In response to steps taken by U.S. Secretary of Education Betsy DeVos to rollback critical protections for student loan borrowers, Attorney General Peter F. Kilmartin sent a letter to DeVos requesting she standby agreements with the Consumer Financial Protection Bureau (CFPB) on the issue of jurisdiction over student loan servicing.
The letter to Secretary DeVos, signed by Attorney General Kilmartin and 18 other attorneys general, finds three main faults with a letter sent in August by the Department of Education to the CFPB, in which the Department terminated two key memoranda of understanding it had with CFPB.
• The Department of Education falsely asserted it has exclusive jurisdiction over companies that service federal student loans when, in fact, student loan servicers are under the jurisdiction of the CFPB, Federal Trade Commission, Department of Justice, Attorneys General and other law enforcement agencies.
• The letter is the latest in a series of actions by the Department of Education to strip critical protections for millions of students and families repaying student loans.
• The Department of Education misrepresents the strong work done by the Consumer Financial Protection Bureau on behalf of students and families across the country.
"A significant crisis is looming in the student loan industry. Similar to the mortgage service providers, whose deceptive practices led to the great recession, student loan servicers engage in conduct and practices that has led millions of young people straddled with enormous debt. Our economy cannot afford a meltdown of the student loan industry, and our young people deserve a fair opportunity to repay their debt without the service providers deploying dishonest business practices that lead to further debt," said Attorney General Peter Kilmartin. "The recent actions by Secretary DeVos clearly indicate she is taking the side of the loan student services over the side of the student. If she won't hold them accountable and ensure they play fair, then we will."
As the letter to DeVos details: "Contrary to the Department's assertion, Congress did not exempt the $1.3 trillion federal student loan market from the Consumer Financial Protection Bureau's jurisdiction – or from the jurisdiction of any other law enforcement agencies. … Not only is the Department's assertion demonstrably false, but such an exemption would make no sense – the market for federal student loan servicers is bigger than any other consumer finance market except mortgages. Moreover, student loan borrowers, who in most cases cannot discharge their student loans through bankruptcy, are among the most vulnerable borrowers."
The Department of Education's August 31st letter terminated two memoranda of understanding with the Consumer Financial Protection Bureau, critical protections designed to streamline the supervision of student loan servicers. The Attorneys General's letter makes clear this step harms American families and makes it more difficult for the Consumer Financial Protection Bureau to assist and protect student borrowers.
The Attorneys General's letter highlights the strong work the Consumer Financial Protection Bureau has done to protect students and families – often in partnership with the Department of Education and state Attorneys General. The letter details the many student loan accomplishments of the Consumer Financial Protection Bureau:
• Processing complaints from more than 40,000 student loan borrowers from all 50 states • With Washington State and Illinois, suing Navient, the nation's largest student loan servicer, for steering borrowers into costly repayment plans that benefit the servicer, not the borrower • Cracking down on abusive for-profit colleges ITT Tech and Corinthian • Halting illegal loan servicing practices at Wells Fargo, and • Working with state Attorneys General to create an online tool that helps students plan for college by comparing financial aid offers, loan commitments and earnings potential.
Joining Attorney General Kilmartin in signing today's letter were Attorneys General from California, Connecticut, Delaware, District of Columbia, Hawaii, Illinois, Iowa, Kentucky, Maine, Maryland, Massachusetts, Minnesota, New York, North Carolina, Pennsylvania, Oregon, Vermont, Virginia and Washington, as well as the executive director of the Hawaii Office of Consumer Protection.