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The upside for student loan borrowers during the Biden administration

Seth Frotman, Executive Director, Student Borrower Protection Center, Former Consumer Financial Protection Bureau Official, joins Yahoo Finance to discuss the public service loan forgiveness program, student loan servicing companies quitting, and the Biden administration’s efforts to fix the student loan programs.

Video Transcript

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ALEXIS CHRISTOFOROUS: The Department of Education currently offers student loan forgiveness to public service workers who have made 10 years' worth of payments while employed in the government or at a nonprofit, such as teachers and military service members. But the program has actually been given a failing grade by some advocacy groups.

Joining me now is Seth Frotman, Executive Director at the Student Borrower Protection Center. We're also joined by Yahoo Finance's education reporter Aarthi Swaminathan. Good to have you here, Seth. Thanks so much. I know that you were recently on CBS's "60 Minutes" to talk about this issue regarding military borrowers. But talk to us about whether this program has worked for all Americans with student loan debt in the last few years.

SETH FROTMAN: Thank you so much for having me on. So more than 10 years ago, Congress created this program that was supposed to help people who went into public service fields, teachers, nurses, social workers, members of the military. But as you mentioned, more than 9 out of 10 borrowers have been rejected. Every time we get data, it shows 98%, 99% denial rates.

In fact, Congress tried to fix this program, and the fix has a 97% denial rate. And what you see are borrowers who have done everything right, both in terms of their impact in their community and then even trying to battle to get enrolled and stay in this program, only to run into this buzz saw of red tape. And it's just tragic when you hear these stories.

AARTHI SWAMINATHAN: Seth, we have a bunch of loan services that basically people like you are saying that these people are responsible for the bottlenecks that are happening. We have these loan services quitting with 16 million student loan accounts that basically have to be transferred from one to the other. What concerns you as this process goes along? And do you think that's going to slow the rate of forgiveness even further?

SETH FROTMAN: So it's important to recognize that these same student loan companies are the reason why we are in this mess. We have seen federal lawsuits, state lawsuits, individual borrowers stand up and document how these are the companies that actually tried to pad their own profits instead of helping active duty service members, veterans, cops, firefighters, teachers actually get enrolled in the benefits that they were entitled to.

So of course, there's going to be some confusion and some additional work now that these companies are leaving. But this is a good thing for borrowers. These are the companies that have left millions of American families struggling unnecessarily.

AARTHI SWAMINATHAN: Seth, just zooming out to the broader student loan debt cancellation, there was a memo you were told to expect sometime in April that we're still waiting on, on the White House's ability to cancel these loans. But meanwhile, Senators Chuck Schumer and Elizabeth Warren have continued calling on the $50,000 number. Where are we on that? Do you have any insight?

SETH FROTMAN: So I think we're still waiting. But one of the positive things to hear for student loan borrowers is that it is clear that the secretary of education, that the Biden administration isn't just waiting around to find out the results of this legal review. What most people don't realize is that there are already programs on the books that have been designed, that are the law of the land that are meant to forgive debt for millions of people, people who have been ripped off by their school, people who take on debt only to find themselves tragically severely disabled, and, in this circumstance, borrowers who have given back a decade in public service.

And what you see the Biden administration doing is fixing all of these programs because they have been broken. So time and time again, I think what you're starting to see is the new leadership at the Department of Education try to fix these programs and get the borrowers the relief they've deserved as we wait for this larger decision about broad-based debt cancellation.

AARTHI SWAMINATHAN: And you kind of segue into my next question very neatly there, but we are expecting some news as soon as tomorrow on public service loan forgiveness. Do we have a sense of what the department is expecting based on all the sessions that they've had in discussion with advocacy groups?

SETH FROTMAN: So a lot of us have been reading the tea leaves in all of the leaks and the initial reports, but I think what you're going to see is this is going to be good news for public servants. Again, we see how, despite this promise that public servants were going to get their debt relief if they gave back a decade, a series of illegal practices by the student loan industry, and, unfortunately, a lot of incompetence by prior administrations have left these borrowers stuck, holding the bag for loans that should have been forgiven, because these folks have been giving back for a decade or more.

And what all of the details trickling out of the impending White House and Education Department announcement is that the department is committed to fixing the problems that got us in the first place and to ensure that those who have done so much will, at the end of the day, see their loans forgiven.

ALEXIS CHRISTOFOROUS: All right. We're going to leave it there. Seth Frotman, Student Borrower Protection Center's Executive Director and, of course, Aarthi Swaminathan, thanks so much for being here.