Three months ago, one of the government’s top student loan watchdogs, Seth Frotman, stepped down from his job at the Consumer Financial Protection Bureau with a scathing resignation letter that criticized the Trump administration for undermining the agency’s enforcement efforts.
Then he took some people with him.
Mr. Frotman and other former bureau employees plan to continue the work they did for the government at a new Washington-based nonprofit announced on Wednesday, the Student Borrower Protection Center. The new venture will focus on aiding borrowers by working with state and local officials, rather than the federal officials who Mr. Frotman said have sought to favor lenders and servicers.
Mick Mulvaney, the acting head of the consumer bureau and Mr. Frotman’s former boss, has complained about the “moral consequences” of students failing to repay their debts, and he removed a planned student loan collection overhaul from the agency’s long-term regulatory agenda. At the same time, the Education Department has sought to curb state oversight of the federal loan servicers.
“The federal government hasn’t just walked away from the fight on behalf of borrowers,” Mr. Frotman said. “It is actually arming the other side.”
A spokesman for the consumer bureau declined to comment Wednesday on the activities of former employees. In September, shortly after Mr. Frotman’s resignation, Mr. Mulvaney told CNBC that the former official had overstepped his position’s statutory limits during his time at the bureau.
More than 44 million Americans collectively owe $1.5 trillion on their student loans, eclipsing any other kind of consumer debt outside of mortgages. The balance has more than doubled in the last decade, fueling what Mr. Frotman sees as a nationwide crisis. As the debt level has risen, so has the number of borrowers who have fallen behind or defaulted on what they owe.
Mr. Frotman, the new group’s executive director, will be joined by two other former employees of the consumer bureau, Bonnie Latreille and Mike Pierce, and a group of fellows and advisers that also draws heavily on former bureau staff members.
The project is funded by the Sandler Foundation, a San Francisco-based charity that financed the creation of public policy groups like the Center for Responsible Lending and the Center for American Progress.
Mr. Frotman and his former colleagues’ switch to nonprofit work echoes a move made last year by a team of Education Department officials who left the agency and created the National Student Legal Defense Network. That advocacy group has filed a barrage of lawsuits against the department where its founders once worked.
Mr. Frotman said his group’s goal would be to aid policymakers and litigators working to strengthen borrower protections. In particular, it will focus on efforts by state lawmakers and attorneys general to increase their oversight of student loan lenders and servicers.
Such moves are firmly opposed the education secretary, Betsy DeVos, who has gone to court to block Massachusetts and others that have imposed new rules on companies hired by the government to manage federal student loan collections. Those pending cases are a central battleground for borrowers’ advocates.
In Albany on Tuesday, Mr. Frotman urged the State Assembly to act more aggressively to protect borrowers in New York.
“There is no cavalry on the horizon — certainly not in this administration,” he said at a committee hearing about student debt.