On The Trump Regime's Hostility To Education And Social Mobility

Yesterday, Seth Frotman, the top government official (ombudsman) overseeing the $1.5 trillion student loan market resigned from the CFPB-- not just resigned, but resigned in protest over the Trump Regime's open hostility toward protecting the nation’s millions of student loan borrowers. His scathing resignation better pointed out that the Regime "has turned its back on young people and their financial futures."

The office was at the center of the lawsuits against for-profit colleges like Corinthian Colleges and is currently heading up a lawsuit between the CFPB and 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 their 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 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 established the CFPB, citing a need for a go-to person to handle student loan complaints nationwide. One previous occupant of that position is Rohit Chopra, who was appointed by President Trump to be a commissioner at the Federal Trade Commission.

The ombudsman’s office is quite powerful, able to work with the bureau’s 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 loan borrowers. The office 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.

But despite its work, Mulvaney downgraded the mission of Frotman’s student loan office earlier this summer and moved it under the umbrella of consumer education instead of enforcement. While at the time Mulvaney’s office said it was a minor organizational shake-up, 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. Under Mulvaney, the bureau has scaled back its enforcement work and has proposed revising or rescinding all of 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.”

So what happens when the Trump nightmare is over? Moving forward, not backwards into some kind of status quo ante. Six months ago the Levy Economics Institute-- a nonpartisan public policy think tank at Bard College-- published The Macroeconomic Effects of Student Debt Cancellation by Stephanie Kelton, Scott Fullwiler, Catherine Ruetschin and Marshall Steinbaum. As DWT readers are aware, Stephanie Kelton was Bernie's economic adviser and they made a very big deal out of student debt all through the campaign, so big a deal that even Clinton and other status quo candidates began addressing the issue seriously. I suggest you read the entire paper but this is excerpted from the executive summary-- and goes right to the problems Frotman was trying to deal with while fending off a Regime generally hostile to education and to upward mobility of working class kids:

More than 44 million Americans are caught in a student debt trap. Collectively, they owe nearly $1.4 trillion on outstanding student loan debt. Research shows that this level of debt hurts the US economy in a variety of ways, holding back everything from small business formation to new home buying, and even marriage and reproduction. It is a problem that policymakers have attempted to mitigate with programs that offer refinanc- ing or partial debt cancellation. But what if something far more ambitious were tried? What if the population were freed from making any future payments on the current stock of outstanding student loan debt? Could it be done, and if so, how? What would it mean for the US economy?

...Student debt cancellation results in positive macroeconomic feedback effects as average households’ net worth and disposable income increase, driving new consumption and investment spending. In short, we find that debt cancellation lifts GDP, decreases the average unemployment rate, and results in little inflationary pressure (all over the 10-year horizon of our simulations), while interest rates increase only modestly. Though the federal budget deficit does increase, state-level budget positions improve as a result of the stronger economy. The use of two models with contrasting long-run theoretical foundations offers a plausible range for each of these effects and demonstrates the robustness of our results.

A one-time policy of student debt cancellation, in which the federal government cancels the loans it holds directly and takes over the financing of privately owned loans on behalf of borrowers, results in the following macroeconomic effects.

• The policy of debt cancellation could boost real GDP by an average of $86 billion to $108 billion per year. Over the 10-year forecast, the policy generates between $861 billion and $1,083 billion in real GDP (2016 dollars).
• Eliminating student debt reduces the average unemployment rate by 0.22 to 0.36 percentage points over the 10-year forecast.
• Peak job creation in the rst few years following the elimina- tion of student loan debt adds roughly 1.2 million to 1.5 million new jobs per year.
• The in ationary effects of cancelling the debt are macro-economically insignificant. In the Fair model simulations, additional inflation peaks at about 0.3 percentage points and turns negative in later years. In the Moody’s model, the effect is even smaller, with the pickup in in ation peaking at a trivial 0.09 percentage points.
• Nominal interest rates rise modestly. In the early years, the Federal Reserve raises target rates 0.3 to 0.5 percentage points; in later years, the increase falls to just 0.2 percentage points. The effect on nominal longer-term interest rates peaks at 0.25 to 0.5 percentage points and declines thereafter, settling at 0.21 to 0.35 percentage points.
• The net budgetary effect for the federal government is modest, with a likely increase in the de cit-to-GDP ratio of 0.65 to 0.75 percentage points per year. Depending on the federal government’s budget position overall, the de cit ratio could rise more modestly, ranging between 0.59 and 0.61 percentage points. However, given that the costs of funding the Department of Education’s student loans have already been incurred, the more relevant estimates for the impacts on the government’s budget position relative to current levels are an annual increase in the de cit ratio of between 0.29 and 0.37 percentage points.
• State budget de cits as a percentage of GDP improve by about 0.11 percentage points during the entire simulation period.

• Research suggests many other positive spillover effects that are not accounted for in these simulations, including increases in small business formation, degree attainment, and household formation, as well as improved access to credit and reduced household vulnerability to business cycle downturns. Thus, our results provide a conservative estimate of the macro effects of student debt liberation.