Former Federal Official On Why Maine Needs More Protections For Student Loan Borrowers

Mar 27, 2019

A bill has been introduced in the Legislature that would establish a system for the state to oversee student loan servicers who do business in Maine.

Former federal official Seth Frotman testified in favor of the bill Tuesday in Augusta. Until 2018, he was the student loan ombudsman for the Consumer Financial Protection Bureau. He stepped down from the Trump administration at that time, saying the bureau had “abandoned the very consumers it is tasked by Congress with protecting.”

Frotman is the executive director of the Student Borrower Protection Center, based in Washington, D.C. He spoke with Maine Public host Nora Flaherty about what the bill would do, and why he feels it’s needed.

This interview has been edited for clarity.

Frotman: So there is now $1.56 trillion of student loan debt. The majority of that debt has actually been made by the federal government. But they don’t actually service the debt. When you have to pay back your bill and you pick up the phone you’re not talking to someone at the department, you’re talking to a private sector company. The problem is that these companies have been accused by law enforcement officials across the country of illegal practices that hurt borrowers. What this bill would do is ensure that these companies get a license to operate in this state. And then more importantly that the state of Maine has the ability to oversee these companies and make sure they’re following the law. And if they’re not, hold them to account for the borrowers that they have hurt.

Flaherty: How big an industry is this in Maine and across the country?

Seth Frotman, former student loan ombudsman at the Consumer Financial Protection Bureau, poses at NPR headquarters in September. Frotman and his team reviewed thousands of complaints about the questionable practices of student loan companies.
Credit Cameron Pollack / NPR

Student debt is now the second largest class of consumer debt in America. It is second only to mortgages. There are now 44 million Americans who get a student loan bill each month. There are nearly 200,000 student loan borrowers here in Maine. We now know that 54 percent of millennials in this state have student debt. But it’s much more than a young person’s problem. We’ve seen nearly a 50 percent increase with older Americans having student loan debt. Now we know that 1 in 5 consumers living in rural Maine have student loan debt. What we really see is that student loan debt is intergenerational. It impacts people in urban areas, rural areas, borrowers black and white. And today’s effort is about ensuring those borrowers across the spectrum have someone to look out for them when they are treated wrongly in the market.

I’ve had conversations with numerous people who have said, ‘Well I never took out student loans when I went to college in the ’60s. Why do these people have to? Why are student loans so huge?’ Can you explain what has changed and how we got to where we are now.

So we have seen a dramatic increase in the cost of college. And with that we’ve also seen a dramatic disinvestment by states, and ultimately what that means is that more and more of the cost of education is being borne by the backs of individuals and their families in the form of student loan debt.

Mainers are carrying almost $6 billion in federal student loan debt, according to the CFPB. That’s obviously not great for them, but how does it impact the economy at large?

That’s a great question. So what we see is that student debt is preventing the ability to buy homes, save for retirement, what careers people are getting into. There’s even information documenting how student loan debt is driving people out of this state.

Is this also something that’s putting off retirement for some people?

So what we’ve seen here in Maine is over just a five year period from 2012 to 2017, we’ve seen a 46 percent increase in older Americans taking on debt. Again that’s both debt that they’re taking out for themselves but on behalf of their children. And this isn’t the only debt that they have. At the CFPB we worked on a ton of issues that we called “the graying of debt in America,” where you see older Americans have more mortgage debt, credit card debt, even auto debt. And when you add student loan debt to that equation I think there’s real concerns about what it means for individuals’ retirement security, but also the larger retirement security crisis that we face in this country.

The state oversees a lot of lending industries like payday lenders, mortgage lenders and check cashers. But it does not do a lot to regulate student lenders. Why is that?

So I think what we see is that the student debt crisis and the student loan market has increased exponentially. We’ve added $1 trillion of student loan debt in this nation nearly overnight for consumer finance markets. So I think states are really taking the lead in catching up, in terms of what a consumer financial protection framework should look like. And this is an effort to essentially extend what the state has nearly always done, which is to ensure that the providers of financial products and services are complying with the law and just applying that now to what is many the most important financial obligation of their lives.

There are those who oppose regulation of student loans at the state level. And one of the arguments they make is that the federal government does regulate student lenders, so why isn’t that enough? Why do states need to do it?

If I could add one piece of value to the discussion today over this bill, it is this: I was the former top official in the federal government in charge of overseeing the student loan market as it related to financial products, and what we’ve seen over the last three years now is the federal government completely walking away from the fight to stand up for student loan borrowers. We’ve seen the Consumer Financial Protection Bureau essentially announce that it is no longer involved in overseeing over $1 trillion of student loan debt. We’ve seen the Department of Education pull back on critical protections. It doesn’t need to be this way. The issues around student debt shouldn’t be partisan, they shouldn’t be political. Student debt is impacting people of all walks of life, from rural borrowers to urban, young and old. So I think that unfortunately as the federal government has walked away from this fight, you see more and more states realizing that it’s incumbent upon them to stand up for their own citizens to fill the job that the federal government is no longer willing to do and ensure that very powerful financial companies, and in this state very powerful out-of-state financial companies, comply with the law.

Originally published March 26, 2019 at 6:26 a.m. ET.