When federal policymakers killed banks’ ability to make government-backed student loans, David Bergeron should have been celebrating. A career official at the U.S. Department of Education, he had favored the move for years; it would save the government money, he reasoned, and make it better able to help distressed student borrowers.
But when it actually happened in 2010, he wasn’t so sure. With the move, his agency instantly became the nation’s biggest lender to college stude...
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When federal policymakers killed banks’ ability to make government-backed student loans, David Bergeron should have been celebrating. A career official at the U.S. Department of Education, he had favored the move for years; it would save the government money, he reasoned, and make it better able to help distressed student borrowers.
But when it actually happened in 2010, he wasn’t so sure. With the move, his agency instantly became the nation’s biggest lender to college students. And in his decades of federal service, he’d arrived at the view that when the government gets the chance to profit from something, it takes maximum advantage. It was only a matter of time, he feared, before that happened to student loans.
Seven years later—with more than 1 million former students defaulting on government-backed loans every year and with his former agency pulling the plug on a partnership with the consumer bureau tasked with protecting them—his fears could soon be realized.
The Federal Student Aid office, which Johnson now leads, was created by Congress in 1998 and directed to improve customer service for students. “But at the end of the day, what FSA is judged by is not customer service, but how much money is returned to the Treasury,” Bergeron said. “Their default option is to think of servicers first and borrowers as an afterthought,” Raskin said. And the government’s loan contractors put its interests first; their ultimate customer, after all, is the agency that hired it to collect on debt. Navient told a federal court in March that “there is no expectation that the servicer will act in the interest of the consumer.”
Hill, the department spokeswoman, said her agency is “committed to putting students’ needs first, easing the burdens on student loan borrowers, and enhancing efficiencies for servicers.”
Now the department “has made its position clear that there is no room for CFPB involvement here,” said Brian Slagle, an attorney at Ballard Spahr LLP who represents financial firms before the bureau.
Wall Street has already taken notice. This week, Michael Tarkan, director of research at Compass Point, recommended that clients buy Navient stock. The agency’s decision, he said, is an “unambiguous signal” that the Trump administration will take a more lenient approach to policing student loan companies.
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