"Today, we have 42 million Americans walking around with student debt," Nassirian said. "Consequently, decent practices that protect predatory lending and servicing are all the more important."
Debbie Cochrane, vice president of the Institute for College Access and Success, called the news "a devastating turn of events with outstanding student debt now at $1.4 trillion and rising."
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Clare McCann, deputy director of higher education policy at think tank New America and a former Education Department official, said Frotman's resignation reveals that he felt he could no longer carry out his original mission.
"It's a loss for the student loan market — not to have a watchful eye at the Consumer Financial Protection Bureau and taking action when there are problems," McCann said.
The office of the student loan ombudsman was created in the wake of the 2008 financial crisis and at the same time as the CFPB. Since its creation, the office reimbursed borrowers who suffered from illegal lending practices and servicing failures with $750 million.
That progress is now dying out, Nassirian said. "I'm very sorry to hear that things have fallen apart," he said.
In May, Mulvaney announced that he would move the student loan division into the consumer information department, signalling that he saw its mission as more education than investigation.
Frotman's office was central in the government's current lawsuit against Navient, one of the largest student loan servicers. The CFPB claims the company illegally cheated many borrowers out of their rights to lower payments.
"Consumer rights organizations are going to be watching closely to see if Navient, one of the most complained about companies in America, is held accountable for illegal activities," said Chris Peterson, director of financial services at the Consumer Federation of America.