The government’s consumer watchdog is struggling to monitor the student loan industry — in part because the Department of Education is getting in the way.
That’s according to a letter from Kathy Kraninger, the director of the Consumer Financial Protection Bureau, to Sen. Elizabeth Warren, a Democrat from Massachusetts and candidate for president. At issue, according to Kraninger, is a memo issued by the Department in 2017, cautioning student loan companies hired by the agency against sharing student loan records with third parties, including law enforcement and other regulators.
“Since December 2017, student loan servicers have declined to produce information requested by the Bureau for supervisory examinations,” related to federal student loans, Kraninger wrote.
The Department of Education didn’t immediately respond to a request for comment.
In the past, the Department has argued that releasing this information — which could include things like internal correspondence or data on borrower accounts — to third parties could put the agency at risk of violating the Privacy Act, a law governing the use and distribution of records maintained by the government.
Kraninger’s letter is the latest development in a battle surrounding oversight of the student loan industry. State attorneys general and lawmakers have accused the Department of Education under Secretary Betsy DeVos of shielding student loan companies from their efforts to hold the firms accountable.
Seth Frotman, the CFPB’s former student loan ombudsman, called the letter’s revelations “highly disturbing.”
“You have the director of the Consumer Financial Protection Bureau acknowledging that we have a more than 1.2 trillion black hole in our financial markets now,” Frotman said, referring to the federal student loan portfolio. “Due to actions by the Secretary of Education we are not effectively supervising the second largest class of consumer debt in America.”
For years, borrowers and advocates have said that the firms hired by the Department of Education to manage its student loan portfolio aren’t providing borrowers with enough or the right information, making it more difficult for them to pay off their loans. That’s exacerbated the nation’s $1.5 trillion student loan problem, they say.
Under the Obama administration, the CFPB was one of the most aggressive monitors of the student loan industry, including the student loan servicers hired by the Department of Education to manage the federal student loan portfolio. But advocates have worried that the Bureau has backed away from that role under the two directors appointed under the Trump administration, Kraninger and her predecessor, Mick Mulvaney.
Warren’s letter to Kraninger was an effort in part to get more insight into whether the Bureau under its current leadership is effectively monitoring student loan companies.
Without the information the agency is seeking from servicers, that oversight could prove difficult. In the past, the CFPB could check whether the companies were abiding by the laws surrounding the federal student loan program — like helping borrowers access repayment programs to which they’re legally entitled — by looking at account information provided by the companies.
State law enforcement officials expressed similar concern earlier this year. Twenty-one attorneys general wrote to DeVos asking her to lift the restrictions specified in the memo, saying that they were getting in the way of the law enforcement officials efforts’ to investigate student loan companies.
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