Veterans are being misled into taking out student loans 'they didn't need,' a Biden official says — and 'offending schools' will face consequences

• Federal Student Aid is looking into allegations that schools have misled veterans on student loans.
• Allegations include schools telling borrowers their GI Bill benefits would cover all the costs of a degree.

A top student-loan official warns that some schools could be misleading veterans about the costs and terms of student loans.

On Wednesday, Federal Student Aid (FSA) head Richard Cordray issued a bulletin outlining enforcement actions his agency will take against schools that mislead borrowers on student-loans — particularly for veterans, servicemembers, and related family members. Cordray wrote in a tweet that some schools have "misrepresented costs" to veterans, causing them to take out student loans "they didn't need," and he affirmed that "offending schools" will be held accountable for that behavior.

"The Department is monitoring complaints... who report that school personnel or representatives suggested during the enrollment process that their GI Bill benefits would cover all of the costs of a degree, only to be told later that they would have to take out student loans to finish the program," the bulletin said. "Some of these students even report that student loans were taken out in their name without their knowledge."

—Richard Cordray (@FSACOO) March 16, 2022

Over recent months, Cordray's agency has been increasing oversight of potential bad behavior by schools and student-loan companies that could push a borrower into deeper student debt than they can afford. Although student-loan payments have been on pause for two years, and will stay that way until May 1, FSA, along with the Consumer Financial Protection Bureau, have continued accountability measures for big players in the student-loan industry.

When it comes to veterans and servicemembers, FSA's bulletin said it's monitoring allegations regarding schools that have taken advantage of confusion surrounding benefits within the GI bill, which covers tuition for public colleges but not necessarily the full cost of attendance at all institutions.

Specifically, FSA is looking into the following allegations:

• Borrowers being told to sign paperwork without realizing they were signing up for loans
• Borrowers being pressured to start classes before GI bill benefits were determined
• Borrowers being encouraged to enroll in programs that were not approved for GI benefits, requiring them to take on loans
• And borrowers receiving bills for loans they never applied for, or didn't realize they applied for.

FSA's bulletin said if the Education Department identified any wrongdoing, it will "address such violations and seek all appropriate corrective measures," adding it will work with the Departments of Defense and Veterans Affairs to carry out any enforcement action.

"The Department will ensure that institutions engaging in misrepresentations are held accountable if they cause a student to incur extra costs unwittingly or without a full understanding of the implications of borrowing," the bulletin said.

This is just the latest action by the Education Department in investigating schools' potential student-loan abuses. In October, the department established an Office of Enforcement to 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 at the time said it was "deprioritized" under President Donald Trump's administration.