POLICYMIC. MARCH 18, 2013. Student debt, with its accompanying interest, fees, and hassle, is a cloud that looms over the heads of many. It’s so overwhelming, that there’s been a noticeable movement toward exploring ways to bypass college all together and still have a lucrative career. The anxiety of a cost/benefit analysis of college was summed up in a widely-shared Wall Street Journalarticle that delivered a harsh truth many aspiring Ivy Leaguers would find unpleasant: financially, you’re better off becoming a prison guard than graduating from Harvard.
Tempting as avoiding college and its skyrocketing tuition costs may be, data from the Bureau of Labor Statistics shows that college graduates have much lower unemployment rates and higher paying jobs than their peers who went to trade school or didn’t complete any post-secondary schooling at all. Still, even with a relatively high-paying entry-level job, it can be difficult to stay on top of student loan payments, especially if they’re handled by a private company such as Sallie Mae. Adding to the burden of actual money owed, dealing with Sallie Mae or one of the other major nonbank private student loan companies can often involve lost paperwork, unclear loan conditions, and bad communication with customer service providers. Beyond annoyance and wasted time, an inability to understand loan conditions and to pay bills on time due to service problems can lead to miss payments and compounding late fees, which increase the amount of time in which the debt can be repaid.
A factor contributing to the hassle of paying off a loan held by a private company could be a lack of federal oversight when it comes to the company’s internal procedures. Unlike banks, payday lenders, credit unions and some other financial institutions that are under the jurisdiction of the Consumer Financial Protection Bureau (CFPB) Sallie Mae and its ilk aren’t subject to the scrutiny of the federal government.
This may soon change. In a proposal released Thursday, the CFPB announced that it seeks to oversee nonbank student loan companies in order to “ensure that tens of millions of borrowers are not treated unfairly by their servicers.” The CFPB already oversees banks who hold student loans, and an implementation of the proposal would mean that nonbanks would be subject to the same rules as banks. In the press release that accompanied the proposal, the CFPB attributed the complaints against nonbank loan companies to the expanding market of borrowers: “The student loan market has grown rapidly in the last decade and is now facing the stress of increasing numbers of borrowers who are struggling to stay current. That increase translates to more work for servicers that need to be up to the job.”
By supervising the companies, the CFPB says it will be able to help them keep up with increasing demand.
The scope of the bureau’s supervision would include gathering and analyzing data from companies, enforcing federal rules, and making sure nonbank companies are following the same rules as banks. The new rule would apply to companies with over one million borrower accounts that handle both federal and private loans.
Though CFPB supervision of Sallie Mae and others like it won’t reduce your student debt, the new proposal promises to eliminate the runaround and dead-ends that lead to unpaid bills, added interest and late fees. With $1 trillion in outstanding student debt, a more streamlined way of paying off loans would be a welcome relief to millions of current and future college grads.