The nation’s top consumer watchdog is stepping up its oversight of student-loan servicers, the agency announced on Thursday.
The Consumer Financial Protection Bureau, which has been monitoring the sector since last March, said it would seek information on practices that “create repayment challenges” or set up “hurdles for distressed borrowers.” The agency is also interested in “economic incentives that may affect the quality of service” provided to borrowers, it said in a statement.
“Today’s inquiry seeks information on the pain points in student-loan servicing that make repayment a more difficult and stressful process,” said Richard Cordray, the bureau’s director.
The inquiry comes two months after President Obama issued a memorandum requiring servicers to “provide enhanced disclosures and stronger consumer protections” throughout the loan-repayment process. The memo also directed servicers to apply any prepayments first to outstanding loans with the highest interest rates.
Student-loan servicers manage borrowers’ monthly accounts, process payments, and help them enroll in debt-management plans. But the companies have drawn criticism from borrower advocates and federal regulators over a variety of issues. In February the National Association of Student Financial Aid Administrators issued a report recommending ways to improve the sector.
The bureau said it had received complaints from consumers about how the servicers handle payment postings, prepayments, and partial payments. Borrowers have also complained about lost records, slowness in fixing errors, and a general lack of customer service, according to the statement. Some distressed borrowers have said they were given a runaround when they asked for help, had a hard time getting straight answers from staff members, or felt those people were untrained or unequipped to handle repayment problems.
Such problems “bear an uncanny resemblance to the situation where struggling homeowners reached out to their mortgage servicers before, during, and after the financial crisis,” Mr. Cordray said, in remarks prepared for delivery on Thursday at a field hearing in Milwaukee. “Having seen the improper and unnecessary foreclosures experienced by many homeowners, the Consumer Bureau is concerned that inadequate servicing is also contributing to America’s growing student-loan-default problem.”
Kelly Field is a senior reporter covering federal higher-education policy. Contact her at kelly.field@chronicle.com. Or follow her on Twitter @kfieldCHE.
