Fair Lending for a Thriving Colorado Members Pen Letter to Betsy DeVos

Dear Secretary DeVos,

As you visit Colorado talking with K-12 students and their teachers, we urge you to put their interests ahead of Wall Street’s when it comes to protections against the student loan industry abuses and for-profit colleges many will face when they further their education.

Higher education is key to helping students achieve good-paying jobs and a secure financial future. Unfortunately, the rising costs of higher education are causing families to take on more and more student loan debt. Abuses in loan servicing have contributed greatly to the increase in debt. This debt not only impacts a borrower’s monthly budget but also delays their ability to buy a home or start a business.

And even as borrowers struggle to manage their mounting debt loads, student loan servicers too often make that debt difficult to navigate and frequently are not functioning in the best interest of the borrower, despite their federal obligation to do so.

In many cases loan servicers have failed to provide adequate information on repayment plans, properly apply payments, and discharge debt. Delinquency and defaults can have serious, long-term effects on borrowers. Defaulting on a student loan harms a borrower’s credit score, making it more difficult to access (we limit the use of credit reports in hiring in Colorado, but it would apply to jobs in other states) housing, credit cards, and future credit. For federal loans, the government has extraordinary powers of collection. They can garnish wages, social security payments, and tax returns.

Coloradans are already seeing the effects of servicing failures. In 2015, 56 percent of Colorado students left school with student loan debt — an average of $25,840. According to a 2014 analysis in the Suffolk University Law Review, 15.4 percent of our borrowers are delinquent on their student loans, while another 24.9 percent are in repayment on their loans, but making no progress in actually paying their loans down.

One of the many lessons learned from the foreclosure crisis is the importance of protecting against abusive loan servicer practices. Student loan servicers are a critical link between borrowers and the repayment of their loans. Servicers are charged with evaluating borrowers for income-based repayment programs, discharges, and other plans that can help them manage their monthly payments. Each of these problems disproportionately impacts students and families of color.

The nation’s largest student loan servicer, Navient, formerly part of Sallie Mae, was sued by the Consumer Financial Protection Bureau (CFPB) earlier this year for cheating borrowers out of repayment rights through deception and bad practices that added an additional $4 billion dollars in outstanding student loan debt. They also failed to properly discharge debt of disabled veterans, and failed to properly apply payments. The response from the Navient CEO was “there is no expectation that the servicer will act in the interest of the consumer.”

Yet your Department has taken steps to roll back existing protections against student loan servicing abuses. In March of this year, you withdrew the servicing standards created by the Obama administration, which put in place safeguards against companies with a history of fraudulent and illegal practices.

Under your direction, the Department has also focused on rolling back the Gainful Employment rule, which will mean more people indebted due to predatory for-profit colleges without good chances of being able to repay that debt. Students at Colorado’s for-profit four-year colleges are less likely to graduate than their peers at public or private nonprofit colleges and for those who do graduate, for-profit students leave school with substantially higher federal debt than their public and private peers. For-profit college students are also more likely to end up defaulting on their loans. All of these harms disproportionately impact communities of color in Colorado.

Worse, you have announced the re-negotiation of the Borrower Defense rule, meaning people who attended fraudulent for-profit colleges are in limbo as to whether they will have their debt discharged or not. All of this means more people struggling with student loan debt and the fewer protections against abusive practices that interrupt their ability to repay it.

Even as we speak, student loan servicers are urging the Department to allow servicers of federal student loan debt to ignore states’ student loan servicing rules.

And just last week you served notice of the Department’s intention to end its cooperation and data-sharing with the CFPB.

We urge you to stop siding with Wall Street interests over Colorado’s families. We are calling on you and your Department to address documented abuses by student loan servicers and for-profit colleges — specifically:

  • Uphold states’ rights to address abuses by student loan servicing companies operating within their borders.
  • Do not roll back existing federal protections against student loan servicing abuses, and reinstate the safeguards against companies with a history of fraudulent and illegal practices.
  • Do not roll back the Gainful Employment rule, which protects students and taxpayers from abuses by for-profit colleges that saddle students with crushing debt without providing a useable degree.
  • Do not roll back the Borrower Defense rule, which will provide fairness and relief to students who attended fraudulent for-profit colleges and are in limbo as to whether they will have their debt discharged or not.
  • Maintain the important relationship between the Department of Education and the Consumer Financial Protection Bureau, a leader in protecting students and borrowers from unscrupulous schools, lenders, and servicers.

We would appreciate the opportunity to discuss this with you, either while you are here in Colorado, or at your earliest convenience.

Signed,
New Era Colorado
NAACP Colorado Montana Wyoming State Area Conference
Interfaith Alliance of Colorado
Colorado Fiscal Institute
Colorado Center on Law and Policy
Center for Responsible Lending
The Bell Policy Center
American Federation of Labor and Congress of Industrial Organizations – Colorado

The Fair Lending for a Thriving Colorado coalition is made up of over 50 groups dedicated to protecting Coloradans from predatory lending. By empowering communities, fighting systemic discrimination, and eliminating predatory products and practices, it aims to ensure a Colorado where everyone can build a strong financial future. You can also sign on to the below letter by adding your name to this petition.

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