All Student Loan Players Great and Small
Law360Jonice Gray Tucker, Aaron C. Mahler, Ignacio J. Hiraldo
From presidential town halls to the local college dining hall, issues related to student lending have become the talk of the nation. According to recent estimates, over 41 million Americans owe more than $1.2 trillion in student loan debt, second only to mortgage loan debt. A quarter of these borrowers are estimated to be in default or delinquency, representing over $175 billion in student loan debt. Some industry observers have even asserted that issues associated with student loans present parallels to the last financial crisis, and may even trigger the next one. As a result of these and other developments, federal and state regulators have intensified efforts to monitor and regulate entities that provide consumer financial services to students.
What types of companies are impacted by this ever-expanding government oversight? Major industry participants such as originators and servicers come to mind immediately, but less prominent industry players and vendors for major participants may have greater reason to pay attention. Regulatory scrutiny is now expanding to companies that may not have faced such oversight in the past, including smaller companies and companies with more circumscribed roles in connection with lending and servicing — companies understandably less familiar with what appear to be increasingly more stringent compliance management expectations. Small student loan debt relief service providers, companies providing assistance with financial aid, for-profit schools, and college-accrediting agencies, to name a few, have all been subject to government enforcement activity recently. Substantively, regulators seem to be taking an interest in nearly every aspect of a loan’s life cycle, from marketing to the extinguishment of debt. And looking beyond education finance, regulatory focus extends to other types of financial products and services offered to students, including deposit and revolving credit products.
The current environment brings to mind the popular series of novels: "All Creatures Great and Small." As modified for our present circumstance: All laws circumscribed and expansive, all companies tiny and gargantuan, all risks obvious and obscure, student loan regulators reach them all. In today’s world, all players, great and small, in the student consumer financial services industry should take proactive steps to assess and mitigate regulatory risk. The monetary and business impacts of an investigation and enforcement or other action can be steep, particularly for smaller or less prominent companies that may not have been on the regulatory radar before. Being prepared and proactive is more important than ever.
Originally published in Law360; reprinted with permission.