By Gretchen Wegrich
The Consumer Financial Protection Bureau (CFPB) is expanding its reach beyond mortgage regulation to include overseeing non-bank student loan lenders who the agency views as a hindrance to college graduates’ ability to save for a mortgage.
For many college grads, expectations of reaching major life milestones –such as purchasing their first home –are significantly delayed by student loan debt. While mortgage debt continues to shrink as the market strengthens, student loan debt has grown to an astonishing $902 billion, or an average balance per student of $24,301, reports the Federal Reserve.
Student loan debt holds the dubious honor of being the second largest type of household debt after mortgage debt.
“The decision to take out student loans may be the first major financial decision for many of these borrowers. With the challenges they face in the current economic environment, they can be precluded or delayed in pursing other financial opportunities like getting a mortgage or saving for retirement," said Richard Cordray, director of the Consumer Financial Protection Bureau.
In response, the CFPB proposed a new rule that would permit the agency to regulate non-bank student loan servicers to ensure that all financial institutions are complying with federal consumer protection laws.
In particular, Cordray focused on the servicing aspect of student debt, which leaves many borrowers confused and unable to find the help they need to navigate the student loan repayment process.
“Our proposed rule would bring new oversight to this market and give the bureau visibility into the complete cycle of student loan debt," said Cordray. "We do not want to see their college degrees to become more burden then blessing."
College students welcomed the attention on the student loan debt crisis, but also voiced concerns about the cost of college and universities’ continuing reliance on the Federal Government for an unending supply of loan money.
The CFPB’s proposed rule “would expand their supervisory authority to the vast majority of nonbank student loan services. If the rule is finalized, which we expect it will, then the majority of nonbank student loan servicers of both private and federal student loans will be supervised by the CFPB,” explained analysts at Compass Point Research & Trading.
“Furthermore, this rule would allow the CFPB to supervise private student loans from life to death," Compass Point said. "This action by the CFPB is consistent with the agency's focus on servicing issues to date.”
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