The U.S. consumer financial watchdog will soon start supervising the seven largest student loan servicers to ensure they treat borrowers fairly and comply with federal consumer laws, the agency said on Tuesday.
The Consumer Financial Protection Bureau has taken a broad interest in the burden of student loan debt, which it says now totals $1.2 trillion and saddles many borrowers with debt that takes years to repay.
More than 40 million borrowers with non-bank student loan debt depend on companies that manage borrowers’ accounts and process payments.
The agency said it has found a concerning resemblance of problems encountered by student loan borrowers dealing with servicers and those faced by homeowners dealing with mortgage servicers.
Student loan borrowers have complained about being charged late fees as a result of processing mistakes by the servicers, lost paperwork and poor communication.
“Student loan borrowers should be able to rest assured that when they make a payment toward their loans, the company that takes their money is playing by the rules,” said CFPB Director Richard Cordray.
The agency already has oversight over the student loan servicing activities of large banks with more than $10 billion in assets.
Under a new rule set to take effect on March 1, the CFPB would expand its supervision to non-bank student loan servicers that handle more than 1 million accounts, regardless of whether they include federal or private loans.
The CFPB said seven companies fall into that category. It did not name the companies but said they service in total more than 49 million accounts, which represents the bulk of the market. The CFPB said it will also look into smaller companies if there is reasonable cause to do so.
The U.S. Department of Education contracts several private companies to handle student loan services, including Sallie Mae, Great Lakes Education Loan Services and Nelnet.
While all other forms of debt have fallen since the economic crisis, student loan debt has grown and is now the second-largest form of U.S. consumer debt after mortgage debt.
“Managing this debt load can be a challenge for borrowers – especially for those who run into trouble, facing a financial shock or a bout of unemployment,” Cordray said. “We will be keeping a watchful eye over any servicing company that engages in unfair or deceptive acts or practices toward student loan borrowers.”