The Department of Education announced that it will no longer work with the Consumer Financial Protection Bureau (CFPB) when it comes to combating student loan fraud.
The latest announcement comes on the heels of other moves by the Department of Education, headed by Secretary of Education Betsy DeVos, to undo Obama-era policies.
Why is the Department of Education cutting ties with the CFPB?
In 2011 and 2014, the Department of Education entered into two Memorandums of Understanding with the CFPB. These were designed to allow for cooperation in gathering information about loan servicing complaints and enforcing actions against servicers for some of their practices.
A letter sent to CFPB Director Richard Cordray accused the bureau of overstepping boundaries in pursuing cases of student loan fraud. The letter was signed by Kathleen Smith, the acting assistant secretary of the Office of Postsecondary Education, and A. Wayne Johnson, the new COO of the Federal Student Aid office.
The Department of Education claimed CFPB complaints related to Title IV federal student loans should be directed to the Department within 10 days of receipt. Instead, the letter claims, the CFPB was taking matters into its own hands.
“The CFPB’s intervention in this area adds confusion to borrowers and servicers who now hear conflicting guidance related to the Title IV student loan services for which the Department is responsible,” read the letter.
What is the CFPB response?
“We are surprised and disappointed to learn the Education Department is planning to terminate our Memoranda of Understanding, which established the foundation for some very successful collaborations,” said David Mayorga, a CFPB spokesperson, in a statement sent to Student Loan Hero.
“We have not previously heard any concerns as we have worked together to make sure that all student loan borrowers are treated fairly, with respect and dignity,” he added.
In the past, the CFPB has gone after student loan servicers for practices that they feel are harmful to borrowers. Additionally, the CFPB has shed light on practices by servicers that keep high-risk borrowers from enrolling in affordable repayment plans.
By ending information-sharing with the CFPB, the Department of Education could head off efforts by the CFPB to enforce actions on student loan servicers that aren’t acting in the best interests of borrowers.
“The Consumer Bureau has statutory responsibilities to protect student loan borrowers — like all consumers — from practices that violate the laws we enforce and we would like to continue to work with the Education Department toward our shared goals,” Mayorga said.
Will this move help student loan borrowers?
The Department of Education claimed ending cooperation with the CFPB will aid in protecting borrowers. Further, in an Aug. 31 statement announcing new hires, DeVos claimed that protecting students is a top priority.
However, since the Department of Education began rolling back policies from the Obama administration, there has been an uptick in complaints against student loan servicers. But ending cooperation with the CFPB is part of the Department of Education’s plan to protect borrowers, and some agree with the move.
Representative Virginia Foxx (R-N.C.) agreed with the move to stop cooperation, according to Inside Higher Ed. Foxx insisted that the partnership with the CFPB was doing more harm than good:
“[I]t was a mistake for the Obama administration to have the Department of Education let the CFPB abuse its privilege on these matters,” she said in a statement.
Meanwhile, consumer advocates decried the decision to cut the CFPB out of complaints related to student loan fraud.
The National Consumer Law Center (NCLC) said the 2011 memorandum was ordered to help the Department of Education, which was failing at its mandate to adequately protect consumers.
The memorandum was designed “to collaborate to ensure coordination in providing assistance to and serving borrowers seeking to resolve complaints related to their private education or federal student loans.”
An NCLC statement said, “The claim that the CFPB ‘unilaterally’ expanded its oversight role over servicers and collectors of federal student loans is unfounded … DeVos is prioritizing the interests of predatory for-profit schools, debt collectors, and trouble student loan services over the interests of student loan borrowers.”
The NCLC also pointed to the hiring of industry insiders for top positions in the administration.
A. Wayne Johnson, head of the Financial Student Aid office, is a former student loan CEO. Julian Schmoke, whom will lead the student aid enforcement unit, worked as an administrator for a university fined for fraudulent practices.
Student loan borrowers must learn their rights
The CFPB is increasingly isolated and is, according to Inside Higher Ed, one of the few federal agencies to step up enforcement under the Trump administration.
If the government is stepping away from consumer protection, it’s vital for student loan borrowers to understand their rights and educate themselves on their options.
Here are some resources that can help you understand your rights:
- Battling Your Servicer? How a Student Loan Ombudsman Can Help
- The Complete Guide to Income-Driven Repayment Plans for Federal Student Loans
- 4 Ways the New Student Aid Bill of Rights Will Impact Your Loans
- 3 Important Things Your Student Loan Exit Counselor Didn’t Tell You
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1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 5.87% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 5.87% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
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Laurel Road Disclosures
Savings example: average savings calculated based on single loans refinanced from 9/2013 to 12/2017 where borrowers’ previous rates were disclosed. Assumes same loan terms for previous and refinanced loans, and payments made to maturity with no prepayments. Actual savings for individual loans vary based on loan balance, interest rates, and other factors.
Application detail: 5 minutes indicates typical time it takes to complete application with applicant information readily available. It does not include time taken to provide underwriting decision or funding of the loan.
Instant rates mean a delivery of personalized rates for those individuals who provide sufficient information to return a rate. For instant rates a soft credit pull will be conducted, which will not affect your credit score. To proceed with an application, a hard credit pull will be required, which may affect your credit score.
Total savings calculated by aggregating individual average savings across total borrower population from 9/2013 to 12/2017. Individual average savings calculation based on single loans refinanced from 9/2013 to 12/2017 where borrowers’ previous rates were provided. Assumes same loan terms for previous and refinanced loans, and payments made to maturity with no prepayments. Actual savings for individual loans vary based on loan balance, interest rates, and other factors.
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4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
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