An Uncertain Future for Higher Education’s Federal ‘Cop on the Beat’

The Consumer Financial Protection Bureau is the federal agency that many Republicans, financial institutions, and for-profit colleges love to hate.

Just under seven years old, the bureau has already left its mark on broad swaths of higher education. It has uncovered abusive practices of student-loan-servicing companies; sued banks and for-profit colleges, accusing them of misrepresenting their student loans; created a complaint system for student borrowers that many consider a model for protecting consumer interests; and highlighted the often too-cozy business ties that colleges have in their deals with banks for student debit cards.

Through a flurry of reports, blog posts, enforcement actions, and lawsuits, the bureau has touched on programs and services that affect nearly every one of the 50 million Americans now holding a student loan or co-signing one, along with millions of others enrolled in college. While it’s impossible to deny the agency’s broad reach, it’s also not hard to find critics assailing it for overreach, sensationalism, and what one detractor calls an overreliance on “name-shaming press releases.”

Yet when it comes to higher education, the bureau’s most notable impact may have been an incremental one, applied to the U.S. Department of Education itself. By several accounts, the bureau has been gradually nudging the department to put a greater focus on the interests of students and student-loan borrowers over those of institutions and loan-servicing companies.

But now, as the Trump administration takes shape, many observers are questioning whether the consumer-rights orientation that the CFPB has brought to higher education will soon be lost. The Education Department’s new leadership appears to be far friendlier to for-profit institutions — and, therefore, less open to stringent oversight of bad actors in the industry — than it was under the Obama administration. Meanwhile, the CFPB itself is a prime target for lawmakers gunning to weaken its authority, if not eliminate it altogether.

Even if the bureau survives the expected assault, it faces a less obvious threat. If the Education Department becomes more turf-conscious under its new secretary, Betsy DeVos, the bureau could find itself edged out on education-policy matters, with less ability to influence colleges’ dealings with financial institutions and student loans.

Either of those CFPB scenarios alarms many student advocates.

“They’ve used all the tools they’ve been given, creatively and aggressively,” says Deanne Loonin, a lawyer at the Project on Predatory Student Lending at Harvard Law School, who has represented student borrowers for 25 years. If the bureau is weakened, she says, “it’s not like the other agencies are going to pick up the slack. It would be a huge loss.”

A Student-Loan Watchdog

The Consumer Financial Protection Bureau was created in the wake of the 2008 financial crisis, the brainchild of Elizabeth Warren before she was elected as a Democratic senator from Massachusetts. Unlike many regulatory bodies, the bureau is headed by a single director, not a board of Congressionally approved commissioners, which has allowed it more independence than is typical for a federal agency.

The legislation that created the agency also established within it a crucial position: student-loan ombudsman. That role put student-borrowing issues front-and-center at the bureau. And it helps explain why the bureau has focused not only on private lending but also on the companies and organizations that service the loans of the much larger federal student-loan programs.

Here, the collapse of the housing market left a long shadow. Regulators had missed the abuses taking place in the mortgage-servicing industry, says Rohit Chopra, who was the bureau’s first student-loan ombudsman, and that led ultimately to the instability of many financial institutions. The student-loan market is much smaller than the mortgage market, but “no one really wants to make the same mistakes,” he says.

Early in its existence, the CFPB emphasized loans. It established a complaint system that allowed borrowers to report problems with student-loan servicing and other issues. In some cases the agency funneled complaints directly to lenders for action; in others it spotted trends it would later publicize or go after in court. Thanks to that system, the bureau “uncovered a variety of really problematic practices” in the loan industry, says Pauline Abernathy, executive vice president of the Institute for College Access & Success, a student advocacy group.

But student loans were only the starting point. Over time the bureau broadened its reach. Soon it was applying scrutiny to colleges’ deals with credit-card companies and banks, for-profit colleges’ private loans and job-placement claims, and banks’ dealings with military servicemembers over student loans.

That voracious approach has endeared the agency to its fans, but it has angered many of the bureau’s targets. The for-profit-college trade association contends that the CFPB has become too intrusive. Loan companies say the agency’s publicity-minded tactics have unfairly tarnished their industry.

The bureau has even had its hand slapped by a federal court, which found that CFPB exceeded its authority when it sought to enforce a civil subpoena to obtain documents from an accrediting agency. The bureau has appealed; an appeals court heard arguments in the case last month and a ruling could come any day.

The bureau’s aggressive moves — and its willingness to take on major banks and student-loan companies like Wells Fargo, Discover, and Navient — have played a large role in cementing its reputation as a champion for students. The bureau has come to be regarded in some quarters as a watchdog willing to take on causes some other federal agencies tend to shy away from.

Take the Department of Education, for example. “They don’t really view students as their customers. They view schools as their customers,” says Walter Ochinko, policy director at Veterans Education Success, an advocacy group, of the department. “It’s just the opposite at the CFPB.”

Likewise, says Mr. Ochinko, the Department of Veterans Affairs has “been disappointing” as a watchdog for veterans who use their education benefits to attend college because the agency “has been reluctant to step between a veteran and his choice of school.” The VA has a complaint system but doesn’t use it to spot problems, he says, adding that the CFPB is “a model for how a federal agency should protect its beneficiaries.”

Pursuing For-Profits

There’s no doubt that the bureau has often taken a more combative posture toward for-profit colleges than the Department of Education. In 2014, for example, Corinthian Colleges Inc. was collapsing, and the department was eager to find a buyer for as many of the company’s colleges as possible. The alternative, to let them be shut down, would have left the government on the hook for hundreds of millions of loans from students who had attended the closed colleges.

The department “was highly motivated to keep the schools open,” says Mr. Chopra, the former student-loan ombudsman and an assistant director at the bureau, while the CFPB, which had sued Corinthian over its loan practices, “was primarily concerned with getting relief for Corinthian students.”

Ultimately, the organization that bought the Corinthian campuses, ECMC, helped arrange for $480 million in debt relief for the Corinthian students after the consumer agency agreed that it wouldn’t pursue any of its legal claims against ECMC. Education Department officials acknowledge that the CFPB played a key role in arranging that loan forgiveness.

The bureau’s independence was also visible in actions against ITT Educational Services. The for-profit-college company had been acknowledging to its investors for years that students were defaulting on company-issued private loans at a high rate, but “there was no one to call them to account” from the government side, Ms. Abernathy says.

It was the CFPB, not the Department of Education, that sued ITT over its private-loan program. (As with Corinthian, the department later cracked down on ITT’s options to draw upon federal student-aid funds, which left it too cash-strapped to continue.) ITT has since shuttered all of its campuses and declared bankruptcy. Ms. Abernathy says she hopes the CFPB lawsuit will still result in some loan relief for its students.

“The Education Department is certainly playing catch-up when it comes to holding bad-actor schools accountable,” says Mr. Chopra, who worked at the department after leaving the CFPB. But, he adds, “both agencies really benefited from each other.”

Ted Mitchell, the top higher-education official during the Obama administration disputed the notion that the CFPB was more responsive to student concerns than the Education Department. “The department and CFPB had a fabulous working relationship during the previous administration,” he said. “We kept each other briefed on matters of common interest and acted in concert whenever we could.”

In fairness, the Education Department wasn’t sitting still. It adopted new regulations governing how colleges marketed their programs to students and put in place the controversial gainful-employment rule, despite strenuous lobbying and legal fights from the for-profit college industry.

But as many observers view it, the department was less inclined to crack down on the servicing companies that it pays and depends upon to collect student loans. With the student-loan servicing companies, the department has “a huge conflict of interest,” says Ms. Loonin, of the student-lending project at Harvard Law.

By bringing to bear its expertise from the finance and consumer-protection sectors, the CFPB “helped the Department of Education be more consumer-focused,” adds Ms. Abernathy. That’s reflected in a “Student Aid Enforcement Unit” the Education Department introduced last year, and in an interagency task force created by the department, of which the CFPB was a key part. The fate of the enforcement division and the task force under the Trump administration is unknown.

Zakiya Smith, who collaborated with both the Education Department and the consumer agency while working in the Obama White House, says the CFPB personnel “were a different breed of folks” than those in the Education Department. “Having people who are not ‘education people’ look at education is helpful,” she says. It’s a way of breaking through the problem of “industry capture” that sometimes occurs when agencies become too comfortable with the practices of the sectors they oversee, she says.

Charges of ‘Name Shaming’

The CFPB hasn’t always gotten its way. In the first year of the bureau’s history, Ms. Smith says, it proposed a model template for colleges to use to describe the financial-aid packages they were offering to potential students. The idea was to help families better understand what was on offer.

The CFPB’s version of this “shopping sheet” showed the student’s costs in red and student aid in green, and it included a section that prominently displayed the student’s projected monthly loan payments after graduation.

But colleges objected, Ms. Smith says. The final version adopted by the Education Department omitted the projected monthly loan payment, replacing it with a section that included more generic estimated future loan costs.

“The way it’s displayed really makes a difference,” says Ms. Smith, who is now strategy director for finance and federal policy at Lumina Foundation, and the CFPB understood that.

On the other hand, the Education Department’s plan to improve student-loan servicing by creating of a single online portal through which borrowers can access information about their loans, make payments, and carry out other actions related to their loans reflects many of the issues the CFPB has been hammering away at for the past several years.

That hammering hasn’t always been welcome. Talk to critics, and they’ll tell you that the agency is scattershot and publicity-hungry. James Bergeron, president of the National Council of Higher Education Resources, a trade group for lenders, servicers, guaranty agencies, collection agencies, and other organizations involved with student loans, says the CFPB is prone to hype-filled press releases and reports that cite problems but “don’t identify the scope of the issue they are looking at.

“There’s just no context,” Mr. Bergeron says.

Seth Frotman, CFPB’s current student-loan ombudsman, says the issues it highlights are very real to borrowers. When you’re struggling to repay your loans, he says, problems with loan-servicing companies just “adds insult to injury.”

David Hirschmann, a senior vice president at the U.S. Chamber of Commerce, called the bureau out for its “name shaming” press releases. Beyond that, he says, the bureau has pushed the boundaries of its authority. “CFPB is creating new rules through enforcement actions,” he says. “If you want to change a rule, write a rule.”

The bureau has been a force, Mr. Bergeron concedes, but "’whether or not it’s been a force for the better is still an outstanding question.”

An Uncertain Future

What might matter most now for the CFPB, though, is what lawmakers think of its work. The bureau has some bipartisan support, and its Congressional backers point to polls showing that it is popular with the public, even among Trump voters. But it has also attracted some influential enemies.

They include Rep. Jeb Hensarling, Republican of Texas and chair of the House Financial Services Committee, who has described the CFPB as “the most powerful, least accountable agency in U.S. history.” Representative Hensarling is reportedly working on legislation that would strip the agency of its independence by putting the director under the authority of President Trump. His proposal would also reportedly require the agency to dismantle its complaint database and halt its consumer-education programs.

Other Republican proposals call for replacing the bureau’s current director, Richard Cordray, with a five-member commission.

Expecting a well-financed attack on the bureau, student-advocacy organizations have mounted a campaign to keep it intact. Last month some 60 groups sent a letter to leaders in the House and Senate urging them to preserve the bureau.

“A weaker Consumer Financial Protection Bureau will result in more predatory lending and higher debts for students,” the note read. “The Bureau must remain independent of political pressure, capable of routing out deception with the right tools.”

And in April and May, US PIRG, a consumer-advocacy group, plans a series of publicity events with students to showcase the value of the bureau. US PIRG is focusing its attention on key states where it hopes to shore up lawmakers’ support for the bureau.

“I am very worried,” says Christine Lindstrom, higher-education policy director for US PIRG, of the prospect that the bureau’s role as a higher-ed watchdog might be weakened. Although student debt is the topic “at almost every dinner table,” she says, “the impact that the agency has had on student-loan borrowers is not as well understood by the American public as it could be.”

It can also expect support from one of its original boosters. “The CFPB has been the cop on the beat for more than five years, helping students and their families hold big banks and lenders accountable,” Senator Warren said in a written statement to The Chronicle. “Any attempts to weaken the agency will hurt consumers, so you can bet we’re keeping a close eye on it.”

Correction (3/21/2017, 10:32 a.m.): An earlier version of this article misstated the name of the National Council of Higher Education Resources.

Goldie Blumenstyk writes about the intersection of business and higher education. Check out www.goldieblumenstyk.com for information on her new book about the higher-education crisis; follow her on Twitter @GoldieStandard; or email her at goldie@chronicle.com.