As it’s torn through Washington’s bureaucracy, the Trump administration has taken major steps to gut oversight of federal student loan servicers, raising questions about who will protect borrowers from errors by the massive government contractors that collect their monthly payments.
This week, officials at the Consumer Financial Protection Bureau circulated a memo instructing staff to “deprioritize” student loan matters at the watchdog agency, where they are trying to cut about 90% of the workforce. Since its creation in 2010, the CFPB has been the key regulator tasked with making sure loan servicers comply with federal consumer laws.
At the Department of Education, meanwhile, mass layoffs have wiped out the Federal Student Aid office teams that were in charge of regularly checking loan servicers’ work for mistakes and getting them fixed, multiple former officials told Yahoo Finance.
The moves have left borrower advocates aghast, warning that former students will have far less recourse if servicers — who have long been a magnet for consumer complaints and have sometimes faced legal crackdowns for defrauding customers — mishandle their loans.
“It means that the sorry state of the student loan system will only get worse — servicers can cut back on customer service, lose paperwork, and lie to borrowers knowing that no one is watching and they will never face justice,” said Mike Pierce, executive director of the Student Borrower Protection Center, and former CFPB staffer during the Obama administration.
One conservative education policy expert sympathetic to the administration’s wider agenda also questioned some of the cuts.
Jonathan Butcher, a senior research fellow at the conservative Heritage Foundation, said that while he supports President Trump’s plans to end the Department of Education and move student lending elsewhere in the government, eliminating its team responsible for overseeing servicers seems problematic, since it could lead to less accountability in the loan program.
“They appear to have let go staff that are in a crucial spot,” Butcher said, adding that he hoped there was a plan to fill their function going forward. Trump has said he intends to have the Small Business Administration take over student lending, but has not outlined any public plans for the transition, which some experts have argued would be illegal.
Neither the Department of Education nor the CFPB responded to requests for comment.
The problem with servicing
Dealing with servicers has long been a source of headaches for borrowers.
In theory, the private companies and nonprofits that handle the work are supposed to both collect on the government’s $1.6 trillion loan portfolio and help customers manage their debts effectively. But they’ve earned a reputation for flubbing basic administrative tasks, like counting payments and cutting corners on customer service to save costs — sometimes leading to hours-long phone wait times. They have also frequently been criticized for failing to steer borrowers toward the most affordable payment plans, contributing to the staggering delinquency and default rates that have long plagued the student loan program.
Read more: How to pay off your student loans quickly
Those issues came to a messy head over the last year and a half as borrowers returned to repayment after the pandemic pause and servicers’ systems creaked back into gear. In particular, some struggled to handle former students who enrolled in a Biden administration program to clear up old defaults. The Department of Education uncovered millions of servicer errors, including a few cases where borrowers were billed over $100,000 all at once.
Both the CFPB and Department of Education have played parts in trying to whip servicers into shape while aiding borrowers who encounter problems.
The CFPB’s Student Loan Ombudsman collects thousands of complaints on servicers each year, which it helps resolve. The agency also has supervisory powers over servicers, meaning its staff regularly examine their operations to make sure they are in step with consumer laws and order them to fix issues that arise.
The bureau has also brought some high-profile legal enforcement actions against servicers for mistreating borrowers, including a major 2024 settlement with Navient, formerly the single largest player in the industry, barring it from collecting any more loans.
‘The guardians of the system’
The Federal Student Aid office’s oversight filled a lower profile but equally critical role dealing with servicers, according to former officials and outside student lending experts.
“They were the guardians of the system essentially,” said Alpha Taylor, a staff attorney with the National Consumer Law Center. “They were making sure borrowers were protected — that servicers were providing accurate and timely information.”
Until recently, the team had been known as the Vendor and Program Oversight Group. Created under the first Trump administration in 2019 and numbering about 60 employees, it focused on making sure loan servicers met detailed customer service standards spelled out in their contracts as well as federal regulations, which covered issues like proper billing, borrower satisfaction, response time on the phone, and data management. They also checked to make sure servicers were charging the government correctly for their work.
Read more: Are federal or private student loans better?
According to several former employees who spoke on the condition of anonymity, the group used a variety of methods to track servicers’ performance. Staff would listen to recorded calls with borrowers for quality assurance, run customer satisfaction surveys, and examine large random samples of loans every quarter. Secret shopper calls helped them check whether servicers were giving out correct information about loan repayment programs.
The group helped resolve individual complaints from borrowers that arrived via the Department of Education’s own student loan Ombudsman. But it would also scan batches of complaints in search of recurring problems.
Another go-to resource for the oversight team: R/Studentloans, the Reddit channel that has become an indispensable gathering place for borrowers looking for advice on managing their debts. Staff would frequently check it in the mornings, former employees said, and ask the moderators to connect them with members dealing with servicer trouble.
”It was a really great relationship because we were all there to do the same thing, which was to make sure that the student loans were working the way they were supposed to,” said Betsy Mayotte, founder of The Institute of Student Loan Advisors and one of the channel’s moderators.
Because they proactively double-checked servicers’ work, they often discovered issues that borrowers themselves likely would have missed, former employees said. One staffer noted that during the return to repayment period, the group found that servicers were frequently miscalculating what their customers owed on income-driven repayment plans, inflating the size of bills.
“If someone hasn’t paid in five years, what are the chances they are going to know the nuts and bolts of precisely how a payment is calculated?” a former staffer said.
This past fall, the group found that the Missouri Higher Education Loan Authority (MOHELA) and other servicers had failed to count tens of millions of payments toward borrowers’ progress on Public Service Loan Forgiveness, an issue staff were still working to resolve when layoffs struck.
In January, the Federal Student Aid office underwent a reorganization that split the vast majority of its oversight employees into two new divisions, which then lost all of their staff thanks to last month's mass terminations and buyouts, several former officials told Yahoo Finance.
They “eliminated every single oversight function at FSA” said Colleen Campbell, who until the end of March headed its loan portfolio management division.
An unclear rationale
It’s unclear if rolling back oversight of loan servicers across the board was a conscious decision by the Trump administration or simply a side effect of its efforts to slash the federal workforce.
At the CFPB, leaders are narrowing the agency’s areas of focus while attempting to downsize it. On Thursday, Trump officials sent termination notices to about 1,500 employees, a move that if successful would leave behind just a 200-person skeleton crew. A federal judge temporarily paused the plan on Friday.
At the Federal Student Aid office, the decisions about which staff would be laid off appeared to be made by senior career officials responding to orders from Elon Musk’s Department of Government Efficiency, Campbell said. Faced with demands for deep cuts, those officials seemingly decided to put oversight functions on the chopping block rather than sacrifice core day-to-day operations staff. The team responsible for ensuring that colleges comply with student aid program requirements also took heavy cuts.
After the reduction in force was announced, officials held a meeting with managers at Federal Student Aid where they outlined the changes. “They said to us, you will see a trend here where oversight and audit functions have been eliminated,” Campbell said.
The cuts to servicer oversight may ultimately cost the government more money than they save, former officials said. The servicers’ most recent contracts are designed to let the Department of Education withhold some of their pay if they fail to meet certain performance goals each month, which they typically do. The oversight team had been in charge of running that process, and it’s unclear who will handle it going forward.
It also leaves fewer eyes checking for waste. According to former employees, the Department of Education clawed back $12 million from MOHELA after oversight staff discovered that it was overbilling the government for handling loan discharges — recouping more than the roughly $8 million the group’s staffers earned annually in salary.
‘Penny-wise and pound-foolish’
James Kvaal, who served as under secretary of education in the Biden Administration, said the timing of the oversight rollback is especially poor. Millions of Americans are expected to go into default this year for the first time since the pandemic payment pause, and many will need help navigating loans or dealing with servicer problems.
“The cuts to student support are really penny-wise and pound-foolish,” he said. “And I’m really worried about the tab that will come due this fall.”
With the CFPB sidelined, much of the responsibility for policing student loan servicers could fall to state attorneys general, whose lawsuits led to a $1.8 billion settlement with Navient in 2022. But those offices aren’t likely to replace the day-to-day oversight role federal regulators filled.
Student borrowers can still file complaints about servicers with the student loan ombudsman’s offices at the CFPB and the Department of Education. But those offices appear to be short-staffed and swamped. The CFPB is currently attempting to cut its ombudsman team to a single employee, according to a recent court filing. Department of Education officials told Yahoo Finance that its ombudsman’s office was still working through a backlog of approximately 16,000 complaints at the time of the layoffs.
“We were plugging a bullet hole with a Band-Aid,” said one department official. “The issues are massive and already existed before they fired all of the staff that were responsible for being the backstop of the federal student loan system.”
Mayotte, the student aid adviser and Reddit moderator, said she has started encouraging borrowers to reach out to elected officials when they have problems with their loans.
“Up until a month ago, I can count on one hand the number of people I have sent to their members of Congress because we had other avenues,” she said. “I have sent a dozen people to their members of Congress in the last two weeks, and I’m going to have to keep doing that because they don’t have anywhere else to go.”
Jordan Weissmann is a Senior Reporter at Yahoo Finance.
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