Analyst sees higher risk for student lenders under Biden's consumer watchdog
A re-energized federal consumer watchdog agency may soon go after private student lenders, according to a new analyst note.
President Joe Biden’s appointment of Rohit Chopra as the director of the Consumer Financial Protection Bureau (CFPB) indicates that private student loan servicers like Navient (NAVI) and Sallie Mae (SLM) “will receive heightened attention given Chopra’s background,” Height Capital Markets analyst Edwin Groshans stated on Tuesday.
That extra scrutiny “poses a risk” to private student lenders, Groshans concluded.
Before he became the Federal Trade Commissioner in 2018, Chopra worked at the CFPB, serving as the agency’s first student loan ombudsman. In that role, Chopra published the agency’s first three annual student loan reports, which primarily focused on private student loan servicing issues, Groshans said.
Additionally, Groshans also noted that a recent blog post from the CFPB’s acting director, Dave Uejio, referenced the agency’s January supervisory highlights report that outlined how private loan servicers did not communicate all payment options available to borrowers.
Navient and Sallie Mae spokespeople declined to comment.
But during Sallie Mae’s fourth-quarter earnings call, CEO Jon Witter said while “one cannot predict future regulatory priorities, we are confident in our customer focus, practices, operations, and products and look forward to working with the CFPB to strengthen our business and better serve students, their families, and our communities.”
Private student loan market ‘booming’
Though a lot smaller than the federal student loan portfolio, the private student loan market is still sizeable and “booming,” according to an April 2020 report by the Student Borrower Protection Center. The group is led by a former CFPB student ombudsman, Seth Frotman, who replaced Chopra.
The total volume of outstanding private student loans is nearly $130 billion, and annual private student loan originations have grown by almost 78% between 2010-11 to 2018-19.
Prior to the Trump administration, the CFPB had taken an active role in overseeing student loans. But last year, a turf war emerged as the Department of Education refused to let the bureau examine the trillion-dollar portfolio.
Meanwhile, Democrats are still pushing for student debt cancellation in Congress and calling on Biden to cancel $50,000 in federal student loan debt.
“College should be a ladder up,” Schumer said during a press conference last week. “For too many people, debt is the anchor that weighs them down and they rarely overcome it. This debt holds people back from buying cars, from going on vacations, from starting families, from getting the job they wanna get.”
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Aarthi is a reporter for Yahoo Finance. She can be reached at aarthi@yahoofinance.com. Follow her on Twitter @aarthiswami.
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