Biden’s Education Department will make it easier to monitor student loan servicers by rescinding a Trump-era policy

Richard Cordray
Richard Cordray.

  • Richard Cordray, head of the FSA, issued guidance to increase oversight of student loan servicers.
  • It would rescind a Trump-era policy that restricted states’ access to data from loan servicers.
  • Cordray’s past work has largely centered on holding loan servicers accountable to ensure borrowers aren’t defrauded.
  • See more stories on Insider’s business page.

Richard Cordray, the head the Education Department’s Office of Federal Student Aid (FSA), is remaining committed to helping student loan borrowers through new issued guidance that would enhance oversight of student loan servicers.

On Friday, Cordray – former head of the Consumer Financial Protection Bureau (CFPB) and an ally of Sen. Elizabeth Warren – issued guidance that would expedite the process for states to receive data from student loan servicers, increasing oversight to protect student loan borrowers from potential violations of the law.

Cordray wrote in a blog post that, as former head of the CFPB, he “saw the importance of state regulation and oversight to identify problems and deliver relief when companies take advantage of people.” He also said the new guidance will make the information FSA holds more accessible to regulators.

“States and regulators need information when they think a loan servicing company might be violating a law or regulation,” Cordray wrote. “To know for sure, they need to look at the companies’ policies and procedures, their handbooks, complaints made by customers, and anything else that shows how the company operates. Getting information from us helps state officials better enforce their laws that protect [borrowers].”

In 2017, under President Donald Trump, the FSA published a memo that told loan servicers that if states came to them for information, they had to send a request to the FSA first before releasing anything. But Cordray wrote that the FSA usually rejected the requests, forcing states to file lawsuits that dragged out the process.

Cordray is rescinding that memo and replacing it with a new one that would make it easier for the FSA to work with states to quickly review requests and approve them whenever possible.

Insider reported last month that Cordray’s appointment could be game-changing for the student debt system given his former role at CFPB, which Warren – a leading advocate for student-debt cancelation – helped create.

During her time in the Senate, Warren worked with Cordray’s bureau to conduct investigations into predatory lending practices, and at the CFPB during the Obama years, Cordray made oversight of student loan servicers his priority.

The agency has returned more than $750 million to student loan borrowers since 2011 over debt collection complaints. Then, 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.

And while Warren is pushing for Biden to cancel $50,000 in student debt per borrower, Cordray has not yet commented on doing so. But he said after his appointment to FSA that he was looking forward to creating “more pathways for students to graduate and get ahead, not be burdened by insurmountable debt.”

Cordray’s new guidance was not welcomed by some Republican lawmakers, however. Virginia Foxx, the top Republican on the House Education and Labor Committee, said in a statement it “bows to the whims of state-based Democrat politicians who are more interested in putting companies out of business than helping struggling student loan borrowers.”

But Cordray remains committed to reforming the federal student aid system to work for borrowers and hold loan servicers accountable.

“This is only a start,” he wrote. “As we move ahead, FSA has more work to do to establish strong relationships with state officials. We believe federal and state officials should be partners rather than adversaries.”

He concluded: “By working together more productively, we can build a stronger system of federal student aid to help people all over this country gain easier access to the American dream.”

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The Elizabeth Warren ally just picked to oversee US student loans could help make her debt-cancelation dream come true

Elizabeth Warren
Sen. Elizabeth Warren (D-MA).

  • Former CFPB head Richard Cordray will lead the Federal Student Aid office, which oversees student debt.
  • Elizabeth Warren helped create the CFPB and was key in nominating Cordray when she couldn’t helm the agency.
  • Warren wants to cancel $50,000 in student debt per person and Cordray has shared her agenda for much of his political career.
  • See more stories on Insider’s business page.

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.”

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Richard Cordray.

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.

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Biden administration taps Warren ally to lead Office of Federal Student Aid, a promising sign for efforts to wipe out student debt

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  • Richard Cordray, former head of the CFPB, is set to become the head of the Office of Federal Student Aid.
  • Cordray will be tasked with figuring out how to address the $1.6 trillion of student debt owed by at least 42 million Americans.
  • Cordray is a longtime political ally of Sen. Elizabeth Warren.
  • See more stories on Insider’s business page.

The US Department of Education announced that Richard Cordray, the former director of the Consumer Financial Protection Bureau, was selected to head the Office of Federal Student Aid.

“It is critical that students and student loan borrowers can depend on the Department of Education for help paying for college, support in repaying loans, and strong oversight of postsecondary institutions,” US Secretary of Education Miguel Cardona said in a statement. “Cordray has a strong track record as a dedicated public servant who can tackle big challenges and get results.”

The move signals a shift in federal student loan policy, and a potential embrace of loan cancellation policies, Politico points out, as Cordray is a longtime political ally of Sen. Elizabeth Warren. Cordray also served as attorney general of Ohio and unsuccessfully ran for governor of Ohio in 2018.

Of Cordray’s appointment, which she pushed for, Warren said: “I’m very glad he will get to apply his fearlessness and expertise to protecting student loan borrowers and bringing much needed accountability to the federal student loan program.”

The Republican response to the appointment was mixed, Politico pointed out, with some embracing him as a good pick. Others, like Rep. Virginia Foxx of North Carolina, the ranking member on the House Education and Labor Committee, expressed skepticism, in a statement to CNN, that he “has the capability and serious character required to carry out the duties of COO of FSA.”

Cordray, who starts on Tuesday, fills the position after Mark Brown, a pick from the Trump administration with a year left to serve, resigned earlier this year after pressure from progressives.

As the head of the Office of Federal Student Aid, Cordray would be tasked with figuring out how to address the $1.6 trillion of student debt owed by more than 42 million Americans. He would also be charged with figuring out what happens after student debt repayment and interest accrual has been paused for over a year during the pandemic – set to resume in September.

In prior positions, Cordray has pushed the Education Department to reform its student lending systems and has called for more oversight on student loan servicing companies.

The announcement lines up with continued progressive pressure on the Biden administration to cancel student debt.

Cordray is primed to push for regulation of the student loan servicing industry as well as the for-profit university system under Cardona.

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