A new lawsuit may be the only way student loan borrowers get any relief.
Nearly three years into her tenure as education secretary, Betsy DeVos is still utterly disinterested in overseeing student loan repayment, a core function of her agency — so a nonprofit student advocacy group is taking the fight to the Consumer Financial Protection Bureau instead.
Student Debt Crisis, a student loan reform group, filed a lawsuit against both the CFPB and the Department of Education late last month. It brought the CFPB into the lawsuit because it alleges the bureau has ignored its responsibility to police the companies that manage student loans.
Oversight of CFPB, the lawsuit points out, is required by law under the Dodd-Frank Wall Street Reform and Consumer Protection Act. But much like the Department of Education, CFPB doesn't seem to care.
Under DeVos, student loan servicers — the private companies that oversee loan repayment — have routinely failed to comply with the requirements for servicing federal loans. That was the conclusion of the Education Department's Office of the Inspector General.
The inspector general found that those private companies had suffered no real consequences for that failure to comply, stating "borrowers might not have been protected from poor services, and taxpayers might not have been protected from improper payments."
And that's just for the overall loan program. Things are far worse when it comes to the deeply troubled Public Service Loan Forgiveness Program. That's the program that was set up to allow people to choose a public service career, which often pays far less than comparable private sector work.
Under the program, if students make 120 on-time payments, their loans are supposed to be forgiven.
Except that under DeVos, that almost never happens. The department has denied 99% of all loan forgiveness applications. As the Student Debt Crisis lawsuit points out, it's just another example of systemic mismanagement by the Department of Education.
The department appears so unbothered by its duties to protect student loan borrowers that it just admitted in a court filing that over 45,000 students were forced to repay loans by mistake and in violation of a court order. Those were students who had been defrauded by the for-profit Corinthian Colleges. Under President Obama, the department gave full debt forgiveness to those students, but DeVos reversed that.
In theory, bringing CFPB into the lawsuit should help, given that the bureau is required to oversee the companies that service federal loans. But when Trump took office, it quietly decided it wouldn't supervise any loan servicers dealing with loans held by the federal government.
Of course, over 80% of student loans are held by the federal government, so that neatly absolves the CFPB of oversight of the vast majority of student loans and student loan servicers. This refusal to engage in meaningful oversight is the hallmark of the bureau in the Trump era.
This administration's distaste for protecting consumers was made painfully obvious when Trump appointed Mick Mulvaney, currently his acting chief of staff, to lead the agency. Prior to taking its reins, Mulvaney had been quoted as saying, "I don't like the fact the CFPB exists." Mulvaney was happy to encourage banks who defrauded consumers, settling cases for fines as low as zero dollars. In 2018, Mulvaney even bragged about rolling back enforcement on student loans.
The bureau has also reneged on protecting members of the military and low-income people from predatory payday lenders. Those same payday lenders notably donated thousands to Mulvaney while he served in the House and spent $1 million at Trump's Doral resort.
There's also a turf war raging, though the only losers are people with student loans. DeVos has blocked CFPB from getting information that would help it perform supervisory functions. The Department of Education says that the CFPB has "ceded its supervision of the servicing of federally held student loans" to the department — which isn't doing anything to oversee servicers or to grant loan forgiveness.
The lawsuit seeks to break this logjam by asking the court to declare that the CFPB has the authority — and the duty — to oversee all loan servicers and ensure that borrowers aren’t being harmed or ripped off. There's no request for damages. The plaintiffs are just trying to get some agency to actually oversee student loans at a time when loan servicers are engaging in rampant bad behavior. The inspector general report found, for example, that servicers aren't consistently informing borrowers about ways they can avoid defaulting on student loans. Servicers also aren't accurately calculating certain types of income-based repayment plans.
At root, what this lawsuit is really about is the Trump administration's comprehensive failure to help people — particularly low-income people. Under Trump, we see a government that will always take the side of large corporations. We also see a government that in no way values those people who choose to be public servants, a view that informs the near-universal refusal to grant loan forgiveness.
Absent a favorable ruling from the court, both the department and the bureau will continue to ignore consumers and reward companies.
Published with permission of The American Independent Foundation.