What the Department of Education can learn from the foreclosure crisis
As ranking member of the House Committee on Financial Services, I've spent the years since the financial crisis trying to provide relief to Americans devastated by the plague of home foreclosures.
It’s been challenging work. Programs the government put in place to aid borrowers often were insufficient, hard to understand and needlessly complex. Though the process created many problems, one silver lining is that we’ve learned important lessons about how government can more effectively help individuals victimized by predatory practices in the financial marketplace.
That's why I'm deeply concerned that we may not be heeding these lessons when it comes to a new problem impacting thousands of defrauded Americans; in this case, student loan borrowers. The only difference is that this time, government has a chance to make things right -- if they avoid repeating the mistakes of the past.
Specifically, four years ago, with reports about illegal "robo-signing" on the front page of every newspaper, our regulators faced pressure to respond to the growing problem of banks' botched home foreclosures.
Fearing a public backlash if they ignored the crisis - but lacking the will to respond to the problems forcefully and directly - our banking regulators designed the boondoggle that came to be known as the "Independent Foreclosure Review" (IFR).
Problems with IFR were legion. Banks hired consultants with clear conflicts of interest to investigate misconduct. Incomplete data and lost paperwork made it impossible to determine the actual harm caused to homeowners. And borrowers often didn't receive clear information or fair treatment when they tried to make their case to those judging their claims.
It was nothing short of a mess. The banks paid consultants about $10,000 per borrower just to try to determine what fraud had occurred. And in the end, regulators pulled the plug on the IFR, directing the banks to give up and just mail borrowers checks - most of which were for a mere $300 to $600.
I spent the better part of four years pressing our banking regulators to abandon the IFR and adopt a fairer process. I wrote letter after letter, held countless meetings, requested three separate GAO reports and, after my requests for a hearing were not granted by Republicans, watched colleagues like Sens. Sherrod Brown (D-Ohio) and Elizabeth Warren (D-Mass.) hold a contentious hearing on the issue.
We are now facing a similar situation with the failure of Corinthian Colleges - a chain of predatory for-profit colleges that collapsed under the weight of investigations into their false job placement and graduation rates, and fraud upon the federal student loan program.
According to reports, the Department of Education is imminently about to announce a debt forgiveness plan that will make many students jump through very difficult legal hurdles in order to receive the relief available to them under the law. Students - many of whom are single mothers, veterans, and low-income people struggling with massive debt - will reportedly be required to submit to the department individual applications answering complex legal questions. Without the ability to afford an attorney, these students will likely have a difficult time documenting how they were misled by their Corinthian school and legally proving the losses they incurred.
Distressingly, what's being reported reminds me a lot of the IFR.
What’s most disappointing is that it doesn't have to be this way. Under the Higher Education Act, the secretary of Education has wide latitude to provide class-wide relief to harmed students. Given the reams of fraud documented by the Consumer Financial Protection Bureau, state attorneys general, and the department itself - this should be an easy choice.
The foreclosure and the student debt crises are similar in a lot of ways – in both, we saw the targeting of minority communities and service members; high-pressure sales tactics mixed with financial products that many families didn't understand; poorly regulated industries run amok while regulators allowed clear problems to grow; and, in the end, we saw devastating harm caused to both families and to the taxpayer.
But this time, the Department of Education has the chance to do better. Now is the time for them to heed that lesson and provide broad-based relief to students.
Waters represents California’s 43rd Congressional District and has served in the House since 1991. She is ranking member on the Financial Services Committee. Originally appeared in The Hill.