The Washington PostDemocracy Dies in Darkness

Civil rights groups urge consumer bureau to root out discrimination in the student-loan servicing industry

Kathy Kraninger is director of the Consumer Financial Protection Bureau. (Andrew Harrer/Bloomberg News)

Civil rights organizations are urging the director of the Consumer Financial Protection Bureau to step up oversight of the student-loan servicing industry and root out discrimination.

It has been two years since the bureau identified student-loan servicing as posing substantial risk of credit discrimination and pledged further investigation into disparate outcomes for borrowers. That level of evaluation requires records and data from servicing companies that manage student-loan payments on behalf of the federal government and private lenders.

Government watchdog investigating discrimination in student loan servicing

But recent evidence suggests the bureau is no longer receiving or pursuing the information and has abandoned its pledge to prioritize the fair-lending issue.

In response to an inquiry, the consumer bureau’s director, Kathy Kraninger, told Sen. Elizabeth Warren (D-Mass.) in April that servicing companies have refused since December 2017 to produce federal student-loan records under the direction of the Education Department. She said the consumer protection bureau has pursued options to obtain the information, but she did not elaborate on whether those efforts have been successful.

Civil rights groups, in a letter sent this week to Kraninger, said the bureau has a mandate from Congress to ensure servicers are complying with consumer financial laws and does not need permission from the Education Department to get those records. The seven organizations, including the NAACP and the Center for Responsible Lending, said the director’s explanation for the lapse in robust supervision is unacceptable.

The consumer bureau did not immediately respond to requests for comment. Education Department spokeswoman Liz Hill said her agency is solely responsible for monitoring federal student-loan servicers and asks that requests for information from those contractors come directly to the department to ensure student privacy.

“Director Kraninger is waiting for a permission slip from Betsy DeVos to do her job and putting politics over defending borrowers’ civil rights,” said Seth Frotman, executive director of the Student Borrower Protection Center, an advocacy group that signed this week’s letter.

Frotman, who resigned as the consumer bureau’s student-loan ombudsman in August, was privy in 2017 to the bureau’s effort to examine disparities in outcomes for borrowers. Under then-director Richard Cordray, the bureau questioned whether servicers were making it difficult for borrowers with past-due student debt to work out a solution because of their race, ethnicity, gender or age.

At the time, the head of the consumer bureau’s fair lending office, Patrice Alexander Ficklin, said the bureau would compare outcomes for all student-loan borrowers in default on federal and private education loans. She said the bureau had identified servicers it viewed as high risk, but she declined to disclose names.

Robert F. Smith lifted a debt burden from 396 Morehouse graduates. It remains for thousands of other African Americans.

The discrimination inquiry emerged amid research that showed a disproportionate number of African Americans struggling to remain in good standing on their student loans. Nearly one-quarter of African American borrowers with bachelor’s degrees defaulted on their loans, compared with 9 percent of all borrowers who earned the same credential, according to Education Department data.

While labor market discrimination and the racial wealth gap play roles in such outcomes, higher education experts have begun questioning whether poor loan servicing is contributing to the challenges black borrowers face.

Public-interest groups are calling on Education Dept. to track racial disparities in student lending

Public-interest groups have for years asked the Education Department to track and monitor the effects of student loans on people of color. Student advocates say that short of identifying and addressing inequalities in student lending, the department must at least cooperate with other authorities pursuing the task.

The Education Department terminated its agreement to share information with the consumer bureau in October 2017. The Education Department’s Hill said her agency will establish a new agreement once a private student-loan ombudsman is appointed at the bureau.

“The Department takes its responsibility to provide high-quality service to federal student loan borrowers very seriously” and “devotes significant resources to vendor oversight and monitoring efforts,” Hill said.

Advocacy groups have been skeptical of the Education Department’s oversight of its contractors, and those groups have relied on the consumer bureau to pick up the slack. Since its inception, the bureau has been aggressive in going after student loan companies, but enforcement efforts have waned under the Trump administration.

“Students — especially students of color — are counting on the CFPB to do its job and protect them from discrimination and exploitation as they pursue their education and pay for it years later,” said Liz King, program director of education at the Leadership Conference on Civil and Human Rights, a party to the letter to the consumer bureau. “Delay and inaction have no excuse.”