Student Loan Borrowers Get A Big Court Win, But Legal Battles Continue

Student loan borrowers got a much-needed court victory on Friday after a federal judge ordered the Trump administration to stop dismantling a key financial watchdog agency.

The Consumer Financial Protection Bureau is an independent federal agency that was established in the wake of the 2008 financial crisis. The CFPB’s mission is to protect Americans from unfair, deceptive, harmful, and predatory activities in the financial services industry. A substantial part of the CFPB’s work has been overseeing student loan lenders, servicers, and debt collectors.

But the CFPB, long targeted by conservatives who argue that the agency is too powerful and interferes with legitimate commerce, has been hit with massive changes under the Trump administration. President Donald Trump appointed Russell T. Vought to lead the agency in February. Vought then fired hundreds of CFPB employees, closed the CFPB offices, and ordered a halt to all enforcement activities. A labor union representing CFPB employees and consumer protection groups filed a legal challenge shortly thereafter. On Friday, a federal judge issued a scathing ruling concluding that the Trump administration’s efforts to shutter the watchdog agency were illegal.

Here’s the latest.

The CFPB Has Overseen Federal And Private Student Loan System

The CFPB is empowered under laws passed by Congress to issue regulations governing the financial services sector and to enforce consumer protection laws against lenders, servicers, and debt collectors. Since its inception less than 20 years ago, the agency has returned at least $21 billion in compensation to millions of Americans. The CFPB also operates a complaint system where individual consumers can submit an inquiry or a summary of a dispute with a financial services provider; the CFPB can then investigate those disputes and, in some cases, get a resolution.

The CFPB has been quite active in the student loan space, both in terms of federal student loans and private student loans, particularly with respect to loan servicing and debt collection activities. Recent wins include an enforcement action against the National Collegiate Student Loan Trusts, which are Delaware-based business trusts that acquired securitized private student loan debt from commercial lenders and banks; the enforcement action could have provided $2 million in compensation to student loan borrowers who were harmed by allegedly illegal debt collection practices. Last year, the CFPB reached a settlement agreement with Navient in a long-running legal battle over alleged improper loan servicing activities such as so-called forbearance steering (where the servicer allegedly pushed student loan borrowers into forbearances rather than income-driven repayment plans, resulting in huge balance increases and lost progress toward student loan forgiveness). The settlement could have resulted in $100 million in monetary compensation to student loan borrowers, as well as a ban on Navient servicing federal student loans in the future.

Former CFPB Student Loan Ombudsman Julia Barnard released a statement in February shortly after she was fired by the Trump administration, saying that the CFPB student loan team had “manually sifted through over 10,000 complaints, uncovering illegal conduct, identifying the most actionable cases for follow-up, and uncovering systemic and policy failures for Congress.” Barnard also provided examples of success stories, including getting a borrower’s private student loan discharged after she was scammed by her school, and obtaining refunds for student loan borrowers who had erroneous payment amounts debited from their bank accounts by their loan servicer.

“We guided countless borrowers through the Kafka-esque maze of PSLF and ensured others received refunds for money they overpaid out of fear,” wrote Barnard. “This work matters. It’s a lifeline for borrowers and a safeguard against a system that too often fails them. Dismantling this function is unconscionable and will cost real people real money.”