President Trump’s Education Department is Helping some of the Nation’s Largest Student Loan Companies as they seek to Fend Off Allegations of Cheating and Misleading Borrowers. The Department, led by Secretary Betsy DeVos, has thrown Roadblocks in front of State Law Enforcement Officials and Federal Regulators who are pursuing Legal Action against the Companies, which include Student Loan giant Navient and FedLoan Servicing.
The Interference with State Investigations comes as Consumer Advocates and Democrats blast the Trump Administration for Dismantling a broad range of Protections for Students who take out Federal Loans to attend College. The Education Department has even faced criticism from within the Trump Administration over its Oversight of the Student Loan Companies, which manage the Monthly Payments of more than 33 Million Americans and are supposed to help them Navigate a Complex web of Federal Repayment Plans.
The move to Block State Investigations of those Companies is the latest Reversal of an Obama-era Policy that Advocates say Advances the Interests of Businesses over those of Student Borrowers. “It looks like the administration is simply shielding these companies from liability,” said Persis Yu, who Directs the Student Loan Borrower Assistance Project at the National Consumer Law Center. “The boost to big business can’t be understated here. The administration is doing exactly what the industry is asking of them.”
Back in February, DeVos declared that States lack the Authority to go after Companies that Collect Federal Student Loans, infuriating even some Republican Attorneys General. But her latest Actions go much further, Actively cutting off Key Information and Data to State Attorneys General Suing the Industry on behalf of Millions of Student Borrowers.
Navient, one of the Largest Loan Servicers, is Defending itself against Six Separate Lawsuits brought by State Attorneys General in California, Illinois, Mississippi, Pennsylvania, and Washington, as well as The Consumer Financial Protection Bureau (CFPB). The Company is Accused of Overcharging Borrowers and steering them into more Expensive Repayment Plans, Allegations that it Denies.
But the Trump Administration has instructed Navient and other Companies that Collect Federal Loans to Refuse Demands for Information by State Attorneys General and others, a Policy described in a Memo. More recently, the Education Department has also Denied Direct Requests for Information from Attorneys General and the CFPB.
Education Department Officials cite Federal Privacy Laws as a reason they’re Blocking Access to Student Loan Records to State and other Federal Officials, a rationale Rejected last Month by a Federal Judge hearing the CFPB’s Lawsuit against Navient.
The Court ruled the Company “cannot assert that the records may ultimately belong to the Department of Education or use the Privacy Act to shield the requested borrower documents” from the CFPB’s Discovery Requests.
In the other Cases, Judges have yet to Rule on whether the Companies will be Forced to Turn Over Records to State Law Enforcement Officials over Education Department Objections. The Companies argue they’re caught in a Bureaucratic Dispute between the Trump Administration and the States.
Education Department Spokeswoman, Liz Hill, said the Agency is “working to ensure the proper administration of a federal program, and protect student privacy, not throw up road blocks or protect any individual student loan servicer.” She said the Agency has Pushed Back against State Attorneys General because they “are trying to regulate a federal program and simply don’t have the authority to do so.”
Separately, she said, the Department has Blocked the CFPB Data Demands because they are Intrusive and Jeopardize Student Privacy. “The CFPB has consistently sought access to millions of students records,” Hill said. “We believe they could achieve their same goals in much less intrusive ways that would put student privacy at much less risk.”
Consumer Advocates contend that cutting Off Information to States is part of a Broader Rollback of Oversight of Student Loan Companies during the Trump Administration. “It has a troubling patina of lawlessness about it,” said Chris Peterson, a University of Utah Law Professor and Director of Financial Services at Consumer Federation of America.
“There’s usually a very robust ethic of cooperation between different levels of law enforcement,” Peterson said. “And here the people who are supposed to be making sure that our students are treated fairly seem to be preventing law enforcement from doing their jobs.”
The Top CFPB Official overseeing student loans, Seth Frotman, Resigned last Month in Protest of Policies that he said were Harming Borrowers. He said that the Bureau had “abandoned its duty to fairly and robustly enforce the law.” Frotman also said that the Education Department had “unilaterally shut the door to routine CFPB oversight of the largest student loan companies.” Department Officials last year Canceled an Information-Sharing Agreement with the CFPB, arguing that the Bureau had Overstepped its Authority.
Much of the Focus by State Officials and the CFPB on Companies that Collect Federal Student Loans has been driven by Concerns, dating back to the Obama Administration, that the Education Department is Falling Down on the Job of Policing the Industry. Now, even within the Trump Administration, there appears to be Debate over whether the Department is appropriately Overseeing the Nine Companies it Hires to Collect Monthly Payments from the Americans who owe Federal Student Loans.
DeVos told Congress in March that Student Loan Servicers face “appropriate federal oversight” by her Agency. But a July Report submitted to the White House by Treasury Secretary Steven Mnuchin Criticized the Education Department’s Oversight of the Companies. It cited a Range of Loan Servicing Failures and Inconsistent Practices that have caused “financial harm” to Borrowers in some Cases.
Those Concerns were also Reinforced by a GAO Report last month that Department Officials had carried out only Two of Six Recommendations meant to Addresses Weaknesses in how the Agency Monitored and Evaluated the Student Loan Servicers. Hill Rebutted those Criticisms, saying, “We exercise robust oversight of our servicers, who are under contract to us to perform at a high level.”
In addition to the Challenges to Navient, the Education Department has been Denying Access to Information about another Loan Servicer, FedLoan Servicing, which is being Sued for Deceptive Practices by Massachusetts Attorney General Maura Healey. Earlier this year, Trump’s Justice Department argued that Massachusetts didn’t have the Authority to go after a Company Collecting Loans on Behalf of the Federal Government. A Massachusetts Judge largely Rejected that Argument, allowing the Case to Proceed.
But the Education Department has now told the Loan Servicer, which is Operated by the Pennsylvania Higher Education Assistance Agency, that it’s Prohibited from Turning over Information demanded by Massachusetts as part of the Lawsuit. “The U.S. Department of Education is actively undermining my office’s efforts to hold shoddy loan servicers accountable,” Healey said. “Secretary DeVos should be helping students pursue an education, not stonewalling critical state investigations.”
In Connecticut last year, State Financial Regulators also asked FedLoan Servicing to turn over Records as part of a Routine Review of the Servicer’s License to Operate in the State. The Education Department Denied Connecticut Officials’ Requests. Department Attorneys cited Privacy Laws and said that, in any event, they believed Connecticut lacked the Power to Regulate the Company. The Company is now Suing both Connecticut Regulators and the Education Department over the Issue, saying it has been put in the Middle of a Dispute between the State and Federal Officials.
California, which is one of the Largest States that more tightly Regulates Student Loan Servicers, faces similar Challenges. Nelnet, a Loan Servicing Company, this summer told California Regulators that it won’t Apply for a State License for its New Subsidiary, Great Lakes Higher Education Corp., citing DeVos’ Memo that such Regulation is Pre-Emptied by Federal Law.
DeVos’ efforts to Deny States’ Access to Student Loan Information are also attracting some Bipartisan Scrutiny on Capitol Hill. The Report attached to a Funding Package the Senate Passed this Month on an 85-7 Vote Directs the Education Department to Publicly Post “a detailed explanation” of its Policy for when it Discloses Records to Law Enforcement Agencies. It also urges the Department to Publish a List of the Requests it Received and to Respond within 10 Days.
Education Department Officials during the Obama Administration took a different view, arguing that the Department’s Loan Servicers and Debt Collectors must follow both State and Federal Laws. The Obama Administration also Expanded a Policy on how Department Officials should Disclose Student Loan Records to State Regulators.
Even if the Education Department were to more Robustly Supervise its Contracted Loan Servicers, State Attorneys General would still play an Important Role in forcing Companies to Compensate Borrowers that are Financially Harmed by a Loan Servicer’s Failures or Deceptive Practices, according to Yu of the National Consumer Law Center.
The Department could Penalize a Loan Servicer by Canceling its Federal Contract or Reducing its Allocation of New Accounts. But, Yu said, it’s typically State Laws that provide a Mechanism for providing Direct Relief to Borrowers if a Servicer were, for instance, to Improperly Report Borrower Information to Credit Bureaus. “Where people violate the law, they should be sent to law enforcement,” she said. “The loan servicers need to know that there are folks looking over their shoulder.”
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