January, 2022
Washington — If I could set up a meeting at the U.S. Department of Education to address the student loan debt crisis, it would look something like this, with Secretary Cardona presiding. Present would be his deputy and his undersecretary, along with the leadership of OGC, FSA, OPE and representatives from OMB and DPC.
The Secretary: "I've called you together because I believe I have the responsibility to act under statutory authority to uphold 'sound management and accountability' in our federal student loan programs. That is what the statute requires, using words like 'duty' and 'obligation'. The statute grants powers to the Secretary to accomplish this, including authority to waive, compromise, or release rights, claims, and demands related to loans.
"Although there is some difference of opinion as to the extent of these powers, I believe there should be no doubt that they extend to matters of sound management and accountability, and to remediation where accountable management has been lacking. It is distressing to read OIG, GAO, CFPB, and other reports that have identified specific management and accountability failures, only to learn that damages to borrowers have not been addressed.
"Therefore, I ask you prepare for my consideration a variety of actions that can be applied to remediate documented shortcomings, with the goal of making borrowers whole and giving them confidence that the debt they have incurred has been reviewed and re-set to what it would have been but for the failures of program administration.
"For example, if borrowers have systematically been victims of servicer 'forbearance abuse,' loan amounts should be automatically modified as a remediation. Other examples are notorious delays in responding to borrowers, mishandling paperwork, and failures to advise borrowers of options to reduce debt.
"For some borrowers whose remaining balances are the result of fees, penalties, capitalized interest, and other charges that would not have been incurred under sound management and accountability, the remediations may result in total loan cancellation. How would this compare to other proposals to reduce debt by set dollar amounts? I believe we have a special responsibility to borrowers who would have been well on their way to repaying their principal and interest, or actually have paid enough to cover both, yet still have large loan balances that they can never hope to repay because of administrative policies and practices that have operated to keep them in debt.
"I also ask you to prepare analyses as to the effects of these remediations, to include breakdowns by various categories such as repayment status, principal amount borrowed, type of institution attended, age, race, and sex, so as to be able to evaluate how remediations would be targeted.
"Please review as well the Secretary's powers under statute to adjust loan interest rates as an incentive to repayment, particularly in light of the upcoming end of the pandemic repayment pause on May 1st. Include in the review the possible use of adjusting interest rates as remediation for past unsound management as well as the value of adjustments as an incentive in transitioning out of the pause. Such a review should also take note of interest rate or origination fee adjustments previously made by Secretaries under these or other discretionary powers, as well as a view toward maximizing the economic benefits of loan cancellations and modifications that would result from various remediation actions.
"I am pleased that this meeting includes OMB and DPC representatives. I intend to brief the President on this as part of what I believe to be my duty to uphold sound management and accountability in the loan programs. I know he is also concerned about what to do going forward, to slow and reverse the growth of student loan debt. That will necessarily involve cracking down on predatory lending, which I believe is also a duty and responsibility of the Secretary.
"Thank you, and I await your reports."
