By Elvina Nawaguna
WASHINGTON, March 14 (Reuters) - 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