The federal watchdog agency tasked with helping to protect consumers from bad lending practices and other financial issues recently announced its intent to start taking nonbank organizations that service student loans.
The Consumer Financial Protection Bureau recently proposed a rule that would allow it to supervise these nonbank education financing servicers in an effort to better protect Americans who are carrying these balances. This is being done largely as a result of the large and growing number of delinquencies and defaults on student loans nationwide.
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“The student loan market has grown rapidly in the last decade, and servicers are now facing the stress of an increasing number of delinquent borrowers,” said CFPB director Richard Cordray. “Our rule would bring new oversight to the student loan market and help ensure that tens of millions of borrowers are not treated unfairly by their servicers.”
Currently, the agency only has oversight of student loan servicing at large financial institutions, and hopes that by expanding its regulatory power, it would be able to bring millions of new accounts into the fold in an effort to better protect consumers, the report said. In particular, nonbank student loan servicers with more than 1 million accounts under their control — defined as “larger participants” — would be subject to the agency’s authority. The CFPB estimates that under current conditions, that would essentially mean adding just seven new companies to its regulatory purview, but those organizations control some 49 million accounts.
Included in the new broadened scope would be companies that deal with both federally-issued student loans and those from private lenders, the report said. As part of its efforts to keep tabs on government loans, the CFPB would also work closely with the U.S. Department of Education, which itself already conducts periodic reviews of the companies that handle the loans it gives out.
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Today, the average college student graduates with tens of thousands of dollars or more in student loan debt, in addition to other outstanding balances, including credit card debt and auto loans. All of these can combine to significantly limit a young adult’s ability to find financial independence soon after they get out of school.