President Joe Biden’s nominee to America’s consumer watchdog agency told Congress he was concerned about how servicers would handle borrowers when their student loan payments — currently paused during the pandemic — resume in October.
“We are at a critical moment when so many borrowers are going to have to restart their payments,” Rohit Chopra said in response to a question about student loans during his nomination hearing this week. And the CFPB’s role will oversee how “servicers [are] communicating, and making sure that borrowers can navigate their options.”
Chopra, who is a member of the Federal Trade Commission, previously served at the Consumer Financial Protection Bureau (CFPB) after its establishment by Sen. Elizabeth Warren (D-MA). He was also a former student loan ombudsman for the bureau. Chopra appeared in front of the Senate Banking Committee on Tuesday.
“The CFPB has a big role to play in working with the Department of Education, State Attorneys General, ... to make sure that all of that is happening lawfully,” he added, “so we can avoid an avalanche of defaults when any moratorium might end.”
'Costs of inaction were too high'
Payments on trillions of dollars in federal student loans have been paused since March 2020. But there are other critical issues regarding the loan machinery that he’s likely to address if confirmed, Chopra said.
“One of the things that I've always kept front and center is [that] it is critical for regulators not to make the same mistakes that are made in the lead-up to the financial crisis," Chopra said. "The costs of inaction were too high, and some of the same issues that we saw in the mortgage servicing market I think were creeping into the student loan servicing market years ago.”
During the Obama administration, the CFPB was active in going after companies engaged in illegal practices regarding student loan servicing. For instance, in 2016, the CFPB took action against Wells Fargo for "illegal private student loan servicing practices that increased costs and unfairly penalized certain student loan borrowers."
In January 2017, the CFPB sued Navient for "systematically and illegally failing borrowers at every stage of repayment." At the state level, attorneys general have also pursued lawsuits against loan servicers for illegal practices.
PSLF another issue to tackle
Additionally, there are “many benefits, many programs, many contractual entitlements in a borrower’s loan note that they are eligible to enroll in, and if servicers or debt collectors are misrepresenting those options, that is a big problem,” Chopra said.