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Federal watchdogs to monitor more student loan servicers

The Consumer Financial Protection Bureau has issued a new rule that allows the watchdog agency to oversee nonbank student loan servicers. The rule was made after repeated complaints from people with student loans over the difficulty of working with these companies. Borrowers have the ability to choose which financial institution they borrow from, but do not have a say in which company eventually services their loan. This means that market forces cannot work to encourage better customer service, so confusing paperwork, inconsistent record-keeping, and other issues remain prevalent among nonbank student loan servicers. The new rules will place them under the auspices of the CFPB and will ask that they adhere to the same rules as other loan providers.

Student loan debt has become a bigger and bigger problem in recent years, as soaring tuition and high private loan interest rates outpace post-graduate earnings to an extent that they have not in the past.

Individuals who hold a large amount of student debt struggle even further when other debts mount, including consumer debt, car loans, or mortgage payments. While student debt is typically not eligible for discharge during a bankruptcy, other types of debt are, and it can be very productive to restructure other types of payments in order to make it easier to meet student loan obligations. During a bankruptcy, the entire picture of a person’s income, other assets, and debt is taken into account to determine what should be discharged, what can be restructured, and what debt will remain. 

Source: US News & World Report, “Consumer Financial Protection Bureau Will Oversee Nonbank Student Loan Service,” Allie Bidwell, Dec. 3, 2013.

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