The Office of Federal Student Aid (FSA) will now allow state and federal regulators to access student loan borrowers data and information held by servicers, in an effort to provide better oversight to the servicers and debt collectors contracted by the Department of Education (ED), the office announced in a memo on Friday.
Richard Cordray, the new chief operating officer (COO) at FSA, wrote in the memo sent to vendors that ED will create a “streamlined and expedited process” for any federal, state, or local authorities to request access to borrowers’ information that is needed to investigate or oversee student loan companies.
The announcement rescinds a previous Trump-era policy that made it more difficult for state and federal regulators to access pertinent records of borrowers, effectively funneling all requests for information to FSA, which typically rejected them. In turn, states often filed lawsuits against both FSA and the loan servicers to get the information needed to conduct investigations into student loan servicers, according to a blog post authored by Cordray announcing the new policy.
“Instead of finding reasons to deny these requests, we should be spending our time partnering with state agencies to effectively oversee our loan servicers and debt collectors,” Cordray wrote.
The new policy signals an increased focus from FSA under Cordray to take a more aggressive approach in overseeing student loan servicing companies. As the former director of the Consumer Financial Protection Bureau (CFPB), Cordray filed a major lawsuit against Navient, one of the largest student loan servicers contracted by ED, for allegedly hindering borrowers’ ability to make payments on time and processing payments incorrectly.
Student loan servicers, including Navient and the Pennsylvania Higher Education Assistance Agency (PHEAA), have faced additional scrutiny in recent months as Democrats control both the House and Senate for the first time since 2011.
The heads of the two companies were grilled by Sen. Elizabeth Warren (D-Mass.), an ally of Cordray from his time at the CFPB, at a recent Senate hearing for their alleged mishandling of debt forgiveness programs, such as the Public Service Loan Forgiveness (PSLF) program.
“States and regulators need information when they think a loan servicing company might be violating a law or regulation,” Cordray’s memo stated. “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.”
Cordray noted that the change will enable FSA to work more collaboratively with partners, such as state attorneys general and federal and state financial regulators, as they engage in oversight by facilitating access to the data they need. He added that the new policy will also make it easier for the CFPB to aid in the effort to supervise federal student loan servicers.
The new policy from FSA was met with immediate pushback from the top Republican lawmaker on the House Education and Labor Committee, Rep. Virginia Foxx (R-N.C.), who alleged the move amounted to Cordray passing “his responsibilities onto others” — in this case state regulators and attorneys general.
"There are real challenges facing the FSA. The entire federally-held student loan portfolio reenters repayment in a few short months. At a time when senators of his own party are demanding answers to this challenge, COO Cordray is sowing seeds of confusion,” she said in a statement. "Borrowers and federal contractors need clear-eyed direction from the federal government. This disordered guidance is a disservice to American families.”
The policy went into effect Friday, and Cordray added that the move is only the start in fostering strong relationships with state officials.
“We believe federal and state officials should be partners rather than adversaries,” he wrote. “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.”
Publication Date: 6/2/2021