Bad Service For Student Loans? | Regulatory review
A recent lawsuit highlights tensions between two federal agencies overseeing the management of student loans.
Americans may soon see a drastic change in the way their student loans are repaid.
Student debt crisis (SDC), a non-profit organization focused on advocacy and educational programs for student borrowers, recently filed an application trial in federal court against the Consumer Financial Protection Bureau (CFPB) and the US Department of Education claiming that these agencies have “exacerbated” a student loan crisis, trapping valuable initiatives such as the popular Public service loan forgiveness program (PSLF).
To deal with the country’s growing student debt, Congress in 2007 created PSLF, which offers a federal student loan exemption to borrowers who make payments over 10 years of public service. Several private loan managers manage the Department of Education’s more than $ 1,000 billion federal student loan portfolio, which includes PSLF applicants. The largest of these services, the Pennsylvania Higher Education Aid Agency (PHEAA), operates under the name FedLoan Service. The Department of Education made FedLoan the primary service provider for borrowers working for the PSLF, hence PHEAA, a private company, made over $ 201 million of its management of departmental loans for the fiscal year ending June 2019.
However, the CFPB has received over 3,000 complaints related to the PHEAA between September 2017 and August 2019 due to its handling of student loans.
Some borrowers reported having difficulty convincing their agents to correct inaccurate records of their qualified payment histories, while others said call centers given misleading advice in choosing PSLF compliant repayment plans. In response, Congress authorized a temporary PSLF (TEPSLF) expansion of $ 700 million for borrowers who had made good faith attempts to meet PSLF demands.
The expansion of congressional funding brought even more problems. It turns out that the Ministry of Education wanted to TEPSLF applicants must first apply for and be denied PSLF relief. In effect, borrowers had to apply for a program that they knew they didn’t qualify, a confusing requirement that turned out to be responsible for 71% of TEPSLF refusals.
In June 2019, less than 1% of PSLF candidates had their canceled loans, and only 4 percent of TEPSLF applicants successfully reconfigured their loans. In September, the Ministry of Education would have spent only about $ 27 million of the $ 700 million allocated by Congress. According to the SDC, these figures to prove serious mismanagement of federal student loans.
SDC alleged that the Ministry of Education has turned a blind eye to complaints from borrowers. The non-profit group argues that his assertions are supported by the conclusions of the US Department of the Treasury, the U.S. Government Accountability Office, and even the Ministry of Education Office of the Inspector General. The Inspector General concluded in March of last year that the ministry “rarely holds officers accountable for mismanagement of loans.” In addition, the SDC complaints that Congress authorized the CFPB to oversee federal student loan services like the PSLF, and that the CFPB’s refusal to do so violates the Administrative Procedure Law (APA).
The Wall Street Reform and Consumer Protection Act Dodd-Frank, a law passed in the aftermath of the 2008 financial crisis, created the CFPB and allowed the agency’s supervisory authority over the “largest participants” in the market for certain consumer financial services. In 2013, the CFPB issued a supervision of the student loans service to reign this specified its supervisory powers over the major student loan managers, which SDC argues includes entities like PHEAA because its federally held loans are made in accordance with Title IV of the Law on Higher Education of 1965. Together, Dodd-Frank and the 2013 CFPB Rule establish a non-discretionary mandate to regulate public student loans, complaints SDC.
In 2018, former CFPB director Mick Mulvaney announcement a new guardianship to reign stating that the CFPB has supervisory power over student loans held by private creditors, but not over student loans held by the federal government, a notable policy change from the Obama administration.
The 2018 rule is a “significant departure” from the old CFPB rule, SDC argues. As a result, DDC claims that the CFPB should have undertaken a full period of notice and comment during which stakeholders could have expressed their concerns about the policy change. DDC further alleged that the CFPB failed to identify the main policy issues driving the change, stating that the 2018 rule “lacks any explanation of its basis and purpose” and therefore violates the “arbitrary and capricious” clause of the ‘APA.
SDC argues that the federal government still has other problems related to the oversight of loan officers. In accordance In accordance with the Dodd-Frank Act, two memoranda of understanding established cooperation in supervision and control between the CFPB and the Ministry of Education. The MOUs stipulated that complaints about private education loans would initially be directed to the CFPB, while complaints about federal loans would be referred to the Ministry. Agencies could then exchange non-public information to resolve complaints, an exchange that the CFPB relied on to monitor programs like the PSLF, States SDC.
But the Ministry of Education has unilaterally canceled memoranda of understanding in 2017, citing the allegedly inappropriate expansion of its oversight power by the CFPB during Obama’s time by failing to lead complaints for federally-held loans to the department. Current Director of CFPB Kathleen kraninger initially attributed the lack of a replacement memorandum of understanding to the absence of a director of the agency’s student loans office to coordinate with the education ministry. But former PHEAA executive Robert Cameron has since completed this office, yet no new memorandum of understanding has been adopted. CFPB recognize that the Dodd-Frank Act requires a memorandum of understanding on information sharing, and suggests that the Ministry of Education is now blocking this effort.
Consequently, the SDC demand in court to overturn the 2018 rule, restore CFPB’s oversight authority over federally held student loans, and demand a Dodd-Frank-compliant memorandum of understanding between CFPB and the Department of ‘Education.
The tribunal will need to weigh complex issues of agency independence and assess the legitimacy of the Obama-era CFPB.handshake agreement»Granting him primary oversight of public loan officers. The Ministry’s steadfast refusal to cooperate with the CFPB on matters not directly related to large loan managers of federally owned funds, in light of the CFPB’s general agreement that it cannot oversee these managers, adds a layer of complexity to the case.
Dueling narratives over statutory authority will enliven potential oral arguments. Can an agency’s ambiguous oversight power be removed or interpreted? If so, who has the authority to do it: the courts or Congress?
If this case progresses, its outcome could be monumental for students and regulators.