By Elvina Nawaguna
WASHINGTON, March 14 The Consumer Financial
Protection Bureau said on Thursday that it is seeking to
regulate non-bank student loan servicing companies as more
Americans struggle to meet hefty monthly repayments.
Once a loan is issued, the CFPB said, most borrowers conduct
nearly all their student loan affairs through servicing
companies hired by the lenders.
These companies provide such services as maintaining
records, collecting payments and answering questions. Borrowers
do not get to pick which company services their loans.
Servicing companies, the agency said, face the stress of
dealing with an increasing number of delinquent borrowers as the
student loan market has grown rapidly and deteriorated. But many
borrowers are unhappy with the services and treatment they
receive from such companies.
"We've heard complaints from private loan borrowers that
nobody holds service companies accountable for answering
questions and providing quality customer service. So students
find themselves at a dead end, stuck without a clear path
forward," said CFPB Director Richard Cordray.
Under the agency's new proposal, the CFPB would supervise
any company handling more than a million student loan accounts.
The CFPB already has authority to supervise the activities
of large banks with more than $10 billion in assets. If
approved, the new rule would redefine a number of non-bank loan
servicing companies as larger participants, and allow the CFPB
to supervise the seven largest student loan servicers of both
private and federal loans.
The U.S. Department of Education contracts with several
private companies including Sallie Mae, Great Lakes Education
Loan Services and Nelnet to service federal loans.
U.S. student loan debt has recently become a contentious
issue as reports have estimated it is close to or has passed the
trillion dollar mark.
While all other forms of debt have fallen since the economic
crisis, student loan debt continued to rise and is estimated to
have tripled between 2004 and 2012. A recent report from the
Federal Reserve Bank of New York found that 6.7 million
borrowers were at least 90 days delinquent on their repayments.
Lawmakers and consumer groups have said the current student
repayment system is too complex and confusing for borrowers and
needs to be overhauled.
The CFPB said it wants to make sure consumers aren't treated
unfairly by their loan serving companies.
The agency's announcement is the latest of several
initiatives it is taking to reform the student loan market. The
agency recently said it was particularly concerned about private
student loans, which tend to offer fewer repayment options and
often have higher interest rates than federal loans.
The agency is seeking a policy that would make private
student loan repayment more affordable and more flexible.
"Director Cordray and the CFPB team have always been great
partners with us, and we have worked together on a number of
projects to protect consumers and better support students," said
Education Secretary Arne Duncan in a written statement. "We look
forward to working with them on their efforts to ensure that
loan servicers are protecting student loan borrowers."
The public will have 60 days to comment on and provide any
input into the CFPB's proposal