Seth Frotman, America’s student loan ombudsman, wrote a letter on Monday tendering his resignation, talking of “borrowers who are trapped in a broken student loan system”.
The “current actions being taken by the Consumer Financial Protection Bureau [under which the ombudsman sits] leadership are hurting families,” he wrote to Mick Mulvaney, the US director of the Office of Management and Budget.
Credit reporting agency Experian highlighted, in a report in March, that US student debt had risen by more than $800bn over the past decade to more than $1.4 trillion in 2017 - roughly 7.5% GDP.
One fifth of those with education debt were behind on payments, according to a report on the economic wellbeing of US households in 2017, released in May this year by the US Federal Reserve System’s board of governors.
Almost all (94%) of education debt relates to student loans, the official report in May showed. The typical amount of student debt outstanding last year in the US was between $20,000 and $25,000 per individual.
Frotman, who has served as ombudsman for three years, said in his letter: “Tens of millions of student loan borrowers struggle to stay afloat.” He noted the bureau, set up with the ombudsman, had returned $750m to students from unscrupulous lenders since its inception in 2011.
But he wrote in his letter the bureau had “turned its back on young people and their financial futures” and was “going above and beyond to protect the interests of the biggest financial companies in America”.
He said an independent bureau that would “look out” for families when lenders tried to “push products they know cannot be repaid” and “when student loan companies are allowed to drive millions of Americans to financial ruin with impunity”.
His resignation is effective from Saturday.
The US Department of Education said in a statement earlier this month an overhaul of ‘gainful employment regulations’ would give more “transparent higher education data to students”, which it believed would help in making decisions on borrowing.
There are a variety of student loans in the US, broadly be split between federal and private loans.
The US Department of Education guarantees federal loans – either directly or through guaranty agencies – and these are divided into subsidised (where the government pays the interest while the student is studying at least half-time) and unsubsidised loans.
