Sallie Mae and other large student-loan servicers — the companies that act as a go-between for borrowers and lenders — will soon be getting some regular oversight from the Consumer Financial Protection Bureau, the watchdog agency announced this week.
ProPublica and others have long documented student borrowers’ troubles with the companies that handle the day-to-day collection of student-loan payments and communicate with borrowers.
“Student loan servicers can have a profound impact on borrowers and their families,” CFPB Director Richard Cordray said Monday in a call with reporters. “Given how quickly this market has grown and the recent uptick in delinquency rates, it is important for us to ensure that borrowers receive appropriate attention from their servicers.”
The CFPB has been logging thousands of complaints about the companies that service both private and federal student loans. It has issued a number of reports detailing common complaints, including trouble accessing the loan-repayment options to which they are entitled, problems processing payments, difficulty getting accurate information from servicers, and servicers ignoring the protections due to active-duty service members. Such mistakes can leave already indebted borrowers further burdened with administrative hassles or penalized with additional fees.
Bank-based loan servicers — such as Wells Fargo or Discover — are already overseen by the CFPB. But student-loan companies such as Sallie Mae and Nelnet — so-called “nonbank” servicers — have long fallen into a regulatory grey area.
The Education Department had authority over their contracts to service federal student loans. And both the CFPB and the Federal Trade Commission had the authority to investigate specific violations of consumer protection laws. But no agency was consistently monitoring for violations.
That will change as of March, when the CFPB will begin providing regular supervision to student-loan servicers with more than one million customer accounts, regardless of whether the loans they service are federal or private.
According to the CFPB, that will likely cover the seven largest non-bank servicers 2013 which together have more than 49 million borrower accounts.
The agency declined to name companies. But the list will likely include Sallie Mae, Nelnet, Great Lakes Educational Loan Services, and FedLoan Servicing/PHEAA — all of which service large numbers of federal student loans.
Some servicers that work with federal student loans will likely still fall under the threshold for getting the stepped-up oversight. That’s because, as we’ve noted, the Education Department has in the last few years expanded its stable of loan servicers to roughly a dozen.