U.S. to begin regulating largest student-loan servicing firms
Students who get the runaround from companies handling their college loans soon may get help from the federal government.
The Consumer Financial Protection Bureau said it will begin regulating the nation’s largest student-loan servicing firms, which manage student accounts, process monthly payments and respond to borrower questions.
Though they don’t make the loans, the companies are the main point of contact for borrowers. They effectively serve as gatekeepers that have enormous influence over requests for deferments or loan modifications.
The bureau, the federal government’s consumer financial watchdog, already regulates servicing firms owned or run by banks. The new regulation, expected to be announced Tuesday, will extend oversight to non-bank firms, such as student-loan giant Sallie Mae Inc.
The new regulation would give the consumer agency authority over the seven largest student-loan servicers, which handle more than 49 million accounts. The agency will ensure that servicers comply with federal consumer financial laws.
The stepped-up regulation, which takes effect March 1, follows student complaints of poor service and lost paperwork. In some ways, the gripes mirror those during the housing boom when homeowners complained of shoddy treatment by companies handling their mortgages.
“We have heard complaints from private student loan borrowers that their servicer is not held accountable for answering their questions and providing quality customer service,” said Richard Cordray, the consumer bureau’s director.
“Borrowers have complained that they have had trouble making prepayments or partial payments on their loans,” he said. “They have also complained that when their loans were transferred between servicers, their paperwork was often lost and processing errors were made that resulted in late fees.”
A Sallie Mae spokeswoman said the company has been working with the consumer bureau to ensure proper treatment of borrowers.
“As the largest servicer of student loans, we have been engaged with the CFPB in the review of our lending, servicing and collections operations,” said Patricia Christel, a Sallie Mae spokeswoman. “Our customer service practices are built on a 40-year history of helping customers select the payment program that fits their needs and positions them to succeed.”
The loan-servicing issue has taken on greater importance in recent years as student debt has exploded and increasing numbers of borrowers have fallen behind on their payments.
One in five U.S. households has a student loan, the bureau said. At an estimated $1.2 trillion, student loans are the second-biggest form of consumer debt after home mortgages.