On December 3, 2013, the CFPB announced that it had finalized a proposed rule which would allow the agency to begin supervising certain non-bank student loan servicers for the first time. The CFPB is already supervising student loan servicing conducted by the nation’s largest depository institutions.
Prior to the rule, federal supervision over companies such as Sallie Mae was in the purview of the Department of Education. However, commentators have noted that any oversight by the Department of Education was scant and borrower advocates complained that the Department of Education was neglecting its authority to punish and deter wrongdoing. The CFPB suggested that this problem was escalating as the outstanding student debt nearly doubled in recent years and defaults on such debt rose to the highest level in nearly twenty years.
According to the CFPB, there is approximately $1.2 trillion in outstanding student loan debt in this country, making student loan debt second only to mortgages in household debt. Federal student loan programs comprise more than 85% of the market, according to a statement by CFPB Director Richard Cordray. The CFPB will begin regularly examining the seven largest student loan servicers, who collectively service more than 70% of unpaid student debt. The rule will bring over 49 million borrower accounts under CFPB supervision.