Ex-CFPB ombudsman’s message to federal student loan borrowers: ‘Demand’ what you’re ‘legally entitled to’

Julia Barnard was working her “dream job,” pouring her “heart into the work” of helping education debtors nationwide. Until Barnard — the last student loan ombudsman at the hotly-contested Consumer Financial Protection Bureau (CFPB) — was abruptly (and some argue, illegally) fired by the Trump Administration on Feb. 13.

Barnard’s job was to work directly with then-CFPB director, Rohit Chopra, on student loan policy and strategy to address America’s over $1.6 trillion education debt. She was also on the ground, working with the Department of Education, and its maligned Office of Federal Student Aid (FSA), to secure loan forgiveness for a borrower who was scammed in one example and the mother of a disabled son in another.

“I’m honored that I got to help people, that people were willing to share their stories with me,” says Barnard in an exclusive interview with Bankrate. “But of course, I think we all know how labyrinthine and Kafka-esque the federal student loan system is. And so, it’s also a bit of a heavy burden to watch people struggle like that.”

Though Barnard has lost her access to non-public government records, she is still listening to borrowers’ stories in online forums and aiming to assist where she can.

“It’s beautiful that people are trying to figure out how to get help from within the void somehow,” says Barnard, who recently announced joining the University of California Student Loan Law Initiative.

Bankrate’s conversation with Julia Barnard about the state of student loans

Our Q&A with Barnard has been edited for length and clarity.

One of the more jarring developments is federal loan borrowers not being able to apply for income-driven repayment online, via the FSA website (StudentAid.gov). How significant is this?

“I understand that there’s a legal fight going on about one of these options [SAVE], but there are options that borrowers remain legally entitled to, and the Trump Administration may not even fully understand the kind of anxiety that they have unleashed with this decision.

“I’ve been helping my [ex-CFPB] colleagues, many of whom are also fired and now need income-driven repayment plans even more than they did before, and a lot of people are saying, ‘My payment was $400, I could afford it; it’s going to go up to $2,000, I can’t afford it,’ and so I’m sad for those people… I mean that could prevent them from meeting their basic needs, and we already know from a ton of research that student loan borrowers do indeed have more trouble than others meeting their basic needs.

“So, these are consequential things. It’s a tragedy for our country. I don’t think it has a good economic effect, a good social effect. It’s sad.”

So, it wouldn’t be surprising to see more federal loan borrowers fall behind in repayment…

“There are around five million borrowers with [federal student] loans in default. That number actually — like, wonderfully — came down by three million during the Biden Administration, but right now we’re hovering around five million people.

“The negative consequences of default, which are in fact quite severe — they include offset of tax refunds, garnishment of wages… the earned income tax credit and the child tax credit and social security benefits, retirement and disability… If borrowers aren’t able to pay their loans, they could risk falling into that system.

“There’s just so much we need to do to make that system less punitive for people and to avoid pushing people into poverty, which, unfortunately, currently happens. So, a note of caution [that] borrowers should think carefully before deciding to not pay loans.”

How was federal loan servicing going before the recent upheaval?

“In the annual report that we published in November, we wrote about the top problems we were seeing and how basic they were. We were seeing a lot of problems with payment processing, literally just people getting double payments pulled; people not being credited for payments that were taken from their accounts, like extremely basic and also illegal failures on the part of servicers and the Department.”

What should be done with these servicers to improve their performance?

“That’s a problem that can be approached in so many ways. If the Trump Administration is serious about holding contractors accountable for efficiency and meeting standards and doing what they get paid to do, student loan servicing is the perfect example of contractors who repeatedly are not doing what they said they would do.”

What happens next given the Trump Administration’s apparent efforts at dismantling the Education Department?

“There are indications they may try to move [FSA] to the Department of the Treasury or to the private market. I see extremely risky waters ahead for borrowers if the portfolio becomes private. We went down that road before 2010 [with FFELP], and it was more expensive. It was way worse for borrowers.

“The government’s obligation is to provide education to make our nation competitive. It’s not to make the portfolio profitable, and I worry if the portfolio goes into the private market that the incentives will become so different that the borrower experience will deteriorate more than it already has.

“The Trump Administration is dismantling these functions quickly and at least in the case of CFPB, it seems they’re doing so without a real detailed knowledge of the way that the systems function or what’s needed. So, I also worry if the Department of Education is dismantled that the program will experience even more chaos. We’ve already been in a mass-chaos-and-confusion environment. I’m worried it will truly get worse.

“All that said, I do think there’s an opportunity to rethink the system. I don’t think it’s wrong to say that the status quo is not working. Of course, I would love to be a part of the conversation to figure out how we can fix this thing. This is not the solution I would choose. I don’t think we’re going in the right direction, and I just want to affirm to all the borrowers who are like, ‘Well, something’s got to get better,’ that they’re not wrong.”

What is the way forward that you’d choose?

“I was a part of the conversation about student debt cancelation from the beginning. I think that debt-financed education is the wrong way for our society to go. It all starts there for me.

“I have spent my career thinking about this portfolio, and I don’t think it’s a portfolio we should have — I don’t think financed education is the way.

“We know research has established quite well and quite definitively that student debt has negative outcomes on people’s lives. Prevents them from starting businesses, going back to school, doing jobs they really want to do, literally getting married and having children. There’s a lot of new research out there on the negative mental health and physical health effects of student debt.”

Since mass forgiveness now seems like a dead issue, what would you say to the average federal loan borrower?

“The first thing I always say to everyone is, ‘I’m sorry for this situation. It’s unforgivable, and you’re right that it’s not OK.’

“In this time, the most important message I want to send is that people are entitled to support. This is a financial product they owe. They signed a contract… they should be able to know what they owe and be able to make that payment. They should be able to not have their terms changed every time somebody Tweets or interprets a court decision differently. That’s not the way financial products are supposed to work, and on top of that, there are laws that guarantee them help from somebody like the CFPB student loan ombudsman. There’s also an FSA student loan ombudsman.”

So, what can we do in the near term, with an on-pause CFPB and a still-broken college financing model?

“I do think this is an opportunity for all of us to reconsider the basic status quo. And if the status quo is going to get interrupted, could that possibly offer opportunities to help people in material ways? I will personally be trying to do that over the next four years.

“I don’t know if I have optimism, per se, but it’s an important time to be generative, have creative ideas and continue to engage with the work. I don’t think it’s the right thing to do to give up at this time — and I would say that to borrowers too. They’re legally entitled to a level of service that they’re not getting, and they should demand it.”