Since she was elected to the Senate almost a decade ago, Elizabeth Warren has been fighting to cancel student debt and hold loan servicers accountable. Now one of her closest allies is in charge of the federal student debt pile, and that could be a big deal.
Richard Cordray, the former head of the Consumer Financial Protection Bureau (CFPB), was selected to head the Education Department’s Office of Federal Student Aid (FSA) on Monday. Few people in Washington DC are better placed to carry out Warren’s vision of mass student-debt relief. That’s because Cordray took the job Democrats wanted Warren to have.
When Warren was a Harvard professor (and occasional blogger), she frequently cited problems within the student-loan system and the need to create something like the CFPB, which would protect consumers financially and ensures they are being treated fairly. That turned into a new federal agency created under President Barack Obama, who wanted Warren to lead it, but in 2011, Senate Republicans blocked her appointment. She ran for Senate instead, becoming a national figure, while Cordray became a close ally as the first head of the CFPB.
During her time in the Senate, Warren worked with Cordray’s bureau to conduct investigations into predatory lending practices. Now as head of the FSA, Cordray will be tasked with overseeing the government’s $1.5 trillion student loan portfolio through disbursing loans and grants, along with monitoring student-loan servicers and implementing relief and repayment programs.
“@RichCordray was a fearless @CFPB leader who forced big financial institutions to return $12 billion to people they cheated,” Warren wrote on Twitter on Monday. “I’m very glad he’ll be protecting student borrowers and bringing much-needed accountability to the federal student loan program.”
What Cordray could do on student debt
In a statement after his appointment was announced, Cordray said he was looking forward to creating “more pathways for students to graduate and get ahead, not be burdened by insurmountable debt.”
He will be tasked with sorting through claims from thousands of defrauded borrowers who filed for debt relief, along with ensuring the smooth implementation of loan collections once the pause on student loan payments through September is lifted – although Cardona said on Monday that extending the payment pause is “not out of the question.“
While Cordray has not yet commented on wiping out $50,000 in student debt for each borrower, which Democrats continue to call for, he told MarketWatch last year that under the Biden administration, he expected the CFPB and the Education Department to work more closely on student-loan issues.
At the CFPB during the Obama years, Cordray made oversight of student loan servicers his priority. The agency has returned more than $75o million to student loan borrowers since 2011 over debt collection complaints, and in early 2017, the bureau sued Navient, the largest student loan servicer in the US, in a lawsuit that is still ongoing, arguing that Navient misled students into taking on loans they cannot pay off.
At a late April hearing, Warren called for the government to fire Navient, and for Navient to fire its chief executive officer, after accusing Navient for over a decade of abusing the student loan system.
In 2019, Cordray wrote a guest essay in The Plain Dealer, an Ohio newspaper, speaking out against for-profit colleges. “I hate how these hollowed-out businesses and subpar colleges are cheating consumers, employees and whole communities,” Cordray wrote.
Education Secretary Miguel Cardona has already canceled some debt for borrowers defrauded by for-profit schools, and Warren has conducted numerous investigations into the failures of the for-profits Corinthian Colleges and ITT Technical Institutes.
The FSA head’s seat has been vacant since March, when Mark Brown, former head of the office appointed by Education Secretary Betsy DeVos in 2019, resigned amid pressure from labor groups and lawmakers. Warren wrote in a tweet that his resignation was “good for student borrowers.”
Cordray told Marketwatch in November that, as CFPB head, his approach with the Education Department had been one of “close cooperation” but “that was all nixed when Betsy DeVos came into office.” Speaking of the outlook for a Biden administration, he said he thought the CFPB and Education Department would likely go back to working closely together.
Nearly 45 million people in the US have outstanding student-loan debt. That adds up to a $1.7 trillion problem.
President Joe Biden, who promised during his campaign to immediately tackle the crisis, has moved to do so via the Department of Education, clearing billions of dollars in debt in just a few months.
Biden’s education secretary, Miguel Cardona, has canceled debt for about 72,000 borrowers defrauded by for-profit schools – about $1 billion worth – and moved to shake up how defrauded students go about loan forgiveness.
Cardona also waived a paperwork requirement to relieve loans for borrowers with disabilities. This affected 230,000 borrowers and canceled debt for 41,000 of them, providing $1.3 billion in student-loan relief.
But Biden hasn’t taken the actions he promised as a presidential candidate, which include canceling $10,000 in student debt per person. And while Cardona’s $2.3 billion in cumulative relief over three months might seem impressive, it comes to less than 0.2% of the outstanding student loans swimming through the system.
Finally, even if you qualify for debt relief, there’s no guarantee you’ll get it. Insider talked to borrowers directly affected by Cardona’s actions, and they’re not out of the woods yet. Experts say the student-debt crisis isn’t close to being seriously tackled.
The Education Department did not respond to Insider’s request for comment.
Defrauded borrowers still can’t get relief
After about five years of waiting, Alexander Cockerham was approved for student-loan forgiveness.
From 2007 to 2009, Cockerham, now 38, attended the for-profit ITT Technical Institute, where he got an associate’s degree. In 2015, the Securities and Exchange Commission sued ITT, accusing it of deceiving investors about late-payment rates and student-loan defaults, and the federal government cut off its access to federal loans and grants. The institution shut down shortly afterward.
Cockerham told Insider that he took out about $42,000 in private and federal loans to attend the school. He’s paid off his private loans but still has about $26,000 in federal loans outstanding.
So he applied for student-loan forgiveness in late 2015 through the Department of Education’s “borrower defense to loan repayment” program. Cockerham got his verdict in 2020.
“I was told I was approved for student-loan forgiveness but at only at a certain rate, because they said they felt that I did receive some benefit from my education there and that I wasn’t completely defrauded,” he said.
His forgiveness rate was 0%. “So absolutely nothing was forgiven at all,” he said.
In September, 48 state attorneys general and the Consumer Financial Protection Bureau secured more than $330 million in private student-loan forgiveness for 35,000 former ITT Tech students.
If the full amount of his federal loans were relieved, Cockerham said, he’d try to finally buy a house. He’s been married for nearly a decade and just had his first child. He said he’d tried looking at homes in the past, “but that student-loan debt just hung heavy over my head.” It turned away financial servicers, who told him he needed to pay down more debt.
How the government can decide on a 0% forgiveness rate
The Trump administration would compare a defrauded borrower’s income level to that of people in similar programs, alongside other factors, to determine how much of the loan to discharge. Betsy Mayotte, the president and founder of the Institute of Student Loan Advisors, said that led to some people being approved for the program but having 0% of their loans discharged, just like what happened to Cockerham.
Mayotte told Insider that the Trump administration “was very much opposed to the whole idea of borrower defense in the first place.” She said she’d worked with people who’ve been waiting three or four years for their applications to even be processed.
“To tell somebody, ‘Yup, we agree, you were defrauded by your school, and you still have to repay all of your debt’ is insane,” she said. “I mean, there’s no other industry where they do that.”
She said the recent action from the Biden administration made her “so happy,” as it would be going back and discharging the full amount of partial discharges. People who are still pending won’t be affected though, Mayotte said.
Cockerham, who might be affected by this latest discharge, said: “I’ve only seen what I’ve heard in the news. I haven’t heard anything from the newest secretary of [education] or the Biden administration.”
‘I wish that they would have someone that would go over this a little more in depth’
Joshua Kronemeyer, 27, still has student debt from spending a semester and a half at the Art Institute of Phoenix at 16 years old.
Just getting relief from those loans – racked up at a now defunct for-profit member of the Art Institutes – would cut his student-loan debt by a fifth, he told Insider.
“Honestly, I wish that they would have someone that would go over this a little more in depth, as far as the hole you’re digging yourself,” Kronemeyer said.
Kronemeyer may be eligible to get his loans discharged; some former Art Institute students are eligible to get their loans canceled as the result of a lawsuit against the for-profit school and the Education Department. That suit argued that the department had illegally provided loans to Art Institute schools that weren’t accredited at the time, so borrowers shouldn’t have to pay them back.
Kronemeyer said that he was planning to look into debt relief soon but that he anticipated his application would be denied the first time around, since he’d heard of that happening to others in the same position.
Borrowers with disabilities who are eligible for relief struggle to access it
Cardona’s action to relieve the burden for borrowers with disabilities shook up a three-year monitoring program in which borrowers had to submit income information every year to show that they didn’t exceed a certain threshold.
Laura Speake, 26, might qualify for the program. They told Insider that they had about $30,000 in debt in both federal and private loans. They left college after three years but hope to return and finish a degree. She hopes to someday go to grad school and work in the book industry, perhaps as a small-town librarian.
But she has a concern with getting the loans discharged under the program: It’s a disincentive for continuing education.
The Federal Student Aid website says that “if you are approved for TPD discharge based on SSA documentation or a physician’s certification, and you request a new Direct Loan, Perkins Loan, or TEACH Grant during your 3-year post-discharge monitoring period, you must resume repayment on the previously discharged loans.”
“I’m not lazy. I’m not looking for an easy way out,” Speake said. “You know, I want to work. I want to learn. I want to make a difference in the world. I want to do my part. I want to pull my weight.”
Experts told Insider that while Cardona’s action on the program was worthwhile, it shouldn’t have been necessary in the first place.
Bethany Lilly, the director of income policy at The Arc, an organization advocating for people with disabilities, told Insider that the Social Security Administration already has information verifying people’s incomes, so there’s no reason the Education Department should have required that information.
The department has “some very confusing and illogical standards that really hurt the beneficiaries,” Lilly said.
To improve the process for forgiving student debt for borrowers with disabilities, Lilly said, the department should make it “as automatic as possible” and work with the SSA to permanently remove the requirement to provide income documentation.
Persis Yu, a staff attorney at the National Consumer Law Center and the director of its Student Loan Borrower Assistance Project, told Insider that Cardona was correcting something that shouldn’t have occurred in the first place.
“I think it’s disappointing that when the suspension period was put in place in the first place that these borrowers weren’t captured,” Yu said, referring to the 41,000 borrowers who had missed their paperwork. “I’m not sure how that happened, but it seems pretty obvious in retrospect, right?”
Yu also said that the design of the program was flawed from the start. “The monitoring period itself is a huge problem and a huge barrier for people with disabilities that qualify for the program actually accessing the program,” she said. “So that is certainly again exacerbated by the pandemic, as so many things have been. But it is in itself just a feature that doesn’t work.”
A ‘massively unimpressive’ amount of canceled debt
Alan Collinge, the founder of Student Loan Justice, told Insider that compared with the scale of the student-debt crisis, canceling debt for defrauded borrowers and borrowers with disabilities is “massively unimpressive.”
“We’re in a pandemic, and we’ve lost tens of millions of jobs,” Collinge said. “The people who are hurt the worst tend to be the people who have student-loan debt.”
Democratic lawmakers have been keeping the pressure on Biden to cancel up to $50,000 in student debt per person. Sen. Elizabeth Warren of Massachusetts, who campaigned on the $50,000 figure, said in a press call last month that executive action was the quickest way to get it done.
Insider polling from February asked how much debt respondents would want canceled. The most popular option among the 1,154 respondents wasn’t Biden’s $10,000 proposal (19% supported that amount) or Warren’s $50,000 (13%), or no forgiveness at all (22%) – a quarter of the respondents said they supported forgiving all student loans.
As for Cockerham, he’s working in a job he landed while attending community college to study computer science, a program he turned to after his ITT degree didn’t bring him any job offers. His unpaid loans are still on his portal at Navient, the private entity the government has hired to manage some federally backed loans.
“We’re hard-working Americans, like everyone else. We were taken advantage of. And we feel that what was done to us was just completely unfair,” he said. “We need some help, and that forgiveness, for a lot of us, would just be a lifeline.”
On Tuesday, when Warren, as the chair of the Senate Subcommittee on Economic Policy, held her first hearing on student-debt relief, she invited Navient CEO John Remondi.
Citing a decade of allegations of abusive and misleading practices, she said, “The federal government should absolutely fire Navient, and because this happened under your leadership, Navient should fire you.”
Navient CEO John Remondi was at Sen. Elizabeth Warren of Massachusetts’ first hearing on student debt relief. Warren told Remondi that he should be fired for misleading student loan borrowers, but that wasn’t all.
“The federal government should absolutely fire Navient, and because this happened under your leadership, Navient should fire you,” Warren told Remondi during the hearing.
Warren, as the chair of the Senate Subcommittee on Economic Policy, called 11 witnesses to testify at the hearing to discuss the impact of student debt on borrowers, racial justice, and the economy.
Warren said in her letter to Remondi inviting him to testify at the hearing that while Navient currently services federal loans to 5.6 million borrowers and holds over $58 billion annually in federally guaranteed Federal Family Education Loan Program (FFELP) loans, it also has “been a contributor to the problem, with a decade-long history of allegations of abusive and misleading practices aimed at student loan borrowers.”
She added that between 2009 and 2019, Navient has been accused or fined for “actions that ripped off borrowers,” including the improper marketing of loans and failing to notify borrowers of their rights.
And an ongoing Consumer Financial Protection Bureau investigation found evidence that Navient “systematically steered thousands of borrowers who were having difficulty paying their loans into plans that were worse for the borrowers – but more profitable for Navient.”
In February, three student loan borrowers filed a legal action against Navient, arguing that Navient owed them over $45,000 in overpayments that the company had wrongfully collected after their student loans had been discharged. This followed an Education Department ruling that Navient must repay the government $22 million in overcharged student loan subsidies.
In response to Warren’s questioning on investigations into Navient, Remondi said his job is “obviously to comply with the rules and laws, and we work hard to make sure all borrowers successfully manage their loans.”
“These allegations are not true,” Remondi said. “They’re accusations and not necessarily based on facts,” he added.
Also testifying at the hearing were Rep. Ayanna Pressley of Massachusetts, Maura Healey, the attorney general of Massachusetts, and James Steeley, president and CEO of the Pennsylvania Higher Education Assistance Agency.