Senate Banking Committee Chairman Sen. Tim Johnson (D-S.D.), in a letter to the Consumer Financial Protection Bureau, is calling for joint action between the Department of Education, Department of Treasury and the CFPB to address student loan industry issues - including debt collection and loan servicing.
Johnson asked the CFPB to, "implement a strong rule on debt collection that covers all debt collectors, including the [private collection agencies] that may collect on federal student loans."
Reforms are needed, he wrote, and should include requiring more "transparent disclosures to students before taking on student loan debt, mandatory certification for private student loans, release of co-signers upon the death or disability of a borrower and improved credit reporting for education loans," according to a Senate Banking Committee news release.
The Senate Banking Committee has jurisdiction over financial institutions in the student loan market. Johnson has held several hearings on ways to address existing and future student financial products.
Johnson asked the CFPB to work with the Department of Education in the oversight of private collection agencies and to ensure that the Fair Debt Collection Practices Act protections are safeguarded and enforced in the case of student loan collections, according to the news release.
The CFPB estimates that there is $1.2 trillion in outstanding U.S. student loan debt and more than seven million people in default on their loans.
Rohit Chopra, the CFPB's student loan ombudsman, in October released the CFPB's third annual report highlighting complaints by struggling private student loan borrowers who describe widespread defaults and issues affecting the student loan marketplace. The report, required by the Dodd-Frank Act, analyzes more than 5,300 student loan complaints between Oct. 1, 2013, and Sept. 30, 2014, up 38% over the previous year.
According to the CFPB, there were approximately 2,700 collection complaints related to student loans.
The report offers several recommendations and issues to consider - including the impact of public policies when evaluating steps to improve options for distressed borrowers and whether changes to the treatment of private student loans in bankruptcy are cutting incentives for lenders and servicers to help borrowers avoid default.
"Clearly more needs to be done to create enforceable consequences for servicers that do not comply with their responsibilities," Johnson wrote. "Servicers are expected to treat borrowers fairly and transparently, which includes ensuring loan information is correct, fees are accurately assessed, and borrowers are given all relevant information about their loans."