SARAH GONZALEZ, HOST:
College students may not know it, but for the past few years, they've had a secret guardian at the Consumer Financial Protection Bureau - the CFPB - Seth Frotman.
CORY TURNER, HOST:
His job has been to make sure students who take out student loans don't get ripped off by big financial companies, by debt collectors or even the federal government.
GONZALEZ: His job has been to be a whistleblower. The whole CFPB is an agency of whistleblowers. But one day, Seth says he was told to just not send out a report. He was told to stop whistling.
SETH FROTMAN: It was so clear to us that this was, like, the first log pulled out of that Jenga game where you could just see that - just, you could, like, almost envision it that day - of watching how all of the pieces were going to be pulled out until it kind of toppled down.
TURNER: Seth started typing a letter that day - one he wasn't sure he'd ever send.
GONZALEZ: You know the letter - that one that lives in our drafts folder.
TURNER: You vent. It makes you feel better.
GONZALEZ: You don't put an email in the address line so you don't accidentally send it. Yeah, Seth was writing that letter.
TURNER: But one day, he realized, oh, I have to send this letter. When he left for work that Monday morning, he told his daughter, I think I might be able to take you to the playground today, like he might get walked out of the office with his things in a box.
FROTMAN: What I essentially told her was that there was a good chance I would be home early that day because I didn't know what was going to happen. I didn't know if I was going to press send and just be told to go home. I didn't know. I didn't know which way it would go.
TURNER: That's because in this letter, Seth told his boss, you have abandoned student borrowers. You've used a federal agency to serve the wishes of the most powerful financial companies in America.
GONZALEZ: And Seth decides to send this letter from his office. He walks into work on August 27, and at 9:30 a.m., he takes a deep breath and clicks send - a scathing, one-week notice addressed to his boss.
TURNER: And, oh, by the way, he cc'd a bunch of U.S. senators and representatives, the U.S. treasury secretary and the education secretary.
FROTMAN: I was prepared that after I pressed send that I would be quickly leaving the bureau, and it would be the last time that I stepped foot there. And I had made peace with that.
(SOUNDBITE OF INGO MOELL'S "CHAIN REACTION")
GONZALEZ: Hello, and welcome to PLANET MONEY. I'm Sarah Gonzalez.
TURNER: And I'm Cory Turner. I cover education for NPR, and I've been investigating the student loan industry. Today on the show, a letter.
GONZALEZ: You may not know it, but the federal government has become, essentially, one of the biggest banks in the country. The Department of Education has lent out over a trillion dollars to students - a trillion dollars in student loans.
TURNER: And Seth Frotman says it's not clear who is overseeing this bank.
GONZALEZ: And young people's credit is being totally ruined because the education department wasn't built to be a bank.
(SOUNDBITE OF INGO MOELL'S "CHAIN REACTION")
GONZALEZ: To understand why Seth's letter matters, you have to understand why the CFPB exists, why there is this whole unit dedicated to student loans.
TURNER: Sarah, when we took out our federal student loans, we borrowed money from big financial companies, banks.
GONZALEZ: Yeah. I'm still paying my student loans off.
TURNER: Luckily, I'm not. Those banks, though, were paid by the government to do this - to lend us money.
GONZALEZ: But when the financial crisis hit, it flipped this whole student loan industry on its head. President Obama said, hey, banks, we don't actually need you; you're just the middlemen. So he kicked them out.
TURNER: The federal government took over $100 billion in existing student loans, and said, from now on, we will lend students college money - us, the Education Department.
GONZALEZ: The bank of education. But the department has never really been a bank before. They're not built to be a bank. They're an Education Department. They literally do not have the capacity to process the monthly payments of 44 million student borrowers. That's how many there are. It's more than 10 percent of the country.
TURNER: So President Obama was like, wait; middlemen, we do still need you.
GONZALEZ: Someone needs to answer the phone, mail the paperwork, collect the money - you know, bank things.
TURNER: The government now pays these big financial companies to be glorified record-keepers and debt collectors.
GONZALEZ: Except, really powerful glorified record-keepers and debt collectors who determine how much students pay each month and have the power to ding their credit if they miss a payment.
TURNER: And student borrowers - they miss payments...
GONZALEZ: A lot.
TURNER: ...Like, a lot.
GONZALEZ: Every 28 seconds, a student borrower defaults. They can't pay their loans - every 28 seconds. Student borrowers hold more consumer debt than anyone else except homeowners.
TURNER: And young people have never had this much debt before. And one law professor at Harvard - well, she saw all this coming. She asked, who's looking out for borrowers? There should be, like, a whole new federal agency for this.
GONZALEZ: And as the Education Department is becoming this trillion-dollar bank, that law professor at Harvard gets her shot to build this new agency, the CFPB, our newest federal agency. That professor...
(SOUNDBITE OF MUSIC)
COMPUTER-GENERATED VOICE: You're connected.
ELIZABETH WARREN: Hi. Is this Sarah?
GONZALEZ: This is Sarah. Hi, Senator Warren. Now, Senator Elizabeth Warren, welcome back to PLANET MONEY.
WARREN: Thank you. It's good to be here.
TURNER: Her job was to hire everybody. She got a small office in the Treasury Department - just a desk and a coat rack with one thing on it, an old-fashioned police cap.
WARREN: Cop on the beat.
GONZALEZ: Who gave it to you?
WARREN: Tim Geithner gave it to me, the secretary of treasury. He said this is what you wanted, and he handed me the hat. He said, you need to be dressed for this.
GONZALEZ: Did you wear it?
WARREN: Yeah, once in a while. Now, only once in a while.
GONZALEZ: Elizabeth Warren created Seth Frotman's entire student loan unit - other units, too, but this one was for college students - to give them some confidence.
WARREN: That when you sign the piece of paper on the student loan, there's not something buried back on Page 32 that's going to explode and cost you your future.
GONZALEZ: So you were like the cop of fine print?
WARREN: (Laughter) Yes. I like that. I like that.
TURNER: And her job was to recruit all the other cops of fine print.
GONZALEZ: And starting a brand-new agency means holding your meetings out by the elevators.
WARREN: It's the biggest space we had. And there would be a ding, and the elevator door would open, and people would look at us like we're all crazy.
GONZALEZ: The CFPB was the kind of place where employees would introduce themselves as Steve, employee No. 7, and Elizabeth Warren, employee No. 1.
FROTMAN: I believe that I was, like, employee No. 90.
TURNER: This is Seth Frotman again, the guy who cc'd Congress on his resignation letter. Well, he became the student loan watchdog at CFPB three years ago. Before that, he was looking out for military borrowers.
GONZALEZ: And once he gets to the student loan unit, he realizes that these companies the government contracts with - the glorified record-keepers and debt collectors - they're making a ton of mistakes, violating laws.
TURNER: For example, college students who later joined the military and got disabled - they're supposed to get their loans completely forgiven. But these companies - they didn't forgive them, and it destroyed their credit. There's a lawsuit about this now.
GONZALEZ: The CFPB has actually returned $750 million to wronged student borrowers. Seth and the CFPB have been calling everyone out on a bunch of things. And all this is happening under the Obama administration.
FROTMAN: You know, these were not things that were necessarily warmly greeted.
GONZALEZ: By the Obama administration?
TURNER: They were embarrassing.
TURNER: But the CFPB is supposed to be apolitical. They're independent. They don't work for any president.
GONZALEZ: Until it kind of started feeling like they did.
(SOUNDBITE OF INGO MOELL'S "ECHOES IN THE NIGHT")
GONZALEZ: After the break, everything changes.
TURNER: After Donald Trump becomes president, he appoints Mick Mulvaney to be Seth Frotman's boss. Now, Mulvaney is a former congressman who has talked for years about how much he hates the CFPB. Here he is in a 2014 interview.
(SOUNDBITE OF ARCHIVED RECORDING)
MICK MULVANEY: It has no accountability to anybody. It turns up being a joke, and that's what the CFPB really has been in a sick, sad kind of way.
TURNER: A lot of conservatives feel this way - that Washington doesn't need more bureaucracy or more regulation.
GONZALEZ: Mulvaney says the CFPB has been overreaching all these years, ignoring the letter of the law. And the changes start with something kind of small.
FROTMAN: Spending hundreds of hours on things like changing the name.
GONZALEZ: What do you mean spending hundreds of hours changing the name? Like, the name of a report?
FROTMAN: Oh, changing the name of the bureau.
TURNER: One of Mick Mulvaney's first big moves in consumer financial protection - rename the agency.
GONZALEZ: So what is the name now?
TURNER: Seth's not going to say it.
FROTMAN: Oh, I'm not.
GONZALEZ: Why aren't you going to say it?
FROTMAN: Because we're the Consumer Financial Protection Bureau.
GONZALEZ: OK, Mick Mulvaney learns that the Consumer Financial Protection Bureau is actually supposed to have been called the Bureau of Consumer Financial Protection, according to the language in the statute. But poor Mick can't get anyone to call it by its new name.
(SOUNDBITE OF TV SHOW, "SQUAWK BOX")
MULVANEY: I can't get anybody to call it the Bureau of Consumer...
TURNER: This is Mick on CNBC.
(SOUNDBITE OF TV SHOW, "SQUAWK BOX")
ANDREW ROSS SORKIN: Because you have tried...
MULVANEY: I'm trying.
SORKIN: ...To change the name of this.
SORKIN: If nothing else, you want to change the name.
MULVANEY: Well, some other things as well. But, yeah, that's a start.
GONZALEZ: Seth, the guy who had the backs of all our disabled military student borrowers - he is now sorting through anything that has CFPB written on it and told, flag it. We're going to have to change it to BCFP. And Seth is like, OK. Mental note - this is weird.
TURNER: But he keeps going until that first log comes out of the Jenga tower.
GONZALEZ: It's wobbling.
TURNER: And this is when Seth starts turning all those mental notes into a letter.
FROTMAN: (Reading) American families need an independent consumer bureau to look out for them when lenders push products.
TURNER: And then one day, Seth starts thinking, I might actually send this letter. He's just finished this big report. It's about banks paying colleges millions of dollars to push debit cards on campus.
GONZALEZ: Like students here buy these - get these credit cards.
FROTMAN: And get a free T-shirt in the process.
GONZALEZ: OK, free T-Shirt, your first bank card - not necessarily a problem. But some of these cards have crazy fees, like you get multiple overdraft fees in one day and they're each $35.
FROTMAN: Some of these arrangements were so - you can imagine the word I'm going to say. But where the schools actually got more money, the more in debt their students were. It also is likely illegal under current federal regulations, as on the books by the Department of Education.
GONZALEZ: So the word you were going to say was effed up?
FROTMAN: That's funny. I was thinking predatory.
TURNER: That tells you a lot about me and Sarah.
But when he hands the report in, he's told, thanks, but we're not going to do anything with this.
GONZALEZ: You had the report. You showed it to all your people that you were supposed to. How did you find out that that report wasn't going to go out into the world?
TURNER: Was there a moment?
FROTMAN: I think we were just told.
GONZALEZ: You were just told.
FROTMAN: We were just told.
GONZALEZ: How? Like, in an email, in person?
TURNER: The report was done, right? I mean, it was done.
FROTMAN: The report was done.
GONZALEZ: OK, to be fair, debit card issues might not technically be part of Seth's job. He's the student loan guy. But the way Seth sees it, the federal government is loaning students money to go to college and then allowing banks to suck all that money away in debit card fees. He's thinking, this is exactly my job.
TURNER: And he adds one more line to his letter.
FROTMAN: (Reading) After 10 months under your leadership, it has become clear that consumers no longer...
GONZALEZ: And this is not a good time for the CFPB to stop going after violations because there's a big problem brewing. It's been brewing for 10 years, and it's about to boil over - loan forgiveness.
TURNER: At the end of the Bush administration, Congress said, if you become a teacher or a firefighter, a cop - any public service job - we're going to forgive your loans in 10 years, as long as you make your payments. That's our big thank you to you.
GONZALEZ: But it wasn't the clearest thank you because the Education Department didn't actually tell people what path they needed to go down to get this great thank-you money.
TURNER: And the companies that the government pays to manage these loans - they don't really have an incentive to help students sort through this complicated path to thank-you money. I mean, they get a dollar or two a month per student. For $2 a month, they don't want to do a lot of paperwork or spend a lot of time on the phone.
GONZALEZ: And obviously, if the loan is forgiven, their pay goes down to $0 a month. So you can see why there's an incentive to keep students confused and paying. It's not a great system.
TURNER: And, by the way, I've spent a lot of time in recent months trying to get these servicers to talk to me, but they don't really talk. I have, though, heard from a lot of students who thought they were going to get their loans forgiven, but they're not - students like Sarah Krainin (ph). She's been in public service for six years. And she's thinking, I'm only four years away from my thank-you money.
And then one day, she called the Education Department, and someone there said, I'm really sorry. I know your servicer told you you qualify for Public Service Loan Forgiveness, but you don't.
SARAH KRAININ: And she said, yeah, it really sucks, you know? And I - just hearing her say that, in a way, was a relief. I mean, it wasn't six years' worth of work a relief, but it was a little bit of, you know, confirmation that this is not really the way things are supposed to be.
GONZALEZ: There were 29,000 applications for loan forgiveness in the past year, and 99 percent of them were denied.
TURNER: Ninety-nine percent.
KRAININ: Oh, wow. See, that's actually a huge relief because I walk around with an enormous amount of feeling silly.
TURNER: The Education Department - they say everybody who is eligible is being approved. Still, they say they will work on improving the process. Meanwhile, Seth starts realizing he can either keep his job, or he can help borrowers like Sarah. But he's got to do it from the outside.
GONZALEZ: So he finishes his letter.
FROTMAN: (Reading) The bureau has abandoned the very consumers it is tasked by Congress with protecting.
GONZALEZ: And he sends it.
FROTMAN: 1700 G St. NW Washington, D.C.
TURNER: Hoping it will galvanize states.
FROTMAN: If there is any upside of what I did, it's a recognition for anyone who has any sort of power - if you're a state legislature, if you're a state attorney general - to look around and figure out how you could help a population of 44 million people that desperately needs it.
GONZALEZ: Fifteen senators have told Seth's old boss that that quashed report about banks ripping off college students - if it exists, we need to see it.
TURNER: And states are telling the Education Department, if you're not going to protect our students, we will. They're suing these loan servicers.
GONZALEZ: Even reliably conservative states like Montana, Kansas and Texas are telling the government, stop protecting these servicers. But the Trump administration is saying, leave our servicers alone. We're policing them just fine. Besides, they're our employees, and we say they're exempt from state laws and lawsuits. You can't sue them, states.
FROTMAN: The federal government isn't only walking away from the fight to help student loan borrowers, they are actually arming the other side.
TURNER: So here's where we're at. The Education Department is now a bank - a $1 1/2 trillion bank.
GONZALEZ: And this bank wants to regulate itself, which seems a little off because what other banks are allowed to regulate themselves?
TURNER: And then there are the companies that work for the department. States are saying they're making mistakes, and they're breaking laws. Do something about it, Trump administration.
GONZALEZ: And they're being told, stay out of it, states.
TURNER: So this is our new system.
GONZALEZ: It kind of goes back to Senator Elizabeth Warren's cop hat. No one's really wearing it right now. And you could describe that as a truly free market or total chaos.
(SOUNDBITE OF ANDRE O'NEIL FENNELL, DWAYNE A. SHIPPY AND JOSH KESSLER SONG, "BOUT THAT LIVE")
GONZALEZ: By the way, since you started listening to this episode, 41 student borrowers have defaulted on their loans. We heard back from the CFPB. They say that while they disagree with the assertions in Seth's letter, they wish him the best in securing his future employment.
TURNER: You can email us. We're at email@example.com. We're also @planetmoney on Twitter and Instagram.
GONZALEZ: Our editor is Bryant Urstadt, and Alex Goldmark is our supervising producer. Today's show was produced by Sally Helm. Also, we're looking for our next intern. It's a great job. You can help with all of the parts of the show. It's paid, so you can pay off your student loans. And while I've been talking, another student just defaulted on their loans. Get more information about the internship at npr.org/money. And you can also go there for links to more information about student loans and the CFPB.
OK, special thanks. Cory, you have, like, seconds for thank-you's before another student defaults.
TURNER: Oh, OK. Special thanks to Melissa Emory Arris (ph), Robert Kelchen (ph) and Colleen Campbell (ph).
GONZALEZ: I'm Sarah Gonzalez.
TURNER: And I'm Cory Turner. Thank you for listening.
GONZALEZ: Forty-four - 44 students have defaulted on their loans.
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