As young college students hope to start their careers and older students juggle work, families and rent, the agency charged with lending an assist is looking the other way as big banks drown them in debt. Thus, says Seth Frotman, ombudsman for student loans at the Consumer Financial Protection Bureau (CFPB). He abruptly resigned his position on Monday, saying the bureau has “turned its back on young people and their financial futures.” Frotman claimed he felt unable to properly discharge his duties serving students saddled with college debt while working for an agency intent on thwarting his efforts.
Acting Director Mick Mulvaney, a Trump Administration appointee on the job since November of last year, Frotman said the CFPB suppressed a report his office released that stated some of the nation’s biggest lenders were crippling students with “legally dubious” account fees, making for a rigged and uphill battle to pay off loans. He said the agency is “protecting bad actors” and sacrificing millions of citizens to greedy banking institutions, contributing to a $1.5 trillion student debt crisis.
“When struggling borrowers fall victim to a rigged system, they are treated like tax cheats and deadbeat parents as they are driven to poverty through garnishment and offsets,” said Frotman in the letter. “You have used the bureau to serve the wishes of the most powerful financial companies in America. The damage you have done to the bureau betrays these families and sacrifices the financial futures of millions of Americans in communities across the country.”
A CFPB employee since 2011, Frotman had previously served as assistant director of the Office of Students and Young Consumers. But as ombudsman, he was frustrated by the thwarting of his efforts to advocate for consumers of all ages who are saddled with student debt. He’s being hailed as a hero whistle-blower at a time when many public officials are falling in lockstep with the Trump Administration’s policies. In fact, critics say, as with other agencies, such as the Environmental Protection Agency, Republican legislators have been instrumental in helping to dismantle the CFPB overall, from within.
While a congressman in 2014, Mulvaney denigrated the calling it a “sick, sad” joke. Yet, he’s the person Trump selected to head this agency. He’s said he’ll do what the law requires, but no more, in service of the bureau. So far, he’s disbanded all of its advisory boards and councils, asked Congress to consider sweeping changes to its authority, relaxed restrictions on payday lenders, etc. Trump’s Justice Department and Education Department have both floated the idea that debt collectors deserve protection from state regulation. Betsy DeVos, Education Secretary, tried to do away with a regulation that penalizes those schools whose graduates are the most hampered by deep debt and low earnings after attending those institutions.
Adding insult to injury for borrowers, Trump’s budget calls for an end to the Public Service Loan Forgiveness Program, in which government employees and those who work for qualifying nonprofits can have their student loan balances forgiven after 10 years of 120 on-time payments. He’d also eliminate subsidized loans, in which the government currently pays the interest if students are enrolled at least half the time, in favor of unsubsidized loans, which accrue interest not only while the student is in school, but also if the student is in a deferment period.
“American families need an independent Consumer Bureau to look out for them when lenders push products they know cannot be repaid,” said Frotman in his letter, “when banks and debt collectors conspire to abuse the courts and force American families out of their homes, and when student loan companies are allowed to drive millions of Americans to financial ruin with impunity.”
This public shaming by a person of conscience seems to have taken Mulvaney and the bureau by surprise. It had no comment in response to Frotman. He’s received thunderous applause in many quarters, but some worry that his departure is precisely what students don’t need right now. Increasing rates of depression, drug addiction and suicide are being tied to student loan debt and Frotman appeared to be a lone force keeping borrowers from being thrown to the proverbial wolves. Students have fewer consumer protections than those who have credit cards, auto or housing debt.
Frotman wrote an in-depth article in the July 2018 issue of the Utah Law Review titled, “Broken Promises: How Debt-financed Higher Education Rewrote America’s Social Contract and Fueled a Quiet Crisis.”
“The American higher education system increasingly relies on debt financing as the predominant mechanism by which American families pay for college,” he writes in the law review. “Researchers and policymakers are only now beginning to acknowledge the threat runaway student debt poses to the American social contract — even as millions of borrowers across the country struggle with the consequences of this quiet crisis.”