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Federal Student Loan See Increased Oversight Under Biden Admin.

Updated: Jun 3



FSA Chief Operating Officer Richard Cordray, a former attorney general in Ohio who served as the director at the Consumer Financial Protection Bureau (CFPB) under President Obama has placed all servicers on notice that the FSA under President Biden will provide strong oversight and hold servicers accountable to ensure "borrowers of student loans are supported and not harmed."


In a recent interview, Cordray stated that he intends to “make sure that we are getting performance and accountability out of all of the partners and customers that we deal with at FSA, which includes servicers — as you've seen we're doing some work there to provide more performance and accountability for federal student loans.


In recent weeks, two student loan servicing companies have announced their plans to exit the industry by the end of the year.


Granite State Management handles about 1.3 million borrower accounts that will have to be transferred to a different loan servicer. PHEAA, which operates as FedLoan Servicing, currently manages loans for 8.5 million borrowers and services the Public Service Loan Forgiveness and Teacher Education Assistance for College and Higher Education Grant programs. They have announced that at the end of December they will not renew their contract with the DOE and will exit the industry.


Coincidentally, both servicers have been embroiled in litigation or allegations of misrepresentation involving their handling of student borrowers accounts, payments and repayment program management in previous years.

Student loan servicer Naviant announced a month ago that they intended to exit the industry as well, but in an about face received a $391 million contract extension through 2023.

This extension does not prohibit legal action that is currently in motion involving the company.

A federal judge in New Jersey said student borrowers can pursue a lawsuit alleging Navient Corp fraudulently misallocated payments to increase the life of potentially millions of student loans.



U.S. District Judge Susan Wigenton denied Navient's motion to dismiss the lawsuit, saying the borrowers who filed the proposed class action last year had valid claims under New Jersey's anti-fraud statute and the consumer protection laws of Florida, New York and New Jersey.

The lawsuit was filed in June 2020 by nine borrowers whose loans were serviced by Navient at that time. They allege that Naviant knowingly applied a disproportionate amount of their payments towards interest rather than principal, incorrectly capitalized interest and steered payments to lower interest rate loans.


Cordray admitted that for whatever reason, the department had been lax on student loan management enforcement during the previous administration but that “We need to make sure that they are doing what they should, that students are getting their money's worth, and, frankly, [that] the taxpayers are getting their money's worth as well.”

“Our intention here is to be vigorous enforcers of the law and to... publicize what we're doing so that everybody gets the message sooner rather than later and we don't have to take enforcement actions against some of the others because they straightened up and cleaned up their act.”

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