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The federal Consumer Financial Protection Bureau has a new student loan watchdog, and his appointment is raising questions about who is safeguarding the interests of student borrowers.
Massachusetts senator and Democratic presidential hopeful Elizabeth Warren, who helped create the CFPB, sent a scathing letter on Thursday to the bureau's current director. In documents obtained by NPR, Warren called the appointment of Robert Cameron "an outrageous slap in the face to student loan borrowers across the country." Warren also sent letters to Treasury Secretary Steven Mnuchin and directly to Cameron, writing, "your employment history presents an irresolvable conflict of interest that will prevent you from being able to serve as an effective Student Loan Ombudsman."
The watchdog job has been vacant since last summer, when the CFPB's previous student loan ombudsman resigned in protest, arguing that the Trump administration was not doing enough to protect student borrowers.
Cameron, the newly appointed ombudsman, is a U.S. Army veteran and a staff judge advocate for the Pennsylvania Army National Guard. But here's the part of his résumé that has Warren so incensed: Before taking the long-vacant job, Cameron was a top lawyer for one of the country's largest student loan servicers, the Pennsylvania Higher Education Assistance Agency, known as PHEAA. There, according to the CFPB's announcement, Cameron was "a high-ranking official responsible for litigation, compliance, and risk mitigation efforts." PHEAA manages more than $400 billion of student loan debt, most of it for the U.S. government, and has been the target of considerable criticism, including for its handling of a troubled student loan forgiveness program and a grant program that hurt thousands of public school teachers.
Jason Delisle, who studies higher education policy at the conservative American Enterprise Institute, says Cameron is in a no-win situation with his critics.
"If you've got the experience, you know, shame on you," Delisle says. "If you don't have the experience, well, also shame on you." He suggests it makes sense to have an industry veteran in such an oversight role.
This fight, though, isn't just about one man or his experience. It's about the job itself.
The watchdog post was created in 2010 as part of the Dodd-Frank Act, Congress' sweeping response to the Great Recession. The law says the CFPB's "private education loan ombudsman" — that's the official title — should focus on students with private loans, like those you would get from a bank, as opposed to federal loans. This is an important distinction.
Private loans issued by private banks account for a tiny slice of the overall student debt pie in the U.S. Most students with loans get them from the federal government, which then assigns them a servicer, like PHEAA, to manage their paperwork, answer their questions and field their frustrated phone calls. Much has been written in recent years about these companies' struggles to administer the incredibly complex federal loan program that serves tens of millions of borrowers. When borrowers feel surprised or misled, it's servicers that often take the brunt of their anger.
During the Obama administration, the CFPB and its private loan watchdog regularly fielded borrower complaints and heard this anger. To help, they argued that they were within the law to oversee not only private loans but federal loan servicers, too. In fact, in late 2013, the CFPB issued a new rule, cementing this expansion of its oversight "to any nonbank student loan servicer that handles more than one million borrower accounts, regardless of whether they service federal or private loans."
Now, with Robert Cameron's appointment, the CFPB under the Trump administration appears to be saying that the Obama-era CFPB overreached. In its announcement of the appointment, the bureau drew clear boundaries: "The ombudsman is responsible for receiving, reviewing, and attempting to resolve complaints from private student loan borrowers." There was no mention of federal student loans or servicers. In short, the CFPB seems to be signaling that this ombudsman will no longer look out for the lion's share of borrowers. The bureau did not respond to multiple requests for clarification or to hear from Cameron directly.
The implication that the Obama-era CFPB and its student loan ombudsman may have exceeded their authority frustrates Seth Frotman, the previous watchdog who resigned in protest a year ago. This argument, he says, is "just not grounded in fact, and it's just a very convenient way to not do the work that they are required to do under the law." Frotman is now executive director of the Student Borrower Protection Center.
Delisle at AEI says that even if this new ombudsman stops overseeing federal student loans and servicers entirely, other agencies have been and will continue to police them. "There's the Department of Education. There's Congress. There's the [inspector general] at the Department of Education. There's the Government Accountability Office ... I don't think we're lacking for oversight."
The quality of that oversight is a separate question.
Several states' attorneys general have essentially given the Education Department's oversight a vote of no confidence by suing loan servicers for allegedly mishandling the federal student loan program and misleading borrowers in their respective states. Under Education Secretary Betsy DeVos, the department responded by trying to protect servicers, arguing that as contractors of the federal government these companies cannot be held accountable on a state-by-state basis. It even published this interpretation of the law in the Federal Register.
Earlier this year, though, the Education Department's own inspector general reviewed the agency's oversight of federal student loan servicers, and investigators were not impressed. They found "a pattern of noncompliance" at Cameron's former employer, PHEAA. And, overall, they worried the department's office of Federal Student Aid was being lax. "By not holding servicers accountable," the report said, the department "could give its servicers the impression that it is not concerned with servicer noncompliance with Federal loan servicing requirements, including protecting borrowers' rights." The department, for its part, disagreed with that conclusion.
Delisle at AEI and Frotman, the former student loan ombudsman, do agree on one thing. Delisle says that the Obama-era CFPB raised some important red flags and that this new, private loan watchdog should not completely ignore federal loans.
"I wouldn't go all the way," Delisle says. "I think it would be a mistake to completely move away from that role."
And Delisle is not alone. After cheering the new appointment, even the Consumer Bankers Association said in a statement, "It is clear the federal student loan program is not working and [Cameron] should also focus on implementing needed improvements there."
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