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New rule to increase scrutiny on student loan service companies

Many mortgage servicers and big lenders came under scrutiny recently for the way they handled mortgages during the financial crisis. Many documentation errors were discovered. In fact, Arizona residents may be surprised to hear that even people who did not have mortgages were forced out of their homes. This may have led many innocent people to declare personal bankruptcy because they were unable to make mortgage payments for which they were not liable.

Now, the government may be taking steps to put student loan servicing companies under similar scrutiny. Arizona residents may be aware that student loans are a rising cause of financial difficulties across the country, and even when debtors file forbankruptcy, whether it is Chapter 7 or 13, student loans are normally not discharged. But according to complaints filed with the Consumer Financial Protection Bureau, borrowers find it difficult to get accurate information about the amount of money owed, difficult obtaining help when borrowers are unable to make their payments and delays in crediting payments.

The new rule will allow the bureau to monitor big student loan servicers. These servicers currently collect payments, track interest and send out statements on behalf of borrowers and lenders. Currently, the bureau does not keep track of nonbank financial companies, but the new rule would put them under the bureau's ambit. According to the bureau, the rule will allow them to ensure the servicing companies are following federal standards, and are all complying with the same laws. The bureau would be able to monitor both private and federal loans.

The proposed law may go a long way in preventing the problems faced by the housing market. However, for many student borrowers in Arizona, the proposal comes too late. These individuals should keep in mind the fact that it is possible to ease their financial burden by filing for personal bankruptcy. Although bankruptcy generally will not discharge student loan debt, it can provide a fresh financial start from which borrowers may be able to actually focus resources on those payments rather than trying to juggle credit cards, medical bills, payday loans and other debts.

Source: The New York Times, "Keeping a closer eye on student loan servicing firms," Ann Carrns, March 14, 2013