In this story
- The Department of Education will no longer play nice with the consumer-friendly CFPB on student loan complaints
- It could get harder to complain about problems repaying student loans
- The move follows a pattern of industry-friendly steps, including putting a former exec at a disgraced for-profit school as watchdog of for-profit schools
About 44 million Americans hold student loan debt, and a stunning 1 out of 4 are behind on their payments. Meanwhile, federal regulators are collecting a record amount of complaints against loan servicers, and the largest — Navient, formerly Sallie Mae — is the subject of a sweeping lawsuit alleging mistreating of borrowers.
Seems a bad time for federal regulators to stop working with each other to reign in the industry. That’s exactly what happened as last week bled into Labor Day weekend, however. The Department of Education just announced it would stop sharing complaint information with the Consumer Financial Protection Bureau, the only agency that has had any luck in scaring the student loan industry straight. Meanwhile, incredibly, the agency has chosen a former DeVry University official to head its for-profit school watchdog group. DeVry recently paid $100 million to settle allegations it had misled students.
The National Consumer Law Center called the Department of Education’s recent decision to disengage from the CFPB “outrageous and deeply troubling.”
“(The department) is prioritizing the interests of predatory for-profit schools, debt collectors, and troubled student loan services over the interests of student loan borrowers,” the group said.
I know there’s a lot going on, but this is really important. A generation of young people has seen its financial fortunes, and its very outlook on the American dream, severely damaged by oppressive student loans. Mistreatment of borrowers by servicers plays a big role in this disaster. There are plenty of ways to demonstrate that.
Here’s one: In 2015, a Government Accountability Office report in 2015 found that while 51% of student loan borrowers were eligible for a repayment program that could lower their payments, only about 15% were enrolled in it. Worse yet, the Consumer Financial Protection Bureau says a stunning 9 out of 10 borrowers who had defaulted and rehabilitated their loans were not enrolled in affordable repayment plans. Predictably, those borrowers were five times more likely to re-default on their loans, racking up $125 million in unnecessary interest charges along the way.
In other words, while millions of borrowers are behind on their payments, a stunning number of them have failed to get simple advice that would lower their payments.
Meanwhile, students who do qualify for lower payments often find their monthly bill skyrockets after a year because of paperwork failures and other red tape.
In a lawsuit filed against Navient by the CFPB and the Illinois Attorney General, the firm was accused of unsavory lending practices like “(failing) to correctly apply or allocate borrower payments to their accounts; steering borrowers to pay more than they had to; and deceiving co-signers about the terms of their loans. Navient denies those allegations.
Regardless of that lawsuit’s outcome, it’s impossible to deny there is a crisis surrounding the way former students repay their loans.
“There’s been almost no oversight of the student loan industry,” Illinois Attorney General Lisa Madigan said to me earlier this year. “But it resembles the mortgage foreclosure crisis. There are many of the same problems, like poor customer service, lost paperwork.”
Yet the current Department of Education keeps chipping away at protections enacted by the previous administration. In April, the Department rescinded a series of new rules designed to provide consumer protection.
Madigan tried to pass a state-level Student Borrower’s Bill of Rights in Illinois, but last week, that state’s Republican governor vetoed a measure that was passed by the state legislature.
Both the Department of Education and the Illinois governor cited “confusion” as the reason for blunting efforts designed to help borrowers. There should be no confusion, however, about who these decisions are designed to benefit, and who they will harm — servicers with terrible track records are more than happy to revert to the good old days when they had to answer to no one.
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