- Two student loan companies shut down in December, affecting 10 million borrowers.
- Seth Frotman, ex. director of the Student Borrower Protection Center, said this offered a chance for reform.
- Student loan companies have been scrutinized for decades on charges of deceptive borrowers.
As student debt payments were on hiatus during the pandemic freeze, two student loan companies – the Pennsylvania Higher Education Assistance Agency (PHEAA) and Granite State Management and Resources – announced in July that they would shut down their departments. loan in December.
This means that 10 million borrowers will pay off their student debt to different companies once the payment break is lifted – Granite State has already announced where its borrowers will be transferred to – but despite the administrative difficulties that could arise, an expert said it could. be a good thing. .
Seth Frotman, executive director of the Student Borrower Protection Center and former Student Loans Ombudsman for the Consumer Financial Protection Bureau (CFPB), told Insider that while the number of borrowers who will need to be transferred to new students naturally raises concerns. worries. credit companies, this will be a step in the right direction given what PHEAA has done to deceive and harm borrowers.
“Borrowers no longer have to deal with this company is a good thing,” Frotman said. “At the heart of every student loan scandal that has hurt borrowers, PHEAA has been at the center, whether it is hurting teachers, military borrowers, and government officials.”
The PHEAA did not immediately respond to Insider’s request for comment. After announcing the shutdown of FedLoan Servicing, he previously told Insider that during his 12-year contract, student loan programs had “become increasingly complex and difficult as the cost of servicing these programs increased considerably “.
He also said it would help move borrowers to a new loan company for as long as needed after his contract ends.
Aside from the PHEAA, the student loan industry as a whole has come under scrutiny by lawmakers and advocates for decades over accusations of fraudulent behavior that have caused borrowers to take on debt they want. can not refund.
Frotman said reforms were overdue. “I think the days of people accepting half-hearted measures and ill-conceived solutions are over,” he said.
Administrations “pile up a set of failures on top of each other”
There are currently nine student loan companies that manage the student debt of 45 million Americans.
For example, Insider previously reported on Warren’s oversight of student loan firm Navient, formerly known as Sallie Mae, under President George W. Bush in 2006. When she was a Harvard law professor before becoming senator, she pointed to Sallie Mae’s abuse, and throughout the Obama and Trump eras, she and other Democrats released findings that Navient pressured borrowers for forbearance and misled them about their decisions. options, among others.
Frotman said he hoped Biden kept his campaign promises to reform student loan programs, like the Public Service Loan Forgiveness (PSLF) program, which is expected to turn down 80% of applicants for at least five years without reforms.
“We have seen successive administrations stack a set of failures on top of each other,” Frotman said. “And the president promised that was one of his top priorities.”
The student loan industry was created by President Lyndon B. Johnson to be fair and accessible to all, but once Congress created Sallie Mae in 1973, the industry turned into a profit machine that helped spawn the $ 1.7 trillion student debt crisis.
Now, with two student loan companies terminating their contracts with the Education Department, Frotman said it sends a message that “malfeasance and incompetence in the industry” will no longer be tolerated.
The extension of the final payment break brings “a serious sense of urgency” to fix the system
Education Secretary Miguel Cardona extended the freeze on student loan payments and interest until the end of January, noting that it would be the “final extension” of the break. Frotman said that, since the administration has made it clear that there will be no further extension, the reform must take place immediately before the resumption of payments.
“What it does is signal a serious sense of urgency that the department must deliver on its promises,” Frotman said. “We really need to fix the system before we reactivate the payments.”
The Education Department has already enacted $ 9.5 billion in targeted student debt cancellation, but has yet to follow through on Biden’s campaign pledges to write off $ 10,000 in student debt per borrower, as well as forgiving the debt of minority communities. It has, however, started the process of reforming loan cancellation programs, although the actual implementation of the changes may take years.
Warren and other Democrats continue to push for large-scale student debt cancellation for every borrower, and Warren previously told Insider in an interview that “the days are gone” where student loan companies “could do. terrible work “.
“The world has changed for student loan administrators,” Warren said. “They can’t sign a contract, do a lousy job, cost borrowers tons of money and still get their contracts renewed.”