Center for Responsible Lending
This year’s swearing in of a new Congress and president signaled a surge of new ideas and approaches to government. However, no elected or appointed official should ever depart from or diminish the primary role of government: service to the American people. Ours was, is and must remain a democracy that affords every citizen the opportunity to become a productive and contributing member of society.
Yet in recent weeks, the Department of Education has taken a series of specific actions that depart from our creed and duty. By disregarding the needs of 40 million debt-laden student loan borrowers who collectively owe more than $1.2 trillion, it seems one of the Education Department’s top priorities is to respond to concerns of student loan servicers hired and paid with taxpayer dollars.
Where is a DeVos plan to address these still-growing concerns? With more philanthropic than administrative expertise, hearing from student borrowers, higher education officials and consumer advocates would provide insightful benefits to the new Education Secretary.
In 2016, the Consumer Financial Protection Bureau received 12,300 student loan complaints. Of these, the vast majority – 67 percent – concerned either their lender or their servicer. Another 30 percent of student loan complaints focused on fees, billing, credit reporting, defaults and fraud.
“More frequently than other issues, non-federal and federal student loan borrowers expressed their concerns relating to trouble with how payments are handled,” the CFPB stated in a report. “Borrowers complained of misapplied payments and inaccurate accounting of payments. Some borrowers complained of misapplication of payments and reported that payments were not applied to specific accounts, but rather applied to all accounts managed by the servicer.”
Ironically, servicer complaints made many mortgage borrowers frustrated too, especially during the housing crisis. Whatever the loan financed, borrowers were pleading with servicers to act responsively and fairly.
Despite minimal standards of accountability, on April 4, the National Council of Higher Education Resources, the organization that represents student loan servicers, wrote the Chairs and Ranking Members of the House Appropriations Committee and its Education subcommittee. In part, the letter wrote, “the amount that is paid to servicers is not sufficient to cover the currently requested services or the expected services that borrowers need to begin paying their student loans.”
In everyday language, that concern sounds a lot like, “You don’t pay me enough to do this job.”
Add to that interpretation the Trump administration’s proposed $6 billion budget cut to the Department of Education, and more money for servicers doesn’t seem likely anytime soon. Further, negotiations for new servicing contracts are expected to start this year. The NCHER letter could be interpreted as an unofficial start to those negotiations.
Just one week after NCHER wrote federal lawmakers, Education Secretary Betsy DeVos wrote James W. Runcie, the chief operating officer for Federal Student Aid, rolling back important guidance on student loan servicing. The now retracted guidance protected borrowers in three key ways:
Providing borrowers access to accurate information and consistent service.
Regular audits of both records and complaints to be used in compliance reviews.
Connecting servicer compensation to measurable actions such as payment processing time, length of response time to inquiries and errors.
By reversing steps designed to assist student loan borrowers and safeguard taxpayer investment, servicers will also have less accountability. Before the Education Department turns away from fair treatment of enforcement and loan regulation, officials should know that research and data have consistently illustrated broad borrower mistreatment at the hands of servicers. Should the Department fail to monitor itself, borrowers can still seek enforcement and protection from state officials and the CFPB. Both entities have demonstrated an interest and willingness to act on behalf of consumers, even if the Department of Education will not.
CFPB is the consumer’s federal cop-on-the-beat. But it too is facing challenges as President Trump has publicly vowed a regulatory rollback in general and a haircut specifically for the CFPB. As some have maintained in public policy debates, regulation has gotten in the way of private enterprise.
No one should dismiss or forget that the private sector has always been guided and motivated by profitability. In state capitols across the country and on Capitol Hill, private interests bankroll lobbyists to cut their taxes, reduce regulation, and appoint officials who will support policies that increase their respective bottom lines. For example, Robert Eitel, senior counselor to Secretary DeVos, previously served as an attorney for Bridgepoint Education, Inc., that operates multiple for-profit colleges.
By contrast, the public sector – i.e., government – should be guided by the duties and obligations of public service. School children have been taught for decades that government is “for, by, and of the people.” That pledge should include consumer protection and fiscal accountability. The American people should never be denied or shortchanged for the sake of private entities looking for more lucrative contracts.
It’s a lesson that the Education Secretary needs to learn.
Charlene Crowell is the Deputy Communications Director for the Center for Responsible Lending. She can be reached at email@example.com.