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Brief #26—Education

Policy Summary
Seth Frotman, Consumer Financial Protection Bureau (CFPB)’s Assistant Director and Student Loan Ombudsman, has resigned after sweeping changes were made in recent months by the Bureau’s new leadership headed by CFPB Director, Mick Mulvaney. Frotman addressed his resignation letter to Mulvaney, who was appointed by President Trump over deputy director Leandra English, stating that the Bureau abandoned the very consumers it was responsible for protecting by: (1) Undercutting enforcement of the law, (2) Undermining the Bureau’s independence, and (3) Shielding bad actors from scrutiny. He accused the Bureau of failing to enforce laws that protect borrowers and suppressing reports illustrating that the largest banks were ripping off students and saddling them with legally dubious account fees. Frotman further stated that the Bureau repeatedly undermined and censored career staff members who were taking action to secure relief for consumers, undercutting the organization’s own independent authority to oversee the market and bending to political pressure instead. According to Frotman, it was clear that the new political appointees had the primary goal of protecting the Trump administration’s investment in special interests and serving “the wishes of the most powerful financial companies in America” at the expense of student borrowers. Frotman’s deputy, Michael Pierce, also resigned on Monday. LEARN MORE

Last year, Navient (the nation’s largest student loan servicer) was involved in lawsuits filed by a federal regulator and two state attorneys general. According to the complaint, Navient has misled and misinformed its 12 million borrowers for years, charging students dubious fees and illegally cheating borrowers out of their rights to lower payments in order to drive up debt. There were routine oversight lapses adding up to systematic failures, similar to the mortgage servicing industry’s bungling of borrower accounts and property foreclosures during the 2008 recession. LEARN MORE

Mulvaney’s personal relationship with Navient remains dubious at best. Earlier this year, Mulvaney announced that Frotman’s office would be dismantled and folded into the financial education unit. The student loan office was created after the 2008 financial crisis and has reimbursed borrowers who suffered from illegal lending practices and servicing failures with $750 million. CFPB was also ending an effort to consider new rules for companies that collect student loan payments. Additionally, the Education Department further cut off information-sharing agreements with CFPB, accusing it of overstepping its authority of overseeing student loans.

Analysis

Today, 42 million student borrowers collectively owe $1.5 trillion dollars. Frotman’s resignation draws enormous attention to the sweeping changes in the Department of Education under the Trump administration. In Paying the Price, education scholar and professor Sara Goldrick-Rab describes the crisis facing millions of students as the “new economics of college.” Although a college degree has now become mandatory in order to access the middle class and to rise out of poverty, Goldrick-Rab points out how the U.S. has repeatedly failed to create a realistic financing system for students to obtain their degrees. In many cases, students straddle the medium where their family income is too high to qualify for federal student loans but too low to pay for the full costs of college tuition, forcing these students to take out private loans with high interest rates from banks instead. Just as the nation values a high school education for everyone, college education should be thought of as a collective responsibility in an increasingly educated workforce.

For-profit industries operate as voucher-driven models, allowing private providers to exploit students with less scrutiny and no public governance. Such providers often recruit students through mass marketing and the media; yet, rarely provide a quality education for students, most of whom lack equitable access to forms of payment other than loans and who are often low-income and/or students of color. Repaying loans is challenging enough without powerful financial servicers adding to the burden with their own incompetence and knowingly insidious practices. Furthermore, unlike other products, student loans are not typically underwritten based on the borrower’s ability to repay at loan origination. Because repayment is based on a quality education which leads to employment, there should be a process to ensure that for-profit programs are of sufficient quality that they do not burden students with enormous debt that cannot be repaid.

In a thorough 2018 study by Goldrick-Rab titled Still Hungry and Homeless in College, data revealed that 1 in 3 students at four year colleges and 40-50% of students at community colleges have gone hungry while enrolled at college. In the wealthiest country in the world, it is outrageous and nonsensical that our students are being forced to choose between receiving an education and their basic sustenance.

Resources

  • Center for Responsible Lending – A nonprofit, non-partisan organization that works to protect homeownership and family wealth by fighting predatory lending practices.
  • Young Invincibles – Research and advocacy organization focused on advancing economic opportunity for young adults
  • Chronicle of Higher Education – Leading source of news, information, and jobs for college and university faculty members and administrators.
  • Inside Higher Ed – Leading digital media company serving the higher education space.

This Brief was developed by USRESIST NEWS Analyst Tina Lee. Contact: Tina@usresistnews.org

Photo by Andre Hunter

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