Kuttner on TAP: New Hope for Student Debt Relief

With the appointment of Richard Cordray as chief of federal student loan programs, we will now see the potential of executive power to bring relief and end abuses. Cordray is a close ally of Elizabeth Warren and former head of the Consumer Financial Protection Bureau.

The first best policy, of course, would be outright cancellation of up to $50,000 per student, as proposed by Sens. Warren and Schumer. Cordray can’t make that call. President Biden needs to. But there are several other things he can do.

For starters, there is the appalling story of management of cancellation of debt for people who do ten years of public service. This is authorized under the Public Service Loan Forgiveness program. But under Trump and his education secretary, Betsy DeVos, the Education Department did everything possible to deny this relief.

To date, just 1.26 percent of applicants have received debt relief. In fact, in a lawsuit brought by the American Federation of Teachers on behalf of schoolteachers who qualified for debt cancellation, the Biden administration has still not gotten around to reversing the Trump position opposing the debt discharge.

Cordray could put the government on the right side of this issue and provide cancellation for former students who earned the relief, but were disqualified by some technicality—that was often the fault of the for-profit servicer or the department itself.

In the case of student debtors who were duped by for-profit universities that shut down, such as Corinthian and ITT Tech, students can get loan cancellation only if they left the offending university within 180 days of its closure. That deadline should be extended so that more debtors can get relief.

There are also some 400,000 people who qualify for debt cancellation as totally permanently disabled, as certified by the Social Security Administration. Under DeVos, no process was put in place to get them the relief.

More broadly, Cordray needs to reverse the Education Department’s Trump-era priority—from collecting as much money as possible to serving the needs of students and former students now in debt. One way to do that is to exercise much tougher oversight of the for-profit loan servicers on contract to the department, who often give bad advice to students in order to maximize their own profits.

Navient, one of the worst, was cited in an inspector general’s report, for improperly taking over $20 million from the Education Department. It has contracts worth some $200 million a year that should not be renewed. Cordray needs to revive his office’s audits and investigations unit.

Some deeper reforms, such as reduction in the interest rate to something close to the government’s own borrowing rate, as long proposed by Warren, will take legislation (Biden should support this). Others, such as broader cancellation, will take presidential leadership.

But the other things that Cordray can and should do, to change the government from the role of ally of financial predators to ally of students and debtors, is a textbook case of the potential of executive action.