The seven largest student loan servicers can handle the bump in operating costs that will result from the new oversight of the Consumer Financial Protection Bureau (CFPB); but not the smaller servicers, Fitch Ratings said.

Last Tuesday, the CFPB finalized a rule that allows it to supervise the largest nonbank student loan servicers in the country.

The CFPB's supervision will include examinations and will ensure that servicers follow all federal consumer financial laws. 

The rule permits the CFPB to begin examining any nonbank servicer that handles more than one million student loan borrower accounts - a category that currently includes seven firms and accounts for 70% of the market - beginning March 1.

The bureau also may subject smaller servicers to supervision if it finds they pose a risk to consumers.

The regulation also gives the CFPB the ability to look at all student loans handled by supervised servicers, including federal student loans, which many studies say cover at least 85% of the $1.2 trillion market.

Fitch's said that the seven servicers' falling under the scope of the CFPB supervision, have existing infrastructures will require “only moderate changes, if any, to comply with additional CFPB oversight.”

However smaller servicers would have more difficulty managing the extra costs associated with CFPB supervision “as they have fewer resources than the largest servicers.” These players’ inability to absorb increased costs could trigger consolidation in the industry.

Subscribe Now

Access to a full range of industry content, analysis and expert commentary.

30-Day Free Trial

No credit card required. Access coverage of the securitization marketplace, including breaking news updated throughout the day.