The U.S. Department of Education Will No Longer Work with the Consumer Financial Protection Bureau to Protect Consumers Against Student Loan Fraud

The Consumer Financial Protection Bureau (CFPB) was created after the 2008 financial crisis to “protect consumers from unfair, deceptive, or abusive practices and take action against companies that break the law.”   Since 2011, the CFPB has been working hard to protect student loan borrowers from deceptive practices by loan servicers and debt collectors.  The National Consumer Law Center (NCLC) says, “the CFPB has stood up for students and demonstrated the urgent need for an independent watch dog over student loan servicers and collectors,” fighting “to ensure that struggling borrowers can access the repayment programs they are entitled to.”

Last week Secretary of Education Betsy DeVos ended the Dept. of Education’s agreements with the CFPB to protect student loan borrowers claiming that the CFPB agency overreached its role by addressing Title IV student loan (recipients of specific federal student aid programs) complaints and not handing over those complaints to the Dept. of Education within 10 days.  This decision came without any warning to the CFPB.  Furthermore, CFPB spokesperson David Mayorga said the Dept. of Education had not expressed concerns before ending their agreements with the CFPB.

So let’s dig a little deeper here.  In January, the CFPB sued Navient over allegations that it has “systematically and illegally” failed borrowers.  

As reported by  American Banker:

CFPB and several state attorneys general have alleged that Navient’s practices steered struggling borrowers toward paying more than necessary on their loans, obscured information necessary for borrowers to maintain lower payments, misled borrowers regarding requirements to release co-signers and improperly processed payments. Just like in the subprime mortgage servicer actions, at issue is whether there has been a failure to advise borrowers of modification options, as well as improper practices related to modification programs. This time, there are potentially devastating effects on student loan borrowers and their families.

Ironically, the Department of Education is one of Navient’s biggest clients in collecting federal student loan debt.  Among the chief complaints from the CFPB is that Navient systematically steered borrowers into more easily executable over-the-phone forbearance plans (meaning pushing back payment due dates), rather than working to enroll borrowers in the more time-consuming (costly for Navient) income-based repayment plans that require more paperwork.  The later, of course, would set up borrowers to successfully pay back their student loans on time based on their income.   According to an article on Bloomberg News as much as $4 billion in additional interest charges were added to principal balances of loans repeatedly placed in forbearance.

Congress gave the CFPB the role of protecting consumers and addressing loan related complaints and now the Dept. of Education (again – one of Navient’s biggest clients) is taking away that authority. News of the Dept. Of Education’s break with the CFPB came days after former for-profit DeVry University official Julian Schmoke, Jr. was hired to lead the unit of the Department of Education that polices fraud.  According to the FTC in December “DeVry University and its parent company have agreed to a $100 million settlement of a Federal Trade Commission lawsuit alleging that they misled prospective students with ads that touted high employment success rates and income levels upon graduation.” 

Dismantling the protections that the CFPB offers to student loan borrowers is really bad news for consumers.  This comes after news last Spring that the Department of Education revoked former guidelines to give student loan borrowers in default to guarantee agencies (companies that issue government-backed student loans) a chance to rehabilitate their loans without being charged outrageous collection fees.  Student loan borrowers already under duress need more protection from predatory practices by debt collectors, not less. 


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