Federal regulators are set to expand their oversight of the approximately $1.2 trillion in student debt in hopes of preventing practices deemed “unfair, deceptive or abusive.”
On Tuesday, the Consumer Financial Protection Bureau finalized a rule giving itself oversight of the vast majority more student loan servicing companies. Taking effect in March, the rule will allow CFPB regulators to examine the companies to ensure compliance with a broad array of consumer protection laws.
“Student loan borrowers should be able to rest assured that when they make a payment toward their loans, the company that takes their money is playing by the rules,” said CFPB Director Richard Cordray. “This rule brings new oversight to those large student loan servicers that touch tens of millions of borrowers.”
Furthermore, the regulators will have the power to intervene to prevent loan servicers from utilizing unfair practices, even if they are not explicitly prohibited by the law.
According to the CFPB, student loan servicers are the primary point of contact with 40 million Americans with education debt. The servicers are different from lenders, and individuals typically have no choice in which company services their debt. Their responsibilities generally include managing borrowers’ accounts, processing monthly payments and communicating directly with borrowers.
When borrowers enter into periods of financial hardship and require alternate payment plans or modification of their loans, they typically contact the loan servicer.
In a recent report, the CFPB identified a series of complaints against loan servicers by borrowers, including confusion about how to pay off loans early, unfair maximization of late fees and excessive lost paperwork.
“The student loan market has grown rapidly in the last decade and is now facing the stress of increasing numbers of borrowers who are struggling to stay current on their loans,” a CFPB press release said. “This rule gives the Bureau visibility into the complete cycle of private student loan debt, from origination through servicing to debt collection and credit reporting.”
The CFPB estimates that 7 million student loan borrowers are currently in default.