In a significant shift, the Trump administration has drastically reduced the oversight of student loan servicers, leaving borrower protections in jeopardy.
Federal cuts to agencies responsible for monitoring these massive contractors have raised concerns over the handling of the $1.6 trillion student loan portfolio, which is now less scrutinised than ever before.
The recent decision to slash the workforce at key oversight bodies, including the Consumer Financial Protection Bureau (CFPB) and the Department of Education, has sent ripples through the student loan system, reports Yahoo Finance.
With fewer resources to monitor loan servicers’ actions, borrowers may be more vulnerable to errors and malpractice, according to experts and advocates.
Trump’s Cuts Hit Key Regulatory Bodies
Under the Trump administration’s ongoing push to reduce federal workforce numbers, the oversight teams at the CFPB and the Department of Education have faced substantial downsizing. The most significant impact has been on the Federal Student Aid (FSA) office, which previously employed a dedicated team to monitor servicers’ performance.
According to multiple former officials, the FSA’s Vendor and Program Oversight Group, tasked with ensuring loan servicers met critical service standards, was dissolved in the latest wave of layoffs.
This group had previously been instrumental in detecting recurring issues with servicers, including mismanagement of payments and incorrect billing, which often led to borrower confusion.
With these oversight functions now removed, borrower advocates have expressed alarm, fearing that servicers could act with less accountability.
“It means that the sorry state of the student loan system will only get worse — servicers can cut back on customer service, lose paperwork, and lie to borrowers knowing that no one is watching and they will never face justice,” said Mike Pierce, executive director of the Student Borrower Protection Center.
The Risk of Reduced Accountability
Loan servicers, private companies contracted by the federal government, have long faced criticism for inadequate service.
While their role is to collect payments and help borrowers manage their debt, issues such as payment miscalculations, delayed responses, and failure to suggest appropriate repayment plans have contributed to rising delinquency rates. The lack of oversight now makes it more likely that such issues will continue unchecked.
According to Betsy Mayotte, founder of The Institute of Student Loan Advisors, the oversight teams were crucial in identifying problems that borrowers themselves might miss, such as miscalculations on income-driven repayment plans.
With federal regulators now stripped of resources, responsibility could fall to state attorneys general, but this shift may not provide the same level of continuous scrutiny that federal agencies once offered.
With an increasing number of borrowers expected to struggle as repayment resumes, the loss of regulatory oversight could make navigating the student loan system even more challenging.
While borrowers can still file complaints with the remaining staff at the CFPB and the Department of Education, the already backlogged system suggests that the reduced workforce will struggle to provide meaningful support in the future.
