Susan Dynarski of University of Michigan wrote an article in The New York Times about the trillion dollars of outstanding debt for college loans, and the Trump administration’s regulatory decisions that will help and protect the lending industry, not the students.
As the saying goes, elections have consequences. Hillary Clinton adopted Bernie Sanders’ pledge to make higher education free for students whose family income was less than $125,000. Trump offered nothing, and DeVos made clear in her confirmation hearings that she was not at all concerned about students who were burdened by crushing debt.
So the consequence of the 2016 elections is that Betsy DeVos is rolling back efforts by the Obama administration to regulate the businesses that make student loans and protect students from predatory practices. She is also making it harder for students to apply for student aid by removing access to an online program created for that purpose.
But that’s not all.
Access to income-based repayment programs is more important than ever because of a separate Trump administration rollback of protections for borrowers. Now, those who fall behind on their payments are subject to much larger penalties.
The Obama administration had limited the ability of loan companies to impose punitive fees on borrowers who were in default. Before the Obama rules went into effect, borrowers could be required to pay back as much as 16 percent of their loan balance before they were allowed to enroll in an income-based program. On March 16, Ms. DeVos issued a directive that allows loan companies to again charge these fees.
If the Education Department fails to protect and assist borrowers, where can they turn for help? During the Obama administration, other agencies stepped in to monitor the behavior of the loan servicers and banks. The Consumer Financial Protection Bureau, in particular, appointed a student loan “czar,” who has collected thousands of complaints from borrowers and has published an annual report on student loans.
In a recent letter, a group of academics urged that the consumer bureau go further by collecting loan-level data on repayment, delinquency and default just as it does in monitoring the mortgage industry. I have suggested the same, in a previous column.
The Trump administration and Republicans in Congress have made the consumer bureau a target. They aim to strip the agency of its oversight authority and independence. As it stands now, the Federal Reserve funds the consumer bureau, which buffers it from political pressure. If the bureau is hamstrung, borrowers will have lost a powerful watchdog.
It is puzzling that Ms. DeVos has consistently said that government should be held accountable for the quality of the services it delivers to students, yet the Education Department has in short order made loan companies less accountable to both the government and to borrowers.
This is unfortunate. Dismantling the regulation of loan companies isn’t likely to unleash an innovative, private market that will improve services for borrowers, who have been assigned to a loan company and can’t shift to a better one. There is therefore no market discipline that will drive the bad companies out of business.
Deregulation, in this case, simply leaves borrowers at the mercy of an unaccountable corporate bureaucracy.
That seems to be the goal of Trump and DeVos. They know exactly what they are doing. They are acting on behalf of the industry, not students.
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