This Week In Washington
Interest rates on new federal student loans will rise about half a percentage point this upcoming school year. Student loan interest rates are statutorily tied to the Treasury Department’s auction for the 10-year treasury note, which was held on Wednesday. While the sale price is not yet finalized and the Department of Education (ED) may do additional rounding, the new interest rate for graduate student loans will likely be 7.595 percent (up from 7 percent). The new interest rates will take effect on July 1 and will be fixed for the life of the loan.
On Wednesday, Mick Mulvaney, the interim director of the Consumer Financial Protection Bureau (CFPB), sent a memo to the agency’s staff announcing that the division handling student loan complaints will be moved into the financial education office as part of a broader agency reorganization. The Office of Students & Young Consumers will effectively be dismantled, which has left many wondering how the CFPB will proceed with ongoing enforcement lawsuits against loan servicers, including Navient, over alleged predatory loan practices. Senator Patty Murray (D-WA), Ranking Member on the Senate education committee, slammed the reorganization saying the move “gives student loan corporations the green light to take advantage of students.”
Relatedly, the CFPB has given up on plans to consider new regulations on student loan collection companies. On Wednesday, the CFPB published its long-term plans for future regulations and for the first time since 2015 “student loan servicing” was omitted. The Obama administration had planned to explore “potential industry-wide rules to increase borrower protections” after the CFPB found widespread problems and potentially illegal practices by student loan servicers. But, as noted above, the Trump administration is choosing to go in a different direction and reduce CFPB’s role in overseeing student loan servicers.
On Tuesday, President Trump sent a $15.4 billion spending cut proposal, known as a rescission, to Congress. While Congress must approve the package for it to take effect, the funds for the outlined programs are now impounded and will remain so for at least 45 days unless Congress acts sooner. There are no federal student loan provisions targeted in this package, but the President has indicated he wants to send more spending cuts to Congress in the future and those proposals could see education funding reduced.
On Monday, Senator Patty Murray, along with five other Democratic senators, sent a letter to the CFPB expressing concerns that students who attended the now-closed Corinthian Colleges may not have received the student loan relief they are entitled to under a settlement agreement, resulting in students incurring tax liability for canceled loans. This comes on the heels of previous news that the administration has been slow to process certain loan forgiveness claims and even changed forgiveness outcomes in some instances.
Late last week, ED said in a court filing that it would cancel two student loan debt collection contracts that it awarded earlier this year. ED justified the cancellation by noting it “plans to significantly enhance its engagement at the 90-day delinquency mark in an effort to help borrowers more effectively manage their Federal student loan debt.” ED claims the current capacity of the debt collector contracts is enough to handle its new approach to collecting defaulted student loans.
News You Can Use
In the ever-escalating battle over who has authority to regulate federal student loan servicers--the federal government or the states--the Conference of State Bank Supervisors sent a letter to the House Education and the Workforce Committee rejecting the PROSPER Act’s provisions that would preempt states from regulating those servicers.
No student aid-related bills were introduced this week for consideration by the 115th Congress.