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NPR Ed
Consumer Protection Agency Is Failing Student Loan Borrowers, Lawsuit Says
Chris Arnold
November 25, 2019
A nonprofit student loan group is suing the nation's most powerful
consumer watchdog agency. The lawsuit, first obtained by NPR, alleges
that the Consumer Financial Protection Bureau has abandoned its
obligation to oversee companies that manage student loans, in
particular a troubled loan forgiveness program.
"We are suing the Department of Education and the CFPB because they are
not doing their jobs," says Natalia Abrams, the founder of Student Debt
Crisis. Abrams' group works both on policy issues and directly with
borrowers.
But she says a breakdown in government supervision has created such a
mess that her organization is getting overrun with calls from people
who need help. The lawsuit essentially says it's not OK that Abrams'
group has been forced to divert resources to handle a problem the
government should be dealing with.
Abrams says that as she tries to run her organization, she's constantly
pulled away from her main duties. "Over the past year, I have spoken
with hundreds of borrowers, sometimes multiple borrowers, every single
day and had to break their hearts," she says.
Abrams says that's because she has to give people the bad news that
they've fallen victim to problems with the Public Service Loan
Forgiveness program, or PSLF.
The government program promises firefighters, public defenders,
teachers, people who work at nonprofits and others that if they make
payments for 10 years, the remainder of their federal student loans
will be forgiven. Congress created the program in 2007 to encourage
people to work in public service jobs that are often lower-paying than
other careers.
Abrams says that's a noble goal, but the program has been badly
mismanaged. The Department of Education's own accounting shows that 99%
of people who have applied for loan forgiveness have been rejected.
"My decision to be a public servant, join the military, was 100% based
on that government promise," says Jeremy, who now works as a police
officer in Michigan. He doesn't want to use his last name because of
his police work.
Jeremy and his wife, Chelsea, say they made payments for more than
eight years, but none counted because they got bad advice from call
center workers at loan servicing companies. So their combined $119,000
in student debt is not being forgiven.
Jeremy says he and his wife, a public school teacher, both have made
loan payments for eight years. But now a loan servicing company
managing the loan forgiveness program for the Department of Education
tells them none of those payments counted toward the program.
That means the couple's combined $119,000 in student debt is not
forgiven. Jeremy says "the thing that that hurts the most" is watching
his wife, Chelsea, struggle with this. "She gets off the phone with a
servicer and they tell her she only has one qualifying payment and I've
got to watch her cry and tell her it's going to be OK," he says.
He says their student debt now has Chelsea regretting she ever became a
teacher because she makes too little money to pay it off. "She tells me
that she should have done something else. And she loves her job,"
Jeremy says. "It's hard not to feel betrayed."
The suit cites multiple other lawsuits, filed by prosecutors in New
York, Massachusetts and other states, alleging widespread misconduct by
loan servicers. It says that "rather than addressing the servicer
misconduct detailed in those lawsuits, the Department of Education has
tried to prevent these suits from going forward."
Meanwhile, the lawsuit says the CFPB "has its own mandate to supervise
these servicers." But, the lawsuit says, when Trump administration
officials assumed control of the CFPB in 2017, the agency arbitrarily
"changed its policy" and unlawfully decided "to abandon [its]
obligation" to police the servicing of more than 90% of student loans.
That's despite thousands of complaints from people who say they're
being treated unfairly. Jeremy, the police officer in Michigan, says he
and his wife made more than a dozen phone calls to call center workers
every year. "We'd say, 'Please, for the love of God, you gotta help
me,' " he says.
But Jeremy says the couple kept getting bad advice. He says call center
workers steered them into the wrong repayment plans or into other moves
that disqualified them from loan forgiveness.
Many other public service workers report similar problems. But the
lawsuit alleges that loan servicers "continue to mislead student loan
borrowers and the magnitude of the problem continues to worsen."
The lawsuit cites an NPR report in which sources said the CFPB early
last year sent teams of examiners into servicing companies to try to
root out problems. But the Education Department told servicers not to
share information with the examiners. Basically, it's a turf fight —
the department argues that the CFPB doesn't have jurisdiction over the
more than $1.5 trillion of federal student loans.
The lawsuit says the Education Department is wrong. "This lawsuit is
asking the court to order the CFPB to do its job," says Deepak Gupta, a
former top attorney at the CFPB. He says the law is very clear that the
bureau should be performing oversight here. And it has the power to
push past the Education Department's objections.
But since the Trump administration took over control of the bureau,
Gupta says, it hasn't been doing that. "The Consumer Financial
Protection Bureau is completely abdicating its legal responsibility to
oversee the vast majority of student loan debt," he says.
The CFPB did not immediately comment.
In a statement, Department of Education press secretary Angela Morabito
said the high denial rates in the Public Service Loan Forgiveness
program are "by Congressional design, not by accident or failed
implementation by the Department." And she noted that the department
has created a help tool for borrowers and has increased its outreach to
them.
The Student Loan Servicing Alliance, an industry group, said in a
statement that servicers "continue to focus on simplifying federal
rules and requirements so borrowers can better understand their options
and have actively provided feedback to Congress and regulators on how
to improve the loan programs. Those efforts can actually benefit
borrowers and so remain our focus."
Michael Martinez is a lawyer with Democracy Forward, which is bringing
the lawsuit on behalf of the student loan group. The suit does not seek
any damages.
Rather, it asks the court to order the CFPB to actively start engaging
to find problems and get them fixed so people aren't being treated
unfairly. "Our goal," Martinez says, "is to have the court come in and
say, 'You have this responsibility, you're not doing it, and the law
requires you to.' "
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