Personal Finance

Timing of student loan watchdog's resignation 'couldn't be worse,' advocates say

Key Points
  • The resignation of the government's chief watchdog of the student loan market demonstrates the Trump administration's unwillingness to protect borrowers, advocates say.
  • How the government will proceed with enforcement is now of serious concern, they say. 
Mick Mulvaney at the U.S. Consumer Financial Protection Bureau (CFPB) in Washington.
Joshua Roberts | Reuters

The resignation of the government's chief student loan watchdog could not have come at a worse time, and demonstrates the Trump administration's unwillingness to protect borrowers, advocates say.

Seth Frotman, student loan ombudsman at the Consumer Financial Protection Bureau, resigned on Monday. In a letter to Mick Mulvaney, acting director of the CFPB, Frotman said he was leaving due to sweeping changes at the bureau, including the abandonment of enforcement and the protection of bad actors from scrutiny. "You have used the bureau to serve the wishes of the most powerful financial companies in America," Frotman wrote. The letter was obtained by NPR.

The Consumer Financial Protection Bureau did not immediately respond to a request for comment. Frotman also could not be reached for comment.

Frotman's absence underscores the current vulnerability of the country's millions of student loan borrowers, said Barmak Nassirian, director of federal relations at the American Association of State Colleges and Universities.

Student loans

"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.

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