A sweetheart deal from Obama’s rogue consumer finance cops

Approximately 44 million Americans have student loan debt, and during former President Obama’s historically weak economic recovery, many borrowers defaulted on their loans, contributing to an economic crisis.

When lenders are not paid, it has significant consequences for the future of student loan funding, both in the short-term for consumer options and lending rates, but also for the securities market and the broader American economy. An estimated $108 billion worth of loans are held by investor groups.

The recent questionable dealings between former Consumer Financial Protection Bureau (CFPB) Director Richard Cordray and the National Collegiate Student Loan Trusts (NCSLT), controlled by hedge fund manager and Cordray friend Donald Uderitz, have shown not only massive overreach in authority by the bureau, but the kind of problematic insider political dealings that President Trump can and should end.

NCSLT is the nation’s largest owner of private student loans — a group of 15 trusts that hold 800,000 loans worth about $12 billion, with $5 billion of that total currently in default. In a process is known as securitization, the loans — made to students over a decade ago by dozens of different banks — were bundled together by a financing company and sold to investors.

The NCSLT trusts were established between 2002 and 2007 to acquire and securitize private student loans originated by various banks pursuant to lending programs established by First Marblehead Corporation (FMC), which provided private student loans to borrowers who required funds beyond what could be obtained through federally-backed programs at the time.

Private lenders do not have the same enforcement mechanisms as the federal government. The most effective way they can collect payments is via litigation.


Matt Mackowiak is the president of Austin, Texas, and Washington, D.C.-based Potomac Strategy Group and former press secretary to two U.S. senators. His national politics podcast, “Mack on Politics,” may be found on iTunes, Google Play, Stitcher and on the web at MackOnPoliticsPodcast.com.