Trump’s CFPB and Department of Education Heads Abandon Student Loan Borrowers, Allow Large Financial Companies to Avoid Accountability

Administration’s Unlawful Action Puts Over 40 Million Student Borrowers at Risk

Los Angeles, CA—Today, Democracy Forward, on behalf of Student Debt Crisis, sued the Trump administration for shirking their legal obligation to supervise large student loan servicers, specifically those servicing federal loans. The suit, filed against Trump-appointed Secretary of Education Betsy DeVos and CFPB Director Kathleen Kraninger and their respective agencies, cites efforts by both agencies to shield large student loan servicers from scrutiny. Without any reasoned explanation or opportunity for public comment, CFPB changed federal policy that requires it to supervise large student loan servicers, including those companies that manage the country’s Public Student Loan Forgiveness (PSLF) program. In turn, more than 41 million student loan borrowers with over a trillion in debt are at greater risk of being cheated by these companies. This lawsuit was filed today with support from the Student Borrower Protection Center, a nonprofit founded by the former senior CFPB officials who once led this critical oversight work.

“We are suing Education Secretary Betsy DeVos and CFPB Director Kathy Kraninger for ignoring student loan industry abuses at a time when stronger consumer protection laws are desperately needed,” said Student Debt Crisis Executive Director Natalia Abrams. “Time and time again, we speak with student loan borrowers who dedicate their lives to public service, yet they lose access to federal loan forgiveness due to bad behavior by their loan servicer. The Trump administration is breaking the law and our supporters can no longer trust the government to work in their best interests. They truly feel they have no one to turn to.”

Loans owned by the federal government account for over 80% of the student loan debt held nationwide with student loan servicers responsible for, among other things, collecting loan payments and advising borrowers on resources and benefits to better manage their student loan obligations. In recent years, numerous lawsuits have been filed against student loan servicers alleging widespread misconduct, miscounted payments, unnecessarily prolonged repayment, and growing debt burdens. This includes lawsuits targeting the administration of the PSLF program—a program that dedicated public servants rely on to discharge their loans after years of service. Many teachers, nurses, social workers, firefighters, and members of the armed forces depend on PSLF.

“The Trump administration has the power to protect students, but instead Director Kraninger and Secretary DeVos have abandoned them to the whims of federal student loan servicers,” said Democracy Forward Executive Director Anne Harkavy. “This administration has freed large student loan servicers from supervision, putting public servants, their families and students across the country at greater risk simply because the Trump administration refuses to follow the law.”

“The Trump administration’s failure to do its job exposes a trillion dollar blind spot at the heart of our economy,” said Seth Frotman, Executive Director of the Student Borrower Protection Center and former CFPB Student Loan Ombudsman. “These practices are alarmingly similar to the lax oversight of the mortgage market before its meltdown. Today’s action is a warning to Director Kraninger and Secretary DeVos—ignoring industry abuses is unacceptable. It’s time to do your jobs and to stand up for borrowers.”

Federal law requires CFPB to supervise large nonbank loan servicers, including servicers of student loans owned by the federal government, for compliance with critical federal consumer financial protections. Rather than supervise the servicing of loans owned by the federal government:

  • The CFPB under then-Acting Director Mick Mulvaney and Director Kathleen Kraninger has adopted a new rule, wrongly asserting that CFPB only has authority over student loans owned by private creditors, which account for less than 20% of student loan debt.
  • Director Kraninger then hired Robert Cameron, a former executive at one of the nation’s largest student loan servicers and the private-sector firm hired to manage the PSLF program—the Pennsylvania Higher Education Assistance Agency (PHEAA)—as the Bureau’s new student loan ombudsman, despite PHEAA being the subject of thousands of consumer complaints and lawsuits for harming student borrowers during the time he was responsible for its compliance with consumer protection laws. Democracy Forward has separately filed a FOIA suit against CFPB for withholding records related to ethics waivers for Mr. Cameron.
  • Education Secretary Betsy DeVos also revoked a legally required Memorandum of Understanding with CFPB that assists the agencies to coordinate and resolve student borrower complaints. Both agencies have since failed to establish a new MOU. Democracy Forward has separately requested Inspector General investigations into the revoked MOU and filed a FOIA suit against CFPB for withholding records on its efforts to reinstate an MOU.

Collectively, the agencies’ actions effectively leave the vast majority—81%—of student loan debt without proper federal oversight.

The case is filed in United States District Court for the Central District of California, Western Division.

###
Press Contacts
Charisma Troiano
(202) 701-1781
[email protected]

Natalia Abrams
[email protected]
646-820-8037

Democracy Forward is a nonprofit legal organization that scrutinizes Executive Branch activity across policy areas, represents clients in litigation to challenge unlawful actions, and educates the public when the White House or federal agencies break the law.
Student Debt Crisis is a 501(c)(4) nonprofit advocacy organization working to fundamentally reform the way higher education is paid for in America. It is the goal of Student Debt Crisis to educate borrowers about their repayment rights while advocating for structural reform.

The Student Borrower Protection Center is a nonprofit organization focused on alleviating the burden of student debt for millions of Americans. SBPC engages in advocacy, policymaking, and litigation strategy to rein in industry abuses, protect borrowers’ rights, and advance economic opportunity for the next generation of students.

Stalwart Law Group is a boutique civil litigation firm comprised of trial lawyers who represent clients in commercial litigation, legal malpractice, intellectual property litigation, employment litigation, and catastrophic injury.