Let’s be honest. Federal loan servicing is fairly terrible. The Dept. of Education used to service Direct federal student loans in-house, but since 2009 it has contracted out these servicing operations to various private companies such as Sallie Mae, ACS, NelNet, FedLoan Servicing (PHEAA), and Great Lakes (among others). Sometimes, the Dept. of Education will transfer people’s federal student loan accounts to a different servicing company, seemingly randomly and with little advance notice. Many (if not all) of these companies do a fairly terrible job of working with borrowers.
The Consumer Financial Protection Bureau (CFPB), which is the recently-created federal agency designed to protect the rights of consumers, recently announced that it will be providing more direct oversight of these private companies that service federal student loans. The CFPB is aware of the ongoing and serious problems that borrowers encounter on a day-to-day basis, including improper payment applications, surprise account transfers, and failure to adequately advise borrowers of rights and options. Its oversight will include:
- Gathering information and conducting investigations of loan servicing companies.
- Ensuring compliance with federal consumers laws and federal student loan regulations.
- Facilitating greater uniformity so that everyone is following the same rules.
I am cautiously hopeful that this is a positive development for student loan borrowers and will ultimately help reduce some of the most common problems I see in student loan servicing. Of course, time will tell.
Do you have a complaint about how your student loans are being serviced? Tell the CFPB.
