Morehouse College commencement speaker and billionaire Robert F. Smith announced Sunday he is wiping out an estimated $40 million in student debt for nearly 400 graduates. (Photo: Morehouse College/Twitter)
Commencement speaker Robert F. Smith garnered widespread praise Sunday when the billionaire investor announced he will wipe out an estimated $40 million in student debt for Morehouse College’s nearly 400 graduating seniors—but the move also sparked intense criticism of the cost of higher education in the United States.
“Two things are simultaneously true about this story: 1. This is a very cool thing to do,” tweeted Current Affairs editor Sparky Abraham. “2. That this is so cool and necessary and has such a huge impact on the students’ lives is a burning indictment of our higher ed system.” Continue reading →
After a federal judge struck down billionaire Education Secretary Betsy DeVos’ attempt to gut protections for students scammed by for-profit colleges, the Department of Education announced on Thursday that—because of the court mandate—it is canceling $150 million in student loan debt for around 15,000 defrauded borrowers.
“The Department of Education illegally delayed implementation of the 2016 borrower defense rule, but because our clients in Bauer v. DeVos were willing to fight back, 15,000 students are finally getting the relief they are owed,” said Toby Merrill, director of the Project on Predatory Student Lending, which represented the students leading the legal fight against DeVos. Continue reading →
So what would you miss if the agency suddenly disappeared or got gutted?
In short, a lot. We base this conclusion on the work the three of us have done in recent decades. One of us (Sovern) has been writing about consumer law for more than 30 years, while the other two of us direct a legal clinic that represents elderly consumers. We’ve seen the worst of what financial companies can do, and we’ve also witnessed how the CFPB has begun to reverse the tide.
Life before CFPB
If you are one of the more than 29 million consumers who have collectively received nearly US$12 billion back from misbehaving financial institutions because of the CFPB’s efforts, you already know its value. But even if you are not, you have probably benefited from the bureau’s existence.
Before Congress created the bureau, there was no federal agency that made consumer financial protection its sole mission. Rather, consumer protection was rolled into the missions of a bunch of different agencies. And, as we saw during the financial crisis, regulators often gave it a back seat.
The Office of the Comptroller of the Currency regulates banks but was so preoccupied with ensuring lenders were safe that it failed to protect consumers from their predatory subprime mortgages – so much so that it prevented states from doing so too. And now President Trump has put a former bank lawyer in charge of it. The Federal Trade Commission, which is tasked with fighting deceptive business practices, lacked the power to prevent such dangerous lending.
This meant consumer protection on financial matters fell through the cracks.
But as early as 2010, before the CFPB was set up, regulators at the OCC were increasingly aware of what was happening at Wells Fargo thanks to hundreds of whistleblower complaints. The OCC even confronted the bank, yet failed to take any action despite many red flags, according to an internal audit.
Besides protecting consumers, however, Congress had a second motive in creating the bureau: to help prevent the kind of mortgage lending that helped cause the Great Recession.
To that end, the bureau has adopted rules that help consumers to understand their mortgages – something that often wasn’t possible under the previously misleading mortgage disclosures. It also issued regulations to prevent consumers from taking out mortgages that they couldn’t repay. And after borrowers take out a mortgage, CFPB servicing rules establish the procedures servicers must follow when communicating with borrowers, correcting errors, providing information and dealing with loan modification requests.
Two of us have personal experience with one of the bureau’s new mortgage rules, which powerfully illustrates the value of the CFPB.
In 2014, Alice, a client of our law school clinic, was struggling to pay the mortgage on her home – which she had refinanced a few years earlier – after a stroke forced her into retirement. Our clinic helped her apply for a modification of her loan.
But within weeks, instead of acknowledging Alice’s application, the loan servicer summoned her to court to begin foreclosure proceedings in violation of CFPB servicing rules. Fortunately, our clinic was able to rely on those rules in getting the foreclosure action dismissed. Alice got her loan modified and remains in her home.
Protecting the vulnerable
This reveals how the bureau is particularly important to protect vulnerable consumers, like the elderly, who are frequently targeted by fraudsters and predatory lenders because of their cognitive and other impairments and because they often have accumulated substantial assets. The CFPB is the only federal agency with an office specifically dedicated to protecting the financial well-being of older adults.
The House of Representatives has passed a bill that would cripple the CFPB by, for example, taking away the power it used to fine Wells Fargo for opening illegal accounts and concealing its complaint database from public view. In other words, it would force the bureau to sit idly by as financial institutions lie to consumers. Even if the bureau survives, it may be less protective of consumers when its current director, Richard Cordray, leaves. His term expires next summer, and he may step down even sooner. Then we might see a former banker or bank lawyer put in charge, just as has happened at the Treasury Department and comptroller’s office.
Nearly every American has or will have a loan or bank account, a prepaid card, credit card, a credit report or some combination of those, and so has dealings with a financial institution policed by the CFPB. But few of us read the fine print governing these things or can understand it when we do. That gives the companies that write these agreements the ability to draft them to suit their own interests at the expense of consumers.
Similarly, we do not always know when a financial institution takes advantage of us, just as Wells Fargo customers did not always know that it had opened unauthorized accounts that lowered their credit scores.
Consumers need protection from misbehaving companies. If the bureau is eliminated, significantly weakened or starts protecting banks rather than consumers, all consumers will suffer.
This is an updated version of an article originally published on July 10, 2017.
Along with three co-authors, Jeff Sovern received a $29,510 grant from the American Association for Justice Robert L. Habush Endowment and by a grant from the St. John’s University School of Law Hugh L. Carey Center for Dispute Resolution in 2014 to study arbitration. It resulted in an article. Along with Professor Kate Walton, he received a grant from the National Conference of Bankruptcy Judges Endowment for Education to study debt collection, resulting in another article. He is a member of the National Association of Consumer Advocates.
Ann L. Goldweber is affiliated with NACA as a member.
Gina M. Calabrese is affiliated with the National Association of Consumer Advocates, New Yorkers for Responsible Lending, and the Association of the Bar of the City of New York (former chair, Committee on the Civil Court).
As first wave of qualified workers prepare to apply for loan forgiveness, they may have an unpleasant surprise waiting for them. (Photo: thisisbossi/flickr/cc)
In a troubling development for the countless people saddled with student debt, the U.S. Department of Education (DOE) may be reneging on a promise made to over 550,000 such borrowers who were led to believe that their loans would be forgiven after ten years of work in the public service.
Responding to an ongoing lawsuit from four borrowers, the DOE has given no explanation but says that approval letters sent to individuals who signed up for the Public Service Loan Forgiveness Program are not in fact “binding,” the New York Timesreported Thursday. Continue reading →
“We could have hundreds of thousands of American seniors living in poverty due to garnished Social Security benefits if this trend continues,” said Sen. Claire McCaskill of Missouri. (Photo: Kate Gardiner/flickr/cc)
The federal government is garnishing Social Security checks to recoup unpaid student debt, leaving thousands of retired or disabled Americans below the poverty line and setting the stage for an even bigger problem, according to a new report.
The data from the Government Accountability Office (GAO), compiled at the behest of Sens. Claire McCaskill (D-Mo.) and Elizabeth Warren (D-Mass.), showed that people over the age of 50 are the fastest-growing group with student debt, outpacing younger generations—and compared to younger borrowers, older Americans have “considerably higher rates of default on federal student loans.” This leaves them open to having up to 15 percent of their benefit payment withheld, in what’s called an “offset.”Continue reading →
“Instead of adding insult to injury,” Warren wrote, the Department of Education “should stand up for these students as it promised to do for more than a year and immediately halt all collections on these debt.” (Photo: Mystery Pill/cc/flickr)
Sen. Elizabeth Warren (D-Mass.) is taking a stand for the tens of thousands of students who, first, were defrauded by the now-defunct, for-profit Corinthian College system and now, according to an investigation by her own staff, are being “hounded” by the U.S. Department of Education (DOE) to pay off those debts.
In a searing letter (pdf) to DOE secretary John King on Thursday, Warren said that the department’s student loan bank is pushing nearly 80,000 former Corinthian College students into some form of debt collection, despite assurances that they would be eligible for loan discharges. Continue reading →
In January, Elizabeth Warren was among a group of Senate Democrats who unveiled a legislative package to address college affordability. (Photo: Senate Democrats/flickr/cc)
Can the U.S. Department of Education be trusted to protect the millions of Americans with federal student loans?
U.S. Sen. Elizabeth Warren (D-Mass.), who has tussled with the federal agency before, isn’t so sure.
She said as much in a letter (pdf) sent Thursday to acting Education Secretary John King Jr., in which she describes an independent audit published this week as “a stunning indictment of the Department of Education’s [DOE] oversight of student loan servicers, exposing the extraordinary lengths to which the Department will go to protect those companies when they break the law.” Continue reading →
‘It’s been a month since 15 former students of the failing for-profit giant Corinthian Colleges said they would not pay a dime of their student loans because the school broke the law.’
Written by Jon Queally, staff writer for CommonDreams. Published March 31, 2015.
Photo from Flickr (user thisisbossi)
From an original group of 15 individuals no longer willing to pliantly suffer under the crushing financial burden created by the costs of higher education, the movement challenging that nation’s student debt epidemic has now grown to more than 80 people who say they will stop making loan payments in protest of the predatory practices of for-profit colleges and the larger student loan model.
Office lab building at Hannover Medical School. Photo by ChristianSchd (Own work) [CC-BY-SA-3.0 (http://creativecommons.org/licenses/by-sa/3.0)], via Wikimedia Commons
On Tuesday, the German state of Lower Saxony abolished tuition fees for its universities. This means that all of Germany’s universities are now tuition free, as Lower Saxony was the last holdout.
However, this isn’t a first for Germany; they didn’t start charging tuition until 2006. In that year, the German Constitutional Court ruled that limited fees and loans were not in conflict with the country’s commitment to universal higher education. This proved to be a very unpopular decision, and the states that had instituted fees started dropping them.
Dorothee Stapelfeldt, Hamburg’s senator for science, said; “Tuition fees are unjust. They discourage young people who do not have a traditional academic family background from taking up study. It is a core task of politics to ensure that young women and men can study with a high quality standard free of charge in Germany.”
The average student here in the U.S. would have been happy to pay what Germany was charging. Tuition averaged around $635 per semester, and students received other benefits such as cheap or free transportation through and between cities. Compare that to the $33,000 debt that the average U.S. college graduate in the class of 2014 carries in student loans.
Student debt in the U.S. totals $1.2 trillion dollars. That’s almost one and a half times the total credit card debt in the U.S. Furthermore, ever since the privatization of the Student Loan Marketing Association (more commonly known as Sallie Mae) in 2004, student loans cannot be discharged in bankruptcy. The latest estimates say that there will be 414,000 fewer houses sold this year to younger families because the money that would normally be spent on buying a house is going towards paying student debt instead. That’s $83 billion dollars a year in lost home sales.
The government spends around $69 billion subsidizing college education and another $107.4 billion on student loans. Tuition at all public universities comes to much less than that; around $62.6 billion in 2012. If the public universities were made free of charge (and by the above numbers, that’s easily doable), the private colleges would be forced to lower their cost to compete for students. And, you’d have a boost in the economy due to people having more to spend. That sounds like a win-win to us.
Photo By The U.S. Army (Warrior Transition Brigade) [Public domain], via Wikimedia Commons
America employs the largest volunteer military force in the world. In order to accomplish this without conscription, the government promises to take care of troops when they leave the service, including any injuries suffered while serving the nation.
Most men and women serving in the military do so out of a sense of duty and nationalism; family tradition, patriotic spirit or belief in the future of the country might all factor heavily in the individual decision. Regardless, they are recruited with not only the promise of education and specialized training, but also the benefit of health care.
The current backlog for veterans applying for disability benefits after returning from war is staggering. Some have waited as long as 1 or 2 years, and in 2013 it took an average of 378 days to process a claim, according to the annual report released by the VA.
Washington and the Pentagon seem to throw their hands up in despair, claiming they are doing the best they can. Yet we have heard no discussion about solutions that could actually get results and serve our veterans with less shameful failure. These men and women fought for our country. They shouldn’t have to fight for their own benefits. They shouldn’t die while waiting for paperwork.
To begin with, many veterans are looking for work. Why not use some of their understanding of veteran issues to expand the VA services personnel to accommodate the backlog? These men and women already have a working knowledge of “governmentesse,” the language used by the military. The vast usage of acronyms alone is enough to offer a multi-volume set of books. Veterans are better qualified than those who have never served to be able to complete this process of application efficiently and accurately.
Chuck Hagel answers questions at a town hall style meeting for disable veterans. January, 2014. Photo By Staff Sgt. Christopher Carwile [Public domain], via Wikimedia Commons
Secondly, we could reassign people already working within the government that are experienced with disability claims. The Department of Education has their own disability division, which refuses to accept the disability claims approved through the Social Security Administration’s more than thorough disability process and determination. Their purpose is to make it virtually impossible for disabled students to qualify under their guidelines and prevent the discharge of remaining student loans if someone becomes disabled before those loans are paid off. With a bit of retraining to understand that the veterans DESERVE the benefits and it is the purpose of the VA to provide them, these people could assist the VA with the backlog.
The Department of Education needs to accept SSA disability determinations that entitle discharge of student loan debt to disabled students. This “way of doing business” is discriminatory and a waste of taxpayer money. It is belittling and humiliating to the disabled student. I would know – I am one they are doing it to.
I don’t know about you, but I happen to think caring for our troops is far more important than punishing disabled students.