- Two student-loan companies that service a combined 10 million borrowers are shutting down this year.
- Federal Student Aid Director Richard Cordray said the companies didn't want more accountability.
- He plans to hold the companies to higher standards to help better protect borrowers.
- See more stories on Insider's business page.
In recent months, Biden's Education Department told student-loan companies they would be facing a stricter set of rules than under the Trump administration. Some of them decided to shut down instead.
In remarks obtained by Politico, Director of the Education Department's Federal Student Aid (FSA) office Richard Cordray said that one of his goals as head of the FSA is to hold the companies that collect borrowers student debt to higher standards - and those standards pushed some companies to refrain from renewing their contracts with the government.
"Not everybody was thrilled" with the new standards, Cordray said. "But we have stuck to our guns. Some servicers have decided to exit the program rather than contend with these new realities."
The Pennsylvania Higher Education Assistance Agency (PHEAA) and Granite State Management and Resources announced in July they would be shutting down their loan services in December. Granite State has already announced where its borrowers will be transferred, but PHEAA - which currently services 8.5 million borrowers - has yet to do so and has come under fire by advocates and lawmakers for misleading borrowers, prompting increased oversight.
After announcing that it was shutting down its loan services, a PHEAA spokesperson told Insider in a statement that student-loan programs had "grown increasingly complex and challenging while the cost to service those programs increased dramatically."
The company did not respond to Insider's request for comment regarding accusations the company has misled borrowers, but Massachusetts Sen. Elizabeth Warren said borrowers can "breathe a sigh of relief" knowing they will not be serviced by PHEAA, and Seth Frotman, executive director of the Student Borrower Protection Center, recently told Insider it's a "good thing" the company is shutting down its services.
"Borrowers no longer being forced to deal with this company is a good thing," Frotman said. "At the heart of every student loan scandal that hurt borrowers, PHEAA was at the center, from harming teachers, to military borrowers, to public servants."
Cordray's plan to increase accountability measures for student-loan companies is something lawmakers like Warren have been pushing for, and doing, for years. In April, Warren invited the CEOs of all student-loan companies to testify on the impact of student debt on borrowers, and she called out the CEO of Navient, saying he should be fired for the company's actions in misleading borrowers.
PHEAA CEO James Steeley also testified, and Warren later sent him a letter over what may have been false testimony before Congress.
Cordray said the FSA will collaborate with the Consumer Financial Protection Bureau and the Justice and Treasury Department to help boost oversight, and he said the student-loan companies who are renewing their contracts have "embraced a new normal of 'putting borrowers first.'"
"We will work closely in partnership with our servicers to make sure we deliver quality service to everyone who faces the prospect of repaying their student loans," he said.