The Education Department's (ED) office of Federal Student Aid (FSA), which oversees the government's massive student loan portfolio, is launching an Office of Enforcement to "vigorously" increase oversight of postsecondary schools that participate in federal student loan programs.
“Vigorously ensuring that schools are adhering to the federal student aid program rules and delivering quality education to students is critical in America’s ability to build back better,” Under Secretary James Kvaal said in a statement. “The administration will prioritize Federal Student Aid's effective oversight and enforcement of postsecondary schools.”
The office will be composed of several groups, including an investigations group and a borrower defense group, and will operate under FSA Chief Operating Officer Richard Cordray.
"There's a lot of promises made to the public and to the citizens of this country about how government is going to do this and government's going to do that, and it's easy to say those things it's always harder to do them," Cordray, who previously served as CFPB Director under President Barack Obama, told Yahoo Finance in an exclusive interview.
"What we're trying to do with FSA is we're trying to deliver on some of these promises made to people that borrowers are going to be treated fairly, that students are going to get their money's worth, that the taxpayers get to get their money's worth," he explained. "I take that very seriously, but I understand that it's easy to talk, it's harder to walk the walk or deliver on what's been said. But we intend to do that and the Office of Enforcement here is a visible representation of one of the ways we're going to go about that."
U.S. Consumer Financial Protection Bureau (CFPB) Director Richard Cordray testifies before a Senate Banking Committee hearing on Capitol Hill in Washington June 10, 2014. (REUTERS/Jonathan Ernst) ·Jonathan Ernst / reuters
The move tightens oversight of and take enforcement actions against higher education institutions that access the federal student aid spigot and "restores an office that was first established in 2016, but deprioritized in the previous administration," according to an ED press release.
Cordray, drawing on his own experience at the CFPB having set it up from scratch, said that the challenge in laying out the foundation for enforcement after the Trump administration was a hard but deeply meaningful task.
"There has been some yo-yo-ing... there was an effort made to elevate enforcement work during the very later years of the Obama administration, then that got countermanded and arguably dismantled under the Trump administration for whatever reasons," Cordray said. "But we are very firm and our determination that this is something that is important, it is work that needs to be done."
And if the enforcement work is executed well, he added, "it has a deterrent effect, and it cleans up a lot of problems that borrowers will never have to experience."
What the student loan office of enforcement will look like
The Office of Enforcement will be led by former Consumer Finance Protection Bureau (CFPB) Enforcement Director Kristen Donoghue, who joined FSA in July as a senior advisor to Cordray.
During Donoghue's tenure at CFPB, the agency pursued numerous investigations and public enforcement actions — including one that obtained the highest civil money penalty in the CFPB’s history: a $1 billion fine against Wells Fargo.
ED stated that the new enforcement office will be proactively identifying schools that pose "widespread risks to students and taxpayers."
There will be four divisions within the office of enforcement:
An "Administrative Actions and Appeals Services Group" that will fine, limit, suspend, terminate, and impose emergency actions against colleges participating in federal student aid programs. The group also issues revocations, recertification denials, and so on.
A "Borrower Defense Group" that will analyze borrower defense to repayment claims. The group will talk to colleges and schools about borrower defense claims and will work with other federal agencies' investigation and enforcement divisions — such as the Federal Trade Commission (FTC) — and state agencies.
An "Investigations Group" that will evaluate indicators of potential bad behavior or high-risk behavior by postsecondary institutions as well as third-party service providers. This group will also look into whether these institutions comply with federal laws and rules, and collaborate with other agencies like the Department of Justice, the CFPB, the FTC, and state attorneys general.
A "Resolution and Referral Management Group" that will track and resolve referrals, reports of suspicious activity, and allegations against schools.
FSA will "work closely" with the FTC, according to ED. Earlier this week, the FTC announced a crackdown down on 70 for-profit colleges for misleading students about earnings and their job prospects. Working with the FTC and external partners allows FSA to pool resources and dig deeper into possible abuses, Cordray noted.
Cordray: 'We're sending a message' to bad actors
Preventing fraud early on will likely prevent the need for broad debt relief further down the road.
Borrower defense applications surged after the Obama administration cracked down on predatory for-profit colleges and created new regulations in 2015, but the mechanism for defrauded borrowers seeking debt relief broke down during the Trump administration.
The Biden administration has been working to clear that colossal borrower defense backlog left behind by the previous two administrations by discharging billions in debt held by defrauded students of for-profit schools.
Cordray said he hoped that proactive action from the new Office of Enforcement can weed out bad actors before systemic abuses proliferate further.
"This is both cleaning up how schools behave upfront while students are there while they're getting their education, where we intend that they get absolutely their money's worth... [and] our money's worth because we're providing a lot of that money," Cordray said, "Then down the road, as students become borrowers, and then they become repayers, how they're treated."
Furthermore, by creating the Office of Enforcement, "we're sending a message to everyone that in FSA and the department, how important we think this work is... [and] that we need the schools and people out there to see that we're serious," Cordray said. "That will keep people from thinking that they can cut corners or skirt the edges and do things that are problematic, as they'll somehow be able to get away with it because they got away with it."
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Aarthi is a reporter for Yahoo Finance. She can be reached at aarthi@yahoofinance.com. Follow her on Twitter @aarthiswami.
