Alyssa Elso/Staff Writer
Complaints about loan servicing has fueled the Federal Consumer Financial Protection Bureau to put a new rule into effect that will expand its original oversight over the largest banks, giving it authority to oversee the seven largest non-bank companies that service student loans.
Student borrowers who have taken out loans have complained to the bureau that they often have difficulty getting payments applied to their balance when trying to prepay loans. Some borrowers have found that their servicers do not always apply payments to their highest-interest loan first, which borrowers would prefer to pay off first. And others have complained about encountering delays in payment processing when paperwork is lost as loans are transferred between servicers.
Complaints of these nature have resulted in borrowers losing money as well as acquiring late fees and possible damage to their credit score.
The new rule, which will go into effect on March 1, will expand the CFPB’s original oversight over the largest banks, like Wells Fargo.
This rule will be set to ensure that all servicers are complying with federal consumer financial laws and not engaging in unfair or deceptive practices against borrowers.
Collectively, the seven servicers manage more than 49 million borrower accounts, the largest of which is Sallie Mae, according to 2012 data collected from the Student Loan Servicing Alliance.
“I am appalled that loan companies would attempt to take advantage of students, this seems like another big corporate America scheme,” said Omar Borimonoff, senior business management major. “I am happy someone is finally looking out for the little guy.”
Primarily, servicers are responsible for sending out statements, tracking and collecting payments, processing requests for loan deferments, reporting borrower activity to credit reporting agencies and answering questions from borrowers.
A servicer manages a loan on behalf of a lender, so borrowers may choose whether to take out a federal or private loan, but the borrower often has no control of who manages their loan. And once in repayment, the servicer remains the main point of contact for the debt.
The servicers simply act as a third party between lenders like the U.S. Department of Education, which today funds a vast majority of student federal loans, and borrowers.
While complaints have prompted the issuance of this new rule, some students have had no difficulties with their loan servicers. Such is the case for alumna Jeanette Rodriguez, who in 2007 took out a federal and private loan through Sallie Mae.
“Sallie Mae has been very helpful and understanding with my economic needs,” said Rodriguez.
“If I ever need my monthly payments to be adjusted, they offer me options like deferments and income-based repayment to ensure that I can meet my loan responsibilities.”
Today, there are a large portion of students who take out student loans and struggle to stay current on their loan.
The rising number is evident: earlier this year, the CFPB announced that outstanding student debt totals approximately $1.1 trillion, while another seven million borrowers are now in default on their debt.
– alyssa.elso@fiusm.com
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