Feds to oversee PHEAA, other student loan contractors
When Zach Lee graduates from the University of Pittsburgh with a degree in studio arts this month, he'll join a growing pool of graduates shouldering student debt of $1.2 trillion.
Lee, who owes $22,000 in federal student loans and about $80,000 in private loans, was relieved recently to learn he could repay his federal debt in increments as low as $50 a month. He isn't sure what he'll have to pay on his private loans.
“I can only give them what I have to spare,” Lee, 22, said. For now, he's working at Giant Eagle and shopping his work to art galleries.
In response to mounting student loan debt and borrowers' problems with companies that service student loans, the federal Consumer Financial Protection Bureau announced on Monday that next year it will supervise at least seven non-bank contractors that handle more than 1 million accounts each.
That includes the Pennsylvania Higher Education Assistance Agency, or PHEAA, which has 12 million borrowers and $272 billion in student loans.
If the oversight works, Lee and millions of other borrowers will get better service and response from the giant companies with which the government and private lenders contract to collect and process student loan payments.
Federal officials said the need for additional consumer protection became clear as student loan debt grew, eclipsing the nation's credit card debt about two years ago. Among U.S. consumer debt, student loan debt is second only to mortgage debt.
Protection bureau Director Richard Corday said the change is in response to complaints from borrowers who had difficulty making prepayments or partial payments on loans, were unable to get information on payment options or incurred late fees because of paperwork or processing errors by companies.
“As the recession decimated the job market for young graduates, a growing share of student loan borrowers reached out to their servicers for help. The problems they have encountered bear a striking resemblance to the problems faced by home-owners in the run-up to the financial crisis,” Corday said, noting that one in five American households owes student debt.
In Pennsylvania, where a recent study found 70 percent of students took on debt for college, the average 2011 Pennsylvania college graduate owed $30,000, the second-highest figure in the nation.
According to the Project on Student Debt, average graduate debt included $24,251 from California University of Pennsylvania, $33,530 from Penn State University, $26,612 from Pitt and $27,502 from Duquesne.
Debt is a fact of life for many students, such as Pitt junior Renee Brown, who pays $100 a month on loans that she estimates will total about $40,000 by graduation.
“I'm not too worried about it,” said Brown, 20, of Troy in Bradford County.
Officials at PHEAA aren't concerned about more federal oversight.
“We don't anticipate any impact at all from the new rules. We've been working with the CFPB on this for some time already,” spokesman Keith New said.
Debra Erdley is a Trib Total Media staff writer. Reach her at 412-320-7996 or firstname.lastname@example.org.