The new emphasis on the private market is a turn for the bureau, which has jurisdiction over loans made not only by banks and financial firms but also by the federal government. The move limits the scope of the bureau’s work at a time when the federal government originates more than 90 percent of student loans, and as borrowers have lost faith in the Education Department’s ability to rectify problems in the sector.
The consumer bureau did not immediately respond to requests for further comment on the direction of its student loan oversight.
The selection of Cameron, who hails from the federal student loan servicing company Pennsylvania Higher Education Assistance Agency, also rankled consumer advocates. Liberal lawmakers, consumer groups and borrowers have criticized the company’s management of the federal Public Service Loan Forgiveness and TEACH Grant programs. The company and its subsidiary FedLoan Servicing have been the subject of consumer lawsuits and state investigations tied to those federal programs. The company declined to comment.
One of the most critical reports about FedLoan Servicing was issued by the Consumer Financial Protection Bureau in 2017, under former director Richard Cordray. The bureau said flawed payment processing, botched paperwork and inaccurate information from FedLoan was derailing hundreds of public-sector workers from receiving student loan forgiveness. It also promised greater supervision of the program.
“It is outrageous that an executive from the student loan company that has cheated students and taxpayers, and is at the center of every major industry scandal over the past decade, is now in charge of protecting borrowers rights,” said Seth Frotman, the previous student loan ombudsman at the consumer bureau who resigned last year in protest of the Trump administration.
Frotman, who now is executive director of the Student Borrower Protection Center, has been advocating that states play a bigger role in protecting student borrowers from predatory behavior in the market. Consumer groups say states may now be the last line of defense for borrowers.
“We’ve had 10 states so far pass legislation to require student loan servicers be registered and overseen by their state government. I think we’re at the point where that’s the only answer,” said Whitney Barkley-Denney, legislative policy counsel at the nonprofit Center for Responsible Lending. “Borrowers need someone who is going to step up for them, defend them. The federal government has signaled that they have no interest in being that person.”
The Trump administration insists that federal student loans are solely the purview of the Education Department. The director of the consumer bureau, Kathy Kraninger, has made that argument to Congress when questioned about the bureau’s oversight of the student loan market. In May, several unions and the Student Borrower Protection Center urged the director to use the bureau’s full authority to regulate the entire student loan apparatus.