Under Secretary Kvaal Delivers Remarks on Fresh Start, Student Loan Reforms


On August 9, 2022, Under Secretary James Kvaal delivered a keynote address to the Student Borrower Protection Center for their panel series on “Solutions to Address Student Loan Default and Collections.” Below are his remarks as prepared for delivery.


“Thank you for inviting me to join you today. I’m pleased to be here and grateful to the Student Borrower Protection Center and so many other organizations bringing forward real solutions to the student loan default crisis. Make no mistake, it is a crisis.

Across the nation, more than 7.5 million borrowers have a loan in default. That’s about one out of every six student loan borrowers in the nation. More than the entire population of my home state of Massachusetts.  Of course, this comparison doesn’t really do the crisis justice. The population of Massachusetts does not grow by a million people each year – which is how many more borrowers landed in default annually, at least in pre-pandemic times.

If there’s anything I know about this crisis, it’s this: nothing good comes out of default. Save for the debt collectors, there are no winners.

All default does is drive borrowers already facing financial hardships into an even deeper hole. Low-income workers can find their wages garnished, and lose tax benefits like the EITC and the child tax credit, which have become essential in the fight against poverty.  Seniors can see portions of their Social Security checks seized.

Default also causes borrowers’ credit scores to tank, driving up the cost of every financial product you can imagine.  Mortgages. Car loans. Credit cards. You name it.

Some have surely had their rental applications denied or been turned down by employers.  And of course, people with poor credit are steered into risky financial products that often leave them deeper in debt.

The consequences of default are so punitive, it’s as if whoever designed these policies assumed borrowers were trying to somehow beat the system.

I think we can all agree that defaulting on student loan debt is about the farthest thing from a get-rich-quick scheme. It’s more like a stay-in debt-forever scheme.

Even if you were a hard-nosed accountant who only cared about collecting money for taxpayers – it makes no sense to try to collect a loan by driving borrowers into poverty and preventing them from getting back on their feet. And student debt is more than that – there are lives at stake.

Here’s the truth.  By and large, borrowers who default on their student loans are people who have been failed by broken policies and lagging investments in college affordability.

They provide the most compelling evidence that the student loan system needs fundamental change!

We badly need colleges to be an engine of upward mobility and greater racial equity. But too many of these borrowers dropped out of college before earning their degrees.  Others got degrees from dubious institutions they later found out were worthless in the job market.

They are first-generation college students, former Pell recipients, and students of color. They are parents and full-time workers trying to get a better job to support their children.

I don’t have to tell anyone in this room today that in the coming weeks, there are some very important decisions to be made about student loan policy. Whatever happens, I know this: we can never again grow numb to a financial havoc wreaked by crisis that lands a million students a year into default.

President Biden has done more to put the brakes on this crisis than any leader in history. The student loan payment and interest freeze has not only saved the typical borrower in repayment $4,400 since January 2021 – it’s bought us time to focus on fixing fundamental flaws in the system.

For example, we’re fixing debt relief programs that up until now, didn’t deliver much debt relief. Already, we’ve approved nearly $28 billion in relief for nearly 1.4 million borrowers.  Many of them were failed by programs designed to help them!

Like teachers and nurses denied Public Student Loan Forgiveness.  Before President Biden, just 7,000 people ever qualified. Today, we’ve delivered nearly $10 billion to 175,000 public servants!  Now, we’re working to automate the process for federal workers by matching data between Federal Student Aid, the Pentagon, and the Office of Personnel Management.

Likewise, we’re automatically forgiving debts for many borrowers after 25 years of repayment.  We’ve also wiped out debt for nearly 385,000 disabled Americans who were eligible for relief but could not overcome all the red tape.  Here too, we’re automating the process by using a data match with the Social Security Administration.

We’re also standing up for students defrauded by for-profit colleges like never before. Already, we’ve approved long-overdue discharges for 800,000 borrowers who were cheated by their institutions. Many of them waited years for relief and were callously ignored by the Trump administration.

That’s why we’re streamlining the process for future borrower defense claims, and making sure that students get automatic cancellation if their schools just up and close their doors one day.

We’re also toughening oversight to protect students from future abuse, which is important, because we know that default rates are higher among students who attend for-profit colleges.

The nearly $28 billion we’ve approved for forgiveness is not a static number. More borrowers qualify every day – and we will work tirelessly to make sure all eligible borrowers get the relief they deserve.

We’re also thinking about today’s students. The young people borrowing new loans, as we speak, to pay for college this fall. They shouldn’t have to inherit programs that do not work.

We must make sure our student loan forgiveness programs work as intended, for the long haul.  That is why we recently proposed new regulations that would improve all these discharge programs and end interest capitalization, where not required by statute, at a cost of $85 billion over 10 years.

These programs are worth running well. They cancel entire loans, and they will protect past, present, and future borrowers. And, we’re committed to helping borrowers who’ve already been failed by the system.

In April, President Biden announced plans to give 7.5 million borrowers in default a “fresh start.” With fresh start, we will help borrowers take advantage of today’s repayment options and pathways to forgiveness.

We will restore students’ access to financial aid so they can go back to school and complete their degrees, earn higher wages and succeed in life.

We will halt costly collection fees and overly punitive collection efforts, help borrowers who rehabilitated loans during the payment freeze, and update the Credit Alert Verification Reporting System so that people can get access to the financial products they need to thrive.

And that brings us to the title of today’s session – beyond fresh start. Going forward, we must build a better, fairer, more affordable system so that fewer borrowers wind up in default.

On the campaign trail, President Biden talked about reducing monthly payments.  In the coming weeks, we’ll invite public comment on a proposal to do just that – with a new income-driven repayment plan, with much lower payments.

We welcome your input, especially with respect to giving borrowers with loans in default access to these plans and enrolling delinquent borrowers to keep them out of default.

We’re also working to strengthen accountability with student loan servicers and debt collectors.  Richard Cordray is leading Federal Student Aid through the current procurement process, and as always, he’s looking out for borrowers.

We want accountability baked into these agreements. We will hold contractors accountable for borrowers’ delinquency and default rates, using an array of pricing, allocations, bonuses and penalties to drive better results.  We should own our contractors, not the other way around!

FSA is also pursuing a more flexible procurement strategy and making major technology upgrades. By giving FSA more timely and reliable data, we can make it easier to transfer loans between servicers and communicate directly with borrowers.

Finally, we need your help creating a system that helps borrowers stay on track, and if they default, humanely and effectively helps them get back on their feet.

We need the voices of experts, advocates and borrowers to help us tackle big questions.

How can we stop so many borrowers from defaulting each year? The federal student loan system has dozens of ways to reduce or postpone payments, but they aren’t working.

How can we spare borrowers from the double whammy of loss in repayment options and punitive collection practices?  The current system seems to throw drowning borrowers a 50-pound anchor when what they need is a life-raft.

How can we make collections efforts less punitive, so they don’t push borrowers deeper into debt? How is it fair that some defaulted borrowers are forced to pay more annually than any payment plan ever would?

Why is it so hard for borrowers who are ready and willing to begin repayment to do so? How can we free them from the vast web of overlapping forced collections, wage garnishment, rehabilitative payments, and other barriers?

We provide student loans because, even for all the faults of our higher education system today, a college degree remains our nation’s surest on-ramp to higher-paying wages and long-term financial security.

That’s why our nation needs to make much larger investments in free community college, doubling Pell grants, and other steps to transform how college is financed.

We also need the guts to stand up to colleges that leave students in debt they will never be able to repay. And we need to make sure that no student is left worse off than if they never went to college at all.

Defaulting on a student loan should not be a lifelong sentence of financial struggle and despair.

So thank you for gathering on this important topic – thank you for your work on behalf of borrowers – and thank you for pushing us, publicly and privately, to do more to address the student debt crisis.

I’m proud of the progress we are making. We needed your help to make it this far – and with your help, we can go even further. Thank you.”