student loans
from their credit reports.
6
Section 602 of the Act includes a provision for us to review the
implementation and effects of private student loan rehabilitation
programs. This report examines (1) the factors affecting financial
institutions’ participation in these programs, (2) the risks that these
programs may pose to financial institutions, and (3) the effects that these
programs may have on student loan borrowers’ access to future credit.
To accomplish these objectives, we reviewed the statements that the
Board of Governors of the Federal Reserve System (Federal Reserve),
Federal Deposit Insurance Corporation (FDIC), and the Office of the
Comptroller of the Currency (OCC) issued to their regulated entities
regarding private student loan rehabilitation programs. We reviewed the
Consumer Financial Protection Bureau’s (CFPB) and National Credit
4
Pub. L. No. 115-174, § 602, 132 Stat.1366 (2018), amends the Fair Credit Reporting Act,
§ 623(a)(1) (codified as 15 U.S.C. § 1681s-2(a)(1)). “Financial institution” is defined by
FCRA to include a state or national bank, state or federal savings and loan association, a
mutual savings bank, a state or federal credit union, or any other person that, directly or
indirectly, holds a transaction account belonging to a consumer. 15 U.S.C. § 1681a(t). In
this report we refer to private student loan rehabilitation programs, or rehabilitation
programs, to mean those explicitly described in the Economic Growth, Regulatory Relief,
and Consumer Protection Act as well as similar programs that other private student loan
lenders may offer allowing borrowers who have defaulted on a student loan to request that
the default be removed from their credit report after making a certain number of
consecutive, on-time payments.
5
The federal banking regulators are the Board of Governors of the Federal Reserve
System, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of
the Currency. 12 U.S.C. § 1813(z).
6
Borrowers may obtain benefits with respect to rehabilitating a loan under the Act only
once per loan.
Page 3 GAO-19-430 Private Student Loans
Union Administration’s (NCUA) legal authorities concerning rehabilitation
programs. We also asked VantageScore Solutions, LLC
(VantageScore)—a credit scoring firm—to conduct an analysis simulating
the effects of derogatory credit marks on student loan borrowers’
VantageScore 3.0 credit score.
In addition, we interviewed representatives from a nongeneralizable
sample of 15 private student loan lenders: five banks and two credit
unions with among the largest private student loan portfolios and eight
nonbank financial institutions (nonbank). The eight nonbanks included
three for-profit nonbank lenders and five nonprofit state-affiliated lenders
(nonbank state lenders).
7
We identified the for-profit nonbank lenders and
nonbank state lenders through discussions with federal agency officials
and a trade association for nonbank state lenders, as well as
documentary sources with data on nonbank private student loan lenders.
Because this sample is nongeneralizable, our results cannot be
generalized to all private student loan lenders.
We also interviewed representatives from a nongeneralizable sample of
seven credit providers (of mortgages, automobile loans, and credit cards)
about potential risks and effects of private student loan rehabilitation
programs.
8
We selected these credit providers based on their size and, to
the extent applicable, their federal regulator to include a mix of entities
overseen by different regulators. Because this sample is
nongeneralizable, our results cannot be generalized to all credit
providers. We interviewed officials from FDIC, the Federal Reserve,
NCUA, OCC, and CFPB about their implementation of the Act’s
provisions on private student loan rehabilitation programs and the
potential risks and effects for financial institutions and student loan
borrowers.
Finally, we interviewed officials from the Department of Education and the
Federal Trade Commission, which oversee the federal student loan
7
Nonbanks are broadly defined as institutions other than banks that offer financial
services. Loan or finance companies are common examples of nonbanks. Nonbank state
lenders provide private student loans to residents of their states and out-of-state students
attending in-state schools. These lenders are mission-driven entities focused on
increasing college access and affordability in their states, among other things, and are
funded through tax-advantaged bond funding.
8
For purposes of this report, we defined credit providers to include any bank or nonbank
entity that provides installment loans or revolving lines of credit to individual consumers.
Page 4 GAO-19-430 Private Student Loans
rehabilitation program and credit reporting industry, respectively. We also
interviewed representatives of four consumer reporting agencies (CRA);
the two credit scoring firms that develop credit score models with
nationwide coverage, Fair Isaac Corporation (FICO) and VantageScore;
banking, credit reporting, and student loan lending and servicing industry
groups; and consumer advocacy organizations. We determined that all of
the data and data sources we used in this report and the analyses
conducted by VantageScore were sufficiently reliable for reviewing the
implementation and effects of private student loan rehabilitation
programs. See appendix I for a more detailed discussion of our scope
and methodology.
We conducted this performance audit from July 2018 to May 2019 in
accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe that
the evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objectives.
Private student loans are not guaranteed by the federal government.
Generally, private lenders underwrite the loans based on the borrower’s
credit history and ability to repay, and they often require a cosigner.
Private student loans generally carry a market interest rate, which can be
a variable rate that is higher than that of federal student loans. As of
September 30, 2018, five banks held almost half of all private student
loan balances. Other private student loan lenders include credit unions
and nonbanks:
• Credit unions originate private student loans either directly or
indirectly through a third party.
• Nonbanks include both for-profit nonbank lenders and nonbank state
lenders. For-profit nonbank lenders can originate, service, refinance,
and purchase loans. Nonbank state lenders promote affordable
access to education by generally offering low, fixed-rate interest rates
and low or no origination fees on student loans.
As of September 2018, outstanding private student loan balances made
up about 8 percent of the $1.56 trillion in total outstanding student loans
Background
Private Student Loan
Market
Page 5 GAO-19-430 Private Student Loans
(see fig. 1). The volume of new private student loans originated has
fluctuated, representing about 25 percent of all student loans originated in
academic year 2007–2008, 7 percent in 2010–2011 (after the financial
crisis), and 11 percent in 2017–2018.
9
Figure 1: Student Loan Market, September 2018
FCRA, the primary federal statute that governs consumer reporting, is
designed to promote the accuracy, fairness, and privacy of information in
the files of CRAs. FCRA, and its implementing regulation, Regulation V,
govern the compilation, maintenance, furnishing, use, and disclosure of
consumer report information for credit, insurance, employment, and other
eligibility decisions made about consumers. The consumer reporting
market includes the following entities:
• CRAs assemble or evaluate consumer credit information or other
consumer information for the purpose of producing consumer reports
(commonly known as credit reports). Equifax, Experian, and
TransUnion are the three nationwide CRAs.
9
Data for academic year 2017–2018 are preliminary. The College Board, Trends in
Student Aid 2018, (New York, N.Y.: October 2018).
Consumer Reporting for
Private Student Loans
Page 6 GAO-19-430 Private Student Loans
• Data furnishers report information about consumers’ financial
behavior, such as repayment histories, to CRAs. Data furnishers
include credit providers (such as private student loan lenders),
utilities, and debt collection agencies.
• Credit report users include banks, employers, and others that use
credit reports to make decisions on an individual’s eligibility for
products and services such as credit, employment, housing, and
insurance.
FCRA imposes duties on data furnishers with respect to the accuracy of
the data they furnish.
10
Data furnishers are required to, among other
things, refrain from providing CRAs with information they know or have
reasonable cause to believe is inaccurate and develop reasonable written
policies and procedures regarding the accuracy of the information they
furnish. The Act entitles financial institutions that choose to offer a private
student loan rehabilitation program that meets the Act’s requirements a
safe harbor from potential inaccurate information claims under FCRA
related to the removal of the private student loan default from a credit
report. To assist data furnishers in complying with their responsibilities
under FCRA, the credit reporting industry has adopted a standard
electronic data-reporting format called the Metro 2® Format. This format
includes standards on how and what information furnishers should report
to CRAs on private student loans.
11
The information that private student loan lenders furnish to CRAs on their
borrowers includes consumer identification; account number; date of last
payment; account status, such as in deferment, current, or delinquent
(including how many days past due); and, if appropriate, information
indicating defaults.
12
An account becomes delinquent on the day after the
10
Accuracy for the purposes of furnishers’ obligations means that the information a
furnisher provides to a CRA about an account or other relationship with the consumer
correctly: (1) reflects the terms of and liability for the account or other relationship, (2)
reflects the consumer’s performance and other conduct with respect to the account or
other relationship, and (3) identifies the appropriate consumer. 12 C.F.R. § 1022.41(a).
11
As of March 2019, revisions to the credit reporting standards and guidelines for private
student loans were planned, and the Consumer Data Industry Association hopes to
complete the revisions in 2019.
12
FCRA requires a person who furnishes information to a CRA regarding a delinquent
account being placed for collection, charged to profit or loss, or subjected to any similar
action to notify the CRA of the date of delinquency on the account not later than 90 days
after furnishing the information. Some private student loan lenders use third-party
servicers to service their student loan portfolio and provide credit reporting information to
CRAs on their behalf.
Page 7 GAO-19-430 Private Student Loans
due date of a payment when the borrower fails to make a full payment.
Private student loan lenders’ policies and terms of loan contracts
generally determine when a private student loan is in default. While
private student loan lenders may differ in their definitions of what
constitutes a default, federal banking regulator policy states that closed-
end retail loans (which include private student loans) that become past
due 120 cumulative days from the contractual due date should be
classified as a loss and “charged off.”
13
Private student loan lenders can
indicate that a loan is in default and they do not anticipate being able to
recover losses on it by reporting to CRAs one of a number of Metro 2®
Format status codes. Participation in a private student loan rehabilitation
program entitles borrowers who successfully complete the program to
request that the indicator of a student loan default be removed from their
credit report, but the delinquencies leading up to the default would remain
on the credit report.
14
Figure 2 shows an example of credit reporting for a
borrower who defaults on a private student loan and completes a
rehabilitation program.
13
See Federal Financial Institutions Examination Council, Uniform Retail Credit
Classification and Account Management Policy, 64 Fed. Reg. 6655 (Feb. 10, 1999).
Although NCUA did not adopt the Federal Financial Institutions Examination Council’s
(FFIEC) policy and issued its own loan charge-off guidance, it does refer federally insured
credit unions to the FFIEC policy for best practices in developing their charge-off policies.
Although the FFIEC policy does not define “default,” throughout this report, we use the
term to describe private student loans that have been charged off by banks and credit
unions.
14
When we refer to the successful completion of a private student loan rehabilitation
program in this report, we are referring to borrowers who make the lender-specified
number of consecutive, on-time monthly payments, request that the lender remove a
reported default and have the private student loan default indicator removed from their
credit report.
Page 8 GAO-19-430 Private Student Loans
Figure 2: Example of Credit Reporting for a Borrower in a Private Student Loan Rehabilitation Program
A credit score is a measure that credit providers use to predict financial
behaviors and is typically computed using information from consumer
credit reports. Credit scores can help predict the likelihood that a
borrower may default on a loan, file an insurance claim, overdraw a bank
account, or not pay a utility bill. FICO and VantageScore are the two firms
that develop credit score models with nationwide coverage. FICO
develops credit score models for distribution by each of the three
nationwide CRAs, whereas VantageScore’s models are developed across
the three CRAs resulting in a single consistent algorithm to assess risk.
FICO and VantageScore each have their own proprietary statistical credit
score models that choose which consumer information to include in
calculations and how to weigh that information. The three nationwide
CRAs also develop credit score models derived from their own data.
There are different types of credit scores, including generic, industry-
specific, and custom. Generic scores are based on a representative
sample of all individuals in a CRA’s records, and the information used to
predict repayment is limited to the information in consumer credit records.
Generic scores are designed to predict the likelihood of a borrower not
Credit Scoring
Page 9 GAO-19-430 Private Student Loans
paying as agreed in the future on any type of credit obligation. Both FICO
and VantageScore develop generic credit scores. FICO and
VantageScore generic scores generally use a range from 300 to 850, with
higher numbers representing lower credit risk. For example,
VantageScore classifies borrowers in the following categories: subprime
(those with a VantageScore of 300–600), near prime (601–660), prime
(661–780), and super prime (781–850). A prime borrower is someone
who is considered a low-risk borrower and likely to make loan payments
on time and repay the loan in full, whereas a subprime borrower has a
tarnished or limited credit history. FICO and VantageScore generic scores
generally use similar elements in determining a borrower’s credit score,
including a borrower’s payment history, the amounts owed on credit
accounts, the length of credit history and types of credit, and the number
of recently opened credit accounts and credit inquiries.
FICO has developed industry-specific scores for the mortgage,
automobile finance, and credit card industries. These scores are
designed to predict the likelihood of not paying as agreed in the future on
these specific types of credit. In addition, credit providers sometimes use
custom credit scores instead of, or in addition to, generic credit scores.
Credit providers derive custom scores from credit reports and other
information, such as account history, from the lender’s own portfolio. The
scores can be developed internally by credit providers or with the
assistance of external parties such as FICO or the three nationwide
CRAs.
CFPB has supervisory authority over certain private student loan lenders,
including banks and credit unions with over $10 billion in assets and all
nonbanks, for compliance with Federal consumer financial laws.
15
CFPB
also has supervisory authority over the largest CRAs and many of the
entities that furnish information about consumers’ financial behavior to
CRAs.
16
To assess compliance with Federal consumer financial laws,
15
The Dodd-Frank Wall Street Reform and Consumer Protection Act defines Federal
consumer financial laws to include the Consumer Financial Protection Act of 2010 (Title X
of the Dodd-Frank Act) itself and a number of other consumer laws and the implementing
regulations. 12 U.S.C. § 5481(14). For example, Federal consumer financial laws include
the Equal Credit Opportunity Act, the Truth in Lending Act, the Fair Debt Collection
Practices Act, and FCRA.
16
CFPB also has supervisory authority over many of the entities that use the information
for credit decisions.
Federal Oversight of
Private Student Loans
Page 10 GAO-19-430 Private Student Loans
CFPB conducts compliance examinations. According to CFPB, because
of its mission and statutory requirement regarding nonbank supervision, it
prioritizes its examinations by focusing on risks to consumers rather than
risks to institutions. Given the large number, size, and complexity of the
entities under its authority, CFPB prioritizes its examinations by focusing
on individual product lines rather than all of an institution’s products and
services. CFPB also has enforcement authority under FCRA regarding
certain banks, credit unions, and nonbanks and broad authority to
promulgate rules to carry out the purposes of FCRA.
17
The prudential regulators—FDIC, Federal Reserve, NCUA, and OCC—
oversee all banks and most credit unions that offer private student loans.
Their oversight includes routine safety and soundness examinations for
all regulated entities. These examinations may include a review of
operations, including policies, procedures, and practices, to ensure that
private student loans are not posing a risk to the entities’ safety and
soundness. Prudential regulators also have supervisory authority for
FCRA compliance for banks and certain credit unions with $10 billion or
less in assets.
17
CFPB does not have rulemaking authority for FCRA Section 615(e), regarding red flag
guidance and regulations, and Section 628, regarding disposal of records (codified as 15
U.S.C. § 1681m(e) and 15 U.S.C. § 1681w, respectively).
Page 11 GAO-19-430 Private Student Loans
As of January 2019, none of the five banks with the largest private
student loan portfolios that we contacted offered rehabilitation programs
for defaulted private student loans. In addition, officials from the federal
banking regulators told us that as of March 2019, no banks had submitted
applications to have rehabilitation programs approved. Representatives
from three of the five banks we contacted told us they had decided not to
offer a rehabilitation program, and the other two had not yet made a final
determination.
Representatives from these five banks provided several reasons they
were not offering rehabilitation programs for private student loans.
• Low delinquency and default rates. All five banks’ representatives
stated that they had low default rates for private student loans, so the
demand for these programs would be low for each bank.
• Availability of predefault payment programs. Representatives of all
five banks said they already offer alternative payment programs, such
as forbearance, to help prevent defaults, and two of them explicitly
noted this as a reason that a rehabilitation program was unnecessary.
• Operational uncertainties. Most of the banks’ representatives were
not sure how they would operationalize rehabilitation programs. One
bank’s representatives said that they sell defaulted loans to debt
purchasers and that it would be difficult to offer rehabilitation
programs for loans that had been sold. Representatives of two other
banks said that the banks’ systems are not able to change the status
of a loan once it has defaulted, so they were not certain how their
systems would track rehabilitated loans. Another bank’s
representatives said that they did not know how rehabilitated loans
would be included for accounting purposes in developing their
financial statements.
No Banks Are
Offering
Rehabilitation
Programs, and
Authority Is Unclear
for Other Lenders
Banks and Credit Unions
Are Not Offering
Rehabilitation Programs,
but Federal Banking
Regulators Have
Established Approval
Processes
Page 12 GAO-19-430 Private Student Loans
• Reduced borrower incentives to avoid default. Representatives
from two banks said they believed the option to rehabilitate a
defaulted loan might reduce borrowers’ incentives to avoid default or
to enter a repayment program before default.
• Risk of compliance violations. One bank representative said a
rehabilitation program could put the bank at risk for violations of unfair
and deceptive acts and practices if borrowers misunderstood or
misinterpreted how much the program would improve their credit
scores. Representatives from this bank and another explained that
they did not know how much the program would improve credit
scores, limiting their ability to describe the program’s benefit to
borrowers.
Representatives from three of these banks and other organizations,
however, noted that there could be advantages for banks to offer private
student loan rehabilitation programs. Representatives from the banks said
these programs could help banks recover some nonperforming debt, and
one of these representatives stated the program could be marketed to
borrowers as a benefit offered by the bank. A representative of a
consumer advocacy group said a rehabilitation program could improve a
bank’s reputation by distinguishing the bank from peer institutions that do
not offer rehabilitation for private student loans.
Because NCUA is not one of the federal banking regulators by statutory
definition, officials said the Act does not require credit unions to seek
approval from the agency before offering a rehabilitation program. NCUA
officials told us examiners would likely review private student loan
rehabilitation programs for the credit unions that choose to offer them as
part of normal safety and soundness examinations. The two credit unions
we spoke with—which are among the largest credit union providers of
private student loans—told us they do not plan to offer rehabilitation
programs. One of these credit unions cited reasons similar to those
offered by banks, including a low private student loan default rate that
suggested there would be a lack of demand for a rehabilitation program.
The other credit union explained that it was worried about the effect of
removing defaults from credit reports on its ability to make sound lending
decisions. NCUA officials also noted that as of January 2019, they had
not received any inquiries from credit unions about these programs.
OCC, FDIC, and the Federal Reserve have issued information regarding
the availability of private student loan rehabilitation programs to their
regulated entities, including how they would review applications. In doing
so, the agencies informally coordinated to ensure that the statements
Page 13 GAO-19-430 Private Student Loans
issued would contain similar information on rehabilitation programs. The
three agencies’ statements explained that their regulated entities must
receive written approval to begin a program and that the relevant agency
would provide feedback or notify them of its decision within 120 days of
receiving a written application.
18
The agencies will review the proposed
program to ensure that it requires borrowers to make a minimum number
of consecutive, on-time, monthly payments that demonstrate renewed
ability and willingness to repay the loan.
19
Uncertainty exists regarding two issues with private student loan
rehabilitation programs. First, some nonbank private student loan lenders
are not certain that they have the authority to implement these programs.
Second, the Act does not explain what constitutes a “default” for the
purposes of removing information from credit reports.
With regard to nonbank state lenders, uncertainty exists about their
authority under FCRA to offer private student loan rehabilitation programs
that include removing information from credit reports. As discussed
previously, for financial institutions such as banks and credit unions, the
Act provides an explicit safe harbor to request removal of a private
student loan default from a borrower’s credit report and remain in
compliance with FCRA. However, the Act does not specify that for-profit
nonbank lenders and nonbank state lenders have this same authority.
Representatives of the five nonbank state lenders we spoke with had
different interpretations of their authority to offer rehabilitation programs.
At least two nonbank state lenders currently offer rehabilitation programs,
and their representatives told us they believed they have the authority to
do so. Another nonbank state lender told us its state has legislation
18
See Office of the Comptroller of the Currency, Statement on Programs for Rehabilitation
of Private Education Loans (Section 602 Rehabilitation Programs), OCC Bulletin 2018-48
(Washington, D.C.: Dec. 27, 2018); Federal Deposit Insurance Corporation, Voluntary
Private Education Loan Rehabilitation Programs, FDIC Financial Institution Letter FIL-5-
2019 (Washington, D.C.: Feb. 4, 2019); and Board of Governors of the Federal Reserve
System, Voluntary Private Education Loan Rehabilitation Programs, Federal Reserve
Supervision and Regulation Letter SR19-2 (Washington, D.C.: Feb. 4, 2019).
19
OCC issued its statement separately from FDIC and the Federal Reserve since it was
concurrently updating examiner guidance and training materials. See Office of the
Comptroller of the Currency, Comptroller’s Handbook: Student Lending, Version 1.3
(Washington, D.C.: Dec. 27, 2018).
Uncertainty Exists about
Nonbank Lenders’
Authority and What
Information Should Be
Removed from a Credit
Report
Uncertainty about Nonbank
State Lenders’ Authorities
Page 14 GAO-19-430 Private Student Loans
pending to implement such a program. In contrast, representatives of two
other nonbank state lenders told us they were interested in offering a
rehabilitation program but did not think that they had the authority to do
so. In addition, representatives from a trade association that represents
nonbank state lenders noted that confusion exists among some of their
members and they are seeking a way to obtain explicit authority for
nonbank lenders to offer rehabilitation programs for their private student
loans. Two trade associations that represent nonbank state lenders also
told us that some of their members would be interested in offering these
programs if it was made explicit that they were allowed to do so.
CFPB officials told us the agency has not made any determination on
whether it plans to clarify for nonbanks—including for-profit nonbank
lenders and nonbank state lenders—if they have the authority under
FCRA to have private student loan defaults removed from credit reports
for borrowers who have completed a rehabilitation program. CFPB
officials said that the agency does not approve or prevent its regulated
entities from offering any type of program or product. Unlike for the
federal banking regulators, the Act did not require CFPB to approve
rehabilitation programs offered by the entities it regulates. However,
CFPB does have general FCRA rulemaking authority. It generally also
has FCRA enforcement and supervisory responsibilities over its regulated
entities, which includes certain entities that originate private student
loans. This authority allows the agency to provide written clarification of
provisions or define terms as needed. As a result, CFPB could play a role
in clarifying for nonbanks whether they are authorized under FCRA to
offer private student loan rehabilitation programs.
Federal internal control standards state that management should
externally communicate the necessary quality information to achieve the
entity’s objectives.
20
Without clarification from CFPB on nonbanks’
authority to offer private student loan rehabilitation programs that allow
them to delete information from the borrower’s credit report, there will
continue to be a lack of clarity on this issue among these entities.
Providing such clarity could—depending on CFPB’s interpretation—result
in additional lenders offering rehabilitation programs that would allow
more borrowers the opportunity to participate, or it could help ensure that
20
GAO, Standards for Internal Control in the Federal Government, GAO-14-704G
(Washington, D.C.: Sept. 10, 2014).
Page 15 GAO-19-430 Private Student Loans
only those entities CFPB has interpreted as being eligible to offer
programs are doing so.
Statutory changes made to FCRA by the Act do not explain what
information on a consumer’s credit report constitutes a private student
loan “default” that may be removed when a borrower successfully
completes a rehabilitation program. According to the three nationwide
CRAs and a credit reporting trade association, the term “default” is not
used in credit reporting for private student loans. As discussed previously,
private student loan lenders use one of a number of Metro 2® Format
status codes to indicate that a loan is in default (i.e., they do not
anticipate being able to recover losses on the loan). Representatives of
the CRAs and a credit reporting trade association said that private
student loan lenders will need to make their own interpretation of what
information constitutes a default for the purposes of removing information
from a credit report following successful completion of a private student
loan rehabilitation program.
The statements issued by FDIC, the Federal Reserve, and OCC on
rehabilitation programs do not explain what information constitutes a
private student loan “default” that may be removed from borrowers’ credit
reports upon successful completion of a rehabilitation program. Officials
from FDIC, the Federal Reserve, and OCC explained that they do not
have the authority to interpret what constitutes a private student loan
default on credit reports because the responsibilities for interpreting
FCRA fall under CFPB. CFPB officials told us they are monitoring the
issue but have not yet determined if there is a need to address it.
21
21
In 2010, we reported similar concerns when the Department of the Treasury
implemented its mortgage loan modification program in 2009. In particular, we noted
inconsistencies in servicers’ criteria for determining imminent default. We recommended
that the Department of the Treasury establish clear and specific criteria for determining
whether a borrower is in imminent default to ensure greater consistency across servicers.
At the time the report issued, the agency indicated that it did not plan to establish specific
criteria for servicers to follow in determining whether a borrower was in imminent danger
of default because it felt that servicers and investors were in the best position to make this
determination. The Department of the Treasury stopped taking new requests for
assistance or applications for any of its mortgage loan modification programs as of
December 30, 2016. We have closed this recommendation as not implemented. GAO,
Troubled Asset Relief Program: Further Actions Needed to Fully and Equitably Implement
Foreclosure Mitigation Programs, GAO-10-634 (Washington, D.C.: June 24, 2010).
No Standard for What
Constitutes a “Default”
Page 16 GAO-19-430 Private Student Loans
Given CFPB’s rulemaking authority for FCRA, it could clarify the term
“default” for private student loan lenders. In doing so, CFPB could obtain
insight from the prudential regulators and relevant industry groups on how
private student loan lenders currently report private student loan defaults
on credit reports and on how to develop a consistent standard for what
information may be removed. According to federal internal control
standards, management should externally communicate the necessary
quality information to achieve objectives.
22
This can include obtaining
quality information from external parties, such as other regulators and
relevant industry groups. Without clarification from CFPB, there may be
differences among private student loan lenders in what information they
determine constitutes a “default” and may be removed from a credit
report. Variations in lenders’ interpretations could have different effects on
borrowers’ credit scores and credit records, resulting in different treatment
of borrowers by credit providers. This could affect borrowers’ access to
credit or the terms of credit offered, such as interest rates or the size of
down payments required on a variety of consumer loans. In addition, as
mentioned previously, the credit reporting industry follows a standard
reporting format to help ensure the most accurate credit reporting
information possible. Without clarification on what information may be
removed from credit reports following successful completion of
rehabilitation programs, differences in lenders’ interpretation could
introduce inconsistencies in credit reporting data that may affect their
accuracy.
22
GAO-14-704G.
Page 17 GAO-19-430 Private Student Loans
Rehabilitation programs for private student loans are expected to pose
minimal additional risk to banks’ and credit unions’ safety and soundness.
Prudential regulators require that banks and credit unions underwrite
student loans to mitigate risks and ensure sound lending practices, and
OCC guidance specifies that underwriting practices should minimize the
occurrence of defaults and the need for repayment assistance. Lenders
generally use underwriting criteria based on borrowers’ credit information
to recognize and account for risks associated with private student loans.
According to officials from OCC, FDIC, and the Federal Reserve and
representatives from the major bank and credit union private student loan
lenders we spoke with, lenders participating in private student loan
rehabilitation programs would face minimal additional risks for several
reasons:
• Loans are already classified as a loss. Loans entering a
rehabilitation program are likely to be 120 days past due and to have
been charged off, and thus they would have already been classified
as a loss by banks and credit unions. OCC officials told us a program
to rehabilitate these loans would, therefore, pose no additional risks to
the safety and soundness of institutions that offer them.
• Default rates are low, and loans typically use cosigners.
Representatives from the five major banks and two credit unions told
us that private student loans generally perform well and have low
rates of delinquencies and defaults. Aggregate data on the majority of
outstanding loan balances show that the default rate for private
student loans was below 3 percent from the second quarter of 2014
Private Student Loan
Rehabilitation
Programs Would
Likely Pose Minimal
Risks to Financial
Institutions
Programs Are Expected to
Pose Little Safety and
Soundness Risk for Banks
and Credit Unions
Page 18 GAO-19-430 Private Student Loans
through the third quarter of 2018.
23
Lenders also generally require
borrowers of private student loans to have cosigners—someone who
is liable to make payments on the loan should the student borrower
default—which helps reduce the risk of the loan not being repaid.
Since the academic year 2010–2011, the rate of undergraduate
private student loan borrowers with cosigners has exceeded 90
percent.
24
• Private student loan portfolios are generally small. Private student
loans make up a small portion of the overall loan portfolios for most of
the banks and credit unions we spoke with. For four of the five major
banks with the largest portfolios of private student loans, these
constituted between about 2 percent to 11 percent of their total loan
portfolio in 2017. The fifth bank’s entire portfolio was education
financing, with private student loans accounting for about 93 percent
of its 2017 portfolio. For the two credit unions we contacted, private
student loans constituted about 2 percent and 6 percent of their total
assets in 2018.
Private student loan rehabilitation programs may create certain
operational costs for banks or credit unions that offer them. However, no
representatives of the five banks and two credit unions with whom we
spoke were able to provide a cost estimate since none had yet designed
or implemented such a program. Representatives from four banks and
one credit union we spoke with said that potential costs to implement a
rehabilitation program would be associated with information technology
systems, designing and developing new systems to manage the program,
increased human resource needs, additional communications with
borrowers, credit reporting, compliance, monitoring, risk management,
and any related legal fees. In addition, like any other type of consumer
loan, banks and credit unions could face potential risks with private
student loan rehabilitation programs, including operational, compliance, or
23
The default rate data presented here represent annualized charge-off rates.
MeasureOne defines the annualized charge-off rate as the amount of gross charge-offs
for a quarter divided by the quarter-end balance in repayment loan status, multiplied by
four (or annualized). MeasureOne, The MeasureOne Private Student Loan Report (Dec.
20, 2018). We compared private student loan default rates to the default rates of other
types of consumer loans, including automobile loans, credit cards, and mortgages, and
found that the estimated private student loan default rate is comparable to the default
rates of these other types of consumer loans.
24
MeasureOne, The MeasureOne Private Student Loan Report (Dec. 20, 2018).
Page 19 GAO-19-430 Private Student Loans
reputational risks.
25
For example, a representative of one bank cited
operational risks such as those that could stem from errors in credit
reporting or inadequate collection practices for rehabilitated private
student loans.
One concern about removing information from credit reports—as
authorized in connection with the Act’s loan rehabilitation programs—is
that it could degrade the quality of the credit information that credit
providers use to assess the creditworthiness of potential borrowers.
However, the removal of defaults from credit reports resulting from loan
rehabilitation programs is unlikely to affect financial institutions’ ability to
make sound lending decisions, according to prudential regulator officials
and representatives from three private student lenders and three other
credit providers with whom we spoke. OCC and FDIC officials and
representatives from two of these private student lenders noted that
because rehabilitation programs leave the delinquencies leading up to the
default on borrowers’ credit reports, lenders would still be able to
adequately assess borrower risk. In addition, representatives from one
automobile lender and one mortgage lender said that over time, the
methods they use to assess creditworthiness would be able to detect
whether rehabilitated private student loans were affecting their ability to
identify risk patterns in credit information and they could adjust the
methods accordingly.
Representatives from the Federal Reserve provided three additional
reasons why they expected that rehabilitation programs would have little
effect on banks’ and credit unions’ lending decisions. First, under the
statutory requirement for private student loan rehabilitation, removal of a
default from a borrower’s credit report can only occur once per loan. A
single default removal would be unlikely to distort the accuracy of credit
reporting in general. Second, they said that borrowers who have
successfully completed a rehabilitation program by making consecutive
on-time payments have demonstrated a proven repayment record, and
therefore they likely represent a better credit risk. Finally, because
participation in the private student loan rehabilitation program is expected
25
Operational risk arises from inadequate or failed internal processes or systems, human
errors or misconduct, or adverse external events. Compliance risk arises from violations of
laws or regulations, or from nonconformance with prescribed practices, internal bank
policies and procedures, or ethical standards. Reputational risk arises from negative
public opinion.
Rehabilitation Programs
Are Expected to Have
Little Effect on Financial
Institutions’ Ability to Make
Prudent Lending
Decisions
Page 20 GAO-19-430 Private Student Loans
to be low, its effect on the soundness of financial institutions’ lending
decisions is expected to be minimal.
The effects of private student loan rehabilitation programs on most
borrowers’ access to credit would likely be minimal. A simulation
conducted by VantageScore found that removing a student loan default
increased a borrower’s credit score by 8 points, on average.
26
An 8 point
rise in a borrower’s credit score within VantageScore’s range of 300 to
850 represents only a very small improvement to that borrower’s
creditworthiness. Therefore, most borrowers who successfully completed
a private student loan rehabilitation program would likely see minimal
improvement in their access to credit, particularly for credit where the
decision-making is based solely on generic credit scores.
26
In this section, we refer to the removal of student loan defaults generally, rather than
private student loan defaults in particular, because it is not always possible to differentiate
between federal and private student loans in credit reporting information, according to
credit scoring firms with whom we spoke. The 95 percent confidence interval for this
estimate is (7.57, 7.79) with a point estimate of 7.68. The estimate includes all borrowers
with at least one student loan balance greater than $0 and who also had at least one
student loan delinquency or default in 2016–2018. Analysis of borrowers with the same
characteristics in 2014–2016 and in 2015–2017 produced similar results. For purposes of
this analysis, a default is defined as a loan that is 90 or more days past due (including
charge-offs), and a delinquency is defined as a loan that is 30 or 60 days past due. The
simulated borrower outcomes are meant to be illustrative. The results of the
VantageScore analysis only apply to VantageScore 3.0 credit scores in 2016–2018 and
may not be generalizable to effects on other VantageScore credit scores or FICO credit
scores, or for different years. Additionally, because this is a simulation, it is unlikely that
any one borrower’s credit profile exactly matches the average profiles used in the
simulations. See appendix I for additional information on this analysis.
Private Student Loan
Rehabilitation
Programs Would
Likely Result In
Minimal
Improvements in
Borrowers’ Access to
Credit
Effect of Rehabilitation
Programs on Most
Borrowers’ Access to
Credit Would Likely Be
Small
Page 21 GAO-19-430 Private Student Loans
The effect of a rehabilitation program on credit scores will likely be
somewhat greater for borrowers with lower credit scores, and smaller for
borrowers with higher credit scores. For example, the VantageScore
simulation suggests that borrowers in the subprime range (with scores of
300–600) could see score increases of 11 points, on average, while
borrowers in the prime (661–780) and super prime (781–850) ranges
could see increases of less than 1 point, on average (see fig. 3).
27
The
effect of removing a default from a credit report varies among borrowers
because a credit score is influenced by other information in a borrower’s
credit report, such as other outstanding derogatory credit markers, the
length of time since the default, and other types of outstanding loans.
27
The 95 percent confidence intervals for these estimates are (10.51, 10.83) and (0.85,
1.04) with point estimates of 10.67 and 0.94, respectively.
Factors Credit Providers Consider Prior to
Lending
Credit providers assess a borrower’s
creditworthiness based on several factors,
including the following:
• Generic credit scores: Credit providers
can rely solely on generic credit scores,
such as those developed by Fair Isaac
Corporation and VantageScore Solutions,
LLC, to make lending decisions. Credit
providers generally do not provide credit
to borrowers whose scores do not meet a
minimum threshold.
• Industry-specific credit scores: Certain
types of credit providers, such as
mortgage lenders, automobile loan
lenders, and credit card issuers, may use
industry-specific credit scores rather than
generic credit scores to make lending
decisions. This is because these scores
may help them better predict lending risks
specific to their industry.
• Internal credit reviews: Credit providers
can customize methods unique to their
institution that review different aspects of
borrowers’ credit information, such as
debt-to-income ratios, employment
history, and borrowers’ existing
relationships with the institution. Credit
providers may also develop custom credit
scores that are tailored to their specific
needs and include factors they have
deemed important in predicting risks of
nonpayment. Credit providers incorporate
their own internal data in these scores as
well as information contained in
borrowers’ credit reports.
Source: GAO, based on credit provider interviews. |
GAO-19-430
Page 22 GAO-19-430 Private Student Loans
Figure 3: Example of Simulated Effects on a Borrower’s VantageScore 3.0 Credit
Score of Removing a Student Loan Default
Note: A VantageScore 3.0 credit score models a borrower’s credit risk based on elements such as
payment history and amounts owed on credit accounts. The scores calculated represent a continuum
of credit risk from subprime (highest risk) to super prime (lowest risk).
Reasons that removing a student loan default may improve a borrower’s
credit score and access to credit only minimally include the following:
• Delinquencies remain in the credit report. A key reason that
removing a student loan default has a small effect on a credit score,
according to VantageScore officials, is that the delinquencies leading
to that default remain in the credit report for borrowers who
successfully complete rehabilitation programs. Adding a delinquency
Page 23 GAO-19-430 Private Student Loans
in the simulation decreased a credit score by 61 points, on average.
28
Thus, the simulation suggests that the increase in a credit score from
removing a student loan default is not as substantial as the decrease
from adding the initial delinquency.
• Credit scoring treats student loans differently. Some credit score
models place less emphasis on student loans than on other types of
consumer loans in predicting the risk of nonpayment. One credit
scoring firm and two CRAs we spoke with said that student loans
have a lower weight than other types of consumer loans in their
generic credit scoring algorithms. They explained that there are fewer
student loans than other types of consumer loans in the sample they
use to develop the score, and student debt has proved to be less
important statistically at predicting credit risk in their models. Student
loans also may have less weight in predicting defaults in industry-
specific or custom models of scores. A representative of one credit
scoring firm said the algorithm for an industry-specific credit score that
predicts the risk of nonpayment on a credit card may place less
emphasis on a student loan than the algorithm for a generic credit
score that is meant to predict risk more broadly. Further, CRA officials
we spoke with said that because their custom credit scoring models
are specific to clients’ needs, the models may not include student
loans as a predictor of default at all, or they may place greater
emphasis on student loans, depending on the clients’ needs.
• Borrowers in default typically already have poor credit. Borrowers
who complete a rehabilitation program have a high likelihood of
having other derogatory credit items in their credit report, in addition to
the student loan delinquencies that led to the default, according to a
study conducted by a research organization, several CRAs, and one
credit provider with whom we spoke.
29
The VantageScore simulation
also showed that borrowers who had at least one student loan
delinquency or default in their credit profile had an average of five
derogatory credit items in their profile. Because student loan defaults
and student loan delinquencies are both negative credit events that
28
The 95 percent confidence interval for this estimate is (-60.81, -60.57) with a point
estimate of -60.69. The estimate includes all borrowers with at least one student loan
balance greater than $0 in 2016–2018. In the VantageScore analysis that added a student
loan delinquency to borrowers’ credit profiles, borrowers had an average of 1.5
delinquencies or defaults previously existing in their credit profiles. For purposes of this
analysis, a delinquency is defined as a loan that is 30 or 60 days past due.
29
Urban Institute, Underwater on Student Loan Debt: Understanding Consumer Credit and
Student Loan Default (Washington, D.C.: August 2018).
Page 24 GAO-19-430 Private Student Loans
affect credit providers’ credit assessment methods, the removal of one
student loan default from a borrower’s credit report likely will not make
a large difference in how credit providers evaluate the borrower.
Consumer advocates and academic studies cited potential benefits of
rehabilitation programs apart from their effect on credit scores and access
to credit:
• Borrowers defaulting on private student loans issued by nonbank
state lenders could have wage garnishments stopped after
successfully completing a rehabilitation program.
• Rehabilitation would stop debt collection efforts against a private
student loan borrower.
• Participating in a loan modification program for one loan may help
borrowers better meet their other loan obligations, according to
studies we reviewed.
30
For example, one study found that
participation in mortgage modification programs was associated with
lower delinquency rates on nonmortgage loans.
31
However, programs may also have some disadvantages or pose
challenges to borrowers, according to representatives from consumer
advocacy groups and academic sources:
• A rehabilitation program may restart the statute of limitations on loan
collections, according to representatives of consumer advocacy
groups. Borrowers who redefault following entry into a rehabilitation
program near the end of the statute of limitations on their debt could
have collection efforts extended on these loans.
32
30
Paul S. Calem, Julapa Jagtiani, and William W. Lang, “Foreclosure Delay and Consumer
Credit Performance,” Journal of Financial Services Research, vol. 52 (2017): pp. 225–251;
Lei Ding, “Borrower Credit Access and Credit Performance after Loan Modifications,”
Empirical Economics, vol. 52 (2017): pp. 977–1005.
31
Ding, “Borrower Credit Access,” pp. 977–1005. Private student loan rehabilitation
programs may not be designed like the mortgage modification programs analyzed in this
study, and thus may not have the same effects.
32
According to OCC examiner guidance, a lawsuit is the main tool available to banks to
pursue collection of private student loans in default. Depending on the state, a bank may
need to consider the applicable statute of limitations to enforce private student loan court
judgments. Some states allow banks to continuously renew the judgments to avoid being
subjected to the statute of limitations. The statute runs until the time period has elapsed or
an action is taken that “tolls” the statute (stops it from running), such as filing a lawsuit in
court.
Programs May Hold
Additional Benefits as Well
as Disadvantages for
Borrowers
Page 25 GAO-19-430 Private Student Loans
• Programs may extend adverse credit reporting. Generally, negative
credit information stays on consumer reports for 7 or 10 years;
therefore, depending on when a borrower enters into a rehabilitation
program, a payment on the loan might prolong the adverse credit
reporting for that account.
• The lack of income-driven repayment programs offered to borrowers
in the private student loan market means that borrowers who
complete rehabilitation programs may have a high likelihood of
redefaulting on their loans.
33
• Because removing adverse information from credit reports does not
change a borrower’s underlying creditworthiness, improved credit
scores and access to credit may cause borrowers to borrow too much
relative to their ability and willingness to pay.
34
For example, one
study found that for consumers who had filed for bankruptcy, their
FICO scores and credit lines increased within the first year after the
bankruptcy was removed from their credit report.
35
However, the
study found the initial credit score increase had disappeared by about
18 months after the bankruptcy was removed and that debt and
delinquency were higher than expected, increasing the probability of a
future default.
Private student loan rehabilitation programs can provide an opportunity
for private student loan borrowers to help repair their credit reports.
However, some nonbank state lenders have different interpretations of
whether FCRA authorizes them to offer such programs. During our
review, CFPB had not determined if it would clarify these uncertainties for
nonbank state lenders and other nonbank private student loan lenders.
Providing such clarity could—depending on CFPB’s interpretation—result
in additional lenders offering rehabilitation (allowing more borrowers the
33
The Department of Education offers federal student loan borrowers income-driven
repayment plans to repay loans. These plans set the monthly student loan payment at an
amount that is intended to be affordable based on a borrower’s income and family size.
34
Will Dobbie, Paul Goldsmith-Pinkham, Neale Mahoney, and Jae Song, “Bad Credit, No
Problem? Credit and Labor Market Consequences of Bad Credit Reports,” Federal
Reserve Bank of New York Staff Report No. 795 (2017); D.K. Musto, “What Happens
When Information Leaves a Market? Evidence from Postbankruptcy Consumers,” Journal
of Business, vol. 77 (2004): p. 725–48.
35
Musto, “What Happens When Information Leaves a Market?” p. 725–48. A private
student loan default may not signal the same amount of financial distress that a
bankruptcy signals, so removing information about a private student loan default from a
borrower’s credit report may have a smaller effect than removing a bankruptcy.
Conclusions
Page 26 GAO-19-430 Private Student Loans
opportunity to participate), or help to ensure that only entities deemed
eligible by CFPB to offer programs are doing so.
In addition, the Act does not explain what information on a consumer’s
credit report constitutes a private student loan “default” that may be
removed following the successful completion of a private student loan
rehabilitation program. Without clarification from CFPB—after consulting
with the prudential regulators and relevant industry groups—on what
information in a credit report constitutes a private student loan default that
may be removed, lenders may be inconsistent in the credit report
information they remove. As a result, variations in lenders’ interpretations
could have different effects on borrowers’ credit scores and credit
records, which could affect how they are treated by credit providers and
could also result in inconsistencies that affect the accuracy of credit
reporting data.
We are making the following two recommendations to CFPB:
The Director of CFPB should provide written clarification to nonbank
private student loan lenders on their authorities under FCRA to offer
private student loan rehabilitation programs that include removing
information from credit reports. (Recommendation 1)
The Director of 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. (Recommendation 2)
We provided a draft copy of this report to CFPB, the Department of
Education, FDIC, the Federal Reserve, the Federal Trade Commission,
NCUA, OCC, and the Department of the Treasury for review and
comment. We also provided FICO and VantageScore excerpts of the
draft report for review and comment. CFPB and NCUA provided written
comments, which have been reproduced in appendixes II and III,
respectively. FDIC, the Federal Trade Commission, OCC, and the
Department of the Treasury provided technical comments on the draft
report, which we have incorporated, as appropriate. The Department of
Education and the Federal Reserve did not provide any comments on the
draft of this report. FICO and VantageScore provided technical
comments, which we have incorporated, as appropriate.
Recommendations for
Executive Action
Agency Comments
and Our Evaluation
Page 27 GAO-19-430 Private Student Loans
In its written response, CFPB stated that it does not plan to act on our first
recommendation to provide written clarification to nonbank private student
loan lenders on their authorities under FCRA to offer private student loan
rehabilitation programs. CFPB stated—and we agree—that the Act does
not regulate the authority of private student loan lenders that are not
included in FCRA’s definition of a “financial institution,” nor direct financial
institutions that are not supervised by a federal banking agency to seek
CFPB’s approval concerning the terms and conditions of rehabilitation
programs. However, CFPB’s written response does not discuss the
authority of private student loan lenders that potentially fall outside
FCRA’s definition of a financial institution to offer rehabilitation programs
that include removing information from credit reports. As we discuss in
the report, uncertainty exists among nonbank private student loan lenders
regarding their authority to implement such programs. We maintain that
although the Act does not require CFPB to act on this issue, CFPB could
play a role in clarifying whether FCRA authorizes nonbanks to offer
rehabilitation programs that enable the lender to obtain legal protection
for removal of default information from a credit report. CFPB intervention
is warranted given the lack of clarity in the private student lending industry
and is consistent with CFPB’s supervisory authority over nonbank
financial institutions and its FCRA enforcement and rulemaking
authorities. We do not suggest that CFPB play a role in approving
rehabilitation programs. As we note in the report, clarification of
nonbanks’ authorities could result in additional lenders offering
rehabilitation programs and providing more consistent opportunities for
private student loan borrowers, or it could help ensure that only those
entities authorized to offer programs are doing so.
With respect to our second recommendation on providing 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,
CFPB’s letter states that such clarification is premature because of
ongoing work by the Consumer Data Industry Association. The letter
states that after that work is completed, CFPB will consult with the
relevant regulators and other interested parties to determine if additional
guidance or clarification is needed. As we stated in the report, we are
aware of the work of the Consumer Data Industry Association to update
the credit reporting guidelines for private student loans. We maintain that
this work presents a good opportunity for CFPB to participate in these
discussions and to work in conjunction with the industry and other
relevant regulators to help alleviate any contradiction between what
CFPB would determine in isolation from any determination made by
Page 28 GAO-19-430 Private Student Loans
industry. Further, such participation would allow CFPB to weigh in on
legal and policy issues from the start, potentially avoiding any need for
future rulemaking. In addition, CFPB’s involvement in this determination
and issuance of clarification would help ensure more consistent treatment
among borrowers participating in private student loan rehabilitation
programs, as well as consistency in credit reporting information.
NCUA’s written response stated that federal credit unions were
authorized to offer rehabilitation programs for private student loan
borrowers prior to the Act and that federal credit unions are not required
to obtain review and approval from NCUA to offer such programs. The
letter notes, however, that the Act requires federal credit unions that offer
such programs to remove private student loan defaults from consumer
credit reports if borrowers successfully complete a rehabilitation program.
NCUA noted that even though removal of the default may result in a
relatively small credit score increase, this can benefit credit union
members. NCUA stated that it stands ready to assist CFPB in
implementing the report’s two recommendations.
We are sending copies of this report to CFPB, the Department of
Education, FDIC, the Federal Reserve, the Federal Trade Commission,
NCUA, OCC, the Department of the Treasury, the appropriate
congressional committees and members, and other interested parties. In
addition, the report is available at no charge on the GAO website at
http://www.gao.gov.
If you or your staff have any questions about this report, please contact
me at (202) 512-8678 or c[email protected]. Contact points for our
Offices of Congressional Relations and Public Affairs may be found on
the last page of this report. GAO staff who made key contributions to this
report are listed in appendix IV.
Alicia Puente Cackley
Director,
Financial Markets and Community Investment
Page 29 GAO-19-430 Private Student Loans
List of Congressional Committees
The Honorable Mike Crapo
Chairman
The Honorable Sherrod Brown
Ranking Member
Committee on Banking, Housing, and Urban Affairs
United States Senate
The Honorable Lamar Alexander
Chairman
The Honorable Patty Murray
Ranking Member
Committee on Health, Education, Labor & Pensions
United States Senate
The Honorable Bobby Scott
Chairman
The Honorable Virginia Foxx
Ranking Member
Committee on Education & Labor
House of Representatives
The Honorable Maxine Waters
Chairwoman
The Honorable Patrick McHenry
Ranking Member
Committee on Financial Services
House of Representatives
Appendix I: Objectives, Scope, and
Methodology
Page 30 GAO-19-430 Private Student Loans
Our objectives were to examine (1) the factors affecting financial
institutions’ participation in private student loan rehabilitation programs,
(2) the risks that these programs may pose to financial institutions, and
(3) the effects that these programs may have on student loan borrowers’
access to future credit.
To examine the factors that affect financial institutions’ participation in
private student loan rehabilitation programs and how the federal banking
regulators are implementing the Economic Growth, Regulatory Relief, and
Consumer Protection Act’s (the Act) provisions on private student loan
rehabilitation programs, we reviewed the statements issued by the three
regulators tasked with approving the loan rehabilitation programs of their
regulated entities—the Board of Governors of the Federal Reserve
System (Federal Reserve), Federal Deposit Insurance Corporation
(FDIC), and Office of the Comptroller of the Currency (OCC)—as well as
OCC’s examiner guidance.
1
We also interviewed officials from these
regulators about their time frames for issuing statements, what topics the
statements cover, and how they coordinated in issuing the statements.
We reviewed the legal authorities of the Consumer Financial Protection
Bureau (CFPB) and National Credit Union Administration (NCUA)—which
oversee nonbank private student loan lenders and most credit unions that
issue private student loans, respectively—concerning private student loan
rehabilitation programs and the legislative history of the Act’s provisions
on the programs. Finally, we interviewed officials from NCUA and CFPB
about their authorities related to implementing the Act’s provisions on
private student loan rehabilitation programs and whether they planned to
take any actions related to the provisions.
In addition, we interviewed representatives from a nongeneralizable
sample of 15 private student loan lenders: the five largest bank lenders,
two of the largest credit union lenders, and eight nonbank financial
institutions (nonbank). The eight nonbank lenders included three for-profit
nonbank lenders and five nonprofit state-affiliated lenders (nonbank state
1
Federal Deposit Insurance Corporation, Voluntary Private Education Loan Rehabilitation
Programs, FDIC Financial Institution Letter FIL-5-2019 (Washington, D.C.: Feb. 4, 2019);
Board of Governors of the Federal Reserve System, Voluntary Private Education Loan
Rehabilitation Programs, Federal Reserve Supervision and Regulation Letter SR19-2
(Washington, D.C.: Feb. 4, 2019); and Office of the Comptroller of the Currency,
Statement on Programs for Rehabilitation of Private Education Loans (Section 602
Rehabilitation Programs), OCC Bulletin 2018-48 (Washington, D.C.: Dec. 27, 2018) and
Comptroller’s Handbook: Student Lending, Version 1.3 (Washington, D.C.: Dec. 27,
2018).
Appendix I: Objectives, Scope, and
Methodology
Appendix I: Objectives, Scope, and
Methodology
Page 31 GAO-19-430 Private Student Loans
lenders). We asked these lenders about their decisions to offer private
student loan rehabilitation programs, risks and costs associated with the
programs, and the effects that such programs could have on their lending
decisions. We identified the five largest bank lenders by reviewing data
from MeasureOne—a private data analytics company that studies the
private student loan market—and discussions with officials from the
Federal Reserve, FDIC, OCC, and CFPB.
2
We assessed the reliability of
data from MeasureOne through discussions with representatives from the
company on the methodology used to develop its estimates and its
internal controls. We determined that this data source was sufficiently
reliable for selecting a sample of private student lenders to interview
about participation in rehabilitation programs. We reviewed these five
banks’ 2017 10-K reports (annual financial filings with the Securities and
Exchange Commission) to verify the size of their student loan portfolios.
3
We selected the two credit unions to interview by reviewing 2018 NCUA
data on credit unions’ portfolios to identify two credit unions that were
among the largest credit union private student loan lenders. To select the
for-profit nonbank lenders, we used suggestions from officials at CFPB,
OCC, and the Department of Education, as well as reports from private
sources that contained information on nonbank private student loan
lenders.
4
We selected nonbank state lenders based on information that
indicated they were operating or interested in offering rehabilitation
programs. Sources of this information included the Education Finance
Council’s 2018–2019 NonProfit & State-Based Education Loan
Handbook, an interview with the Education Finance Council, and
information received from a 2013 CFPB Request for Information
2
MeasureOne, The MeasureOne Private Student Loan Report (San Francisco, Calif.: July
24, 2018).
3
To ensure other banks did not have significant private student loan portfolios, we
reviewed data from FDIC’s Statistics on Depository Institutions for the fourth quarter of
2017 to identify banks with the largest volume of loans in the “other consumer loans”
category, which includes student loans and other types of consumer loans such as
medical expenses and purchases of household appliances, furniture, trailers, and boats.
We reviewed the 2017 10-K filings or annual reports for the 12 banks with the largest
portfolios of other consumer loans and determined that only two have private student loan
portfolios. However, both of these banks’ portfolios of private student loans were smaller
than the five largest banks we identified.
4
Eric Turner, 2017 U.S. Digital Lending Landscape (S&P Global Market Intelligence,
November 2017); Mike Brown, Private Student Loans–8 Best Options for 2018 (LendEDU,
Sept. 3, 2018); and U.S. News, The Best Private Student Loans of 2018 (U.S. News &
World Report, Aug. 14, 2018).
Appendix I: Objectives, Scope, and
Methodology
Page 32 GAO-19-430 Private Student Loans
Regarding an Initiative to Promote Student Loan Affordability.
5
Because
this sample is nongeneralizable, our results cannot be generalized to all
private student loan lenders.
To examine the risks, if any, that private student loan rehabilitation
programs pose to financial institutions, we reviewed bank and credit union
regulator policies and guidance on private student lending. We also
analyzed data on delinquency and default rates of private student loans.
To do this, we reviewed industry data from MeasureOne and the 2017 10-
K filings for the five banks whose representatives we interviewed. We
assessed the reliability of MeasureOne’s performance data through
discussions with representatives from the company on the methodology it
uses to develop these metrics and its internal controls. We determined
that this data source was sufficiently reliable for assessing the
performance of banks’ portfolios of private student loans.
For these five banks, we also used the 10-K filings to estimate the volume
of the portion of their portfolios that was composed of private student
loans. We also compared private student loan default rates to default
rates of other types of consumer loans, including mortgages, credit cards,
and automobile loans. To do this, we used data from FDIC’s Statistics on
Depository Institutions database to analyze indicators of asset quality for
mortgages, credit cards, and automobile loans from 2013 through 2017.
We assessed the reliability of FDIC’s Statistics on Depository Institutions
database by reviewing related documentation and conducting testing for
missing data, outliers, or any obvious errors. We determined that this data
source was sufficiently reliable for assessing the performance and risk of
banks’ portfolios of private student loans and other types of consumer
loans. We also interviewed officials from the Federal Reserve, FDIC,
NCUA, and OCC about the types of costs and risks that could be
associated with private student loan rehabilitation programs. In addition,
we interviewed representatives of our nongeneralizable sample of 15
private student loan lenders about the potential risks and costs of offering
rehabilitation programs.
To assess potential risks of private student loan rehabilitation programs
for other types of financial institutions, we interviewed a nongeneralizable
sample of seven credit providers about how these programs could affect
5
Consumer Financial Protection Bureau, Student Loan Affordability—Analysis of Public
Input on Impact and Solutions (Washington, D.C.: May 8, 2013).
Appendix I: Objectives, Scope, and
Methodology
Page 33 GAO-19-430 Private Student Loans
their ability to make sound lending decisions.
6
We focused on financial
institutions that offer mortgage loans, automobile loans, and credit cards.
According to data from the 2016 Survey of Consumer Finances, these are
the most common types of debt consumers hold. We selected a
nongeneralizable sample of banks and nonbank financial institutions that
provide these types of credit. We selected the bank credit providers using
data from FDIC’s Statistics on Depository Institutions by identifying the
mortgage and automobile loan lenders and credit card issuers that were
among the largest holders of assets in these lending categories as of the
fourth quarter 2017.
To identify nonbank financial institution lenders, we reviewed an industry
report to identify some of the larger nonbank mortgage lenders, and we
reviewed a list prepared by CFPB of larger industry participants in the
automobile finance market industry.
7
We judgmentally selected the final
sample of these credit providers based on their size and, to the extent
applicable, their federal regulator to obtain a diversity of opinions. We
determined that industry reports, CFPB’s list of larger industry
participants, and 10-K filings were sufficiently reliable for selecting a
sample of nonbank financial institutions to interview about risks posed by
rehabilitation programs. Because this sample is nongeneralizable, our
results cannot be generalized to all credit providers. We also interviewed
representatives of four industry groups and two trade associations that
work with these credit providers and student loan borrowers on the types
of risks and costs that rehabilitation programs could create for lenders.
To examine the effects that private student loan rehabilitation programs
may have on student loan borrowers’ access to future credit, we
conducted a literature search for studies that empirically analyzed the
effects on credit scores and access to credit of adverse credit events,
such as foreclosures or bankruptcies; loan modifications, broadly defined;
and removal of accurate but adverse information from credit reports, such
as a bankruptcy. We identified these studies through our initial
background search, targeted searches of the EconLit database, and a
search of the Federal Reserve Bank of New York Center for
6
For purposes of this report, we defined credit providers to include any bank or nonbank
entity that provides installment loans or revolving lines of credit to individual consumers.
7
Inside Mortgage Finance, The Top 50 Mortgage Lenders from Inside Mortgage Finance
1Q18 (Bethesda, Md.: Inside Mortgage Finance, 2018).
Appendix I: Objectives, Scope, and
Methodology
Page 34 GAO-19-430 Private Student Loans
Microeconomic Data publications, and through bibliographies of studies
we reviewed.
We also asked VantageScore Solutions, LLC (VantageScore)—a credit
scoring firm—to conduct a quantitative analysis simulating the effect of
adding a student loan delinquency to and removing a student loan default
from a borrower’s credit profile on its VantageScore 3.0 credit score.
8
The
analysis was conducted using a sample of VantageScore’s data that it
obtained from the three nationwide CRAs and that represents actual
credit profiles of borrowers. VantageScore analyzed data for borrowers
with at least one outstanding student loan with a balance greater than $0.
Table 1 contains the results of the simulation and information on the
number and characteristics of borrowers whose credit profiles were
analyzed. The results of the simulation are specific to changes in the
VantageScore 3.0 credit score. The simulated results represent averages
for borrowers whose credit profiles were analyzed and are meant to be
illustrative. Additionally, because this was a simulation, it is unlikely that
any one borrower’s credit profile exactly matches the average profiles
used in the simulations.
Table 1: Results of VantageScore Solutions, LLC, Simulation of the Effect on a VantageScore 3.0 Credit Score of Adding a
Student Loan Delinquency to and Removing a Student Loan Default from Borrowers’ Credit Profiles
Student loan delinquency added – all student loan borrowers
Cohorts
2014–2016
2015–2017
2016–2018
Descriptive statistics
Number of borrowers analyzed
393,677
407,897
425,031
Average number of credit accounts/tradelines
7.6
7.7
8
Average length of credit history (years)
6.4
6.5
6.6
Average total credit line utilization (percent)
78.7
78.9
78.6
Average credit score
661
661
665
Average number of derogatory marks
(delinquencies/defaults)
1.6
1.7
1.5
Simulation analysis
Mean change, one student loan delinquency added during
year
-60.20
-59.67
-60.69
95 percent confidence interval for above row
[-60.32, -60.08]
[-59.79, -59.55]
[-60.81, -60.57]
8
VantageScore’s 3.0 credit score is the third iteration of its credit scoring algorithm. It
considers payment history, percent of credit limit used, balances, age and type of credit,
recent credit, and available credit when generating a borrower’s credit score.
Appendix I: Objectives, Scope, and
Methodology
Page 35 GAO-19-430 Private Student Loans
Student loan default removed – all student loan borrowers
Cohorts
2014–2016
2015–2017
2016–2018
Descriptive statistics
Number of borrowers analyzed
108,152
113,027
113,791
Average number of credit accounts/tradelines
5.7
5.9
6.4
Average length of credit history (years)
6.1
6.3
6.4
Average total credit line utilization (percent)
90.2
91.3
91.1
Average credit score
547
552
561
Average number of derogatory marks
(delinquencies/defaults)
5.9
6
5.7
Simulation analysis
Mean change, one student loan default removed during
year
6.14
8.51
7.68
95 percent confidence interval for above row
[6.03, 6.25]
[8.39, 8.63]
[7.57, 7.79]
Student loan default removed – subprime borrowers
Cohorts
2014–2016
2015–2017
2016–2018
Descriptive statistics
Number of borrowers analyzed
76,021
78,178
75,153
Average number of credit accounts/tradelines
4.6
4.8
5.2
Average length of credit history (years)
5.5
5.7
5.8
Average total credit line utilization (percent)
96.4
97.9
98.4
Average credit score
496
500
506
Average number of derogatory marks
(delinquencies/defaults)
6.9
7.1
6.9
Simulation analysis
Mean change, one student loan default removed during
year
8.19
11.42
10.67
95 percent confidence interval for above row
[8.04, 8.34]
[11.26, 11.58]
[10.51, 10.83]
Student loan default removed – near prime borrowers
Cohorts
2014–2016
2015–2017
2016–2018
Descriptive statistics
Number of borrowers analyzed
16,665
18,159
20,097
Average number of credit accounts/tradelines
7.3
7.4
7.8
Average length of credit history (years)
7.1
7.1
7.1
Average total credit line utilization (percent)
80.8
82.4
83.2
Average credit score
630
630
630
Average number of derogatory marks
(delinquencies/defaults)
4.2
4.3
4.2
Simulation analysis
Appendix I: Objectives, Scope, and
Methodology
Page 36 GAO-19-430 Private Student Loans
Student loan default removed – near prime borrowers
Mean change, one student loan default removed during
year
2.02
2.92
2.69
95 percent confidence interval for above row
[1.89, 2.16]
[2.76, 3.08]
[2.55, 2.83]
Student loan default removed – prime and super prime borrowers
Cohorts
2014–2016
2015–2017
2016–2018
Descriptive statistics
Number of borrowers analyzed
15,466
16,690
18,541
Average number of credit accounts/tradelines
9.1
9.2
9.3
Average length of credit history (years)
7.8
8
8.2
Average total credit line utilization (percent)
70
70
70.1
Average credit score
709
710
709
Average number of derogatory marks
(delinquencies/defaults)
2.5
2.6
2.6
Simulation analysis
Mean change, one student loan default removed during
year
0.53
0.97
0.94
95 percent confidence interval for above row
[0.46, 0.60]
[0.87, 1.06]
[0.85, 1.04]
Source: VantageScore Solutions, LLC. | GAO-19-430
Notes: The following definitions are used for terms in the table above:
• Delinquency: accounts 30 or 60 days past due
• Default: accounts 90 or more days past due (including charge-offs)
• Active student loan: open student loan accounts with balance greater than $0
• Average number of credit accounts/tradelines: includes all open accounts that have been
reported in the past 6 months
• Average length of credit history (years): includes all accounts on the credit file
• Average total credit line utilization: includes all open accounts that have been reported within the
past 6 months
• Average number of derogatory marks (delinquencies/defaults): includes active student loan
accounts
There were fewer borrowers included in the default-removed simulations because to simulate the
effects of removing a student loan default, borrowers had to have had at least one existing student
loan delinquency or default.
The results of the VantageScore analysis only apply to VantageScore 3.0
credit scores in the 2014–2016, 2015–2017, and 2016–2018 cohorts of
borrowers and may not be generalized to other VantageScore credit
scores, to Fair Isaac Corporation (FICO) credit scores, or for different
cohorts in different years. While we present only the results of the most
recent cohort (2016–2018) in our report, VantageScore simulated the
analysis across three cohorts to determine whether the results varied
substantially over time. The results for all three cohorts were similar.
Through reviewing documentation and conducting interviews, we
Appendix I: Objectives, Scope, and
Methodology
Page 37 GAO-19-430 Private Student Loans
determined that the data used by VantageScore to conduct this analysis
were sufficiently reliable for simulating the effects of derogatory credit
marks on borrowers’ credit scores. FICO declined our request to develop
a similar analysis.
To examine how a rehabilitation program may affect borrowers’ future
access to credit, we interviewed officials from CFPB, the Department of
Education, FDIC, the Federal Reserve, Federal Trade Commission,
NCUA, OCC, and the Department of the Treasury. We also interviewed
representatives of the four consumer reporting agencies that collect and
report information on student loans (Equifax, Experian, Innovis, and
TransUnion) and the two credit scoring firms that develop credit score
models with nationwide coverage (FICO and VantageScore). We also
interviewed representatives from the 15 private student loan lenders and
seven credit providers described above, as well as banking, credit
reporting, and student loan lending and servicing industry groups and
consumer advocacy organizations.
We conducted this performance audit from July 2018 to May 2019 in
accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe that
the evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objectives.
Appendix II: Comments from the Consumer
Financial Protection Bureau
Page 38 GAO-19-430 Private Student Loans
Appendix II: Comments from the Consumer
Financial Protection Bureau
Appendix II: Comments from the Consumer
Financial Protection Bureau
Page 39 GAO-19-430 Private Student Loans
Appendix II: Comments from the Consumer
Financial Protection Bureau
Page 40 GAO-19-430 Private Student Loans
Appendix III: Comments from the National
Credit Union Administration
Page 41 GAO-19-430 Private Student Loans
Appendix III: Comments from the National
Credit Union Administration
Appendix IV: GAO Contact and Staff
Acknowledgments
Page 42 GAO-19-430 Private Student Loans
In addition to the contact named above, Jill Naamane (Assistant Director),
Christine McGinty (Analyst-in-Charge), Jill Lacey, Courtney LaFountain,
Jon D. Menaster, Tovah Rom, Jessica Sandler, Eric Schwab, and Aisha
Shafi made key contributions to this report. Also contributing to this report
were Melissa Emrey-Arras, Debra Prescott, and Jena Sinkfield.
Appendix IV: GAO Contact and Staff
Acknowledgments
GAO Contact
Staff
Acknowledgments
(102900)
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