WASHINGTON – The federal consumer finance watchdog is expanding its oversight to Sallie Mae and other companies that collect student loan payments.
A rule issued Tuesday by the Consumer Financial Protection Bureau extends the agency’s supervision to nonbank companies that manage large volumes of student loans on behalf of lenders.
The CFPB already oversees banks that service student loans, but it says most student loans are serviced by nonbank companies. It says the scrutiny is needed to ensure servicers comply with consumer laws at a time when more people are falling behind on their student loan payments.
Nonbank loan servicers like Sallie Mae manage borrowers’ accounts and answer their questions. Borrowers have complained that the companies lose paperwork or fail to credit payments.
Sallie Mae also is the biggest U.S. student lender.
Martha Holler, a spokeswoman for Sallie Mae, said that as the largest U.S. servicer of student loans, “We have been engaged with the CFPB in the review of our lending, servicing and collections operations.”
In addition to Sallie Mae, formally known as SLM Corp., other nonbank companies that service student loans include American Education Services, Nelnet Inc. and ACS Education Services, which is owned by Xerox Corp. The seven largest servicers cover a combined total of about 49 million borrower accounts, representing most of the student loan servicing market, according to the CFPB. The agency said it expects all seven companies will come under its supervision.
Outstanding student debt in the U.S. totals about $1.2 trillion, according to the CFPB, and an estimated 7 million student loan borrowers are currently in default.
Under the new rule, which takes effect March 1, any nonbank student loan servicer that handles more than 1 million borrower accounts will be subject to the agency’s oversight. That means the agency will monitor the companies and examine their internal procedures, data and other information.
While borrowers usually can choose their student lender, they normally have no choice over which company services the loan.
“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,” CFPB Director Richard Cordray said in a statement. “This rule brings new oversight to those large student loan servicers that touch tens of millions of borrowers.”
The agency is the primary federal supervisor for a range of industries, including payday loan companies, student lenders, mortgage companies, credit bureaus and debt collectors. It was established by the 2010 financial overhaul law enacted in response to the crisis that started in 2008.