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Department of Education, CFPB in turf war over student loans

Joe Mont | September 6, 2017

The Department of Education has severed an information sharing agreement with the Consumer Financial Protection Bureau that was intended to protect student loan borrowers.

On Aug. 31, Kathleen Smith, acting assistant secretary for postsecondary education, and Dr. A Wayne Johnson, chief operating officer for federal student aid, announced the termination of two Memorandums of Understanding between the agencies “in connection with oversight of federal student loans and “to ensure coordination in providing assistance to and serving borrowers seeking to resolve complaints related to their private education or federal student loans.”

“Our goals are to ease the burden for borrowers and to enhance the efficiencies of our servicers, not to complicate the federal student loan process with potentially inaccurate and inconsistent directives,” the letter says. “The Department entered into the [memorandums of understanding] in reliance on the CFPB's commitment to helping each agency fulfill its respective duties. Instead, the CFPB is using the Department's data to expand its jurisdiction into areas that Congress never envisioned.”

“This latest expansion is characteristic of an overreaching and unaccountable agency and it has led the Department to terminate the MOUs in order to ensure fair and consistent enforcement of Title IV requirements and the efficient resolution of borrower complaints,” the letter adds. “The Department takes exception to the CFPB unilaterally expanding its oversight role to include the department’s contracted federal loan servicers. The Department has full oversight responsibility for federal student loans.”

The rebuke of the CFPB came the same day as the Department of Education announced “a stronger approach to how Federal Student Aid enforces compliance by institutions participating in the Federal student aid programs by creating stronger consumer protections for students, parents and borrowers against ‘bad actors.’”

“Protecting students has always been my top priority,” Secretary Betsy DeVos said in a statement. “This new approach will enhance our efforts on our oversight responsibilities, including enforcement against bad actors, such as illegitimate debt relief organizations, schools defrauding students and institutions willfully ignoring their Clery Act responsibilities.”

Dr. Johnson, the new chief operating officer at FSA, “recently began transforming the oversight function—broadening its scope, increasing its capacity and adopting a more sophisticated strategy—while adding several key senior executives to help lead and implement a more comprehensive, broader approach to the oversight of the federal student aid programs,” the announcement says.

Under his direction, FSA has established an integrated system of complementary oversight functions to ensure compliance by all participating parties. Under this approach, oversight begins “with proactive risk management to identify and mitigate risks before they pose a threat.” These efforts “are bolstered by comprehensive communications and executive outreach to ensure parties and their leadership understand their responsibilities, the consequences of non-compliance and appropriate remedies.”

“We have amplified our outreach to program participants to ensure they understand these rules and their status,” Johnson said. “If we determine parties are out of compliance, we will use the authority delegated to the Secretary—and in turn to Federal Student Aid—to do right by students, borrowers and taxpayers, including bringing them into compliance or, if necessary, revoking their eligibility to participate in the student aid programs.”