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Top U.S. student loan official quits, saying White House is hostile to protecting borrowers

Top U.S. student loan official quits, saying White House is hostile to protecting borrowers
A sign stands at the construction site for the Consumer Financial Protection Bureau's new headquarters in Washington on Monday. (Andrew Harnik / Associated Press)

The top government official overseeing the $1.5-trillion U.S. student loan market resigned in protest Monday, citing what he says is the White House's open hostility toward protecting the nation’s millions of student loan borrowers.

Seth Frotman will be stepping down from his position as student loan ombudsman at the end of the week, according to his resignation letter, which was obtained by the Associated Press. He has held that position since 2016 and has been with the Consumer Financial Protection Bureau since its inception in 2011.

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Frotman is the latest high-level departure from the Consumer Financial Protection Bureau since Mick Mulvaney, President Trump's budget director, became acting director of the consumer bureau in late November. Frotman's departure is noteworthy because his nonpartisan office is one of the few parts of the U.S. government tasked with handling student loan issues.

The office was at the center of lawsuits against for-profit schools such as Corinthian Colleges and is heading up a CFPB lawsuit against Navient, one of the nation’s largest student lenders. The Navient lawsuit has been mired in bureaucratic red tape as the Department of Education, headed by Betsy DeVos, has been unwilling to help the CFPB with the lawsuit. Since its creation, the student loan office has returned $750 million to harmed borrowers.

“You have used the bureau to serve the wishes of the most powerful financial companies in America,” Frotman wrote, addressing his letter directly to Mulvaney. “The damage you have done to the bureau betrays these families and sacrifices the financial futures of millions of Americans in communities across the country.”

Congress created the student loan ombudsman office when it formed the CFPB, citing a need for there to be a go-to person to handle student loan complaints nationwide. A previous holder of that position is Rohit Chopra, who Trump has since appointed to be a commissioner at the Federal Trade Commission.

The ombudsman’s office is quite powerful, able to work with the CFPB enforcement staff to target bad behavior in the student loan market as well as act as a voice inside the government on behalf of student borrowers. The office has processed tens of thousands of complaints from student loan borrowers and was among the first major government offices to raise alarms about the growing issue of students being unable to afford repaying their loans.

Despite its work, Mulvaney downgraded the mission of Frotman's student loan office this summer and moved it under the umbrella of consumer education instead of enforcement. At the time, Mulvaney's office said it was a minor organizational shake-up, but consumer advocates saw the change as a move to downplay the CFPB's mission when it came to student loans.

Frotman also accused Mulvaney and his staff of deliberately hiding a report from the public that raised alarms that banks were overcharging student loan borrowers.

“When new evidence came to light showing that the nation's largest banks were ripping off students on campuses across the country by saddling them with legally dubious account fees, bureau leadership suppressed the publication of a report prepared by bureau staff,” Frotman wrote.

The student loan office is not alone in seeing its mission scaled back. Under Mulvaney, the CFPB has scaled back its enforcement work and has proposed revising or rescinding all the rules and regulations it put into place under the Obama administration.

“Seth Frotman is a public servant who treated every student loan complaint with the seriousness it deserved,” said Debbie Goldstein, executive vice president at the Center for Responsible Lending. “His departure raises concerns about the priorities of Mulvaney and CFPB leadership and whether they are fulfilling the mission of the CFPB to focus on protecting consumers from financial abuse.”

In a statement, a CFPB spokesman said it does not “comment on specific personnel matters” but also said “we hope that all of our departing employees find fulfillment in other pursuits and we thank them for their service.”

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4:15 p.m.: This article was updated throughout with additional quotes and background information, as well as a statement from a CFPB spokesman.

9:10 a.m.: This article was updated with another quote from Frotman’s letter and additional details and background information.

8:20 a.m.: This article was updated with additional details, quotes from Frotman’s letter and background information.

This article was originally published at 8:05 a.m.

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