Prepared Remarks of Richard Cordray
Director of the Consumer Financial Protection Bureau
Press Call on Proposed Rule on Student Loan Servicers
March 14, 2013
Thank you for joining us on this call today. As so many families are all too aware, the cost of higher education has been steadily rising in recent years. As a result of these rising costs, more consumers need loans in order to afford college. By the end of last year, outstanding student loan debt was more than $1 trillion.
Managing that debt can be complicated for borrowers – especially for those who encounter problems with their loan servicers. Loan servicers are responsible for collecting payments from borrowers on behalf of loan holders. A servicer is often different than the lender itself, and a borrower has no control or choice over which company services a loan. We have heard complaints from private student loan borrowers that nobody holds servicers accountable for answering their questions and providing quality customer service. So students can find themselves at a dead end – stuck without a clear path forward.
The decision to take out student loans may be the first major financial decision for many of these borrowers. We do not want to see their college degrees become more burden than blessing. But many students are saddled with debt and may believe they have few options to make their debt more manageable and affordable. With the challenges they face in the current economic environment, they can be precluded or delayed in pursuing other financial opportunities like getting a mortgage or saving for retirement. Given the rapid growth of this market and the recent rise of delinquency rates, it is important to ensure that borrowers receive appropriate attention from their servicers.
Today we are proposing a rule that would allow the Consumer Bureau to supervise nonbank student loan servicers for compliance with federal consumer financial laws. Our proposed rule would bring new oversight to this market and give the Bureau visibility into the complete cycle of student loan debt, from origination through servicing to debt collection and credit reporting. The exercise of this new authority would help protect millions of student loan consumers from potential dead ends.
Student loan servicers can have a profound impact on borrowers and their families. Servicers collect payments on loans, work with struggling borrowers on repayment options, and may report borrowers’ activity to credit reporting agencies. In many ways, a student loan can make or break people’s financial lives. A borrower’s sole contact regarding a loan, for most of the life of the loan, is with a servicer. So we need to make sure they are complying with federal consumer financial laws.
Congress authorized the Bureau to supervise nonbank “larger participants” as we define them in our rules. This proposed rule would address the “larger participants” in the student loan servicing market. Under the proposed rule, any nonbank student loan servicer that handles more than one million borrower accounts would be considered a “larger participant” subject to our supervision. That threshold covers the seven largest student loan servicers, which, combined, service the loans of nearly 50 million borrower accounts. The rule would apply to these servicers regardless of whether they handle federal or private student loans.
At the Consumer Bureau, our mission is to provide evenhanded oversight of industry while promoting fair and transparent markets.Today’s proposed rule is intended to achieve that mission by making sure that student loan servicers play by the same rules and treat borrowers appropriately. We know that student loans allow many Americans to pursue opportunities through higher education that they could not otherwise afford. And we are grateful to the Department of Education, who we will be working closely with, for their work to protect student borrowers as well. We want to make sure these worthy borrowers do not face unnecessary obstacles in paying back their loans and moving forward with their lives.