Two months ago, Seth Frotman did something brave. He saw a deep wrong in the U.S., and he decided to shine a light on it by very publicly resigning from his job.
Frotman was in his third year as the student loan ombudsman for the Consumer Financial Protection Bureau (CFPB), but he’d reached his breaking point, and in a scathing letter criticized the Trump administration for undermining the agency’s mission to protect student borrowers. “Unfortunately, under your leadership, the Bureau has abandoned the very consumers it is tasked by Congress with protecting,” he wrote. “Instead, you have used the Bureau to serve the wishes of the most powerful financial companies in America.”
He cc’d many public officials in the message, and his resignation-cum-protest went viral. Frotman charged that the once-independent watchdog organization had become a partisan arm of the administration, curbing oversight of lenders. In his letter, he accused the agency of suppressing a report that revealed evidence that several giant banks were “saddling [students] with legally dubious account fees.” Student loan debt was getting out of control, and the one government agency tasked with helping the borrowers was no longer doing so.
In the 10 years since the financial crash, student loan debt has increased to unprecedented heights. Currently, tens of millions of Americans owe a total sum in excess of $1.5 trillion. This situation was created by an increase in for-profit institutions, overall increasing tuition, as well as an influx of predatory lenders. And the current CFPB, which was originally tasked with advocating for citizens at the heart of this crisis, is increasingly seen as a mouthpiece for lenders.
This situation presents an opening for nonprofit organizations and businesses to take the lead in tackling this crisis. But are there actually companies working to advocate for vulnerable students, when there’s not much of a profit incentive? The answer is complicated.
Does a private solution exist?
On the business side, there are plenty of fintech companies like SoFi capitalizing on rising debt loads, offering refinancing options to borrowers. While this helps some students make more manageable monthly payments, refinancing actually perpetuates the problem even more, and further normalizes mounting student loan debt. Even Sofi says on its website that student loan debt growth will probably not go down. And why would the company want it to? The more this crisis mounts, the more customers it attracts.
There are other companies out there, focusing on ways to make sure every current student and college applicant gets the most bang for their buck. For instance, the startup Frank built a platform to help students figure out every financial aid program they could possibly be eligible for.
According to Frank’s founder, Charlie Javice, the idea was to look at the current system and make it easier for young people to attain their educational goals. “I started Frank not as a policy fuck you,” says Javice. In fact, she adds, she has no policy background. But she did see ways that a business like hers could make life easier for students without costing universities or the government more money. Once students get the most aid they possibly can, the next issue is making sure they’re able to use it.
“Cash flow is the main issue most students face,” Javice says. Loan dispersement, she explains, happens twice a semester for students. Often, they receive the money after they were supposed to throw down cash for hefty cost items like textbooks. “To show you how dire the problem is,” she says, “one-third of students are applying for [high-interest] payday loans.” She wants Frank to offer students a program that simply disperses their loan cash more regularly, like a paycheck. The company is already going beyond this and offering other banking solutions to students.
But while Frank does provide some services that may alleviate the burden of debt many Americans currently shoulder, it’s not paving a way to better solve this mounting crisis. Indeed, Javice tells me that for private companies–especially those working at the intersection of education and finance–it’s a lot easier now to navigate the terrain. Since Trump and his appointees like Education Secretary Betsy DeVos have focused on deregulating a lot of the policies that were protecting students, that cleared the way for for-profit companies–predatory or not–to jump in. “With Trump,” she says, “there’s a new wave of innovation.” That’s because, she adds, “the Department of Education is not forced to hate private companies as much.”
She points to the red tape that the CFPB used to force lenders to break through—but for borrowers, those rules were actual protections. While students may be drowning in debt, the move toward deregulation is letting businesses be more nimble. And the problem continues apace.
The answer is not-for-profit
One of the only allies on the side of debt-laden students and fighting against current trends in loan policy are lawyers. One New York-based group–the For-Profit Schools Project, which is an arm of the New York Legal Assistance Group (NYLAG)–advocates and provides legal services for generally low-income New Yorkers being targeted by predatory players in the student loan game. For-profit colleges are notorious for targeting low-income students, roping them into unaffordable tuitions, high-interest loans, and practically useless degrees. Many other nonprofit legal services groups, both national and local, have stepped into the breach to help thousands of students saddled with crushing debt.
According to Jessica Ranucci, an attorney at NYLAG, her organization is on the lookout for schemes that burden students, now that DeVos has scrapped some Obama-era rules meant to hold for-profit schools accountable. “When we see a problem, hurting in a systemic way,” she says, NYLAG seeks out ways to bring affirmative litigation. “We sue people–almost always class action.”
For-profit colleges have been around for decades, and their predatory nature is not necessarily a new problem. In fact, one of NYLAG’s co-directors has been fighting these businesses in the courtroom for years. But in recent years, the challenges have been magnified. “The last few years,” says Ranucci, “we’ve gotten more involved; much more of our litigation is focused on for-profit schools.
Many of these for-profit colleges were forced to shut down to their predatory and sometimes fraudulent practices, leaving their students screwed twice, since now they no longer have access to the schools’ career services. These schools were notorious for offering the moon and stars to woo in potential students–namely, their ability to get a job after graduation.
The other pressing problem is that the students aren’t being offered proper recourse when these businesses fail to deliver on their promises. Hundreds of thousands of people have been essentially defrauded by these schools, which claim to offer world-class educational services and do the opposite. Yet these students are still required to pay back their student loans, even though they weren’t given a proper education.
Two NYLAG clients, for instance, enrolled in an educational program offered by the company Career Education Services, which claimed to offer medical training. They found out, however, that the program did not have adequate accreditation and say that the school lied about its job placement statistics. NYLAG has been fighting to get their loans forgiven due to these empty promises, but DeVos’s Education Department doesn’t seem as interested in facilitating the applications of people seeking loan forgiveness.
“To our understanding,” says Ranucci, “the current administration has basically stopped processing [these applications].” The only recourse they have now is to sue the agency and DeVos, which Ranucci and her team have been actively doing.
The new norm seems to be that shady educational companies are more free to go after vulnerable young people desperate for an education. Schools woo students with false statistics about graduation and success rates, and sometimes even sign them up for loans without telling them. “A lot of students,” says Joseph Breen, a fellow at NYLAG, “wind up with loans after the fact when they weren’t told they were signing up for them.”
This all points to one glaring issue that’s becoming worse everyday: These institutions aren’t being adequately regulated anymore. According to Ranucci, the current administration is “attempting to use legal processes to delay what we would consider to be good rules.” Not only that, but it seems the Department of Education is now ignoring old rules while trying to create new ones that don’t seem to protect defrauded students. Essentially, things have gotten a lot more complicated because of a huge political shift in how the government views its role in protecting students.
For now, litigation seems to be the most powerful tool that students have to protect themselves. While some businesses are focusing on creating services for vulnerable students, many of them help perpetuate the systems that made these students so vulnerable to begin with.