Seth Frotman, formerly of Consumer Financial Protection Bureau, hopes new organization can succeed where officials failed

This article is more than 1 year old

This article is more than 1 year old

A former federal student loan watchdog who loudly quit his job this year has announced a new initiative to help solve the $1.5tn student debt crisis.

Seth Frotman, the former student loan ombudsman at the Consumer Financial Protection Bureau, will lead the Student Borrower Protection Center, which also will employ several of Frotman’s former colleagues at the federal bureau. The center will try to tackle some of the protections the bureau handled under past administrations, but which have largely been ignored since Donald Trump took office.

It was clear to me that something needed to be done Seth Frotman

About 44 million Americans have student loan debt, and a quarter of them are behind on payments. Unscrupulous lenders and loan servicers have compounded the problem, but the federal government recently has failed to enforce laws protecting borrowers, Frotman told the Guardian.

“What became crystal clear for me at the bureau was there was no desire, no effort to help these people,” he said. “It was clear to me that something needed to be done.”

Frotman made waves last summer when he left the bureau, accusing Trump’s administration of undermining the agency’s power to enforce laws.

“The current leadership of the bureau has made its priorities clear,” Frotman wrote in a scathing resignation letter. “It will protect the misguided goals of the Trump administration to the detriment of student loan borrowers.”

The bureau declined to answer questions about Frotman’s new endeavor or about the debt crisis overall, writing in an email: “The employment of former staffers it’s [sic] not something the bureau needs to comment on.”

Student debt disproportionately harms borrowers from low-income families and people of color, studies show, and it reduces lifetime earnings – the opposite effect a college degree should have. About 9 million student loan borrowers are in default.

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“The impact that student debt has on families is staggering,” Frotman said. “We’re seeing how student debt impacts income inequality, racial inequality, all kinds of areas.”

The average 2017 graduate who borrowed to afford college – about two-thirds of those graduates – owed nearly $30,000 upon leaving college, up from less than $13,000 in 1996, according to the Institute for College Access and Success. Younger adults are holding back on home ownership, often choosing instead to live with parents.

The new center will fight the debt problem on multiple fronts.

It will, for instance, work with cities to help neighborhoods inordinately affected by student debt. And it will push cities and states to enforce consumer protection laws by taking unsavory companies to court and advocating for more states to adopt a borrower bill of rights, as Connecticut has done, for example.

Frotman, who was appointed to the federal post under the Obama administration, says he is confident he can persuade Democrats and Republicans to support reforms.

“The partisan and ideological war this administration has waged on student borrowers has no basis in anything outside the Beltway,” he said, referring to Washington politics. “The student debt crisis does not have any partisan leanings in how it’s harming people.”

The country needs not-for-profits and other groups to take up the slack and push for enforcement and reforms, said Eileen Connor, the litigation director at Harvard University’s Project on Predatory Student Lending, which represents student borrowers in cases against lenders and loan servicers.

The Obama administration had made progress fighting bad apples in the lender bunch, Connor said, but those dodgy companies have had a renaissance under the new administration.

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“It’s a scary time because there are such strong signals coming from regulators that it’s open season,” she said. “There’s a lot of illegal behavior going on.”

Consumer protection laws require, for example, that companies clearly explain repayment options to borrowers. The Department of Education found last year that Navient Corp, one of the nation’s largest loan-servicing companies, had instead steered borrowers toward more expensive repayment plans. The federal audit was kept from the public until the Associated Press revealed it in November.

The Consumer Financial Protection Bureau previously would have enforced action against Navient and others, but the past year has seen little action from the gutted agency.

“In years past we would see a regular stream of activities there,” said Julie Margetta Morgan, a fellow with the Roosevelt Institute who studies student loans. She also will be a fellow with Frotman’s new center. “The past year we haven’t seen anything at all.”

Frotman is not cryptic about why he gave up on the Trump administration.

“The steps they have taken are hurting real people and harming the financial futures of millions of Americans,” he said.