Biden's Education Dept. just announced a new office to 'vigorously investigate' schools' student-loan and federal aid abuses

·3 min read
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  • Federal Student Aid unveiled an enforcement office to crack down on student-loan abuses.

  • The office will focus on investigating and penalizing schools who have engaged in misconduct.

  • Kristen Donoghue, an Elizabeth Warren ally, will lead the office.

In President Joe Biden's latest action cracking down on the student-loan industry, his Education Department established an Office of Enforcement to investigate and prevent abuses against students and student-loan borrowers.

The department announced in a press release on Friday the establishment of the enforcement office, operated by the Federal Student Aid (FSA) office. It will strengthen oversight of and enforcement actions against schools that participate in the federal-student loan program or distribute any federal grants. The office was first established in 2016, but the release said it was "deprioritized" under President Donald Trump's administration.

"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 made up of four divisions:

  1. The Administrative Actions and Appeals Services Group, which will suspend and fine schools found of wrongdoing;

  2. The Borrower Defense Group, which will analyze claims from borrowers defrauded schools;

  3. The Investigations Group, which will will investigate potential misconduct within schools;

  4. And the Resolution and Referral Management Group, which will track and resolve complaints about schools.

According to the release, the department will be led by Kristen Donoghue, who joined FSA in July as a senior advisor to the chief operating officer. Insider previously reported that Donoghue was one of the growing number of hires joining Biden's ranks who are allies of prominent student-debt cancellation advocate Elizabeth Warren.

Donoghue previously served at the Consumer Financial Protection Bureau (CFPB), which Warren created. She was one of the bureau's original employees in 2013 during which she pursued hundreds of investigations into misconduct within big banks.

FSA director Richard Cordray said Donoghue's leadership will "drive greater accountability for schools and better educational outcomes for the students we serve."

The establishment of this office is just the latest crackdown on the student-loan industry. On Wednesday, the Federal Trade Commission (FTC) announced that it is alerting 70 for-profit colleges of consequences for "false promises" they make about students' jobs and earnings. Those the agency finds are engaging in unlawful practices will be hit with a financial penalty, up to $43,792 per violation.

And last week, Rohit Chopra was nominated to lead the CFPB, suggesting the student-loan industry is set to face even more oversight. Chopra previously served in the CFPB as its first student-loan ombudsman, and during one of his confirmation hearings in March, he stressed the importance of protecting student-loan borrowers.

"We are at a critical moment when so many borrowers are going to have to restart their payments," Chopra said during the hearing. He added that he will ensure the restart is "happening lawfully so we can avoid an avalanche of defaults when any moratorium might end."

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