Federal Student Loans: Department of Education Reverses Trump-Era Policy Limiting State Oversight of Student Loan Service Companies and Debt Collectors

By Judy J. Copeland Last updated May 29, 2021

Richard Cordray, the head of the federal student aid bureau, announced new orientation Friday, he said, “would make it easier” for attorneys general and state regulators to get information from the FSA and companies the education department hires to run the federal student loan program.

The new direction is a reversal of the government’s approach to regulating student loan companies, after the Education Department under then-Secretary Betsy DeVos argued that the federal government should monitor the system. since the loans are federal assets and fought to reduce the participation of states in surveillance.

In 2017, the FSA issued a memo directing loan management companies to send requests for information from attorneys general or another third party to the FSA, which generally rejected them. The states then sued the FSA and its loan companies to obtain the information. The Trump administration has also fought state oversight in court, leading Democratic attorneys general to accuse the administration of obstructing investigations and ultimately harming borrowers.

The FSA’s new approach, Cordray said, will be to review data requests from state and local agencies and financial regulators “promptly and approve them whenever possible.”

“States and regulators need information when they believe a loan management company is breaking a law or regulation. To be sure, they need to look at company policies and procedures, manuals, complaints. filed by customers and anything else that shows how the business works. Getting information from us helps state officials better enforce their laws that protect federal student borrowers, Cordray wrote in blog post.

“It is time for us to be a partner, not a roadblock,” he added.

The top Republican on the House Education and Labor Committee argued that Cordray’s new guidelines “bend to the whims of state-based Democratic politicians who are more interested in bankrupting companies than to help student borrowers in difficulty ”.

“Congress charges the FSA with the duty of managing the federal student loan program for a reason. Federal programs need federal leadership. Yet COO Cordray’s primary goal is to shift its responsibilities onto others,” he said. said GOP Representative Virginia Foxx of North Carolina. A declaration.

The new federal student aid policy is one of many changes the Biden administration has made to Department of Education policy. In March, the department rolled back a controversial Trump-era policy that will lead to the cancellation of around $ 1 billion in student debt for borrowers defrauded by their colleges.

The Biden administration, however, still faces pressure from some Congressional Democrats to write off $ 50,000 in federal student loan debt per borrower. Advocacy groups are also calling for a complete overhaul of the current borrower advocacy process.

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