For a Decade, Elizabeth Warren Waged War Against a Student Debt Goliath. She Finally Won. – Mother Jones

For a Decade, Elizabeth Warren Waged War Against a Student Debt Goliath. She Finally Won. – Mother Jones

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In 2006, a Harvard Law School chapter professor named Elizabeth Warren went on 60 Minutes to speak a few student loan firm referred to as Sallie Mae.

At the time, Sallie Mae was functioning as each a lender of student loans and a debt collector. Because of how federal loans labored on the time, this amounted to a no-lose state of affairs. When students paid again their loans with curiosity, Sallie Mae made cash. But even when students defaulted on their loans, the corporate nonetheless made cash: The authorities paid Sallie Mae every thing the lender was owed, after which the corporate’s collections arm additionally pocketed a great deal of charges from debtors when it sought to get well the federal government’s cash. It was this double-dealing that Professor Warren had gone on TV to speak about.

“It shouldn’t be the case that Sallie Mae gets to play every hand at the poker table,” Warren informed host Lesley Stahl. “How do you lose in a game like that? It’s a great business model, right? I win from here, I win from there.”

Warren’s interview about Sallie Mae’s student debt servicing enterprise, which spun off and rebranded as Navient in 2013, marked a definitive second in what would change into the senator’s multidecade campaign towards the predatory enterprise fashions of student lenders and servicers, and their painful results on the thousands and thousands of Americans buried in debt. Over the previous couple of months, that campaign has come to one thing of an apex as Navient—one of many largest student debt servicers within the nation—and two different debt servicers introduced that they’d not deal with federal loans. These strikes come amid a barrage of lawsuits calling out their dangerous practices, in addition to a looming crackdown on servicers by a Warren protégé who’s now accountable for overseeing them on the Education Department.

This second marks a turning level within the ongoing battles round student debt. To make sure, the view shouldn’t be precisely rosy for debtors: The pandemic pause on loan reimbursement will finish in just a few months, and the Biden administration has but to behave on marketing campaign guarantees to cancel as much as $10,000 student debt. But Navient’s exit from a enterprise the place it earned a whole lot of thousands and thousands of {dollars} in income is a testomony to the ways in which Warren—and several other of her ex-staffers and allies who’ve risen to high-level roles within the administration—have expanded the nationwide dialog past tales of crushing debt hundreds to concentrate on the customarily illicit methods during which debt servicers have preyed upon the thousands and thousands struggling to repay their student loans.

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“Sen. Warren has done a tremendous amount of work to shed light on the wrongdoing by actors, like Sallie Mae, in the student loan world, who abused their power and engaged in various violations in terms of their collection activities,” says Deanne Loonin, an lawyer on the Project on Predatory Student Lending at Harvard Law School. There is much more to be achieved on the subject of higher regulating loan servicers, says Loonin, however Navient’s exit “is the end of an era, and it’s a huge improvement.”

In 2007, the New York lawyer common’s workplace launched an investigation of Sallie Mae and 5 different student loan corporations that quickly turned up eye-popping ways used to ensnare students into debt. Some of Sallie Mae’s workers labored straight at school monetary help places of work, the place they may push loans on students who had no thought they had been getting recommendation from the corporate that might revenue from their debt. Others staffed college name facilities the place they gave steering to students, figuring out themselves solely as faculty advisers.

Sallie Mae was additionally shopping for items and journeys for monetary help officers and faculty officers to encourage them to direct students to their lending companies. They even signed revenue-sharing agreements with universities that then positioned them on lists of “preferred” lenders distributed to students. After the New York AG uncovered these practices, Sallie Mae agreed to cease and pay a $2 million wonderful. That was a drop within the bucket: Less than per week later, the corporate was valued at $25 billion when it inked a deal to be taken non-public.

Over the following decade, extra allegations got here out towards Sallie Mae and its offshoot Navient. A Treasury inspector common investigation in 2008 discovered dozens of violations by Sallie Mae’s debt assortment arm. An Education Department inspector common audit the following yr discovered Sallie Mae improperly obtained $22.3 million price of student loan subsidies from the federal government. In 2012, Sallie Mae spent $35 million to settle a category motion lawsuit alleging that the corporate had constructed up a portfolio of subprime non-public student loans, after which hid the injury by pushing students into forbearance. An Education Department audit the next yr turned up a bunch of ways in which Sallie Mae was overcharging debtors. In 2014, the Justice Department arrived at an analogous conclusion, discovering that Navient had overcharged service members on their loans for nearly a decade. As these misbehaviors and others got here to mild, Warren, who joined the Senate in 2013, was both concerned in digging up undisclosed audits of the corporate or following up with letters pointedly asking for extra info or sharp-tongued critiques of the servicers’ executives.

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Warren additionally continued pushing the federal authorities to higher supervise corporations—like Navient—that had been within the enterprise of debt. In 2007, she wrote a journal article elevating alarms about ranges of indebtedness and the various methods debt collectors had been making it worse. To counteract this, she proposed the creation of a federal shopper safety watchdog. Four years later, her brainchild had change into a actuality, within the type of the Consumer Financial Protection Bureau. Warren recruited former Ohio Attorney General Richard Cordray to guide the company. Soon he set to work on student loan points, collaborating with the Education Department and several other different federal companies to crack down on abuses in student loan servicing, and turning into a key Warren ally on student debt.

One of Cordray’s major targets was Navient. In 2017, the CFPB filed a serious lawsuit towards the corporate, accusing Navient of mendacity to thousands and thousands of debtors to drive up their reimbursement prices. Cordray additionally introduced in Rohit Chopra, one other Warren acolyte, to function the company’s first formal student loan watchdog. Chopra quickly zeroed in on reforming student loan servicers: He put out a report that highlighted debtors’ challenges negotiating reimbursement plans with servicers, helped the bureau cross a rule giving it extra powers to carry servicers like Navient accountable to federal legal guidelines, and referred to as on Congress to make use of the more-stringent guidelines utilized to credit card and mortgage servicers on student loan collectors.

“The bureau has received thousands of complaints from borrowers describing the difficulties they face with their student loan servicers,” Chopra informed a congressional committee in 2014. He likened the complaints he was listening to to these struggling owners had confronted in coping with underhanded mortgage servicers within the wake of the Great Recession and foreclosures disaster. “Like many of the improper and unnecessary foreclosures experienced by many homeowners, I am concerned that inadequate servicing has contributed to America’s growing student loan default problem.”

Now, Chopra and Cordray are within the place to crack down on the servicers they’ve been attempting to reform for years, becoming a member of a wave of Warren pupils scattered all through the best ranks of the Biden administration. Cordray is the brand new head of the Federal Student Aid workplace on the Education Department, the place he’s already relaunched an enforcement workplace with a mandate to guage misconduct by student debt servicers. The Senate confirmed Chopra as the brand new director of the CFPB this month; he’s already promised to place enchancment of student loan servicing on the middle of the bureau’s work, in collaboration with the Education Department. Cordray and Chopra are joined by Warren’s former senior training counsel, now an Education Department senior adviser, and at the least 4 different ed division hires who’re CFPB alums.

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“There’s a history during the Obama administration of a lot of interest in the student loan area and a lot of aggressive enforcement,” says Harvard Law’s Loonin. “The CFPB did do a lot of great work. So I would say it’s very promising for borrowers to have those people in power now.”

In a speech to attendees of an training finance convention final month, Cordray outlined his plans for elevating the bar for student debt servicers. He mentioned in remarks obtained by Politico that when he’d arrived on the Education Department over the summer time and began to barter contract extensions with the servicers, he was “shocked” that current contracts barely included any metrics to measure their therapy of debtors. His workplace informed servicers that this was about to vary: Contract extensions would come with new efficiency and accountability metrics.

“Not everybody was thrilled with that position,” Cordray mentioned.

In truth, over the summer time, two servicers that deal with a mixed 10 million debtors—the Pennsylvania Higher Education Assistance Agency (typically referred to as FedLoan) and the Granite State Management and Resources—introduced their plans to cease servicing loans by the tip of 2021.

In his speech, Cordray attributed these exits to the prospect of accountability: “Some servicers have decided to exit the program rather than contend with these new realities,” he mentioned.

Less than two weeks later, Navient—which manages the loans of about 5.6 million debtors—requested the Education Department for permission to additionally halt its federal student debt servicing enterprise, although the corporate had signed a $391 million contract extension just some days prior. Last week, the division authorised Navient’s request. The firm will switch most of its federal student loan accounts to a distinct servicer, Maximus, by the tip of the yr.

On Twitter, Elizabeth Warren mentioned good riddance. “Navient has spent years misleading, cheating, and abusing student borrowers,” she wrote. “The Federal student loan program will be far better off without them.”

Top picture: Mother Jones illustration; Joshua Lott/Getty; Bettmann/Getty