Insider Q&A: What's next for student loans in the COVID era

This photo provided by the Consumer Financial Protection Bureau shows Seth Frotman. Before starting his own advocacy group, the Student Borrower Protection Center, Frotman was the student loan ombudsman at the Consumer Financial Protection Bureau. It's a position that effectively is the federal government's highest ranking official on student loan issues. (Consumer Financial Protection Bureau via AP)
This photo provided by the Consumer Financial Protection Bureau shows Seth Frotman. Before starting his own advocacy group, the Student Borrower Protection Center, Frotman was the student loan ombudsman at the Consumer Financial Protection Bureau. It's a position that effectively is the federal government's highest ranking official on student loan issues. (Consumer Financial Protection Bureau via AP)

Before starting advocacy group the Student Borrower Protection Center, Seth Frotman was the Student Loan Ombudsman at the Consumer Financial Protection Bureau. That's effectively the federal government's point person for student loan issues.

Frotman held that position until 2018, when he resigned to protest the Trump administration's handling of student loans and private servicing companies.

Frotman spoke to The Associated Press about the Biden administration's decision to extend the student loan repayment moratorium and other issues facing the $1.5 trillion industry.

This interview has been edited for length and clarity:

Q: President Biden extended the moratorium on student loan repayments until January 31, 2022. Why is it a good thing?

A: It would have been a catastrophe if we had turned payments back on so soon into the recovery. It's important to remember how many student loan borrowers were being crushed by the system before the virus. One in 4 were behind on their payments. Millions were struggling to pay their student loan bill as well as put food on the table. In the most simple of terms, student borrowers have too much debt and this administration needs to get to the root of the problem before asking borrowers to repay.

Q: What do you mean by that?

A: One example is the Public Service Loan Forgiveness Program. Millions of borrowers have really important protections that could eliminate their debts entirely if they did public service. It was a promise made by Washington if you were able to give back to our country or served in the military that your debts would be wiped away. Millions have fulfilled their end of the bargain, but nine out 10 applicants get denied.

The Pennsylvania Higher Education Assistance Agency (also known as FedLoan) had an abysmal track record running that program. They recently announced they are ending their student loan servicing contract and I think it's a good thing. It gives the administration an opportunity to finally get right its oversight of the industry.

Q: How important is it that the Department of Education forgave the student loan debts of 300,000 disabled borrowers, and why? Was this a long time coming?

A: This is just a start - millions more have been denied promised relief, including those working in public service, those defrauded by predatory schools, and those serving in the military. They deserve the same sweeping debt relief granted to hundreds of thousands of borrowers today. Secretary Cardona built a roadmap to fix the broken student loan system and now he just needs to follow it.

Q: What's your latest concern in the student loan market?

A: We've seen a new crop of predatory education finance companies pop up in the last few years. Many of them are fintech companies trying to fill a space that banks would have. I have deep concerns about a new form of finance called income share agreements, which require you to turn over a portion of your future income to pay for your education. These types of agreements are not covered by traditional financial protections, so there is a lot of room for abuse.

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