NEW YORK (MainStreet) The Consumer Financial Protection Bureau (CFPB) is preparing for its role as regulator of the largest non-bank student loan servicers. Supervision officially begins in March.
Bank-based loan servicers such as Wells Fargo or Discover are already overseen by the CFPB. But student-loan companies that service loans such as Sallie Mae and Nelnet so-called "nonbank" servicers have lived in a regulatory grey area.
Many observers say that greater supervision of these entities is long overdue. Watchdog organizations have criticized Uncle Sam for its ineffective monitoring of these businesses. The National Consumer Law Center's January report, "The Sallie Mae Saga: A Government Created, Debt Fueled Profit Machine" concludes the that largest private lender which doubles as a loan servicer is putting profits ahead of borrowers a trait NCLC says it shares with other student loan servicers.
"We consistently see examples of Sallie Mae and other servicers pushing borrowers into the quickest options, such as forbearance, rather than explaining and assisting borrowers to obtain more favorable long-term solutions, such as income-based repayment," writes Deanne Loonin, the report's author and Director of NCLC's Student Loan Borrower Assistance Project, referring to the federal loans it services. "Forbearances can be costly for borrowers because interest accrues during forbearance periods and because they must be renewed more frequently than most other options."