ZACK GUZMAN: Well, there was a lot of excitement around the idea of student debt forgiveness after the Biden administration came in and more progressives on the Democratic side pushed for that as well as attorney generals across the country. The Democratic Attorney General’s pushing for that as well.
But experts in the field will always warn that it’s never so simple considering the nation has a history of not necessarily following through on student debt forgiveness. And for more on that, I want to bring on Yahoo Finance’s Aarthi Swaminathan who covers that for us with a special guest, an expert who knows that all too well. Aarthi?
AARTHI SWAMINATHAN: Yes, I’d like to introduce Seth Frotman. He is the head of the Student Borrower Protection Center, and he also used to serve as the student loan ombudsman for the Consumer Financial Protection Bureau. So Seth, welcome. I just want to start with, where are we with the cancellation? We have the stimulus package that had a provision that makes forgiveness tax free. We’ve also had a lot of conversations going on from both sides saying it’s actually not as progressive as we think. So where are we right now in your opinion?
SETH FROTMAN: Well, thank you so much for having me on, and it’s been a really big few weeks when it comes to student loan and student loan forgiveness.
I think a couple points that you mentioned are, as part of the big Recovery Act coming out of Washington, Senator Warren and Senator Menendez included a provision to ensure that the cancellation of student debt doesn’t have tax implications. Which is enormous for everyday borrowers, who might get their loans forgiven outside of public service loan forgiveness, but really essential as we debate and hopefully push on debt cancellation.
And I think the other, really, thing important is we released some new numbers with the National Consumer Law Center, which showed that only a few dozen people have had their loans forgiven under the income-driven repayment plans. This is often the option that opponents of cancellation use to argue why we don’t need cancellation, and I think what we have seen now is that those plans have just not worked over the last few decades.
AARTHI SWAMINATHAN: I’m glad you brought that up. Even public service loan forgiveness hasn’t had a great history, but just a couple of days ago the person managing the trillion dollar student loan portfolio, Mark Brown, head of FSA, just left. What does that mean for borrowers, and what is on the agenda list for the incoming official?
SETH FROTMAN: Well, I hope it really means we’re going to get a fresh start. I think for years, under Betsy DeVos, we’ve seen a real hostility to use the law, to use provisions that Congress has already passed to provide relief for student loan borrowers. Whether that’s public service loan forgiveness, whether that’s programs to protect people who’ve been ripped off from predatory schools, we’ve seen how time and time again under the prior administration putting up roadblocks, putting up hurdles, and nearly no borrowers got relief under these plans.
And I think with a new leadership coming in on ed and federal student aid, I hope there’s a real embracing of the idea that there are laws on the books to help people escape the problems that student debt is having on their lives, on our country, on our economy, and to really use those to actually try to help people across this country.
AARTHI SWAMINATHAN: And recently, I think just this morning, state consumer protection agencies have asked the Education Secretary to say, let us look into the student loan portfolio. Let us see where the mistakes are. What does this letter represent, and why is it so important for states to take the lead when looking at how servicing goes on?
SETH FROTMAN: That’s a great question. So over the last few years, the Department of Education has put up a range of roadblocks from state law enforcement officials, from state regulators actually trying to find illegal practices, breakdowns in the student loan market.
And we often think about student debt as just these big ballooning balances, but it’s also this enormous consumer protection challenge, where there’s a range of student loan companies that just add insult to injury, adding billions and billions of dollars of needless debt on the most vulnerable borrowers.
And for years the DeVos administration and the Trump administration literally stopped state law enforcement officials from investigating companies like Navient and others from their illegal practices. And, unfortunately, we’ve seen that these obstruction and these preemption tactics have been extended through the Biden administration.
And so this morning, you saw a bipartisan group of 11 states urge the Biden administration to roll back those policies to allow them to protect the millions and millions of student loan borrowers, who deserve protections, who deserve not to be ripped off by a student loan industry, who too often use them as their chance to get rich.
AARTHI SWAMINATHAN: And so these companies, should they expect more investigations, should they expect more monitoring? What is on their list? What should they watch out for?
SETH FROTMAN: Well, so it’s been truly remarkable. The policies you’ve seen put in place under the prior administration have essentially shielded more than a trillion dollars of student loan from basic oversight. So the oversight that almost every consumer finance company in America has to undertake to ensure that they are complying with the law. This is not a radical proposition by any stretch of the imagination.
But there are policies in place where the Department of Ed itself was blocking state attorney general, state banking regulators from making sure these companies were following the law. And I think what you’re going to see now is a teaming up between the administration and states to ensure that people who have taken on student debt are actually protected from illegal practices.
AARTHI SWAMINATHAN: That’s all the questions we have. Thank you Seth Frotman for joining us. Now I’ll toss it back to Akiko.
SETH FROTMAN: Thank you.
AKIKO FUJITA: All right. Thanks so much for that, Aarthi, and our thanks to Seth Frotman as well.