When looking strictly at amount borrowed, mortgages make up the largest portion of US debt owed by individuals. However, followed closely behind that, with an outstanding $1.1 trillion, are student loans. Anyone who has even looked into a loan for college education knows that the government issues the majority of the loans. In fact, 90% of all student loans are federal loans, and just 10% are privately issued. However, just because they are federal loans does not mean they are treated equally.
A federal student loan will originate with the government. That is where the money is supplied, and the terms are set up. But the government is not in the loan management business. Instead, they will originate the loan and then pass it off to a third party to be serviced. It is with these third party servicers that many people find their frustrations.
Many of the federal loans are serviced by non-bank servicers. Since these companies that service the loan, a process which includes tracking balances, issuing statements, and collecting payments, are not banks, they have not been subject to the same rules and regulations that other banks and financial institutions have been. Since they are not banks, the Consumer Financial Protection Bureau has not had the same regulatory authority power over them. But the CFPB has taken notice that many of the 49 million student loan account holders have complained of problems of confusion, dead ends, and runarounds.
The latest proposal is for the CFPB to start to monitor the non-bank student loan services. This will allow them to make sure that all laws regarding servicing the loans are being followed, and they will be able to make sure the non-bank services are following the same guidelines put forth to the service providers that are banks. The CFPB, with these new regulations, will be able to oversee the entire lending process. Instead of just overseeing the origination and debt collection processes, the CFPB will now be able to monitor the servicing side of the loan as well.
The CFPB was created as part of the Dodd Frank Wall Street Reform and Consumer Protection Act. They are your advocate for all things financial. As more and more complaints come in about various sectors of the financial world, they continue to expand their scope. The hope is that more oversight will lead to easier and better lending practices. This will help to reduce the confusion and fraud that are so prevalent in much of the financial world. It will ultimately help people have more confidence in the system and keep taking out loans.