The federal student aid system is undergoing fundamental reform. A long-standing effort to renew student loan management is coming to an end, as are efforts to make it easier to enroll in income-based repayment plans and obtain financial assistance.
The stakes are high for the millions of Americans who rely on federal help to fund their education, those who will need that support in the future, and those responsible for the transformation.
None of this is lost on Richard Cordray, the newly appointed head of the Department of Education’s federal aid office charged with instituting these reforms.
The office provides more than $150 billion in federal grants, loans and work and study funds to college students and has become one of the nation’s largest lenders. Policy experts question whether the firm has the economic expertise to tackle the challenge of rising defaults and a cumbersome lending system.
Cordray, who replaced Mark A. Brown, assumed his new role last month as lawmakers expressed concerns on the department’s ability to drive borrowers back into payment when the pandemic moratorium ends in September. Millions were in default before the payment break, which many Democratic lawmakers say is the result of inadequate guidance from departmental loan officials like Navient and Nelnet.
While the student aid office is reviewing the way it administers and manages federal loans — a project dubbed NextGen — resistance from contractors and members of Congress has resulted in delays. This week, Cordray extended the department’s contracts for six months with existing service agents to give the agency more leeway. But he told the companies that the extension would be “the last action the FSA will take under my leadership that qualifies as business as usual.”
In a conversation with The Washington Post, Cordray discussed the matter more at length and his developing vision for the student aid office. An edited version of the conversation follows.
Q: In the letter you sent to servicers this week, you mention that the FSA will be working to set clear performance benchmarks. What do you have in mind at the moment?
Richard Cordray: I dealt with loan officers when I was head of the Consumer Financial Protection Department. And, you know, there were a variety of experiences. Some happier than others.
We are looking at more specific performance benchmarks that are stringent and that, if not met, could lead to contract termination or loan reallocation. It has to do with how borrowers are treated, how quickly things are handled. We need to align incentives and put servers on the same page in terms of the department’s objectives for how borrowers should be treated.
There have been benchmarks in recent years. But, you know, we expect to be strict in doing this. The servants are waiting for it here. They know the background. They’ve dealt with me before. We intend and will hold servicers accountable.
Q: One of the biggest complaints from maintenance personnel that I have routinely heard over the years is that the department has never provided comprehensive maintenance guidance, any kind of manual or clear and straightforward traffic rules. And this creates more confusion among borrowers and service providers alike. What is the department doing to address this concern?
ONE: Yeah, look, if that’s a real and legitimate concern or if it’s a bit of an excuse for a situation, you know, I’m not going to speculate. But let’s create specific and clear measurable ways to measure performance. And servicers will find these or not. And if not, there will be consequences. That’s how I intend to act in this position.
Q: As I’m sure you know, members of Congress have expressed concern about the millions of borrowers that will be returned to payment this fall. What is the FSA doing to prepare for the end of the payment break?
ONE: We’re getting together intensely about this right now. There are many reasons for concern here. There are many moving parts. There are issues around loan forgiveness that can also interfere with and affect you. And there are issues around existing servicer contracts and the like. It’s a very complex situation, but let’s resolve it quickly in a common sense way.
Q: There were about 7.4 million defaulters before the pandemic. There is real concern about what will happen to these borrowers and the potential for more people to face that fate when the moratorium ends. What is the department doing to help these borrowers when they come back for repayment?
ONE: You know, how this is handled will be of great importance to borrowers and it will be of great importance to the operational details of our program. You are asking me about a lot of things that I don’t have decisions for you today, but these are things that will be decided in the very near future. And as we have them, we’ll be happy to keep you posted.
Q: Much of the talk about student loans has focused on cancellation, but the service part is also extremely important. NextGen promises to resolve some of the issues raised by consumer advocates about services, but it is a project that predates its administration. What is your long-term vision for loan service?
ONE: Yes, I’ve been here for a month so I may not have all the news for you today. There are some elements, as you know, of NextGen that are already underway and that so far, I would say from what I’ve seen, seems sensible. There are long-term questions about what to do with the debt collection aspect and what to do with the loan service aspect that has not yet been decided. And these are things that we are working to decide. And since we have things to tell you about this, which, again, should be in the foreseeable future, let’s make sure you’re aware.
Q: How important is it to terminate the 2017 memo requiring servicers to submit a request to the FSA before releasing information to state attorneys general? How does this influence your broader view of the FSA?
ONE: It’s a very clear feeling that the different parts of the government working together to ensure the oversight and accountability of these big servicers with millions of customers is really important. It’s not just a job for one area of government. Multiple areas can work together. One of the things that we are signaling here very loud and clear is that we are going to work with these people. We are not going to try to block them, as I think was happening under the previous regime. This will help us reach the ultimate goal, which is better service for borrowers across the country, and hold staff accountable for providing that service, which is what we in the department also intend to do.