Center for Responsible Lending
A recent letter from the U.S. Department of Education to the Consumer Financial Protection Bureau, along with a controversial appointment, have together triggered reactions that do not bode well for the 44 million consumers who together share $1.4 trillion in borrowed student debt. Debt levels in 2017 are more than double what they were in 2008.
On Aug. 31, two DOE officials, Kathleen Smith, the Department’s acting assistant secretary of Postsecondary Education, and Dr. A. Wayne Johnson, chief operating officer, gave Richard Cordray, CFPB director, a 30-day notice that it was ending two agreements that formalized how the two agencies worked collaboratively on federal student loans. In policy wonk language, a “Memorandum of Understanding” sets forth cooperative and collaborative working relationships.
Two MOUs provided the formal framework for Education and CFPB and dated back to October 2011 and January 2014. The first MOU detailed how DOE would share information with CFPB. The second detailed how the two agencies would cooperate on supervisory oversight, the process that has led to multiple million-dollar settlements for fraud and other legal violations.
With the MOUs in place, bad actors, including both for-profit colleges and loan servicers, have been found to violate federal laws, particularly in deceiving consumers. For example, Corinthian Colleges, ITT Tech, DeVry University and Navient, the nation’s largest student loan servicer, have all faced enforcement actions, with student loan borrowers receiving restitution and/or debt forgiveness for those actions resolved to date.
Even for CFPB, the Education letter was a surprise.
“We have not previously heard any concerns as we have worked together to make sure that all student loan borrowers are treated fairly, with respect and dignity,” said David Mayorga, a CFPB spokesman, in a statement. “The Consumer Bureau has statutory responsibilities to protect student loan borrowers – like all consumers – from practices that violate the laws we enforce and would like to continue to work with the Education Department toward our shared goals.”
Reactions from consumer advocates posed questions as to why DOE would cut its ties to CFPB.
“Secretary DeVos’ decision to sever this important partnership is part of a pattern of decisions that ignores the interests of struggling students and moves the Department of Education further away from improving federal higher education loan programs and servicing,” said Whitney Barkley-Denney, a policy counsel with the Center for Responsible Lending who specializes in student loans. “It also deliberately undermines the CFPB from fulfilling its mission of protecting consumers.”
“Education is now trying to stop the CFPB from handling loan-related complaints, but Education’s failures are what led Congress to give the CFPB authority to help students,” said Persus Yu, director of the National Consumer Law Center’s Student Loan Borrower Project, in a related article published by The Consumerist. “DeVos is prioritizing the interests of predatory for-profit schools, debt collectors, and troubled student loan services over the interests of student loan borrowers.”
Yu may be on to something. Despite broad consumer support for CFPB and its $11.9 billion in consumer victories, Education officials described CFPB in its letter as “an overreaching and unaccountable agency”. The letter’s last paragraph provides perhaps the real concern that DOE has.
“The Department takes exception to the CFPB unilaterally expanding its oversight role to include the Department’s contracted federal loan servicers.”
Loan servicing is big business in higher education. Each year, federal tax dollars support more than $130 billion via loans and grants. Every year, new indebtedness is added to today’s $1.4 trillion outstanding student loan amounts. Even in today’s economy, we’re talking about a lot of money that needs to be collected.
Only a few weeks ago, Secretary Betsy DeVos was forced to abandon an ill-advised plan to award a single corporation responsibility for servicing all federal student loans.
Opposition to the single-servicer proposal took issue with the federal government singling out a one vendor for an exclusive, multi-billion dollar contract.
Now a recent high-level staff appointment has raised serious concerns from several U.S. Senators. Just before the Labor Day holiday, DOE announced the appointment of Dr. Julian Schmoke Jr. as its new chief enforcement officer in the agency’s Student Aid unit. In this role, Dr. Schmoke is charged to enforce laws and regulations affecting federal student aid.
He arrives at DOE as a former academic dean at DeVry University during the time when the institution paid $100 million to settle a federal lawsuit that charged false advertising and deception.
Five U.S. senators in a Sept. 5 letter question Dr. Schmoke’s ability to effectively function in his new role. Currently, DOE has 1,872 pending claims involving DeVry students. Senators Sherrod Brown of Ohio, Richard Blumenthal of Connecticut, Dick Durbin of Illinois, Elizabeth Warren of Massachusetts and Sheldon Whitehouse of Rhode Island were the signatories.
In part, the letter states, “Based on what is publicly available about your background, we have serious concerns about your seeming lack of experience in consumer protection, litigation, and the management of investigations and attorneys. These qualifications and skills are essential to executing the critical responsibilities of this role.”
Additionally, the senators pose a list of questions that seek details on his prior experience, whether he will recuse himself on matters involving DeVry and whether he holds any financial interests in for-profit higher education. The letter sets Sept. 26 as the requested deadline for written replies.
In less than a year, DOE has managed to stir a cauldron of questions from lawmakers, educators and consumers that will continue to brew until they’re answered fully. Thankfully, while DOE sorts through its actions, state engagement in consumer concerns remains a viable alternative.
“As the federal government continues to prioritize private interests,” Barkley-Denney said, “State actors are and should continue to be an important line of defense for defrauded students. States can address deception by licensing student servicers within their states, which can help in prohibiting misrepresentations, payment misapplications, and false credit reports.”
“Based on her track record and the Trump Administration’s lack of compassion toward students,” Barkley-Denney continued, “we are doubtful that this Department, under Secretary DeVos’ leadership, will produce results that defend borrowers and taxpayers from predatory institutions and services.”
Charlene Crowell is the deputy communications director with the Center for Responsible Lending. She can be reached at firstname.lastname@example.org.