The Education Department’s Slow-Walk on Student Debt | #Education

On March 18, the U.S. Education Department (ED) announced that roughly 72,000 student loan borrowers who were defrauded by “diploma mill” for-profit colleges would get full relief on their outstanding debt, as opposed to the partial means-tested relief awarded during the tenure of former Secretary Betsy DeVos. This could grant up to $1 billion to students who attended for-profit college chains Corinthian and ITT Technical Institute.

Borrower advocates were largely gratified by the fulfillment of a promise that Barack Obama’s ED made back in 2015. But there was an undercurrent in the reactions, summed up by one phrase: “good first step.” Hundreds of thousands of other borrowers who suffered fraud at the hands of their schools have not seen their claims approved or even moved along. “We look forward to the Department continuing to use all its legal authorities to provide relief,” wrote Alexis Goldstein of Americans for Financial Reform in a statement.

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The debate over $1.7 trillion in student debt has focused mostly on mass cancellation, and Joe Biden’s reluctance to offer it. But underneath that, millions of borrowers are legally entitled to assistance that has not been forthcoming from the new regime. These measures, low-hanging fruit that could begin to ameliorate the student debt crisis, particularly for low-income people and people of color, have mostly not been taken, according to over a half-dozen student borrower advocates who discussed their views with the Prospect.

ED is also still following directives put in place by DeVos that harm borrowers, the advocates said. This includes obstructing local law enforcement and the Consumer Financial Protection Bureau (CFPB), who are seeking to police the student loan market, and refusing to settle cases brought against DeVos’s ED that would give borrowers relief.

Frustration is building over the slow pace of action, at a time when borrowers fear a September reinstitution of monthly payments once pandemic measures end. “The borrowers I talk to are very worried that the payment pause will be the only real response,” said Seth Frotman, who was the student loan ombudsman at CFPB and now is executive director of the Student Borrower Protection Center (SBPC). “What’s really lacking is any urgency to fix the underlying system.”

Some advocates claim that the higher-education policy offices within ED are willing to make the changes they’ve outlined, but there’s been blockage at the top. This has given rise to concerns about Sheila Nix, the chief of staff of the Education Department and a longtime Biden adviser (she was chief of staff to then–second lady Jill Biden from 2013 to 2017). Nix has lobbied for various corporate interests while in the private sector, most recently at the foundation for venture capitalist Bradley Tusk.

The Education Department has not yet responded to a detailed set of questions. But as this report was being written, the department assembled a Monday press conference to announce another advance that advocates have sought. As has been the pattern, this one will also fall short of expectations.

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BEFORE JOE BIDEN’S INAUGURATION, advocates proposed a number of easy ways that ED could signal a break from the DeVos era, using its own authority. The proposals were laid out in memos and a 188-page report put together by several groups. Some of the proposals built upon positions Biden himself took during his election campaign, and the Biden transition was made well aware of the ideas. “It’s not just making good on promises made for decades, but the promises made on the campaign trail,” said Ashley Harrington, federal advocacy director and a senior counsel at the Center for Responsible Lending.

Page 94 of that report discusses the change that ED will tackle on Monday. Borrowers who become “totally and permanently” disabled after their college studies are, according to statute, supposed to be given a full discharge of student loans. But ED has implemented burdensome bureaucratic hurdles to apply for discharge, instead of automating the procedure in cooperation with the Social Security Administration. As a result, around 400,000 disabled borrowers have received no relief to which they’re entitled.

The Monday announcement will ease that burden, but will not automate student discharges through SSA, according to sources familiar with the new rules. This epitomizes the exasperation from advocates: They laid out a simple process well in advance of the new administration coming to power, and ED delayed and finally delivered a half-measure. “We hoped for a whole lot more,” said Persis Yu, director of the Student Loan Borrower Assistance Project at the National Consumer Law Center. “There’s a lot to fix in a short period of time.”

Millions of borrowers are legally entitled to assistance that has not been forthcoming from the new regime.

For example, more than just the 72,000 for-profit college students now being granted full relief could be eligible for loan forgiveness. ED has administrative evidence of for-profit colleges promising students high-paying careers and instead giving out worthless diplomas that led to no work. Several state attorneys general are seeking mass forgiveness for victims of this misrepresentation who assert a “borrower defense to repayment,” and a private class action suit, Sweet v. Cardona, covers 200,000 harmed borrowers.

This case has not been settled, even though ED’s announcement on borrower defense would seem to concede its points. In other cases, ED officials have refused to meet with state attorneys general to resolve cases. “They have hunkered down, they’re defending the DeVos position,” said a source familiar with the cases. Motions continue to be filed in opposition to the AG cases.

DeVos halted processing on borrower defense claims years ago; most were denied via a system that infamously had reviewers take all of 12 minutes to decide if relief was warranted. Some of these students have defaulted on these loans and were thrown into collections, having their wages or tax refunds garnished. ED has neither restarted the approval process nor made it easier for victims to apply. And it hasn’t begun to rewrite “gainful employment” rules that would block colleges whose students fail to find jobs in their chosen fields from accessing federal student loan programs.

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The administration could also expand “closed school discharges,” to credit back loans to students if their college or course of study was shut down, if the school’s accreditation was stripped, or if the school was found to have violated state or federal law. ED can move quickly to make these discharges automatic, which DeVos rescinded, and extend the look-back window to give more borrowers relief, which would be consistent with the department’s own findings of when troubles began at the affected colleges.

Existing loan forgiveness programs are also broken. The Public Service Loan Forgiveness (PSLF) program, which promised debt cancellation for borrowers who went into public service professions like teaching or government operations for ten years, has been a total disaster, approving almost nobody and leaving millions in limbo. A series of overlapping income-driven repayment (IDR) programs, where borrowers only pay a percentage of their income monthly and are supposed to get the final balance forgiven after a set period, are similarly confusing and unwieldy, and have delivered unimpressive results. Both could be reformed, but no action has been taken.

Even the COVID-related payment pause that 40 million borrowers received, which took advantage of the same statutory authority under the Higher Education Act that could be used to streamline many of the above programs, did not extend to everyone. Over six million borrowers with loans from the now-defunct Federal Family Education Loan Program (FFELP) have not seen payments stop, because the debts are owned by banks and other third parties and were not purchased by ED (as many were).

Borrowers with privately owned FFELP loans could consolidate into a direct loan and be eligible for pandemic relief, but would have to take a higher interest rate and restart the clock on various loan forgiveness programs like PSLF and IDR. ED could use its authority to waive those harms and grant pandemic relief to millions of borrowers. Sources have indicated to the Prospect that ED plans to make an announcement on this as soon as Tuesday. But it will apparently only impact a subset of FFELP borrowers.

“I don’t think we’re asking for any favors,” said Yu. “The bottom line is that the Education Department should be following the law. You shouldn’t need a lot of attention to get them to follow the law.”

ED IS NOT ONLY FAILING TO MOVE on relief measures within its capacity. It continues to actively block other state and federal agencies from helping student borrowers. In 2017, DeVos issued guidance blocking attorneys general in over a dozen states, as well as the Consumer Financial Protection Bureau, from accessing records related to the performance of student loan servicers, dubiously based on the federal Privacy Act. This obstruction made it impossible for regulators and law enforcement to oversee consumer protection laws. And since servicing companies have a long track record of abuse and mismanagement, affecting military service members and people of color in particular, it left those vulnerable populations at risk.

CFPB has collected significant information that servicers have improperly implemented pandemic-era laws like the CARES Act, steered borrowers away from relief programs, and collected payments when they should have been paused. Advocates have urged Biden’s ED to “rescind the disastrous guidance that has blocked states and the nation’s top consumer watchdog from conducting robust, independent oversight and enforcement of the student loan market.” That was the subject of this 12-page report from the Student Borrower Protection Center last October. State financial regulators followed up earlier in March. It would take just one declaration to take that guidance down.

So far, it remains in place. “Betsy DeVos’s obstruction tactics are still in effect,” said Seth Frotman of SBPC. “For tens of millions of people, student loans are one of the primary ways they interact with the government. And they’re being thrown into a repayment system loaded with some of the most predatory and incompetent loan companies in America.”

“The bottom line is that the Education Department should be following the law. You shouldn’t need a lot of attention to get them to follow the law.”

ED has thus far been much more focused early in Biden’s term on helping get K-12 schools back to in-person instruction. But while the feds can help with that process, especially with American Rescue Plan funds, it’s largely a local decision. Meanwhile, ED has full control of its $1.7 trillion student loan portfolio, the vast majority of the total budget the department handles. And there are dedicated agencies within ED, like the Office of Federal Student Aid (FSA), that have nothing to do but to manage that portfolio. “When you run a trillion-dollar-plus program, you don’t have the luxury of saying that addressing it is not your priority,” Frotman said.

There’s also been a lot of focus on simply canceling large swaths, if not all, student debt. Biden has said on various occasions that he is disinclined to take executive action to do that, and in February he tasked the Justice Department with reviewing his authority to engage in cancellation. But in the meantime, millions of borrowers are legally owed relief. Persis Yu pointed out that “widespread cancellation would make it a lot easier to deal with these problems,” because wiping out the full debt for large percentages of borrowers would leave only a handful in problematic programs like PSLF or IDR. “Dealing with a system with 15 million borrowers is easier than one with 45 million,” Yu said.

So why is so little happening? After all, these very achievable policy goals are in some cases identical with what Biden promised in the campaign, when he promised to fix PSLF, restore fully the borrower defense rule advanced under the Obama administration, and crack down on for-profit colleges and student loan servicers.

A source with knowledge of the internal workings of the department told the Prospect that personnel inside FSA are generally aligned with the pleas of the advocates. “At a minimum, they’re not giving anyone [at FSA] the authority,” the source said. “It could be that they are going through the secretary’s office, presumably the chief of staff is the person weighing in.”

While Miguel Cardona wasn’t sworn in as education secretary until March 2, his chief of staff, Sheila Nix, has been at ED since the first full day of the Biden presidency. Nix goes back many years with the Biden family and other longtime Democrats, having been chief of staff to former Sens. Bob Kerrey (D-NE) and Bill Nelson (D-FL), as well as for Jill Biden. She advised President Biden in his vice-presidential and presidential runs. But in between those tasks, she had a 30-year lobbying career.

Nix lobbied for Arnold & Porter from 1989 to 1991, and with the Podesta Group, lobbied for 3M, Chiquita Brands, and the drug company trade group PhRMA. More recently, she spent the Trump years as the president of Tusk Philanthropies and as a lobbyist for consulting firm Tusk Ventures. Both are controlled by Bradley Tusk, a venture capitalist; Tusk Ventures helps startups navigate political and regulatory minefields in exchange for equity.

Clients included Uber, where Tusk was once a lobbyist. Nix lobbied for the firm, and her specialty was fintech. She was a registered lobbyist, mostly in New York, for companies like insurance startup Lemonade, online payday lender MoneyLion, and crypto trading platform eToro. Both Lemonade and MoneyLion have been accused of harming customers. She also worked for e-scooter company Bird, management consulting firm Root, Inc., and cable giant Charter Communications. She even lobbied against police accountability laws on the NYPD and expanded sick leave during the pandemic for essential workers.

For-profit colleges or student loan companies were not part of Nix’s portfolio. But her position at the top of the food chain in ED, even before the secretary of education got there, gives her a powerful perch to define the direction and speed of ED’s actions. The department did not comment on Nix’s role in determining higher-education policies.

WHATEVER THE REASON FOR THE DELAY, and the failure to fully implement the department’s powers to help borrowers, advocates say it must stop. “The days of technocratic Band-Aids should come to an end,” said Seth Frotman, noting that the payment pause for most debtors offered a unique opportunity to fix key aspects of the system. “Every day that debt hangs over the heads of borrowers, it’s a crisis. They live in fear that payments will be turned back on and they have to make payments that they don’t owe.”

Washington regulators often lament dealing with activists constantly pushing for more. But the extraordinary relief granted during the pandemic has put those lamentations into perspective. “If the federal government wants to, they could do a lot,” said Ashley Harrington of the Center for Responsible Lending. “We didn’t know they could get checks to millions of people in weeks. We deployed more small-business lending than in the history of the Small Business Administration. We need to change the thinking of the capacity of the government. If they can issue $1.7 trillion in student loans, then they have the capacity to fix the system.”

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