Betsy DeVos Refuses To Work With Consumer Protection Agency On Student Loans

The Department of Education will no longer work with the federal Consumer Financial Protection Bureau to root out bad players in the student loan servicing arena. That’s according to Education Secretary Betsy DeVos, who recently notified the CFPB that her department is ending years of formal cooperation combating student loan fraud. In the notice [PDF] sent late last week to CFPB Director Richard Cordray, DeVos accuses the Bureau of not living up to its end of agreements established in 2011 and 2013, by doing too much to hold loan servicers accountable.

The Secretary claims the Bureau overstepped its authority by taking enforcement actions against student loan servicers and collectors, rather than simply passing those matters on to the Education Dept. to handle.

Ending The Relationship

The memorandums established a working relationship between the CFPB and the Dept. of Education and created a pathway in which the agencies shared information related to oversight of federal loans.

According to the memorandums, the two agencies are to “collaborate to ensure coordination in providing assistance to and seeing borrowers seeking to resolve complaints” related to their student loans.

The notice accuses the CFPB of failing to abide by its agreement to provide the Department with all complaints related to federal student loans within 10 days of receiving the grievance.

According to DeVos, the CFBP — which is by definition an agency of the United States government responsible for consumer protection in the financial sector, including student loans — handled the complaints itself.

This, DeVos claims, confuses borrowers, as the Dept. of Education is supposed to work with “federal student loan borrowers to ensure that their issues are addressed within the rules applicable to its program.”

The memorandum suggests that the Department is more interested in upholding its relationship with servicers than protecting borrowers who have been wronged.

DeVos claims that the CFPB’s actions against student loan servicers undermines the Department’s mission to serve students and borrowers.

DeVos suggests that actions taken by the CFPB to rein in shoddy student loan servicers and collectors only confuses borrowers.

“The Department takes exception to the CFPB unilaterally expanding its oversight role to include the Department’s contracted federal student loan servicers,” DeVos wrote. “The Department has full oversight responsibility for federal student loans.”

However, the Department’s ability to root out fraud was thrown into question last week, when the agency appointed former for-profit college executive Julian Schmoke to run the Department’s enforcement division.

While Schmoke currently works as a high-ranking director at a community college in Georgia, he spent several years working for DeVry University, a college that has been repeatedly accused of fraud by both federal and state authorities.

A Disservice

Consumer advocates called the Department’s latest move an “outrageous and deeply troubling” attempt to block the CFPB’s efforts to protect student loan borrowers.

“The claim that the CFPB ‘unilaterally’ expanded its oversight role over servicers and collectors of federal student loans is unfounded,” Persus Yu, director of the National Consumer Law Center’s Student Loan Borrower Project, said in a statement.

Yu notes that the CFPB is just doing its job, adding that Congress gave the agency authority over those servicers and collectors.

“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,” Yu said. “DeVos is prioritizing the interests of predatory for-profit schools, debt collectors, and troubled student loan services over the interests of student loan borrowers.”

More Complaints Than Ever Before

The notice to end its relationship between the agencies comes just months after the CFPB released a report that found student loan servicing complaints had increased in every state.

According to the report, the Bureau received 3,284 complaints during the first three months of 2017, a 325% increase over the 773 complaints received during same time period only a year earlier.

Those increases aren’t exactly surprising considering the CFPB’s March snapshot showed a 429% increase in complaints related to student loan servicing.

As of April 1, the Bureau says it has handled approximately 44,400 student loan complaints from consumers since it opened this complaint portal in Feb. 2016.

The CFPB notes that the surge in complaints is likely tied not only to an increased awareness of student loan servicing issues, but the fact that the Bureau updated its intake form on accepting complaints in Feb. 2016.

The Bureau noted that many of these complaints came after it took “major enforcement action” against a student loan servicer: Navient. In January, Navient, which is in the running for the new Dept. of Education contract, was sued by the CFPB and two states claiming the company cheated borrowers out of repayment rights.

The company responded to the complaint two months later, noting in a filing to dismiss the lawsuit that it was under no obligation to help student loan borrowers.

“There is no expectation that the servicer will act in the interest of the consumers,” Navient said in the March 24 filing, adding that courts routinely agree that servicers and lenders “do not owe borrowers any specific fiduciary duties based upon their servicer/borrower relationship.”

Just Another Harmful Decision

Since taking on the role of Secretary of Education, DeVos has taken several steps to roll back consumer protections related to federal student loans.

In April, DeVos rescinded a number of student loan servicing protections put in place by the previous administration intended to make the student loan repayment process more accurate and transparent.

In a memo sent to the Federal Student Aid office, DeVos withdrew two pieces of guidance from 2016 that required Federal Student Aid office to consider servicers’ past behavior when awarding contracts, including whether the company had misled or provided wrong information to borrowers or engaged in abusive consumer service.

Speaking of contracts between the Dept. of Equation and student loan servicers, DeVos announced in May the intention to put all federal student loan servicing under the control of just one company starting in 2019.

There are currently nine student loan servicers handling these accounts for the federal government.

To make matters worse, Navient is one of three in consideration to become the only student loan servicer contracting with the Department of Education.

The other two companies in contention for the contract are GreatNet and the Pennsylvania Higher Education Assistance Agency (PHEAA).

Whichever company ultimately receives the contract will be required to build a platform to collect on and service an estimated 32 million federal direct student loans.

DeVos claimed that the changes were necessary in order to provide superior customer service and protections to borrowers.


by Ashlee Kieler via Consumerist

Post a Comment

Previous Post Next Post