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What the Shutdown of the CFPB's Student Loan Watchdog Means for Borrowers

Consumer Reports has no financial relationship with advertisers on this site.

Consumer Reports has no financial relationship with advertisers on this site.

The Consumer Financial Protection Bureau is shutting down a key watchdog division focused on protecting student loan borrowers from abuses by loan servicers, debt collectors and predatory lenders, a move consumer groups say will undermine protections for the 44 million people who have student debt.

In a memo to staff announcing a number of organizational changes on Wednesday, CFPB interim director Mick Mulvaney said that the CFPB’s Office of Students and Younger Consumers, which investigates student loan problems, will be folded into its financial education office.

Seth Frotman, the CFPB student loan ombudsman, will remain in his position, one that is required by law since it was established by the Dodd Frank Wall Street Reform and Consumer Protection Act in 2010.
Mulvaney said the change is part of a continuing organizational restructuring aimed at making the bureau more efficient and accountable. The CFPB also announced it is shelving plans to develop new rules to curb bad practices by loan servicers who manage student loan payments. But critics say the moves are just the latest by the Trump administration to scale back protections for student borrowers.  

In March, the Department of Education issued a notice stating its opposition to state efforts to regulate companies that manage student loans. That follows the agency's announcement in August that it would stop collaborating with the CFPB in its oversight of loan servicers. The Education Department has also delayed rules that would help protect students and taxpayers from misconduct by for-profit schools, where students often take out high levels of debt.

Those moves are a significant reversal from the aggressive steps the CFPB took under the Obama administration to crack down on student loan servicers, for-profit colleges and debt “relief” companies trying to scam borrowers.

More than a dozen consumer advocacy organizations denounced the move to shutter the CFPB office overseeing student loans, including Consumers Union, the advocacy division of Consumer Reports.

“The Office of Students and Young Consumers has been instrumental in uncovering rampant lending abuses and deceptive practices that make it difficult for borrowers to manage their education debt responsibly,” said Suzanne Martindale, senior attorney for Consumers Union. “It makes no sense to eliminate this critical office at a time when millions of Americans need a watchdog working to make sure lenders and loan servicers are following the law and treating them fairly.”  

It remains to be seen how aggressive the CFPB will be policing student lending abuses as well as other consumer issues going forward. A lawsuit filed against student lending giant Navient by the CFPB before President Trump took office remains pending. Navient is accused of providing borrowers with inaccurate information, processing payments incorrectly, and failing to take action to address consumer complaints. Martindale says research by the Office of Students and Young Consumers prompted the CFPB to file a lawsuit against Navient in the first place.

In February, in a move similar to what it did with the student loan office, Mulvaney folded the CFPB’s fair lending division into the bureau’s consumer education office. The CFPB also said it may pull public access to a database of consumer complaints on its website. And earlier this year, Mulvaney halted CFPB enforcement actions against several financial companies accused of wrongdoing, including a probe of World Acceptance Corp., an installment lender accused of unfairly profiting off of low-income, repeat borrowers. 

What to Do If You Have Problems Paying Your Student Loans

It's not yet clear what the closure of the student loan investigation unit will actually mean for borrowers, says Brianna McGurran, a student loan expert at NerdWallet, a website that offers personal finance tools. McGurran says it's possible another office in the CFPB could assume its duties. And there are other organizations and federal agencies with oversight over student loans that consumers can contact, says McGurran.

Meanwhile, the CFPB and the Department of Education still provide a number of resources for student borrowers. If you need help handling problems with your student loans, here’s what to do.

Keep good records. Make sure you know who your servicer is and what kind of loans you have, and keep records of what you owe and the payments you’ve made. If they’re federal loans—most student loans are—you can find the name and contact info for your servicer in this national database. If you have a private student loan, try checking your credit report. You can get a free copy of your annual credit report at annualcreditreport.com.

Know your options. If you’re struggling to make payments and have federal loans, there are a number of payment plans that can reduce your monthly bill. But the options can be confusing, and student loan servicers often give out bad information.

Use the Department of Education’s Repayment Estimator to calculate your federal student loan payments under each repayment plan. Or try the CFPB’s Repay Student Debt tool, an interactive guide that takes borrowers through their repayment options.

You might be able to enroll in an income-driven repayment plan, which can lower your monthly payment to as little as 10 percent of your discretionary income. To start making payments under an IDR plan, enroll online at StudentLoans.gov.

Private loans don’t offer the same consumer protections and flexible payment plans that federal loans do. But some lenders may offer some options, such as temporary suspension of your payments, if you have trouble making them. The CFPB also has an ombudsman who oversees private student loans.

File a complaint. Many student loan servicers have their own ombudsman whose job it is to help borrowers resolve problems. Start there. If your servicer isn’t helping you, you can still file a complaint through the CFPB’s general online complaint portal or call the CFPB at 855-411-2372, whether you have federal or private loans.

For federal loans you can also file a complaint on the Department of Education’s loan complaint site. If you are a veteran, you can submit complaints via the GI Bill Feedback System. Also check with your state to see what services they have in place to help borrowers.  

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