The recent resignation of the Consumer Financial Protection Bureau’s (CPFB) top student loan official, Seth Frotman, comes on the heels of several policy changes at the U.S. Department of Education that enrich big businesses at the expense of students and borrowers.
When he resigned, Frotman penned a letter that described how influential financial institutions have taken hold of the CFPB and led the agency to shirk its responsibilities to consumers and the public.
Together, these developments illustrate just how completely our nation’s student loan policy has been corrupted by the powerful companies that profit from it. To put students back at the center of the student loan program, we need real anti-corruption rules that target the ways in which big businesses buy their way into the driver’s seat in federal agencies.
In addition to the millions of Americans each year who must borrow money to attend college, the federal student loan program supports a web of companies — servicers, debt collectors and for-profit universities — whose financial interests are at odds with students’ interests. These entities profit from the program, so they are incentivized to increase student debt: the more student loans disbursed, the more opportunities to make money. It is also in their interest to advocate for lax rules: The less oversight of the loan program’s management, the easier it is to cut corners and maximize earnings.
Student loan industry profiteers advocate for their interests no matter who’s in charge of the federal government, but they found a remarkably receptive audience under U.S. Secretary of Education Betsy DeVos and CFPB acting director Mick Mulvaney. Secretary DeVos went so far as to install industry representatives in key policymaking positions. Four of her top higher education advisers — Diane Jones, Robert Eitel, Julian Schmoke and Carlos Muniz — worked in the for-profit college industry.
DeVos’ deputy chief operating officer at Federal Student Aid, Kathleen Smith, has deep ties to student loan servicers. Mick Mulvaney has not hired any industry advocates to work on student debt at CFPB, but he did put out an open call for industry influence in April, urging an audience of financial institutions to engage in more lobbying. The embattled student loan servicer Navient took him up on the invitation, requesting — and receiving — a high-level meeting to discuss the merits of the CFPB’s ongoing lawsuit against the company.
The impact of this increased industry influence is evident in a number of key policy decisions this year, such as the rollback of the Department of Education’s gainful employment rule and the substantial weakening of a program providing relief to borrowers defrauded by their schools. But perhaps the most egregious example is the federal government’s efforts to shield student loan servicers from state regulation.
Earlier this year, the Department of Education signaled its support by adapting industry talking points into a memo opposing states’ efforts at imposing consumer protections on loan servicers and, just recently, the Department intervened on behalf of the servicers in a lawsuit against the District of Columbia. Frotman’s resignation letter revealed that CFPB leadership has been backing the servicing industry too, blocking the agency staff’s efforts to sound the alarm on the harm that will befall borrowers if the Department of Education is successful in blocking state regulation.
Student loan regulators cannot serve students and taxpayers if they are in the pocket of the companies they are supposed to oversee. But policymakers have an opportunity to fix this dynamic right now. The near-daily scandals in the Trump administration have generated interest in reforming our nation’s anti-corruption laws. Policymakers should take this opportunity to tamp down on big business’ ability to hijack the policymaking process through excessive lobbying or other methods of influence-peddling.
For example, Congress could prohibit agencies from placing former industry representatives in charge of the fate of their former employers by walling senior officials off from decisions that affect their former employers, and banning lobbyists from taking jobs at the agencies they attempted to influence.
At the Department of Education, these rules would keep Secretary DeVos’ for-profit college hires from weighing in on regulatory actions that could help or hurt career colleges.
We can also limit companies’ abilities to buy access to legislators and regulators by prohibiting former members of Congress and senior government officials from becoming lobbyists after leaving public office. Finally, Congress could improve transparency in the policymaking process so that the public can identify instances of undue influence and require the government to address it.
These reforms, taken together, would go a long way toward unstacking the deck in federal policymaking. Everyone should have an opportunity to make his or her voice heard at CFPB, the Department of Education and other federal agencies. Big businesses shouldn’t be able to drown out others just because they can afford to buy a megaphone.
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