Private companies that service student loans for the federal government are on course to face new rules from the Consumer Financial Protection Bureau, adding to recent scrutiny from Congress and the Obama administration.
The guidelines for new rules on debt collections introduced by the consumer bureau in July would apply to companies that service federal student loans for the Department of Education. The federal government has a $1.25 trillion portfolio of student loans and contracts with nearly two dozen firms to service loans by collecting payments from borrowers and working out arrangements with former students who have fallen behind.
Under the regulations the bureau is mulling, debt collectors would be limited in the ways they could contact borrowers in an effort to curb harassment and abuse. For instance, debt collectors could be prevented from calling borrowers more than a half-dozen times a week and likely would have to document that the debt they’re trying to collect is legitimate before contacting borrowers.
Student loan servicers have drawn increased critical attention from the federal government since federal regulators, including the bureau, warned in September of “widespread problems” in the student loan industry.
Among the bigger issues is that millions of borrowers have had their debts transferred between servicers with little notice and that millions of borrowers have fallen into default despite the availability of federal programs that cap payments as a share of income.
Almost 4 million people with federal student loans are in default, according to the Department of Education. This year, the consumer bureau has received almost as many complaints about servicing of federal student loans as it has for private student loans.
In response to news of students, particular veterans facing financial distress because of student loan servicing problems, several senators including Sen. Elizabeth Warren, D-Mass., have pushed for stricter standards.
The Department of Education responded in July with a memo setting new standards for servicers, aiming to give contracts to companies that act in borrowers’ best interests and setting standards for consumer service.
The agency said that it would wait for the bureau to release proposed regulations before weighing in on them.
Servicers contacted by the Washington Examiner did not respond to requests for comment. A representative for ACA International, a trade group for debt collection companies, said that the potential impact of the bureau guidelines on federal student loan servicers was not yet clear.
