This is the second story in Business Insider's new series, "Student debt spiral," examining the companies, policies, and financial pressures reshaping how Americans navigate college loans. Read the first, about what happens when borrowers are told their loans are paid off — and then get sued.

A construction manager in Massachusetts thought her $55,000 student-loan debt was forgiven — until she was sued. A Michigan nurse wanted to make payments on her balance of more than $50,000, but no one could tell her who to pay.

Their experiences point to a growing concern: As more Americans turn to private student loans, critics say the industry operates with uneven oversight, limited transparency, and fewer borrower protections than the federal student-loan system.

Private student loans make up a relatively small share of the higher-education borrowing market, but the industry is poised for rapid growth.

President Donald Trump's sweeping student-loan changes, which take effect July 1, will limit federal borrowing, pushing more students toward private lenders. Meanwhile, the Consumer Financial Protection Bureau, the federal agency tasked with overseeing the student-loan industry, directed staff to "deprioritize" oversight in an internal memo last year.

Business Insider reviewed the past decade of CFPB complaints and interviewed borrowers, attorneys, lawmakers, and former regulators about how private student loans are monitored — and where they say the system falls short. Borrowers described confusion over who owned their debt, missing or conflicting notices, and lawsuits following defaults.

While private lenders are subject to federal and state consumer-protection laws, critics say enforcement is fragmented and inconsistent, especially as federal oversight recedes.

Julie Margetta Morgan, a former CFPB and Department of Education official, said that the industry's growth could leave more borrowers exposed to payment errors, costly litigation, and the harsh consequences of default, including ruined credit and wage garnishment.

"There are rules that lenders are supposed to be following," she said. "We have laws against unfair and deceptive practices for a reason, but you need someone who actually is willing to enforce those laws and has the capacity to do it."

With private student loans, Morgan said, "there's really no one minding the store here."

This story is part of a new Business Insider series, "Student debt spiral," on the growing private student-loan industry. Read the first installment below and stay tuned for more.

• They were told their private student loans were paid off. Then they were sued.

Share your private student-loan experience with asheffey@businessinsider.com or securely on Signal at asheffey.97.

The challenges with private student-loan oversight

Private lenders said they are prepared for the expected influx of federal borrowers. A Sallie Mae spokesperson pointed to "significant oversight and standards set by banking regulators" and "robust consumer protection laws and regulations." A SoFi spokesperson said that the company "communicates extensively" with borrowers, "so they can successfully manage their finances and get their money right."

Private lenders have a business interest in helping borrowers to pay off their loans, said Scott Buchanan, executive director of the Student Loan Servicing Alliance, which represents federal and private lenders.

"That's their bread and butter, making sure that they are making loans that are performing well," he said.

Business Insider's reporting found widespread frustration among private borrowers. Private lenders serve about 10% of borrowers, yet account for roughly 25% of CFPB complaints. In reviewing the past 10 years of complaints, Business Insider found hundreds of entries related to lender mistakes with loan transfers, missing or erroneous documentation, and confusion about payment status. CFPB released a report in January showing it received about 4,500 private student-loan complaints from July 2024 through July 2025 — an increase of 33% compared to the previous year.

Anna Park, an attorney at the New York Legal Assistance group, said she's not surprised by the volume of CFPB complaints based on what she's witnessed with her clients. In her capacity as a lawyer, she's had trouble getting information from lenders, she said.

"It's very difficult, even when we reach out with authorization from the law firm, and we know the language to use, and we know which documents to ask for. Even then, sometimes we come up with nothing," Park said.

Lenders are subject to a multitude of laws around communication and fair debt collection, including the federal Truth in Lending Act and various state laws. Nineteen states have enacted what they call a borrower's "bill of rights." These laws govern how and when lenders can contact borrowers, and aim to provide some protections.

Critics say these protections lack proper enforcement.

"State attorneys general don't have the capacity to monitor and conduct oversight and enforcement of this industry in the same way that a CFPB would," Morgan said.

Default is a common land mine. Typically, when a borrower goes 120 days without paying, a third party takes over collections, and borrowers may struggle to track communications or lose access to their original accounts, according to interviews and CFPB complaints. Melinda Laszczynski, 39, discovered where her defaulted account had been transferred when a collections agency requested she pay her full $160,000 balance.

"Millions of Americans could have avoided the consequences of default if they had been treated properly by their servicer," former CFPB director Rohit Chopra told Business Insider in 2024.

That year, the agency sued and won a sweeping settlement from one major lender, Navient, over claims that it mishandled borrowers' payments by steering them into repayment plans that blocked access to lower monthly payments. Last spring, the Trump administration cut staff and deprioritized oversight at the agency, according to an April internal memo. A spokesperson said the agency's student-loan ombudsman is continuing to fulfill statutory duties.

The push for stronger private student-loan protections

Since Trump's federal changes will impose borrowing caps on some lending and offer less generous repayment plans, the private market anticipates a rush of borrowers seeking more options. Policymakers are pushing for stronger oversight.

In February, a group of Democratic lawmakers, led by Sen. Elizabeth Warren, released the first congressional analysis on private lenders' plans for federal repayment changes with one core warning: New federal borrowing caps would eliminate the "competitive pressure" private lenders have faced to keep repayment terms reasonable.

Without that pressure, the lawmakers said, lenders would have weaker incentives to offer terms that resemble federal loans, including on interest rates. Federal interest rates are fixed throughout the duration of a borrower's repayment. Currently, they're 6.39% for direct undergraduate loans, compared to variable private student-loan interest rates ranging from about 3% to 18%.

"For years, private student lenders have used sketchy tactics to rip Americans off," Warren said in a statement to Business Insider. "The Trump administration should focus on lowering costs for students and borrowers, not giving predatory private lenders free rein to profit off of American families."

The Department of Education has said the repayment changes aim to curb excessive borrowing and compel colleges to lower their tuition, but it has not commented on the anticipated surge in private lending.

For now, Morgan said, local and state oversight is the best bet for change.

"We really need states to be looking at the full picture there," she said. "They can drive down state school tuition prices, they can increase enforcement at the state level of consumer financial protection laws, and then they can crack down on debt collection, as well."

Some states are taking action. In February, the New York City Department of Consumer and Worker Protection announced new debt-collection rules aimed at curbing predatory collection practices, such as excessive outreach and failure to present proper documentation, while also giving borrowers clearer avenues for disputing debt with regulators.

In California, the Department of Financial Protection and Innovation told Business Insider that it monitors lenders' annual portfolio performance reports and investigates borrower complaints. Other states with borrower "bill of rights" laws intended to protect borrowers from predatory lending have similar processes.

These protections vary widely, creating a confusing patchwork for borrowers who move states and aren't aware of the differences.

Morgan said greater transparency is a critical first step. Some states require lenders to be licensed and registered, while others do not, limiting regulators' ability to track activity and intervene early. More consistency across states and stronger federal oversight would make it easier to spot patterns of abuse and enforce protections, she said.

"We're going to see a quiet crisis for student-loan borrowers where they're taking on higher interest debt with more onerous terms," Morgan said, "but that we won't be able to see because you don't have the same transparency as the federal student-loan program."