Companies that collect and process student loan payments are about to be placed under the eyes of the federal government.
On Tuesday, the Consumer Financial Protection Bureau – a key creation of the Dodd-Frank Wall Street Reform and Consumer Protection Act passed in 2010 – announced it will begin regulating the seven largest companies that process federal student loan payments. This list includes the Department of Education’s primary loan servicers: Sallie Mae, Great Lakes Educational Loan Services, Pennsylvania Higher Education Assistance Agency, and Nelnet Servicing.
The CFPB will be primarily concerned with ensuring that companies are complying with federal consumer financial law by providing borrowers with accurate information, refusing to charge unnecessary fees, and confirming that they are processing student loan payments as requested by borrowers.
According to the Huffington Post, complaints against federal student loan servicers have been on the rise during the last few years, while defaults are near record levels. Estimates by the CFPB pin total education debt in the United States at $1.2 trillion, meaning only home mortgages account for more per household.
As a result, CFPB Director Richard Cordray said the bureau will also be on the lookout for signs that could be dragging down the economy.
"As the recession decimated the job market for young graduates, a growing share of student loan borrowers reached out to their servicers for help," he said in a statement to the Huffington Post. "The problems they have encountered bear a striking resemblance to the problems faced by homeowners in the run-up to the financial crisis.
"We know that student loan servicers can have a profound impact on borrowers and their families. So we need to make sure they are complying with federal consumer financial laws."
Advocates of the new regulations have complained that the Department of Education, which has been responsible for oversight in the past, has either been unable or neglected its responsibility to root out misconduct by student loan servicers. Others, meanwhile, were disappointed the CFPB only brought seven companies under its watch instead of all of them.
“There’s been a huge lack of transparency at the Education Department,” Maura Dundon, senior policy counsel for the Center for Responsible Lending, told Huffington Post. “The CFPB is a much more transparent and public-oriented agency.”
Since these regulation goals were telegraphed earlier this year, student loan servicers have seen the new rules coming for months. A Sallie Mae spokeswoman told the Washington Post that the new rules are merely “a formality,” since it’s possible for the CFPB to work with the Federal Deposit Insurance Corp. on a joint investigation of the company. Nelnet spokesman Ben Kiser also seemed to downplay the announcement.
“We’ve been providing high quality, borrower-centric student-loan servicing for more than 35 years and look forward to continuing to work with the CFPB to ensure borrowers receive the best possible service,” Kiser said to the Post in an email.