Who Will Protect Student Borrowers? The CFPB’s New Direction Explained

Arising from the ashes of the 2007–2009 financial crisis, the Consumer Financial Protection Bureau (CFPB) was designed to protect consumers from being taken advantage of by financial institutions. However, the agency’s priorities appear to be shifting away from regulating entities that aren’t large banks, such as student loan servicers. As such, student borrowers may have to start relying more on state agencies and nonprofits for protection.

Key Takeaways

• In April, the Consumer Financial Protection Bureau (CFPB) released a memo detailing its plan to deprioritize its regulation of student loan servicers.
• This shift may impact loan servicing and consumer protections for student borrowers.
• Consumers may be able to turn to state-level agencies and nonprofit organizations for assistance.

Recent Changes in CFPB Priorities

Part of why an agency like the Consumer Financial Protection Bureau (CFPB) is necessary is that there’s often information asymmetry between financial institutions and consumers. You might not realize what you’re eligible for, for example, and end up paying more than you needed to.

For example, the CFPB has moved to protect borrowers from entities like Navient, previously the nation’s largest student loan servicer. The CFPB ended up banning the company from federal student loan servicing for pushing borrowers into more expensive repayment options, among other alleged illegal actions. 

However, according to an internal memo, the agency will be deprioritizing the regulation of certain industries, including student loans and digital payments. While the memo notes that the CFPB is shifting away from supervision and enforcement of areas that can be handled by states, reduced federal support could make state regulatory enforcement more difficult.

Alternative Avenues for Protection

Although student borrowers may have fewer protections if the CFPB isn’t regulating the market as it once did, there are some alternatives. Depending on your location and loan type, your options may include:

• For federal loans, submit feedback to the Department of Education’s Federal Student Aid (FSA) office, or escalate to FSA’s Ombudsman Group.
• Contact your state’s student loan ombudsman or state attorney general for help with federal or private loans.
• File a complaint with your college or university’s state accrediting or approval agency if the problem pertains to your school.
• Contact a nonprofit organization that can potentially provide legal assistance or point you in the right direction for further support, such as the Institute of Student Loan Advisors or the National Consumer Law Center.
• Report suspected student loan scams to the Federal Trade Commission (FTC).

While not an immediate solution, you can also contact your elected representatives to voice any concerns you might have about the CFPB deprioritizing its regulation of the student loan market.

The Bottom Line

For years now, the CFPB has worked to protect student borrowers from improper practices. However, now that the agency is deprioritizing its oversight of student loan servicers, much of that responsibility will likely fall onto state regulators, nonprofits, and perhaps even private companies such as law firms. As such, consumers may have to explore alternate avenues for support going forward.