Facing Legal Trouble, DeVos’ ED Promises Judge “Better Oversight” of Student Loan Servicers … Despite Record Protecting the Industry at Every Turn

October 10, 2019

Washington D.C. – Struggling student borrowers got their answer to what it would take for Trump Education Secretary Betsy DeVos to finally acknowledge bad behavior in the student loan servicing industry. Turns out it’s the prospect of being held in contempt of court and even serving jail time, which arose this week after DeVos defied a magistrate judge’s order to stop collecting on loans to students defrauded by a shady, now-defunct for-profit college chain. In a desperate attempt to avoid legal consequences, DOJ lawyers representing the ED acknowledged they needed to “have better oversight of its servicers going forward.” Consumer watchdog Allied Progress challenged DeVos to explain why she should be believed now after spending the last 32 months systematically eroding protections for student borrowers and allowing servicers to thumb their nose at federal rules, while rarely punishing the industry for abusing borrowers.

“The DeVos Education Department’s newfound concern for servicer misbehavior rings as true as President Trump’s concern over overseas corruption. There simply isn’t a record to support it,” said Jeremy Funk, spokesman for Allied Progress. “The fact that it took the threat of legal consequences to even acknowledge the problem smacks of desperation. DeVos might be taken more seriously if she weren’t actively sandbagging state efforts to pick up the administration’s slack and hold big student servicers accountable.”

DeVos has abandoned her responsibility of making sure student loan servicers do right by borrowers, like guiding them through the repayment process and making sure they make the best decisions for their respective circumstances. She has instead done the bidding of servicers that have poured nearly two million dollars into Republican campaigns, including:

• Giving access and jobs to student loan servicer alumni
• Working alongside servicers to combat state-level borrower protections, even appearing to “strategize together” in one lawsuit.
• Thwarting the CFPB’s efforts to oversee servicers, prompting its Director to say DeVos is “getting in the way of efforts to police the student loan industry.”

WHAT YOU NEED TO KNOW:

Despite Rhetoric, Betsy DeVos Rolled Back Regulations and Oversight of Unscrupulous Loan Servicers

In October 2019, The Education Department’s Lawyers Acknowledged The Department Needed To “Have Better Oversight Of Its Servicers Going Forward,” And Thought A Letter To FedLoan Was An Adequate Way To Address The Servicer’s Poor Behavior.

A Justice Department Attorney, Defending The Education Department And Betsy DeVos After The Department Violated A Court Order Demanding It Stop Collecting On The Debt Of Former Corinthian Students, Said The Department Had “Become Aware Of The Need To Have Better Oversight Of Its Servicers Going Forward.”

In A Hearing With U.S. Magistrate Judge Sallie Kim, Charlie Merritt, A Justice Department Attorney Representing The Education Department And Betsy DeVos, Stated That ED Had “Become Aware Of The Need To Have Better Oversight Of Its Servicers Going Forward.” “Merritt: Your Honor, we share your concerns about what’s happened. At this point I can say the department was surprised to learn the extent of the non-compliance issues once it kind of dug into this issue further in response to the last order. It definitely has become aware of the need to have better oversight of its servicers going forward. It’s been an eye-opening experience — definitely take responsibility and understand that the buck stops with the department.” [“Transcript of Hearing Between Judge Sallie Kim, Joshua Rovenger, and Charlie Merritt,” PoliticoPro, accessed 10/08/19]

Education Secretary Betsy DeVos Faces Sanctions Or Contempt Of Court For “Continuing To Collect On The Debt Of Former Students At Bankrupt Corinthian Colleges Inc.” Despite A June Court Order To Stop Collecting The Debts – A Move That “‘Astounded’” The Presiding Judge. “U.S. Secretary of Education Betsy DeVos faces potential sanctions or a finding that she’s in contempt of court for continuing to collect on the debt of former students at bankrupt Corinthian Colleges Inc., going so far as to seize their tax refunds and wages. ‘I’m not sure if this is contempt or sanctions,’ U.S. Magistrate Judge Sallie Kim told lawyers for the Education Department at a hearing Monday in San Francisco. ‘I’m not sending anyone to jail yet, but it’s good to know I have that ability.’ The judge said she was ‘astounded’ that the department violated her June order to stop collecting the debts from students, who had been promised refunds of their tuition.” [Joel Rosenblatt, “Trump’s Education Chief in Hot Seat Over Student-Debt Collection,” Bloomberg 10/07/19]

The Presiding Judge Felt An Education Department Letter To FedLoan Expressing Concern For Its Behavior Was Not A “Very Strong Action” And Inquired On Possible Alternatives, Such As Seeking Damages.

Charlie Merritt Stated That The Education Department Had Been “Concerned By The Behaviors By The Servicers,” And Had Even Written A Letter To FedLoan Expressing Its Concerns. “Merritt: […] You know, as we noted in the compliance report, the department has been concerned by the behaviors by the servicers and is definitely looking more into possible ways to impose corrective actions upon the servicers. We noted a letter was sent to FedLoan Servicing.” [“Transcript of Hearing Between Judge Sallie Kim, Joshua Rovenger, and Charlie Merritt,” PoliticoPro, accessed 10/08/19]

The Presiding Judge Kim Retorted That A Letter Did Not Seem Like A “Very Strong Action” Against The Servicer And Asked If ED Had “Some Kind Of Clause That Allows The Government To Get Damages From The Companies.” “Kim: So a letter doesn’t actually strike me as being a very strong action because the emailsalone didn’t work. Sending a letter is sort of, like, doesn’t seem to be effective in getting their attention. I think the Department of Education has to get these companies’ attention, as in there is a — I don’t know what the contract says. Is there some kind of clause that allows the government to get damages from the companies if they don’t do what the Department of Education—? That’s what I’m thinking about. In other words, this does not seem to be an effective process.” [“Transcript of Hearing Between Judge Sallie Kim, Joshua Rovenger, and Charlie Merritt,” PoliticoPro, accessed 10/08/19]

Despite A Justice Department Attorney’s Apparent Acknowledgment That Student Loan Servicers Need More Oversight, Betsy DeVos’ Tenure Has Been Defined By Letting The Servicers Off The Hook

One Of DeVos’ First Actions As Secretary of Education Was To Repeal A Policy That Required ED To Consider Student Loan Servicers’ Past Conduct Before Awarding Them Contracts

Shortly After Becoming Education Secretary, Betsy DeVos Reversed An Obama-Era Policy That Required ED To Consider Student Loan Servicers’ Past Conduct Before Awarding Them Contracts.

On February 7, 2017, Betsy DeVos Was Confirmed As Education Secretary. “Betsy DeVos, a wealthy Republican donor with almost no experience in public education, was confirmed by the Senate as the nation’s education secretary on Tuesday, but only with the help of a historic tiebreaking vote from Vice President Mike Pence after weeks of protests and two defections within her own party.” [Emmarie Huetteman and Yamiche Alcindor, “Betsy DeVos Confirmed as Education Secretary; Pence Breaks Tie,” The New York Times, 02/07/17]

On April 11, 2017, DeVos “Withdrew A Sound Obama Administration Policy That Required The Education Department To Take Into Account The Past Conduct Of Loan Servicing Companies Before Awarding Them Lucrative Contracts.” “Education Secretary Betsy DeVos is inexplicably backing away from rules that are meant to prevent federal student loan borrowers from being fleeced by companies the government pays to collect the loans and to guide people through the repayment process. On Tuesday, she withdrew a sound Obama administration policy that required the Education Department to take into account the past conduct of loan servicing companies before awarding them lucrative contracts — and to include consumer protections in those contracts as well.” [The Editorial Board, “Whose Side Is Betsy DeVos On? [Editorial],” The New York Times, 04/13/17]

In 2018, Betsy DeVos Declared That Federal Student Loan Servicers Should “Only Be Subject To Federal Oversight” – Her Department Even Sided With Industry Against A State Oversight Attempt.

In March 2018, Betsy DeVos’ ED Officially Announced Its Stance That “State Regulation Of Direct Loans Is Preempted By Federal Law” And That Federal Student Loan Servicers Should “Only Be Subject To Federal Oversight.”

On March 12, 2018, ED “Published A Notice In The Federal Register Stating Its View That State Regulation Of Direct Loans Is Preempted By Federal Law” As “DeVos Says That The Companies Hired By The Government To Service Its Own Loans Should Only Be Subject To Federal Oversight.” “Department of Education Secretary Betsy DeVos says that the companies hired by the government to service its own loans should only be subject to federal oversight. In January, the department filed a brief in support of PHEAA with the Suffolk County Superior Court. Now the department is taking things a step further. On March 12 it published a notice in the Federal Register stating its view that state regulation of Direct Loans is preempted by federal law. State regulation of the servicing of Direct Loans ‘impedes uniquely federal interests,’ the notice states.” [Allison Bisbey, “DeVos Ups Ante with State AGs; The Department of Education secretary says the companies hired by the government to service its own loans should only be subject to federal oversight,” Asset Securitization Report, April 2018]

In September 2018, The Trump Administration Formally Backed A Student Loan Industry Lawsuit Against The D.C. Government’s Efforts To Hold Servicers Accountable For “Fraudulent Or Irresponsible Practices”—DeVos’ Spokesperson Characterized Such Efforts As “An Illegal Veto Of Federal Authority.”

On September 7, 2018, It Was Reported That “Trump Administration Lawyers Filed A “‘Statement Of Interest’” In SLSA’s Lawsuit “Against The District Of Columbia For Creating A Student Loan Ombudsman Office” In Which The Administration Claims DC Is “Violating The Supremacy Clause.” “Trump administration lawyers filed a ‘statement of interest’ last month supporting a lawsuit from the Student Loan Servicing Alliance, an industry trade group, against the District of Columbia for creating a student loan ombudsman office. Under a new city law, the companies would be required to apply for licenses and could lose their right to operate if officials determine that they have engaged in fraudulent or irresponsible practices. Administration lawyers accused the District of Columbia of trying ‘’to second-guess’ department officials in the selection of loan servicers, violating the supremacy clause in the Constitution in a case that could determine the future role of states in consumer protection.” [Glenn Thrush, “After Scaling Back Student Loan Regulations, Administration Tries to Stop State Efforts,” The New York Times, 09/07/18]

Betsy DeVos’ Spokesperson Backed Up The Administration’s Action, Claiming, “‘Federal Loans Are Federal Assets And Therefore Must Be Controlled And Regulated By The Federal Government,’” And That States Had Engaged In “An Illegal Veto Of Federal Authority.”  “‘Federal loans are federal assets and therefore must be controlled and regulated by the federal government,’ said Elizabeth Hill, a spokeswoman for Ms. DeVos. She described the actions of the states as an illegal veto of federal authority.” [Glenn Thrush, “After Scaling Back Student Loan Regulations, Administration Tries to Stop State Efforts,” The New York Times, 09/07/18]

In October 2017, 26 Attorneys General Urged Betsy DeVos To “Reject The Campaign By Student Loan Servicers And Debt Collectors To Dismantle State Oversight Of The Student Loan Industry,” Noting They Had Recovered “Tens Of Millions Of Dollars” To Harmed Borrowers.

On October 24, 2017 A Bipartisan Group Of 26 Attorneys General Wrote DeVos To “Urge The U.S. Department Of Education To Reject The Campaign By Student Loan Servicers And Debt Collectors To Dismantle State Oversight Of The Student Loan Industry” In Which “Leading Industry Groups Have Begun Lobbying The Department To Block Or ‘Preempt’ State Led Efforts.” “Attorney General Peter F. Kilmartin joined a bi-partisan effort by 25 states to protect students from predatory student loan servicers. In a letter to Secretary Betsy DeVos, the attorneys general urge the U.S. Department of Education to reject the campaign by student loan servicers and debt collectors to dismantle state oversight of the student loan industry. In recent years, state attorneys general have investigated a number of significant, far reaching problems in the student loan industry and won settlements returning tens of millions of dollars to student borrowers. In response, leading industry groups have begun lobbying the Department to block or ‘preempt’ state led efforts to combat potential and ongoing abuses by student loan servicers. As the attorneys general explain in today’s letter, the Department lacks the legal authority to block state oversight and any attempt to sideline effective state oversight amid the mounting student loan crisis would only put students and borrowers at risk.” [“Press Release, Office of the Rhode Island Attorney General, 10/24/17]

• State Attorneys General Had Returned “Tens Of Millions Of Dollars To Student Borrowers” In Previous Years. “In recent years, state attorneys general have investigated a number of significant, far reaching problems in the student loan industry and won settlements returning tens of millions of dollars to student borrowers.” [“Press Release, Office of the Rhode Island Attorney General, 10/24/17]
• The Attorneys General Argued That Betsy DeVos’ ED “Lacks The Legal Authority To Block State Oversight.” “As the attorneys general explain in today’s letter, the Department lacks the legal authority to block state oversight and any attempt to sideline effective state oversight amid the mounting student loan crisis would only put students and borrowers at risk.” [“Press Release, Office of the Rhode Island Attorney General, 10/24/17]

Before Betsy DeVos Declared That States Could Not Regulate Federal Student Loan Servicers, Industry Had Extensively Lobbied Her Department In Support Of Federal Pre-Emption, With The Department And Industry Representatives Even Appearing To “Strategize Together” On At Least One Occasion.

In September 2017, Navient CEO Jack Remondi Personally Asked A Top DeVos Aide To “‘Quickly’” Shoot Down State Oversight Of Servicers, Arguing That Urgent Action Was “‘Critical’” For Servicers To Avoid State Licensing Fees.

Navient’s CEO “Personally Emailed” A Top Betsy DeVos Aide Asking ED To “‘Quickly’ Declare That States Lacked The Authority To Police” Servicers, Claiming That Timing Was “‘Critical’” If Servicers Were To Avoid State Licensing Fees. “Navient CEO Jack Remondi personally emailed a top aide to Education Secretary Betsy DeVos in September 2017 urging the administration to ‘quickly’ declare that states lacked the authority to police the companies that collect federal student loans. He called the timing ‘critical,’ expressing concern about licensing fees companies would have to pay to state regulators.” [Nicole Gaudiano, “Exclusive: Navient CEO personally lobbied Trump administration on preemption,” Politico, 08/15/19]

The SLSA President Also Helped ED Officials Track State Loan Servicing Regulations Before The Department Came Out Against Them.

The Trade Group President “Was In Frequent Contact With Kathleen Smith, Another DeVos Aide, About The Progress Of The Laws In Various States” As ED Was “Closely Monitoring The Status Of State Loan Servicing Laws Before Coming Out Against Them.” “The emails also show that Education Department officials were closely monitoring the status of state loan servicing laws before coming out against them. Crigler was in frequent contact with Kathleen Smith, another DeVos aide, about the progress of the laws in various states, trading intelligence about whether state lawmakers and governors would adopt them, according to the emails.” [Michael Stratford, “Exclusive: How the student loan industry lobbied DeVos to fight state regulations,” Politico, 08/15/19]

PHEAA Lawyers And ED Officials Were In Contact As The Administration Was Trying To Prevent “Massachusetts From Suing The Company” And Even “Appeared To Strategize Together” On One Occasion.

Emails Between ED Officials And PHEAA Show They Communicated “As The Trump Administration Sought To Stop Massachusetts From Suing The Company” And “In At Least One Case The PHEAA Lawyer And The Administration Appeared To Strategize Together.” Emails “show correspondence between Education Department officials and attorneys for another loan servicer, the Pennsylvania Higher Education Assistance Authority, or PHEAA, as the Trump administration sought to stop Massachusetts from suing the company. The administration in January 2018 filed a statement of interest in state court in Massachusetts that said the state attorney general, Maura Healey, lacked the authority to sue PHEAA because it collects student loans on behalf of the federal government. PHEAA’s outside counsel, an attorney at the firm Ballard Spahr, was in contact with Education Department attorneys before and after the Trump administration made the filing. And in at least one case the PHEAA lawyer and the administration appeared to strategize together, according to the emails, some of which are redacted.” [Michael Stratford, “Exclusive: How the student loan industry lobbied DeVos to fight state regulations,” Politico, 08/15/19]

DeVos’ Education Department Has Repeatedly Blocked The CFPB’s Efforts To Regulate Student Loan Servicers –

The CFPB Director Herself Said ED Was “Not Doing Enough” To Regulate Student Loan Servicers.

Betsy DeVos’s ED Ended Cooperation With The CFPB To Oversee Student Loan Servicing, Claiming That The Bureau “‘Baselessly’” Expanded Its Authority—However, 39 Congressmembers Protested DeVos’ Decision, Citing A Dodd-Frank Requirement That ED Cooperate With The CFPB.

On September 15, 2017, “39 Members Of Congress” Called On DeVos “To Reverse Her Decision To Stop Cooperating With The Consumer Financial Protection Bureau (CFPB).” “[…] 39 Members of Congress today called on Education Secretary Betsy DeVos to reverse her decision to stop cooperating with the Consumer Financial Protection Bureau (CFPB).” [Press Release, Sen. Sherrod Brown, 09/15/17]

Betsy DeVos’ ED Sent A Letter To The CFPB Complaining That The Bureau “‘Unilaterally’” And “‘Baselessly’” Expanded Its Authority Over Student Loan Servicers.  “[…] [T]he U.S. Department of Education sent a letter to the CFPB stating ‘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’ and baselessly asserting ‘…the CFPB is using the Department’s data to expand its jurisdiction into areas that Congress never envisioned.’” [Press Release, Sen. Sherrod Brown, 09/15/17]

The Members Of Congress Argued That ED’s Letter Was “‘Inaccurate,’” Citing Dodd-Frank Provisions That That Explicitly “Ordered The [Education] Department And CFPB To Enter Into A Memorandum Of Understanding (MOU) To Share Information About Borrowers.” “In the letter to Secretary DeVos, the members called the Department’s claims ‘inaccurate’ and noted that Congress has given multiple federal agencies jurisdiction over consumer protection in federal student loan servicing. The Dodd-Frank Wall Street Reform and Consumer Protection Act established the Office of Student Loan Ombudsman at the CFPB. The law also ordered the Department and CFPB to enter into a Memorandum of Understanding (MOU) to share information about borrowers that are mistreated by student loan servicing companies.” [Press Release, Sen. Sherrod Brown, 09/15/17]

In July 2018, The CFPB Accused The Education Department Of Purposefully Impeding Its Lawsuit Against Navient By “Refusing To Authorize Navient To Turn Over Documents.”

In July 2018 The CFPB Said ED Was Impeding Its Lawsuit Against Navient And “Is Refusing To Authorize Navient To Turn Over Documents” Which Could Make It “Difficult To Show What Type Of Damage The Company’s Alleged Misbehavior Caused To Borrowers.” “The nation’s consumer watchdog agency is accusing the Education Department of impeding a lawsuit that could potentially bring financial relief to millions of student loan borrowers. The Consumer Financial Protection Bureau is suing Navient Solutions, alleging one of the nation’s largest student loan servicers violated consumer protection laws and in some cases caused students to pay back too much on their student loans. But in court filings, the CFPB says the Education Department is refusing to authorize Navient to turn over documents. Without that authorization the federal government, as well as several state attorneys general suing Navient, could find it difficult to show what type of damage the company’s alleged misbehavior caused to borrowers.” [Ken Sweet, “Watchdog says Education Dept. stonewalls student loan suit,” The Associated Press, 07/12/18]

In An April 2019 Letter, CFPB Director Kathy Kraninger Informed Members Of Congress That “Student Loan Servicers Have Declined To Produce Information Requested By The Bureau For Supervisory Examinations” Due To The Education Department’s Continued Efforts To Block The Bureau.

In An April Letter To Congress, CFPB Director Kraninger Said “‘Student Loan Servicers Have Declined To Produce Information Requested By The Bureau’” And Told “The World That The Secretary Of Education Has Put In Place A Series Of Policies That Are Obstructing Federal Law Enforcement Officials.” “Trump administration appointee Kathy Kraninger acknowledged to Congress the existence of a stalemate between her Consumer Financial Protection Bureau and the Education Department that could affect the bureau’s ability to protect indebted students from loan company abuse. In a letter to senators last month […] ‘Since December 2017,’ Kraninger wrote in the letter, ‘student loan servicers have declined to produce information requested by the bureau for supervisory examinations’ related to federal student loans. NPR quoted Seth Frotman, the executive director of the nonprofit Student Borrower Protection Center, who resigned in protest from his job running the CFPB s student loan office, saying, It’s actually quite remarkable. The head of the Consumer Financial Protection Bureau is telling the world that the secretary of Education has put in place a series of policies that are obstructing federal law enforcement officials from standing up for the millions of Americans with student debt.” [Charles Clark, “Consumer Bureau Chief Makes Her Mark as Rift Opens with Education Dept.,” Government Executive, 05/16/19]

Kathy Kraninger Accused The Education Department Of Simply “Not Doing Enough” To Regulate Student Loan Servicers.

Kathy Kraninger Wrote That The Department Of Education Is “Not Doing Enough” To Regulate Student Loan Servicers. “The Education Department is not doing enough to regulate and stomp out fraudulent practices by student loan lenders, the head of the Consumer Financial Protection Bureau (CFPB), Kathy Kraninger, wrote in a letter obtained by NPR earlier this week. Kraninger said in the letter that student loan servicers ‘have declined to produce information requested by the bureau for supervisory examinations.’ This information would help the CFPB perform its regulatory duties on student loan providers. Kraninger said that the Education Department has told the student loan providers not to provide the information due to what the Department deems to be ‘privacy’ concerns. The letter was written as a response to Massachusetts Sen. Elizabeth Warren and other Democratic lawmakers who are concerned that the CFPB has ‘abandoned its supervision and enforcement activities’ in regards to student loans.” [Wesley Dockery, “Education Department Under Betsy DeVos Blocking Student Loan Oversight, CFPB Chief Says,” International Business Times, 05/18/19]

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