Mixed Messages on Student Loans

The Consumer Financial Protection Bureau (CFPB) and Trump Administration remain at odds.  This is particularly evident from the recent activity in an area at the intersection of the powers of the independent agency and an agency controlled by a Trump appointee—student loans.  In the last two weeks Betsy DeVos, Department of Education Secretary, has issued memorandums rolling back Obama Administration protections for student loan borrowers, all while the CFPB continues its pursuit of one of the largest student loan servicers, Navient (formerly Sallie Mae). In the face of these mixed messages, student loan servicers have chosen to maintain the status quo.  In a sector of the lending industry valued at 1.3 trillion dollars with 43 million borrowers, lenders do not appear interested in rolling back changes they only recently implemented as potential for litigation with the CFPB looms.

In 2010, the Obama Administration began issuing federal student loans almost exclusively through the Direct Loan Program, leaving only loan servicing to private-lenders.  The cost savings was used to fund Pell Grants.  The Obama Administration also began the process of streamlining the loan servicing process, by taking bids for a contract for a single lender to handle the interface of loan servicing, with others playing a secondary role.  The recipient of the bid was to be announced this winter.  

The first Department of Education rollback lifted the restriction on charging default fees up to 16 percent of the total balance owed on Federal Family Education Loans.  After the student loan industry asked for Congress’ help in delaying or substantially changing loan servicing plans through letters on April 4, just one week later DeVos formally withdrew a pair of Obama memorandums requiring the Federal Student Aid office to do more to help borrowers manage or discharge their debt. She stated the approach was inconsistent and full of shortcomings, without further detail.  DeVos has also rescinded efforts to streamline student loan servicing through the selection of a single vendor.  

The Trump Administration changes to the bidding process may have the consequences intended.  While DeVos and Trump cannot force the CFPB to withdraw its pending litigation against Navient, the relaxed protocols may allow Navient to not only continue servicing student loans, but also to obtain new contracts.  

The scope of rollbacks in lending requirements may not be so impactful.  Thus far lenders have chosen not to revert to pre-Obama Administration practices.  The structure of lending regulation and oversight may be a reason for the conservative position.  Although Betsy DeVos oversees the Department of Education, which manages student lending, she and Trump appointees are not in control of every agency that regulates lending.  Many of the agencies regulating lenders are independent.  A lender could relax its policies in response to Department of Education proclamations, but face enforcement action from the CFPB or another agency.  

As with other matters involving financial regulation under the current administration, it is difficult to plan and make substantial changes.  A company is best served by maintaining the status quo in its compliance program.

This post was written by Carliss Chatman for Jurispect. Carliss joined Stetson University College of Law in in 2015 as a Visiting Assistant Professor. She teaches in the areas of business law and ethics. Her scholarship is intersectional with a focus on issues at the heart of commercial litigation: the interplay of business entities, government, and natural persons.