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Student loan companies chose to shut down to avoid more liability

  • Two student loan companies that serve a total of 10 million borrowers are closing their doors this year.
  • Federal director of student aid Richard Cordray said companies didn’t want more accountability.
  • It plans to keep businesses at higher standards to help better protect borrowers.

In recent months, Biden’s education department has told student loan companies they will face a stricter set of rules than under the Trump administration. Some of them have decided to close instead.

In remarks obtained by Politico, the director of the Federal Student Aid Office (FSA) of the Department of Education, Richard Cordray, said that one of his goals as head of the FSA is to maintain the companies that collect student debt from borrowers to higher standards – and those standards have caused some companies to refrain from renewing contracts with the government.

“Not everyone was happy” with the new standards, Cordray said. “But we stuck to our positions. Some maintenance workers decided to quit the program rather than face these new realities.”

Two student loan companies shut down in December, forcing nearly 10 million borrowers to switch to new services before the pandemic payment hiatus ends.

The Pennsylvania Higher Education Assistance Agency (PHEAA) and Granite State Management and Resources announced in July that they would close their lending departments in December. Granite State has already announced where its borrowers will be transferred, but the PHEAA – which currently serves 8.5 million borrowers – has yet to do so and has been criticized by lawyers and lawmakers for misleading borrowers , which resulted in increased surveillance.

After announcing the closure of its loan services, a spokesperson for PHEAA told Insider in a statement that student loan programs “have become increasingly complex and difficult as the cost of servicing these programs increased considerably “.

The company did not respond to Insider’s request for comment regarding accusations the company misled borrowers, but Massachusetts Senator Elizabeth Warren said borrowers can “breathe a sigh of relief” knowing that they will not be served by the PHEAA, and Seth Frotman, executive director of the Student Borrower Protection Center, recently told Insider that it was a “good thing” for the company to stop its services.

“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.”

Cordray’s plan to increase accountability measures for student loan companies is something lawmakers like Warren have been pushing and doing for years. In April, Warren invited the CEOs of all student loan companies to testify about the impact of student debt on borrowers, and she called the CEO of Navient, saying he should be fired for the actions of the lender. company aimed at deceiving borrowers.

PHEAA CEO James Steeley also testified, and Warren then sent him a letter about what could have been false testimony in Congress.

Cordray said the FSA will work with the Consumer Financial Protection Bureau and the Department of Justice and Treasury to help strengthen oversight, and he said student loan companies that renew their contracts have “embraced a new standard of to “give priority to borrowers”.

“We will work closely with our service providers to ensure we provide quality service to all who are faced with the prospect of repaying their student loans,” he said.

Do you have a story to share about student debt or student debt cancellation? Email Ayelet Sheffey at [email protected]

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