Student Lending Proposals to the Incoming Biden Administration

U.S. Representative Maxine Waters, Chairwoman of the U.S. House Committee on Financial Services, penned a letter to the incoming Biden administration suggesting changes to the student lending regulatory environment, as well as debt forgiveness for student loan borrowers.[1]  On December 4, 2020, Waters recommended that then President-elect Biden “issue an executive order to promptly forgive up to $50,000 of debt for each federal student loan borrower and pause all student loan payments and interest accrual until the economy can recover.”  She also committed to working the Biden administration to “secure similar relief for private student loan borrowers as well.”  The Chairwoman asserts that Section 432(a) of the Higher Education Act of 1965 (20 U.S.C. § 1082(a)) provides the Department of Education with legal authority to broadly cancel student debt, stating that the Secretary of Education has the authority to modify a loan, and “…compromise, waive, or release any right, title, claim, lien, or demand, however acquired, including any equity or any right of redemption.”

While loan forgiveness on a scale recommended by the Chairwoman is unlikely, changes in regulatory frameworks may be coming.  Representative Waters, together with twelve co-sponsors, have twice obtained House approval of the Consumers First Act.[2]  This bill, originally introduced in 2018, approved by the House, went to the Senate Banking Committee in 2019 and no further.  The bill was reintroduced and approved by the House in the 116th Congress, but died when Congress adjourned.  Nevertheless, it provides a forecast of potential changes to the student lending regulatory landscape.  Section 6(b) of the bill would have amended Section 1013 of the Consumer Financial Protection Act of 2010 (12 U.S.C. § 5493) to:

• establish a new “Office of Students and Young Consumers,” which shall “work to empower students, young people, and their families to make more informed financial decisions about saving and paying for college, accessing safer and more affordable financial products” relating to private education loans and repayment of student debt;
• charge the Office with:
  • assisting “in all supervisory enforcement, and regulatory matters” of the CFPB related to the functions of the Office, and
  • entering into memoranda of understanding and similar agreements with the Department of Education and other agencies to carry out its business
• mandate annual reporting to Congress containing an analysis of complaints submitted by student borrowers during the year and an independent evaluation of risks to student borrowers posed by policies and practices in the marketplace;
• require each servicer of student loans to submit an annual report regarding the servicer’s loan portfolio, including (i) the size of the servicer’s portfolio; (ii) the repayment status of unique accounts; (iii) borrower-initiated and servicer-initiated contacts, and the outcome of each such contact; (iv) income-driver repayment applications and recertifications; and (v) any other data the Office determines necessary to carry out its duties.
• Include a description of the information collected from servicers, along with any findings or determinations made with respect to such information in the Office’s annual reporting.

Although this bill has not been reintroduced in the early days of the 117th Congress, student lenders and servicers should be on the watch for future developments. 

[1] https://financialservices.house.gov/news/documentsingle.aspx?DocumentID=407055

[2] https://www.congress.gov/bill/116th-congress/house-bill/1500/text