How Andrew Cuomo Failed Student Borrowers

The New York governor is touting a deal to flip a handful of senators back into the Democratic fold, but it comes after it would have mattered for student borrowers.

NEW YORK, NY - MARCH 24: New York Governor Andrew Cuomo talks to reporters at the March For Our Lives, March 24, 2018 in New York City. Thousands of demonstrators, including students, teachers and parents are gathering in Washington, New York City and other cities across the country for an anti-gun violence rally organized by survivors of the Marjory Stoneman Douglas High School school shooting on February 14 that left 17 dead. More than 800 related events are taking place around the world to call for legislative action to address school safety and gun violence. (Photo by Drew Angerer/Getty Images)
New York Governor Andrew Cuomo talks to reporters at the March For Our Lives on March 24, 2018 in New York City. Photo: Drew Angerer/Getty Images

This week, New York Gov. Andrew Cuomo brokered a deal between warring factions of his own party. The Independent Democratic Conference, a breakaway group of eight senators that had been caucusing with Republicans in Albany, agreed to come back to the Democratic fold.

Political watchers in New York labeled it a cynical and self-serving move. It also came too late to assist student loan activists in a signature battle that fell just short for the second straight year.

The reunification came after years during which the IDC maintained the Senate majority for Republicans, blocking progressive legislation from advancing. But pressure has been building, with serious primary challenges against seven IDC members and an insurgent threat from actress and activist Cynthia Nixon against Cuomo himself. 

The reunification may succeed in draining some of the energy from those challenges, and with Simcha Felder, a Brooklyn IDC member, remaining noncommittal on caucusing with Democrats, the merger didn’t change the balance of power in the Senate. Even if Democrats managed to get a numerical majority if Felder flipped to the Democrats after two special elections on April 24, parliamentary rules block the changeover of power during a legislative session without 38 votes, which Democrats will not have.

For Cuomo, the rationale is obvious. He’s facing a primary challenge from Nixon, and he wants to shut her out of ballot lines that would take her to the general election in November, particularly from the left-leaning Working Families Party, whose convention is next month.

The IDC formed a week after Cuomo’s first election in 2011, conveniently tying his hands on legislation he didn’t particularly want to pass. In 2014, during a primary challenge from law professor Zephyr Teachout, a similar reunification was promised and Cuomo took the Working Families Party line, only for the IDC to break away after the elections. This looks to be a replay.

Most importantly, the merger comes after New York passed its state budget, the most important legislation of the year. That budget, dependent on Senate Republicans, was shorn of the kind of social legislation that a unified state government might have achieved. Merging the IDC with Democrats only after nearly everything has passed for the year has no impact. And Exhibit A of who gets hurt in Cuomo’s political gamesmanship is student loan borrowers.

Governor Cuomo had eight years to fully stop predatory student lending and the big banks who give generously to his campaign,” Nixon said in a statement to The Intercept. “He promises big and ultimately hands all power to his big money donors and the Republicans he puts in charge.”

NEW YORK, NY - NOVEMBER 13: Students hold placards as they stage a demonstration at the Hunter College, which is a part of New York City University, to protest ballooning student loan debt for higher education and rally for tuition-free public colleges in New York on November 13, 2015. (Photo by Cem Ozdel/Anadolu Agency/Getty Images)

Students hold placards as they stage a demonstration at Hunter College to protest ballooning student loan debt for higher education and to rally for tuition-free public colleges in New York on Nov. 13, 2015.

Photo: Cem Ozdel/Anadolu Agency/Getty Images

Though the vast majority of student loans since 2010 have been issued by the federal government, and though the federal government knows how to take a payment, the Education Department contracts with a handful of private-sector student loan servicers to manage the accounting, paying them nearly $1 billion annually. This wasteful privatization would be bad enough if student loan servicers were competent. They’re not.

Student loan servicers have been continually cited for a litany of abuses. First, they neglected to inform borrowers about income-based repayment, under which borrowers pay a percentage of income over 20 or 25 years and thereafter, have the balance forgiven. “The reality is that borrowers shouldn’t be in default if servicers are doing their job,” said Whitney Barkley-Denney of the Center for Responsible Lending. But over 1 million student loan defaults occurred in 2016.

Servicers frequently place borrowers, instead, into forbearance or deferment, halting payments temporarily but allowing interest to accrue. Borrowers often get hit with a big balloon payment when the forbearance period ends. “People call us who are either getting their tax refunds intercepted, or having their Social Security checks or wages garnished,” said Evan Denerstein, a staff attorney with Mobilization for Justice, a public interest law firm in Brooklyn. “It’s almost always people who would qualify for income-based repayment, but are pushed into forbearance or deferment.”

Servicers have also been accused of illegally blocking payments from accruing to loans with the highest interest rates, overcharging active-duty military, violating discriminatory lending practices, and harassing borrowers after their co-signers died. All of these practices manage to increase servicer profits, since they are paid a percentage of the outstanding balance along with a bonus for keeping borrowers out of default.

The Obama administration cracked down on the industry, though it did not simply revoke servicer contracts and collect payments in-house. In 2014, the administration created a process to go around servicers and directly communicate repayment options to borrowers. In 2015, it put out a “student aid bill of rights” to help borrowers navigate the system, and in 2016 the Education Department strengthened rules for the next servicer contracts. The Consumer Financial Protection Bureau got involved as well, suing Navient, one of the largest student loan servicers, for “systematically and illegally failing borrowers at every stage of repayment.”

Needless to say, all this collapsed when the Trump administration came into power. Education Secretary Betsy DeVos revoked the enhanced borrower protections from the servicer contracts. She ended an information-sharing partnership with the CFPB, claiming that the agency had no authority to oversee federal loan servicers. Theoretically, the Education Department oversees the contracts, but functionally speaking they do little. And when Mick Mulvaney took over at the CFPB, virtually all oversight withered. The agency has been rumored to be seeking a settlement in the Navient case.

In the absence of federal oversight, states took action. In 2015, Connecticut became the first to enact a Borrower Bill of Rights, licensing all servicers operating in the state and subjecting them to enforcement if they violated consumer protection statutes. California, Illinois, Washington, and the District of Columbia also passed such laws, with bills being readied in several other states. Illinois, Washington, and Pennsylvania sued Navient in parallel actions to the CFPB, and Massachusetts sued the Pennsylvania Higher Education Assistance Authority, another servicer. Under the prior leadership of Richard Cordray, the CFPB encouraged these state efforts.

CORAL SPRINGS, FL - MARCH 07:  U.S. Education Secretary Betsy DeVos speaks to the news during a press conference held at the Heron Bay Marriott about her visit to Marjory Stoneman Douglas High School in Parkland on March 7, 2018 in Coral Springs, Florida.  DeVos was visiting the high school following the February 14 shooting that killed 17 people.  (Photo by Joe Raedle/Getty Images)

U.S. Education Secretary Betsy DeVos speaks at a press conference held in Coral Springs, Fla., about her visit to Marjory Stoneman Douglas High School in Parkland, on March 7, 2018.

Photo: Joe Raedle/Getty Images

DeVos got the backs of the servicers again. In a memo in February, DeVos asserted that only the federal government can oversee federal student loan servicers, and that servicers didn’t have to respond to information requests from state officials. The notice didn’t have the force of law. “It was just a piece of paper,” said Barkley-Denney. But the intended effect was to chill states from moving forward on tough enforcement of servicers.

States plowed right through DeVos’s yellow light, with 29 attorneys general from both parties telling DeVos to back off in a formal letter. And one of the loudest DeVos opponents was Andrew Cuomo.

“At every turn, the Trump Administration has put corporate profits ahead of consumers,” he tweeted. Cuomo wrote an open letter to Congress asking it to reject DeVos’s effort to suppress state enforcement. And he vowed to pass “Borrowers Bill of Rights” legislation to license and oversee student loan servicers. “New York will not stand by while the federal government turns its back on our young people,” Cuomo wrote.

And then, New York did.

State Assemblyman Kenneth Zebrowski first introduced legislation to regulate student loan servicers in 2017. It included provisions to license all servicers and to grant enforcement power to the state Department of Financial Services. The proposal made it into the Assembly’s version of the budget, but Senate Republicans took it out. “I don’t know how much of a priority it was then,” said Denerstein of Mobilization for Justice, who has lobbied for the regulations.

This year, advocates lined up much more support. While the measure was part of Cuomo’s proposed budget in 2017, this year he touted it much more heavily, including it as part of the State of the State agenda. Cuomo included in the package the appointment of a student loan ombudsman, giving borrowers a point of contact to assist with difficulties with their servicers. State Attorney General Eric Schneiderman publicly supported the bill, and the Assembly was much more vocal about it, especially after DeVos’s machinations to pre-empt state action.

Even the IDC supported the concept; one of its members, Jesse Hamilton of Brooklyn, co-sponsored the bill. Between that and some independent Republican support, it’s likely that student loan servicing regulations had a majority in both chambers in New York state, along with the explicit support of the governor. Yet it did not pass.

“There was a lot of momentum behind it, but the Senate’s still controlled by Republicans,” said Denerstein. And just like in 2017, the Republican leadership balked at the servicer provision. Budgets typically get negotiated in New York by the governor and the Senate and Assembly leaders. Though two of the three supported the servicer regulations, Senate Majority Leader John Flanagan’s opposition was enough to block it. The budget was finalized last week.

Large servicer Navient spent tens of thousands of dollars lobbying the state Senate on the measure, as it did in 2017. Navient’s debt collection arm, Pioneer Credit Recovery, is headquartered in Wyoming County, the western New York district of Sen. Catharine Young, chair of the Senate’s Ways and Means Committee. “That’s been a big issue,” Denerstein said. “From what we’re told, Navient was threatening to take its office out of New York.”

The threat is likely an empty one. Navient also has offices in Pennsylvania, but despite the state suing the company over servicing violations, it has not moved those offices. Nevertheless, Young reportedly wielded that threat to keep the servicing regulations out of the budget, and with her control of the Ways and Means Committee, standalone legislation appears doomed as well. Young’s office did not return a request for comment.

Between the job threat, ideological opposition to consumer protection, and DeVos’s warning against state action, Republican leaders adamantly refused to include the student loan provision. But Republicans are only in control of the state Senate due to the IDC’s caucusing with them. “The IDC kept the Republican leadership in charge through this year’s budget cycle. Ideas like protecting student borrowers would be dead on arrival, as long as the IDC was propping up the Republicans,” said Bill Lipton, director of the New York Working Families Party.

The student loan provision wasn’t the only progressive idea stymied by Republican leverage on the budget. Criminal justice reform, early voting, and a state version of the DREAM Act that gives undocumented immigrants access to college assistance all got knocked out. And with the budget being the main vehicle New York passes every year, those measures are likely dead for now. “Republican control was enough to ensure that progressive priorities fell by the wayside,” said Lipton. The Working Families Party has endorsed several challengers to IDC members in primary elections.

As for Cuomo, he’s used what he sees as the protection of the IDC-Republican power-sharing arrangement for years now, encouraging the IDC’s formation at the outset. Cuomo’s office touts low state spending, forced by Senate Republicans, as a selling point for his leadership. He perceives a benefit from being able to keep a lid on Democratic progress.

Nixon, Cuomo’s Democratic challenger for governor, has boasted that her primary challenge made Cuomo suddenly find his power to unify Democrats. But the reunification of the Democratic caucus during an election year, after the budget has passed, means that no meaningful results will come, even if Democrats took control of the Senate immediately. That gridlock comes at the expense of New York’s most vulnerable, including the student loan borrowers Cuomo promised to protect. As Nixon’s campaign wrote in an email this week, “If you’ve set your own house on fire and watched it burn for eight years, finally turning on a hose doesn’t make you a hero.”

Cuomo’s office did not respond to a request for comment.

Top photo: New York Gov. Andrew Cuomo talks to reporters at the “March For Our Lives” on March 24, 2018, in New York City.

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