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Right before the first day of school the Consumer Financial Protection Bureau’s ombudsman for student loans, Seth Frotman, quit with a bang, accusing the agency of rolling over as the administration cozied up to predatory lenders.
Late last year it was discovered some of the biggest U.S. banks were boosting profits by saddling student borrowers with legally dubious fees. According to Frotman, the CFPB reacted by suppressing its own report and ducking the issue.
“[T]he Bureau has abandoned the very consumers it is tasked by Congress with protecting. Instead, you have used the Bureau to serve the wishes of the most powerful financial companies in America,” Frotman’s wrote in his August 27 resignation letter to director Mick Mulvaney, which included a bulleted rundown of exactly how the CFPB had abandoned its mission.
Why the beef? Student loans are a huge market, and the Trump administration is loosening the reins. As the new school year starts, outstanding student loan debt now tops $1.5 trillion, and public universities cost an average of $21,000 annually, double the price from 30 years ago when adjusted for inflation. Private school tuition and fees average $47,000, or a little less than one Tesla Model 3, per year. One of every four borrowers with a postgraduate degree owes more than $100,000, and two-thirds of all college graduates in 2015 had some student loan debt.
But hey, banks got to get paid, right? Of the nearly 45 million student loan borrowers in the country, a little more than a third are actually paying down the original loan, while 15 percent are in default, and roughly half reported their loan balance was the same or increasing.
In 2014 the feds stopped officially tracking default rates on student loans, but thanks to a FOIA request by the New York Times, the news is out that defaults have soared. In just the two years from 2014 to 2016 while no one was watching, the share of schools with high default rates (30 percent or higher) went from 2 percent to 13 percent. At private-for-profit colleges, one out of every four borrowers is in default.
Meanwhile, Trump’s budget plan would slash student loan programs, such as Public Service Loan Forgiveness, which waives the remainder of public loans after 10 years of payments while the borrower works for a charity or nonprofit. Of course, it too has been cynically manipulated by banks for profit.