Six Democratic senators, including two presidential candidates, sent a letter to the head of the Consumer Financial Protection Bureau on Wednesday demanding that the agency prove it is policing the companies, known as servicers, that the government pays to manage its trillion-dollar, federal student loan portfolio.
"We are concerned," the letter reads, "that CFPB leadership has abandoned its supervision and enforcement activities related to federal student loan servicers. This suggests a shocking disregard for the financial well-being of our nation's public servants, including teachers, first responders, and members of the military."
The letter, dated April 3, includes the signatures of Sens. Elizabeth Warren of Massachusetts and Kirsten Gillibrand of New York — both presidential contenders — as well as Dick Durbin of Illinois, Sherrod Brown of Ohio, Sheldon Whitehouse of Rhode Island and Bob Menendez of New Jersey.
Much of their concern focuses on one program — a decade-old loan forgiveness program that has infuriated borrowers and entangled the Department of Education and its servicers in a legal thicket.
"I thought, 'Oh great, I must qualify' "
Public Service Loan Forgiveness (PSLF) promises forgiveness to borrowers who make on-time loan payments for 10 years (120 payments) while working in public service. But the Education Department revealed late last year that the first borrowers to apply for forgiveness were nearly all rejected. As of the end of September, more than 41,000 borrowers had requested forgiveness, but just 206 had had their loans discharged. The reasons for this are legion.
When PSLF was created in 2007, the program's rules were complicated. It took several years for the government to create an official form that borrowers could use to make sure their work qualified as public service. Many borrowers also got caught in a consolidation double whammy: They needed to consolidate their loans to qualify for PSLF and either didn't know that or they did consolidate not realizing that doing so would reset their count of qualifying PSLF payments back to zero.
As a result, many aggrieved borrowers blame their loan servicers for giving them bad or incomplete advice, with some saying they were told they were on the path to loan forgiveness when they were not.
"I thought, 'Oh great, I must qualify for this program,' " Sarah Krainin told NPR last year. She used loans to pay for college and a master's degree and now teaches at a public university. "And I asked my servicer at the time, 'Am I gonna qualify for [PSLF]?' And they said, 'Yes, you have federal loans. You qualify.' "
Krainin told NPR that she made life choices that were informed, at least in part, by that promise. But after making six years of payments, she was finally told that because she had the wrong kind of loan, she did not qualify. Multiple government investigations into PSLF have found that Krainin is not alone.
In 2017, the CFPB's student loan ombudsman, Seth Frotman, and his team investigated borrower complaints and found many who, like Krainin, had notified their loan servicers of their intent to enroll in PSLF, then made it years into the repayment process before being told they didn't qualify — because they had the wrong loan, the wrong repayment plan or the wrong employer. The CFPB also found that servicer employees appeared undertrained, uninformed and prone to paperwork mistakes.
An investigation by the Government Accountability Office revealed similar problems. GAO investigators found many student borrowers thinking they were on the path to loan forgiveness, only to "find out months and potentially years later that [they] don't qualify and that [they're] not actually eligible for forgiveness," GAO's Melissa Emrey-Arras told NPR at the time.
Amidst all of this confusion, there have also been allegations of wrongdoing — that some servicers intentionally misled borrowers, and not just those seeking PSLF. In 2017, the CFPB sued one of the largest servicers, arguing that it "created obstacles to repayment by providing bad information, processing payments incorrectly, and failing to act when borrowers complained."
In their new letter to the CFPB, the Democratic senators reference a more recent lawsuit, filed by the New York attorney general, against another servicer alleging that its "managers directed representatives not to provide information on PSLF eligibility criteria to borrowers" who called "seeking information about the program."
Who will have oversight?
All of this raises an important question that is at the heart of this new letter: Who is policing federal student loan servicers?
The CFPB has undergone a shift under the Trump administration. During the Obama administration, the agency made clear it would help oversee the large and growing federal student loan market. But, under Trump, the bureau's leadership appears to be scaling back that grand vision and instead focusing on the far smaller market for private student loans.
"Cities have jaywalking laws that are almost never enforced," says Colleen Campbell, who studies the loan servicing industry at the Center for American Progress, a left-leaning think tank. "That is what CFPB is doing with federal direct student loans. If something really egregious happens, CFPB might get involved. Otherwise, they're not."
During questioning last month before the Senate banking committee, Sen. Menendez asked the CFPB's new director, Kathleen Kraninger, "Can you tell me whether it's no longer the CFPB's practice to review how loan servicers handle the PSLF program?"
"Senator, I would have to get back to you to answer your question specifically," Kraninger replied.
"You need to use your authorities," Menenedez told Kraninger, clearly displeased. "And you're just not doing that."
The CFPB did not respond to requests for comment.
In the letter, the senators ask Kraninger "to clarify the role that the Bureau has played in overseeing student loan servicers handling of PSLF since December 2017," including how many examinations CFPB has done and how many times it has sought documents or data from loan servicers.
This concern over CFPB's role comes as the Education Department itself has been criticized for lax oversight of servicers. In February, the department's own Office of Inspector General released a scathing review. "By not holding servicers accountable," that report said, the department's office of Federal Student Aid "could give its servicers the impression that it is not concerned with servicer noncompliance with Federal loan servicing requirements, including protecting borrowers' rights."
In response to that review, Education Department press secretary Liz Hill told NPR, in a statement, that "the Department continuously strives to provide strong oversight of all contractors, including federal student loan servicers."
But the Education Department has also moved to protect servicers from state lawsuits that allege these companies have misled borrowers, and the department ended an information-sharing agreement with the CFPB that makes it much harder for the bureau to police federal student loan servicers.
The senators' letter requests the bureau respond to questions by April 23.
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