Last week, Senators Elizabeth Warren, Kamala Harris and Cory Booker sent a letter to the U.S. Department of Education’s Office of Civil Rights (OCR) requesting information about how OCR “plans to address alarming racial disparities in our federal student loan system through vigorous enforcement of the nation’s civil rights laws.” Taking aim at for-profit colleges and federal student loan servicers and debt collectors, the letter requests that OCR:
- “Detail all current and ongoing activities to address alarming racial disparities in student borrowing and student loan outcomes, including any relevant enforcement actions OCR has taken since the beginning of the Trump Administration in January 2017;
- “Launch a comprehensive investigation into the roles that predatory colleges and the student loan industry play in contributing to racial disparities in student borrowing and student loan outcomes, including recruitment and loan counseling practices, servicing and debt collection practices (including the charging of fines and fees on defaulted loans), and access to repayment plans and debt cancellation options for borrowers of color; [and]
- “Develop a new plan to address racial disparities, which should include new policy guidance to all entities involved in federal student aid programs regarding their current responsibilities under federal civil rights law, and any recommendations to Congress for how to legislatively address racial disparities in student borrowing and student loan outcomes.”
The letter asserts that for-profit colleges provide a low-value education while maximizing their receipt of federal student loan funds, and that students of color are disproportionately impacted because they comprise nearly half of for-profit college students. The letter notes that 95 percent of Black students who attended a for-profit college borrowed student loans and that three-quarters of Black students who did not complete their programs at a for-profit college defaulted on their loans, citing a post by the Center for American Progress that was based on a 2017 report by the Department of Education’s National Center for Education Statistics on borrowers who started school in either 1995-1996 or in 2003-2004.
The letter also cites recently released Department of Education data showing that Black, Latino, and Native American student borrowers who started school in 2011-2012 have disproportionately higher default rates than their white peers.
While acknowledging the systemic structural causes of these disparities, the Senators assert that OCR has a “statutory and moral obligation” to publicly examine “how the very provision of student loans—from the practices of predatory colleges to the practice of student loan servicers and debt collectors—contribute[s] to the racialized outcomes of the student loan program.”
We do not expect the letter to have much of an impact at OCR. The letter is more likely to influence state regulators and attorneys general, who perennially target their enforcement efforts on for-profit colleges and, more recently, student loan servicers. The letter will also be welcomed by non-governmental organizations like the Student Borrower Protection Center, which is likely to point to it as additional evidence of the need for further state regulation of student loan servicers.
The letter may not have as much influence on the CFPB, although even prior to the release of the letter, the CFPB was known to have conducted fair lending examinations of private student loan servicing. The CFPB has not examined federal student loan servicers since the Department of Education released guidance in late 2017 requiring servicers to obtain ED’s permission to produce information requested by the Bureau’s examiners in connection with Direct Loans and Federal Family Education Loan Program loans held by ED. The Department of Education and CFPB currently are negotiating a memorandum of understanding that would address joint supervision of federal student loan servicers.
Our Consumer Financial Services team has assisted student loan servicers with fair lending assessments and regulatory examinations, and can help any institution gauge its level of fair lending risk with respect to student loan servicing. Our Higher Education team has also guided for-profit colleges and universities through all manner of state and federal regulatory inquiries and enforcement matters.