Consumer debt has skyrocketed. More and more Americans have debts that they have scant ability to pay and little of no access to legal or government protection against insane interest rates or predatory lenders. At the same time we have an administration whose focus is on removing any barriers for the lender with no empathy for the consumer.
One of the most blatant examples is the Department of Education under Betsy DeVos. Student loan debt is the single biggest category of consumer debt, somewhere around $1.5 trillion. It impacts 44 million Americans. Some researchers have suggested that as much as 40% of these borrowers will default by 2023. Close to 90% of these loans come from the federal government.
At a Senate subcommittee hearing in February, DeVos was asked about a backlog of claims from defrauded student loan borrowers. Specifically asked whether any had been approved she couldn’t answer. The next question came from Sen. Richard J. Durbin (D-Ill.,): “Don’t you have a heart when it comes to 140,000 of these victim students who are trying through the borrower defense rule to get relief from the fraud that was perpetrated on them by these schools?” Apparently not.
At about the same time, a report was issued by the Office of the Inspector General within the Department of Education which concluded that lax oversight of student loan companies was putting borrowers at risk. Specifically it said that violations were not being tracked and the companies that committed them were not being held accountable.
Even another Trump appointee, Kathy Kraninger, director of the Consumer Financial Protection Bureau (CFPB), pointed the finger at DeVos. In a letter responding to questions by Sen. Elizabeth Warren, she said CFPB efforts to investigate student loan services were being hampered by the fact that these services, under the guidance of the Department of Education, were refusing to supply requested information.
DeVos has also been both a promoter and protector of for-profit colleges. About 90% of the revenue for these colleges comes from student loans. And these are the colleges, like the Art Institutes, the defunct Corinthian College, the defunct Trump University and Virginia College, whose degrees largely been judged to be worthless. These colleges tend to focus on minorities, single mothers, veterans and working adults. Often they are left with a ton of debt and a crappy degree that does little to enhance their job prospects. The National Center for Education Statistics reports that the 12-year default rate for student loans for for-profit colleges is 52%. For African-Americans who attend for-profit colleges it is 65%.
In one case, DeVos stepped in to save one of these institutions, Virginia College, after an accreditation agency refused its accreditation. DeVos reinstated a previously discredited accreditation agency, the Accrediting Council for Independent Colleges and Schools, which allowed Virginia College students to continue to receive federal student loans. A few months later, the college folded. Some of those students are now suing DeVos.
It is the CFPB that is tasked with monitoring lenders of all types and theoretically protecting consumers. The agency was created after the 2008 banking meltdown. Trump appointed an acting director, Mick Mulvaney, who as a South Carolina congressmen, had voted to abolish the agency. It has in fact been standard procedure in the Trump administration that if a regulation cannot be abolished, as in the many cases in which he has been blocked by the courts, he has simply let the positions at the enforcement agencies sit vacant, or appointed directors who simply refused to enforce the regulations.
Under Mulvaney’s direction the CFPB dropped a suit against payday lenders who were charging 900% interest rates. Regulations limiting dealer markups on auto loans were abolished. He shut down the Office for Students and Young Consumers which had investigated student loan complaints. A few months ago, Kraninger was appointed as a permanent replacement. Where did they find her? Over at Homeland Security where she worked on the family separation policy on the border.
So where do we go from here? If you’re a lender looking to jack your profit margin the future is paved with opportunity. If you’re a payday lender or a for-profit college, you can breathe a sigh of relief that the sheriff ain’t going to be on your tail. But if you’re a borrower? Beware! And maybe try to find a good lawyer.
How Much Do You Owe? Americans in Debt.
How Much Do You Owe? And How Did This Happen
An important source for this series of blog posts about debt was the Slate Academy podcast series The United States of Debt.
I agree that the federally backed student loan program is 90% at fault for causing the rapid increase in student loan debt and college cost increases by allowing schools to raise rates at will. But what are we doing as students, parents, and consumers to educate ourselves on fiscal responsibility? No one is making us take out $50k loans for a degree that may not have the best pay back. We need to educate ourselves so we can stop falling into the traps.
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I know some of those former students who are drowning in debt and wondering how they’re going to pay off their loans which has made your series of posts both enlightening and sobering. In a country where such a large portion of the economy is based on consumption, it seems like voters would be more demanding of consumer protections and a bit wiser at spotting all the predatory lending schemes . Unfortunately, with friends in high places and a deepening lack of transparency and oversight, it appears these lenders will continue profiting off people’s willful ignorance. Thanks Ken!
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A well-placed indictment of President’s priorities and those he has appointed to carry them out. With his everyday outrageous tweets and actions, news like this gets buried. This is what happens when the fox is charged with guarding the hen house. As the Roman poet, Juvenal, asked some 2,000 years ago: “Who will guard the guardians?”
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Can’t wait until the whole lot of them go to jail!
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