    [Senate Hearing 112-754]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 112-754

        PRIVATE STUDENT LOANS: PROVIDING FLEXIBILITY AND OPPORTUNITY TO

                                   BORROWERS?
    =======================================================================

                                    HEARING

                                   before the

                                SUBCOMMITTEE ON

                 FINANCIAL INSTITUTIONS AND CONSUMER PROTECTION

                                     of the

                                  COMMITTEE ON

                       BANKING,HOUSING,AND URBAN AFFAIRS

                              UNITED STATES SENATE

                          ONE HUNDRED TWELFTH CONGRESS

                                 SECOND SESSION

                                       ON

     EXPLORING THE PRIVATE STUDENT LOAN MARKET AND THE CHALLENGES FACED BY
                       BORROWERS OF PRIVATE STUDENT LOANS

                                   __________

                                 JULY 24, 2012

                                   __________

      Printed for the use of the Committee on Banking, Housing, and Urban
                                    Affairs

                     Available at: http: //www.fdsys.gov /

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                COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                      TIM JOHNSON, South Dakota, Chairman

    JACK REED, Rhode Island              RICHARD C. SHELBY, Alabama
    CHARLES E. SCHUMER, New York         MIKE CRAPO, Idaho
    ROBERT MENENDEZ, New Jersey          BOB CORKER, Tennessee
    DANIEL K. AKAKA, Hawaii              JIM DeMINT, South Carolina
    SHERROD BROWN, Ohio                  DAVID VITTER, Louisiana
    JON TESTER, Montana                  MIKE JOHANNS, Nebraska
    HERB KOHL, Wisconsin                 PATRICK J. TOOMEY, Pennsylvania
    MARK R. WARNER, Virginia             MARK KIRK, Illinois
    JEFF MERKLEY, Oregon                 JERRY MORAN, Kansas
    MICHAEL F. BENNET, Colorado          ROGER F. WICKER, Mississippi
    KAY HAGAN, North Carolina

                         Dwight Fettig, Staff Director

                  William D. Duhnke, Republican Staff Director

                           Dawn Ratliff, Chief Clerk

                         Riker Vermilye, Hearing Clerk

                          Shelvin Simmons, IT Director

                              Jim Crowell, Editor

                                     ______

         Subcommittee on Financial Institutions and Consumer Protection

                         SHERROD BROWN, Ohio, Chairman

                BOB CORKER, Tennessee, Ranking Republican Member

    JACK REED, Rhode Island              JERRY MORAN, Kansas
    CHARLES E. SCHUMER, New York         MIKE CRAPO, Idaho
    ROBERT MENENDEZ, New Jersey          MIKE JOHANNS, Nebraska
    DANIEL K. AKAKA, Hawaii              PATRICK J. TOOMEY, Pennsylvania
    JON TESTER, Montana                  JIM DeMINT, South Carolina
    HERB KOHL, Wisconsin                 DAVID VITTER, Louisiana
    JEFF MERKLEY, Oregon
    KAY HAGAN, North Carolina

                   Graham Steele, Subcommittee Staff Director

             Michael Bright, Republican Subcommittee Staff Director

                     Marjorie Glick, Legislative Assistant

          Darlene Rosenkoetter, Republican Financial Services Counsel

                                      (ii)

                                C O N T E N T S

                                  ----------

                             TUESDAY, JULY 24, 2012

                                                                       Page

    Opening statement of Chairman Brown..............................     1

    Opening statements, comments, or prepared statements of:
        Senator Corker...............................................     3
        Senator Akaka................................................     4

                                   WITNESSES

    Rohit Chopra, Student Loan Ombudsman, Consumer Financial
      Protection Bureau..............................................     4
        Prepared statement...........................................    33
        Response to written questions of:
            Senator Reed.............................................    79
    Deanne Loonin, Attorney and Director of Student Loan Borrower
      Assistance Project, National Consumer Law Center...............    17
        Prepared statement...........................................    38
        Response to written questions of:
            Senator Reed.............................................    80
    Jennifer Mishory, Deputy Director, Young Invincibles.............    19
        Prepared statement...........................................    62
    Jack Remondi, President and Chief Operating Officer, Sallie Mae..    21
        Prepared statement...........................................    74
        Response to written questions of:
            Senator Reed.............................................    81

                  Additional Material Supplied for the Record

    Prepared statement submitted by the Education Finance Council
      (EFC)..........................................................    86
    Prepared statement submitted by the Consumer Bankers Association
      (CBA)..........................................................    89

                                     (iii)

        PRIVATE STUDENT LOANS: PROVIDING FLEXIBILITY AND OPPORTUNITY TO
                                   BORROWERS?

                                  ----------

                             TUESDAY, JULY 24, 2012

                                           U.S. Senate,
              Committee on Banking, Housing, and Urban Affairs,
                         Subcommittee on Financial Institutions
                                       and Consumer Protection,
                                                        Washington, DC.
        The Committee met at 2:30 p.m., Room SD-538, Dirksen Senate
    Office Building, Hon. Sherrod Brown, Chairman of the
    Subcommittee, presiding.

               OPENING STATEMENT OF SENATOR SHERROD BROWN

        Senator Brown. The Subcommittee on Financial Institutions
    and Consumer Protection will come to order.
        Thanks, always, to Senator Corker for the good work that he
    does with the Subcommittee. And Senator Reed and Senator Akaka,
    thank you for joining us.
        My staff particularly appreciates the working relationship
    with Senator Corker in making these Subcommittee hearings work
    much better as a result.
        On June 29 of this year, Congress passed the Transportation
    and Student Loan Package, essential legislation that not only
    ensured funding for our Nation's infrastructure and its highway
    system but also include extension of the current student loan
    interest rate of 3.4 percent for subsidized Stafford loans, an
    issue that Senator Reed especially had worked hard on.
        The passage of this legislation was important for seven
    million undergraduate students nationwide some, we figure,
    382,000 of them living in Ohio.
        Without this extension, the average student would have
    faced an additional thousand dollars in student loan debt per
    subsidized Stafford loan.
        As others did, I spent a lot of time in community colleges
    and 4-year private and public institutions in my State,
    particularly in Cleveland, Columbus, Cincinnati, Toledo, and
    Dayton, talking about hearing the stories from a number of
    students sharing with me their fears are graduating in a
    challenging economy with high levels, even without this
    legislation obviously, with high levels of student loan debt.
    Others shared the experience of family members and friends who
    are still paying off their loans years after graduation from
    college.
        This is not surprising. Earlier this year, student loan
    debt, as we have heard repeatedly, student loan debt outpaced
    credit card debt soaring to more than $1 trillion. It is a
    problem that affects people of all generations, obviously not
    just the student but the family sometimes, even the
    grandparents.
        According to a report released by the Federal Reserve Bank
    of New York, the average student loan debt burden for borrowers
    under age 30 has risen 56 percent since 2005. Meanwhile
    borrowers in their 40s are the most likely to default.
        Parents and grandparents who may have cosigned for a son or
    a granddaughter must share the burden of younger generations.
    It is clear more must be done to ensure future generations are
    not saddled with high levels of student loan debt while helping
    borrowers of all ages pay off their student loans.
        That is why today's hearing which will focus on the
    challenges facing borrowers in the private student loan market
    is so important. That is a small portion relatively of the
    overall student loan market.
        American consumers owe more than $150 million in
    outstanding private student loan debt, and their numbers have
    increased. Fourteen percent of undergraduates in 2000 to 2007
    have taken out a private loan up from 5 percent in 2003 and
    2004 and continuing to increase. This is troubling.
        Private student loans are the riskiest way to pay for
    college. Often these loans come with a variable interest rates
    ranging from 5 percent, sometimes to 18 percent, often with no
    limits on origination and other fees.
        Additionally, unlike Federal student loans, private student
    loans are less likely to come with affordable payment plans or
    loans forgiveness or with deferment options or cancellation
    rights.
        Given the risks and the challenges as well as the
    opportunities posed by private student loans, I am proud to
    have fought for the inclusion of the private student loan
    ombudsman as part of the Dodd-Frank legislation.
        For the first time in history, private student loan
    borrowers have a central place to go file complaints and have
    an average on it inside the government for them.
        I am still concerned that too many borrowers are not
    receiving the assistance they need from lenders. Last week the
    Consumer Financial Protection Bureau, which was also, as we
    know, enacted as part of Dodd-Frank published a report on the
    private student loan market and the consumers who use these
    loans.
        What was evident from this report is that many borrowers
    took out private student loans without fully understanding the
    terms. Now, many of these borrowers are saddled with thousands
    of dollars of debt with limited options. Hopefully, this
    hearing will allow us to further understand the challenges
    faced by these and other students.
        In the short term, we can explore ways to provide borrowers
    with short-term options to get out from under the burden of
    high-cost private student loans.
        In the longer term, I hope that we can provide students and
    their families with more transparency about private loan
    options and costs as well as predictability when they are
    trying to work with their servicers.
        I will conclude with the story of Teresa from Mentor, Ohio,
    east of Cleveland, and her struggles with private student
    loans. She graduated from college in 2009. She soon after apply
    to join the Peace Corps. She almost had to turn down this once-
    in-a-lifetime opportunity because of the unwillingness of our
    lender to defer her loans while enrolled in the Peace Corps.
        She came to one of my constituent coffees to ask for help.
    Through the work of my staff, her lender finally agreed to
    defer her loans. Teresa was able to go abroad last year. While
    domestic issues of broad brought Teresa home sooner than
    expected, her private student loan challenges remain.
        While she has continued to pursue a career in public
    service that began with the Peace Corps, she struggles to make
    her monthly student loan payments that topped $400. In just 2
    years, her balance of one of the loans has jumped from 22,000
    to just under 30,000. Without intervention, these loans will
    continue to grow. We need to think about people like Teresa as
    we make these decisions.
        Moving forward, I am hopeful today's hearings will help
    move us closer to a solution of these important issues.
        Senator Corker.

                    STATEMENT OF SENATOR BOB CORKER

        Senator Corker. Thank you, Mr. Chairman, and thank you to
    the witnesses who are here. I am glad we are here today to talk
    about the private student loan market. But to me it is more
    important that we look at the entire picture.
        We have been reading in the news lately that student
    borrowers have nearly $1 trillion in outstanding student loan
    debt. But, we need to remember, as the Chairman just mentioned,
    only 7 percent of those loans are private student loans, and
    the other 93 percent are loans that are backed by the taxpayer.
        I think all of us know the real problem we need to consider
    are the rising cost of college tuition and the amount of
    Federal student loans students are borrowing.
        I might add that on the one hand the Federal Government
    seems to want to help solve this problem, on the other hand
    continues to mandate to States things like Medicaid. In our own
    State, for every percentage that we spend more on Medicaid we
    spend less on higher education. That is the real driver of why
    students are borrowing so much money in our own State.
        The Federal Government recently took over the Federal loan
    program as many of us know. I am unconvinced that that change
    is in any way benefiting students or taxpayers.
        There are income forgiveness programs on the Federal loan
    side where borrowers do not have to pay back the full freight
    of the loans they borrow, sticking the taxpayer with the unpaid
    burden.
        So, I think it is important for us to understand the whole
    picture and not just focus on a tiny fraction of the
    marketplace, and I am pleased that Sallie Mae is here today to
    talk about the progress that they have made in encouraging
    students to borrow more responsibly.
        And, I look forward to the testimony of the witnesses
    today.
        Senator Brown. Thank you Senator Corker.
        Senator Reed, any opening statement?
        Senator Reed. No, Mr. Chairman.
        Senator Brown. Senator Akaka, opening statements?

                  STATEMENT OF SENATOR DANIEL K. AKAKA

        Senator Akaka. Thank you very much, Mr. Chairman.
        Good afternoon, panelists, and thank you for being here
    today, all of you.
        I am pleased that Congress is continuing to monitor leading
    practices regarding student loans. A quality education must
    include an understanding of economics and personal finance so
    that all Americans will be prepared to make sound financial
    decisions.
        I look forward to hearing an update from the Consumer
    Protection Bureau on the work that they have done to improve
    the consumer financial marketplace.
        Thank you all the panelists for your testimony today and I
    hope that your insights will help this Committee work toward
    ensuring that students have safe options for obtaining
    financial support for their college educations.
        Thank you much, Mr. Chairman.
        Senator Brown. Thank you, Senator Akaka.
        One point I wanted to make that the reason that this
    hearing, perhaps, Senator Corker, is a little narrower than you
    might want is that, one, as you know, we do not have
    jurisdiction over Federal loans the way we do private student
    loans. But, I am certainly willing to work with this whole,
    obviously this whole issue of student loan debt wherever it
    comes from. This is serious.
        I would like to introduce the first witness, Rohit Chopra,
    leads the office for students at the Consumer Financial
    Protection Bureau where he is designated by Secretary Geithner
    as the CFPB's student loan ombudsman.
        Immediately prior to the opening of the agency, he worked
    at the Department of Treasury on the CFPB implementation team.
    He holds a BA from Harvard and an MBA from Wharton at the
    University of Pennsylvania.
        Mr. Chopra, welcome.

      STATEMENT OF ROHIT CHOPRA, STUDENT LOAN OMBUDSMAN, CONSUMER
                      FINANCIAL PROTECTION BUREAU

        Mr. Chopra. Thank you. Chairman Brown, Ranking Member
    Corker, and Members of the Subcommittee. Thank you for holding
    this hearing today.
        To prosper in today's global economy, our workforce needs
    skills to innovate in a highly competitive environment; but the
    rapid growth of student debt raises concerns that warrant the
    attention of policymakers. Student loan debt has now crossed
    the $1 trillion mark.
        Now, college is still a great investment. Graduates have
    lower unemployment rates and earn higher wages but there is
    another side to the story.
        Over the past decade, real wages for college graduates have
    declined. The growing college wage premium is largely explained
    by faster falling wages of non-degree holders.
        But, the cost of college has not been falling--rising
    faster than inflation, wage growth, and healthcare costs.
    Growing costs, declining wages and job market uncertainty have
    led to more debt and more risk. The stories of distressed
    borrowers reveal the impact of the financial crisis and the
    significant work that lies ahead.
        Prior to the crisis, private student lending rapidly
    increased. Like in the mortgage industry, lax lending practices
    are much less common today. Loans are cosigned and often have
    significant disclosure requirements.
        But like the mortgage markets, there are still
    opportunities to make improvements. Private loans often lack
    repayment flexibility. In 2007, Congress and President Bush
    enacted the College Cost Reduction and Access Act, which
    allowed student loan borrowers to remain current on a loan
    through the income-based repayment program, but this does not
    impact private student loans.
        Private loan borrowers experience challenges when
    attempting to restructure their loans due to capital markets
    conditions and an unusual status in the bankruptcy code. Even
    the most responsible borrowers have sought to better manage
    their debt burden. We see that many borrowers feel stuck with
    high monthly payments because they cannot easily refinance.
        In March, CFPB launched a student loan complaint system
    where many borrowers have sought and received help and lenders
    have learned more about their borrowers' experience.
        We also worked closely with the Department of Education on
    a Know-Before-You-Owe financial aid shopping sheet that we
    released this morning, and we have developed online tools used
    by tens of thousands of consumers on how to navigate their
    student loan repayment options, avoid default, and honor their
    commitments.
        The CFPB hopes to continue its work with other agencies
    that might play a critical role in addressing roadblocks to
    facilitating repayment flexibility and a robust refinance
    market.
        While student debt might not pose systemic risk to the
    banking system as we saw with mortgages, it would be imprudent
    to dismiss that growing indebtedness can act as a drag on
    economic recovery.
        Consider borrowers facing high rates and high payments who
    are dutifully meeting these obligations. Without a refinance
    option, they struggle to reduce their payments even though they
    have built a solid credit history.
        What might be the consequences of this? Take the housing
    market. First-time homebuyers are an important source of demand
    and data reveals that adults in prime homebuying age cohorts
    are living at home with their parents and seeing reductions in
    their own home ownership rates.
        In addition to home ownership, data also reveals low
    participation and contribution rates to employer retirement
    plans among young graduates, which can challenge their future
    retirement security.
        Congress and Federal agencies have taken steps to increase
    liquidity and the functioning of the credit markets in recent
    years, but the current conditions in student loan markets may
    have a long-term impact on the economic vitality of many
    borrowers today.
        Many borrowers are unable to secure adequate credit
    accommodations to manage their debt burden. Policymakers have
    paid significant attention to conditions in the mortgage
    market; but given the potential impact of student debt on the
    broader economy, the situation demonstrates the need for
    attention. The CFPB will continue its work to make the loan
    marketplace work better for borrowers, schools, and honest
    lenders.
        We look forward to working with Congress and policymakers
    to ensure that economic ability is still within the reach for
    those who borrowed to invest in an education.
        I look forward to your questions.
        Senator Brown. Thank you, Mr. Chopra.
        In your private student loan report, you note that the
    average interest rate in a December sample of private student
    loans was 7.8 percent. We know with the Federal Reserve
    monetary policy actions that interest rates in this country are
    pretty much at record lows.
        Talk to me about that differential, why it is so much
    higher for student loans, what does that mean in terms of
    students not being able to take advantage of those low rates.
    What, if anything, can we do about it?
        Mr. Chopra. So, one unique thing about student loans,
    particularly private student loans, is that once someone takes
    on that loan, let us say when they are 18 or a freshman in
    college, their credit profile can significantly change over
    time.
        As an 18-years-old, they might be considered high risk, but
    by the time they graduate and are gainfully employed and paying
    for a few years, they might be a much lower credit risk.
        What we see is not many refinancing opportunities to best
    allocate price to risk; and when markets are not appropriately
    allocating price to risk, we do not see a well functioning
    market. So, borrowers may be paying higher rates than what is
    justified by their risk profile.
        Senator Brown. So, why are there not these refinancing
    opportunities?
        Mr. Chopra. It is not clear exactly, but historically the
    market developed as a consolidation market. So, essentially
    multiple loans you could consolidate into a single payment.
    This had to do with the way the Federal Family Educational Loan
    Program was structured, but partially it is due to capital
    markets conditions, but we just simply do not see many lenders
    actively competing to find borrowers who may be able to
    refinance.
        Senator Brown. Is there a lack of knowledge on the
    borrowers' part to not think about the issues of refinance, are
    we not?
        Mr. Chopra. Yes, I think that is right.
        Senator Brown. If they were--answer that. And then if they
    were more knowledgeable, are you suggesting there would not be
    the opportunities to refinance because there are not enough
    opportunities in the market?
        Mr. Chopra. Yes, sir. You are right. I think many borrowers
    simply do not know that refinancing is an option, but we do
    hear that many of them are dutifully paying on time for months
    and years and unable to manage their debt better.
        Currently, there is not a large amount of marketing on
    options to refinance. It is generally marketed to people so
    that they can reduce the number of loans they have into a
    single payment, but not necessarily to compete down the price.
    A more competitive market amongst lenders would probably serve
    to benefit the entire marketplace.
        Senator Brown. Let me shift for a moment.
        Quoting your testimony, you note that Federal agencies have
    intervened in the private student loan market in recent years.
        Citing unusual and exigent circumstances, the Federal
    Reserve Board of Governors exercised its authority to establish
    the term asset backed securities loan facilities which
    facilitate the issuance of a wide range of ABS including those
    backed by private student loans.
        Is there a role for the Federal Reserve in providing relief
    for private student loan borrowers?
        Mr. Chopra. I think all Federal regulatory agencies,
    particularly ones that monitor the capital markets, have a role
    to play to make sure that the market is liquid and well
    functioning.
        I would not necessarily characterize it as relief, but
    characterize it in terms of increasing competition so that
    pricing is more fair and more connected to risk.
        We have seen in the mortgage space that the FHFA has sought
    to create the conditions for responsible mortgage borrowers to
    refinance. And, as I said before, many responsible student loan
    borrowers see their credit profile dramatically improve over
    time, but the market may simply not be liquid enough to
    appropriately price their risk and allow them to have a lower
    payment.
        So, we look forward to providing any expertise to the
    Federal Reserve Board of Governors and others as they monitor
    conditions.
        Senator Brown. Thank you, Mr. Chopra.
        Senator Corker.
        Senator Corker. Thank you, Mr. Chairman, and thank you
    again for being here.
        You know well the relationship between the investment and
    higher education at the State level and how that has been
    diminishing in many cases, in most cases actually because of
    the tremendous burden of investing in Medicaid which, you know,
    we have made happen in a big way at the Federal level, but that
    has a direct relationship on what tuition levels are for
    students and that is one of the main drivers of why there is so
    much student debt, is it not?
        Mr. Chopra. So, it is certainly true that the constrained
    State budgets, many of which were badly battered starting in
    2008 due to declining tax revenues as well as other policy
    interventions, have led to cuts on a real basis to State higher
    education.
        Senator Corker. Yes.
        Mr. Chopra. So, we have to not just address the underlying
    costs of higher education, but also make sure that markets are
    working properly.
        Senator Corker. It is pretty fascinating. Here we are, we
    are dealing with an issue that over the last several years we
    have helped create and exacerbate and will continue to
    exacerbate over time. I just want to point that out.
        I understand that your agency, a new agency, is advocating
    that on the private side that students just have the ability to
    discharge their loan to bankruptcy, is that correct?
        Mr. Chopra. No. It is actually a little bit different than
    that. The report that the Secretary of Education and the
    Director of the Bureau presented to Congress on Friday analyzed
    about five million records of data starting from 2001 and going
    forward.
        We expected that the 2005 changes to the bankruptcy code
    would have led to lower prices and greater access; but
    immediately following the legislative change, we did not see a
    price decrease. We actually saw a price increase, and larger
    capital markets conditions we think largely explain volume and
    access to credit.
        So, the Director of the Bureau and the Secretary of
    Education asked Congress to take a second look, given that
    borrowers for private student loans may not be able to easily
    restructure their amortization schedule like in Federal loans.
        Senator Corker. So, you have asked Congress to take, one of
    the first actions of the consumer bureau is to ask Congress to
    look at allowing students of private loans, not the public
    loans, but only the private loans, to file bankruptcy as a way
    of getting out from under the terms and conditions of those
    private loans, is that correct?
        Mr. Chopra. Yes, we have asked Congress to take a second
    look. We are happy to provide technical expertise.
        Senator Corker. I understand what you are saying and I
    think we have read the report, and I just find it fascinating
    that one of the first things that you would do as a consumer
    protection agency is get us to consider letting students, again
    only on the 7 percent private loans, not the 93 percent public
    loans, to be able to file bankruptcy which is one of the most
    damaging things that a consumer can possibly do.
        I just would like for people to take note of that, and I
    think you understand that on the private side they do not have
    the flexibilities that you do on the public side, because on
    the private side, the prudential lenders will not allow them to
    do many of the things that happen on the public side.
        You are aware that, are you?
        Mr. Chopra. Yes. And, in fact, we have already been working
    closely with lenders to identify areas where certain prudential
    guidance, there can be win-win situations for both borrowers
    and lenders. Lenders have said they feel constrained by the
    guidance and we think there are opportunities for capital
    adequacy measures to be met while still allowing the
    marketplace to function.
        Senator Corker. I think you can see now why so many of us
    thought that was a really terrible idea to have the consumer
    agency separate from the prudential lenders, because they have
    this problem where basically you are giving guidance on the one
    hand that is very contrary to what the safety and sound
    regulators are saying on the other.
        And, it is this exact conflict, as a matter of fact again
    it is fascinating to me that in one of the very first things
    that would come out on a consumer agency, we see this conflict
    that on the private side the prudential regulators will not
    allow the private lenders to have the flexibility, give them
    the flexibilities to actually work through these issues. And so
    therefore, they have contrary guidance.
        And, I think it is pretty fascinating that we are having
    this hearing. I think it is fascinating that you are not
    advocating that on the public side students be able to file
    bankruptcy. I think this is, speaks to possibly some of the
    political nature of the consumer agency that so many of us were
    concerned about in the beginning.
        Mr. Chopra. On the Federal loan side, there actually is a
    Chapter 13-like option for borrowers, which avoids the damaging
    parts of going to court and hurting your credit history.
        So, a borrower who is unable to make their payments is able
    to elect the income-based repayment option which caps their
    payments as a percentage of their discretionary income. That is
    actually a great, low-cost model for borrowers that we think is
    a way to weather the unique circumstances of a student loan
    product, given labor market uncertainty.
        And, I would say that the relationship with the prudential
    regulators has been extremely productive. We have actually been
    able to find opportunities where we are identifying ways to
    promote innovation and ways that the whole financial system can
    actually prosper. I think our work on private student loans
    with the other prudential regulators is going to be seen by
    lenders as one that is a win-win for the whole marketplace.
        Senator Corker. I hope that is the case. I appreciate you
    very much being here. I look forward to hearing Sallie Mae's
    testimony in just a moment.
        Senator Brown. Senator Reed.
        Senator Reed. Thank you very much.
        The first thing I want to do is to commend you for
    connecting the dots, let me say, for not just this huge debt
    overhang but the effect it will have on buying a house for the
    first time, of being an entrepreneur and starting a business,
    of reserving money starting very early for retirement.
        This to me is one of the most daunting challenges that we
    have to face going forward. We could have a whole generation
    that just cannot get started until they are maybe in their mid-
    30s doing things that we assume could and would be done in your
    mid-20s. So, I think that is an important point.
        Second, just jurisdictionally, your responsibility is,
    given the nature of the organization, is solely with respect to
    the private sector lenders, not the public domain, is that
    clear?
        Mr. Chopra. Yes. Our authority as the ombudsman and our
    rulemaking authority relates largely to private student loans,
    on the origination side.
        Senator Reed. Right. But it is sufficient to say that a lot
    of the insights that you have drawn could be applied to the
    public sector.
        Mr. Chopra. Yes. As Senator Corker said, it is very
    important for us to look at this holistically. In a recently
    released report, the Treasury's Office of Financial Research
    briefly discussed that student debt burdens could significantly
    depress demand for mortgage credit and dampen consumption, both
    of which may be critical drivers for the recovery.
        Again, looking at it holistically, one of our first actions
    was working with the Department of Education to actually
    improve the financial aid information and student loan
    information people find.
        We are asking schools, on a voluntary basis, to present a
    simple, one-page financial aid shopping sheet which gives them
    all of their loan options, as well as what their estimated
    payment might be after graduation. And, already so many schools
    across the country have embraced this. We are happy to enter
    this for the record.
        Senator Reed. Thank you. One of the major issues, of
    course, is the escalating cost of college education; and even
    though you focus in on the private lending sector, you have
    looked at both public and private institutions.
        There is acceleration in cost in private universities too I
    presume, correct?
        Mr. Chopra. Yes. There have been cost increases and
    increased debt burdens across institutional sectors.
        Senator Reed. And they are not responsible for public
    programs like Medicaid or anything else. What is driving the
    private institutions to increase their tuition so dramatically?
        Mr. Chopra. I am the wrong person to answer questions about
    the specific economics of college costs. We are a bit more
    focused on the financing. But generally speaking, we have seen
    over a period of many, many years escalating costs of college
    across sectors in excess of inflation.
        And, particularly we have seen debt burdens be very high in
    that for-profit college sector where utilization of private
    loans was particularly high.
        Senator Reed. That goes to just a quick technical question.
    I asked this because I do not know the answer. Are there
    prepayment penalties included in the language of some of these
    private loans?
        Mr. Chopra. The Truth-in-Lending Act actually bans
    repayment penalties for private student loans that one would
    anticipate would help facilitate a rather robust refinancing
    market since borrowers would not be penalized for trading one
    note for a less expensive note, but that has not bared fruit.
        Senator Reed. Thank you. That is a very helpful
    clarification.
        And then, the other issue, I think, or among several that I
    have but let me pose this one.
        Is there a correlation between the school and the number of
    private loans? I mean, one of the things that you have
    suggested, you have now a format where everyone can sort of
    check it out. Are essentially some schools steering students to
    these private loans and is there any kind of relationship
    between the school and the private lender?
        Mr. Chopra. In 2007 at the State level, State attorneys
    general identified certain unsavory relationships between
    schools and private lenders. But the 2008 Higher Education
    Opportunity Act has largely changed that and we see a much
    better relationship between schools and lenders.
        In fact, we believe that involving schools more in the
    process, by requiring certification of private student loans,
    would actually help schools better counsel their students on
    their full range of options.
        The only marketplace that remains where there are
    arrangements between private lenders and schools, which present
    some risk that is worthy of attention, is certain lending
    arrangements between the proprietary school sector that perhaps
    are driven to help with compliance with the Higher Education
    Act's 90-10 requirement.
        Senator Reed. If I may, just a clarification again. You
    point out that there is a quasi bankruptcy remedy under public
    lending which is to go in and make it income-based repayment.
    That does not exist on the private lending side.
        And, the issue here is not, and again I am asking the
    question so correct me. The issue is not that someone cannot
    file bankruptcy. It is that they cannot discharge the loan in
    bankruptcy, is that the technical issue in private lending?
        Mr. Chopra. Correct. The private loans are treated
    differently compared to credit card debt and others.
        Senator Reed. Because of Federal statutes?
        Mr. Chopra. Correct. The 2005 changes. But, private lenders
    have increasingly told us that they are looking for ways to
    offer more repayment flexibility, and we think that is a great
    opportunity, and again, we hope to engage with lenders and
    prudential regulators to find win-win solutions for capital
    adequacy, student loan borrowers and lenders themselves.
        Senator Reed. Thank you very much.
        Thank you, Mr. Chairman.
        Senator Brown. Senator Akaka.
        Senator Akaka. Thank you very much, Mr. Chairman.
        Mr. Chopra, the testimony and report that you presented
    today suggests that these students have taken out too much debt
    through student loans because of predatory lending practices.
    You have also noted that students should consider taking out
    additional student loans in order to avoid excessive credit
    card debt.
        Can you please elaborate on the appropriate role of private
    student loans?
        Mr. Chopra. Sure. The total debt market has reached over $1
    trillion, but it is very important to note that education-
    induced indebtedness is certainly far higher.
        Many families utilize home-equity lines of credit, credit
    cards, and other products to ensure that they can pay for the
    cost of college.
        Generally speaking, a student loan is going to be a safer
    way than, let us say, a credit card, which is going to have an
    immediate re-payment requirement that might be challenging for
    a full-time student.
        So, there is certainly a role for private credit in this
    market. But we do want people to make more optimal borrowing
    decisions overall. We think some of these steps to make the
    whole market more transparent, like with this shopping sheet,
    is a good first step.
        Senator Akaka. Thank you for that.
        I understand that CFPB often hears from students who are
    struggling to repair their student loan through its Student
    Loan Complaint System.
        Private student loans were initially developed to support
    and supplement Federal student loans. Since the market
    contracted in 2008, there have been fewer lenders offering
    private student loans and those that are offering the products
    often require cosigners.
        My question to you is: How Is CFPB helping students who are
    unable to access reasonable student loans?
        Mr. Chopra. In the report that we submitted, the Director
    recommended that the role of the financial aid office in
    lending decisions be substantially enhanced; and by having
    private student loans be certified, financial aid offices can
    be provided the opportunity to give the full range of financing
    options.
        Many times financial aid officers are able to use
    professional judgment to adjust loan amounts so that borrowers
    are able to meet their tuition obligations while still
    borrowing responsibly. You are right, that there are still ways
    to make sure that the private loan market can meet the demand
    at a fair price.
        Senator Akaka. I must commend you on your remarks that CFPB
    has been working together with the Department of Education. I
    wish that more departments and agencies would be working
    together on common goals as well.
        So, thank you so much for what you are doing, Mr. Chairman.
        Senator Brown. Senator Hagan.
        Senator Hagan. Thank you, Mr. Chairman.
        And, Mr. Chopra, thank you for being here today and for
    what you do.
        On the report that CFPB recently released on the issue of
    the institutional loans made directly by the for-profit schools
    to the students, it is advertised as a way for students to fill
    the gap in their tuition after they have exhausted Federal
    loans or Pell Grant money.
        And then I think part of what I heard you say in answer to
    an earlier question had to do with the 90-10 rule also which we
    might ask you to elaborate on.
        But, many of these institutional loans offered by some of
    the largest for-profit institutions have interest rates as high
    as 18 percent.
        In addition to serving on this Committee, I serve on the
    Education Committee, and the Department of Ed and the Health
    Committee have looked at a number of the different for-profit
    schools and one in particular has an interest-rate student loan
    that is 15 percent but they also have a default rate of 80
    percent.
        Another school has an interest-rate, and these were in 2009
    and 2010 these interest-rate numbers, at 18 percent with a
    default rate of 55 percent.
        So, it looks like the for-profits are offering the student
    loans with high interest rates and yet a low expected repayment
    rate which I think speaks directly, in some cases, to the
    aggressive recruiting nature of some of these schools that they
    are really not that concerned because the default rate is so
    high as long as it means that that student is, in fact,
    enrolled and Federal dollars have been collected.
        Does the CFPB have plans to study these types of loans
    further and are there any recommendations that you can offer
    that will address the institutional loans made by the for-
    profit colleges and universities?
        Mr. Chopra. In recent years, there has been financial
    reforms that have indicated a couple principles that might be
    worthwhile here to mention.
        One is skin in the game. The Dodd-Frank Act actually
    requires that lenders retain some interest even if they were to
    sell them into securitized pools of assets.
        Another is considering ability to repay. In the mortgage
    market, lenders will be required to consider whether a mortgage
    borrower can actually repay.
        Senator Hagan. That is a good idea.
        Mr. Chopra. And in general, when an entity is able to come
    out ahead even when they expect upfront that the customer will
    likely fail, that may be a sign that competitive market forces
    are not really working and that incentives are distorted.
        I think the Bureau has significant expertise in the area of
    institutional lending and the role that 90-10 might play. So,
    we will continue to monitor that market closely and, as you
    have mentioned before, we have also looked in this sector at
    the recruitment of veterans and service members as it relates
    to compliance with 90-10.
        My colleague Holly Petraeus has been quite outspoken about
    that and we look forward to continue working with other
    agencies to monitor this market.
        Senator Hagan. Speaking of that, of the 90-10 rule, the GI
    Bill is not included in the 90 percent. So, in most of those
    cases, the Federal part, the Federal loan position assistance
    is much higher than the 90 percent.
        Mr. Chopra. What you are saying is correct. We are
    currently experiencing a rapid increase in the number of
    veterans returning from foreign conflicts who are enrolling in
    higher education.
        So, it is in the interest of all of us to ensure that they
    continue to be an economic engine as they were after World War
    II, but also that they do not unnecessarily take on high-cost
    credit when they have benefits that they have earned.
        Senator Hagan. And especially when you look at the high
    expected default rate needs to be taken into consideration.
        Mr. Chopra. Yes. We closely monitor all aspects of how the
    marketplace works to ensure that the market is fully
    functioning and that there is compliance with consumer laws.
        Senator Hagan. One of the recommendations made in the
    recent report states that Congress should require the
    institutions of higher ed to work proactively to protect and
    inform the private student loan borrowers.
        What would this look like? Would it be like Know-Before-
    You-Owe or should it be solely the responsibility of the school
    to protect and inform the borrower? Or should the lenders take
    some responsibility in ensuring that their borrowers have the
    clear, concise, and accurate information regarding their
    student loans?
        Mr. Chopra. Everyone has responsibility and borrowers
    certainly need to take responsibility for the commitments they
    take on, and they need clear information.
        But the point about financial aid offices is an important
    one. Currently, most lenders are requiring loans to be
    certified by the school; to simply verify that the student is
    actually enrolled, and that they have not already over
    borrowed. This is a very common sense underwriting principle
    that was certainly not well observed in the years prior to the
    financial crisis, where capital market conditions created the
    incentives for originators to make substantial fees without
    really needing the borrower to have the ability to repay.
        Senator Hagan. Thank you.
        Senator Brown. Thank you, Senator Hagan.
        Senator Menendez.
        Senator Menendez. Thank you, Mr. Chairman.
        Mr. Chopra, how are you?
        Mr. Chopra. Good. How are you, sir?
        Senator Menendez. Very well.
        Let me ask you. I heard your response to a question with
    reference to borrowers who feel trapped in their present
    interest rate and are not able to refinance, in essence, at a
    lower rate. And, I think your answer to the question as a
    barrier is that there was not enough competition, is that
    correct?
        Mr. Chopra. There might also be issues in the servicing
    infrastructure where borrowers may not know that they are able
    to make certain changes to their loans. I think it is market
    conditions as well as financial education and the servicing
    infrastructure.
        Senator Menendez. Does the Bureau have any ideas or
    suggestions as to either how we create greater market
    competition or greater inflows of information for individuals
    so that they can exercise their rights?
        Mr. Chopra. Sure. We have a strong role to play in
    educating borrowers about what their options are when they may
    not be able to make their payments; and we have already
    released a number of Web tools and other products so that
    students know how to manage their debt better.
        But, one thing we do hear is that even if they want to
    refinance, there simply is not that much opportunity for them.
    It is something that many mortgage borrowers think about when
    they want to refinance but the current market conditions often
    constrained them and the processes to do so can be paralytic.
        Senator Menendez. Well, as someone who has been a strong
    advocate in a different context of being able to allow mortgage
    borrowers to refinance at historically lower levels, it seems
    to me that we should find the wherewithal to be able to achieve
    this, have responsible, continue to have people be responsible
    borrowers, be able to relieve some of their debt load at the
    end of the day.
        So, we would love to, maybe, pursue that a little bit more
    with you as well as how do we stimulate creating competition so
    that, in fact, that the marketplace itself would find itself
    more robustly engage in which rates would fall.
        How about the part of your report that noted that about 40
    percent of private student loan borrowers had not exhausted
    their Federal student loan limits?
        And, in that respect, obviously before you go and borrow in
    the private sector would it not be more desirable to maximize
    that which is available to you under Federal student loan
    limits because those are at lower rates than generally in the
    private marketplace?
        Mr. Chopra. Yes, and in fact, if you count people who do
    not even apply for Federal loans, that number goes north of 50
    percent I believe.
        One of the key issues, which we put forth in the report, is
    involving the financial aid office more in the process and
    giving much clearer information.
        There has been an abundance of fine print in quite small
    font that had invaded so many of our credit card agreements,
    mortgage agreements, and all other things.
        And, there is a lot of work that we try and do to simplify
    disclosures. We find that this actually is lower cost for
    smaller financial institutions to provide, and much more clear,
    to borrowers. You should not need an attorney and a magnifying
    glass to understand your obligations at age 18.
        Senator Menendez. So, the question is: Is there a way to
    enhance, I mean you mentioned some of the Web sites, are there
    other opportunities in which we can get, you know, financial
    aid departments to be more robustly engaged in saying here is
    the ability, if you qualify. Before you consider taking a
    private sector loan that will be more costly, you should
    consider the Federal loan limits.
        Mr. Chopra. Yes. In fact, most lenders will strongly agree
    that Federal loans should be looked at first and many of them
    communicate that to their borrowers.
        So, giving financial aid officers the opportunity to
    actually counsel the student before the consummation of a
    private student loan would help. We have heard broad support
    from lenders, schools, and consumer groups for this.
        Senator Menendez. Finally, I listened to my distinguished
    friend and colleague, Senator Corker, express his concerns
    about the interface between the Bureau and prudential
    regulators. And, I just wonder. In the process of doing this
    work, did you find that prudential regulators were doing the
    type of consumer information and advocacy that the Bureau has
    been doing in this particular regard?
        Mr. Chopra. We have a very explicit mission on financial
    education and also to assist borrowers with the completion of
    financial aid applications. Their primary role is, of course,
    to ensure the capital adequacy of the financial system and they
    do work with us on financial education work; but we have placed
    a major emphasis on that because we believe it can ensure a
    more robust marketplace across all consumer financial products.
        Senator Menendez. Thank you very much.
        Thank you, Mr. Chairman.
        Senator Brown. Thank you, Senator Menendez.
        Senator Corker, has one more question and then we will move
    to the second panel.
        Thank you, Mr. Chopra.
        Senator Corker. First of all, you are obviously a very
    intelligent person. It sounds like you have done a lot of good
    work and I want to thank you for that.
        I, you know, meet with students who are 27-, 28-years-old
    or people who used to be students and have huge amounts of
    debt, and you look at the amount of money they are making and
    you just wonder when they ever are going to have a real life
    because they are working two and three jobs to pay these loans
    off.
        My frustration really is the hypocrisy around all of this.
    On the one hand, we hear, you know, especially during an
    election cycle, talk about student lending and student loans
    and I assure you my heart goes out to students who have huge
    amounts of loans that may never be repaid or may take 20 years.
    And yet, we advocate policies here that drive up tuition rates.
        On the private lender side, as Senator Menendez was just
    referring to, they are seeking flexibility but the prudential
    regulators are hesitant to give them the flexibilities that you
    have on the public side.
        So, you know, there is the hypocrisy that goes with this
    whole testimony today, not you, but the difference between the
    consumer agencies and the prudential. And then, we pass a law
    that says that student rates are going to be at 3.4 percent,
    just pull it out of the air.
        So, those loans are to all comers regardless of any kind of
    credit status, all comers, no collateral, no payments made for
    4 years.
        Is there anyway you, as an intelligent person, could
    possibly imagine that the Federal Government is going to come
    out on loans like that and are we not again demonstrating
    tremendous hypocrisy in that what we are really doing is piling
    up debt down the road that these same students are going to
    have to pay off?
        Is there any way that when an agency is taking all comers,
    there is no collateral being put out, no underwriting taking
    place, and no payments being made the entire time they are in
    college, is there any way the Federal Government could possibly
    come out to the good on 3.4 percent loans?
        Mr. Chopra. The rates set by Congress are a bit outside our
    jurisdiction, but I will say that the global competitive market
    is very, very fierce.
        And, across all indicators, having a highly skilled
    workforce, has very real economic growth potential and
    investing in a way that is strategic such that people who may
    not have means can access education, there is significant
    upside to that.
        Now, it is hard to underwrite that type of loan. In many
    cases, you cannot anticipate whether someone is going to be
    able to repay 5 years in advance. What if they entered in 2005,
    then the entire global capital markets collapse?
        It is a difficult problem, but ensuring that the workforce
    is built with skills is something that needs to be a priority
    as well. We have to balance all of these and it is a careful
    one and we look forward to working with the Senate.
        Senator Corker. I think your answer is ``no'' financially
    but there are other benefits.
        Mr. Chopra. No. It is an ``I do not know.''
        Senator Corker. Yeah. Thank you.
        Senator Brown. Thank you, Mr. Chopra, very much.
        I will call the second panel forward.
        I think Senator Corker, there is plenty of hypocrisy to go
    around when I see what State governments have done when we were
    in college and schools like Ohio State were considered State
    universities and now we consider them State-supported or even
    State assisted.
        We can blame it on Medicaid or we can talk about tax
    structure and a whole bunch of other issues. But that can come
    later.
        I will introduce the three members of the panel as they are
    beginning to be seated.
        Deanne Loonin is Staff Attorney with the National Consumer
    Law Center and the Director of NCLC, Student Loan Borrowers
    Assistance Project where she provides direct representation to
    low-income student loan borrowers.
        In her role, Ms. Loonin also assists attorneys representing
    low-income consumers and teaches consumer law to legal
    services, private consumer attorneys, and other advocates.
        Ms. Loonin received her B.A. from Harvard, Radcliffe
    College, and her J.D. from the University of California at
    Berkeley.
        Jennifer Mishory is a founding member and Deputy Director
    of Young Invincibles, a nonprofit, nonpartisan organization
    that represents the interest of 18- to 34-year-olds.
        As Deputy Director, Ms. Mishory directs policy research,
    communication, and outreach staff for the organization. She
    served as a consumer advocacy representative to the Department
    of Education's 2012 negotiated rulemaking on student loans.
        Ms. Mishory holds a B.A. from UCLA and a J.D. from
    Georgetown.
        Jack Remondi is President and Chief Operating Officer of
    Sallie Mae. In this role, he is responsible for the company's
    loan servicing information technology, credit and underwriting,
    and marketing and communications divisions.
        Prior to his current position, Mr. Remondi served as Vice
    Chair and Chief Financial Officer where he helped Sallie Mae
    navigate the financial challenges posed by the economic crisis.
        He received his Bachelor of Arts degree in economics from
    Connecticut College.
        Ms. Loonin, if you will begin.
        Thank you to all three of you for joining us and for your
    public service.

     STATEMENT OF DEANNE LOONIN, ATTORNEY AND DIRECTOR OF STUDENT
     LOAN BORROWER ASSISTANCE PROJECT, NATIONAL CONSUMER LAW CENTER

        Ms. Loonin. Thank you, Senator, and thanks to all of you
    for inviting me to testify today.
        Again, my name is Deanne Loonin and I am here on behalf of
    the low-income clients that we represent and work with.
        It is important just from the outset that when we talk
    about the students who we work with, they are not just young
    people going to traditional colleges. It is a very important
    population but actually the face of higher education is much
    more diverse these days.
        And, we have clients who are what are really called sort of
    nontraditional students, meaning that they are older when they
    go back to school. In many cases, they have their own
    dependents. They are actually independent themselves and do not
    have parents or families to fall back on.
        So, we actually have clients who are still suffering under
    the burden of student loan debt throughout their lives having
    taken out the loans later in life or in some cases parents
    having cosigned for their children.
        Most of our clients have Federal student loans. But what we
    saw happen up to the credit crisis was that we were seeing a
    lot more of our low-income borrowers with private student
    loans.
        And, the market really that was sort of taking place prior
    to the credit crash essentially was the kind of subprime
    predatory market that, unfortunately, we saw in other credit
    markets as well.
        We wrote a report in 2008 where we went through some of the
    parallels to the mortgage market and I will not repeat all of
    those here but the main point was that a lot of the loans that
    were made at that time were, unfortunately, really destined to
    fail and they did fail.
        There were very high right-off rates and a lot of people
    who took out loans, they were never going to be able to pay
    back. I saw loans at that time for my clients with interest
    rates of upwards of 20 percent, 25 percent, and these were
    variable rate loans with very high origination fees as well.
        Some of the same sort of rationales for making those loans
    in the mortgage market we heard in the student loan market too
    that these would have benefits for low-income borrowers; and
    actually instead what we have was it was taking opportunity
    away from a lot of those borrowers, more sort of a reverse
    redlining situation in a push market.
        Fortunately, the market has changed. We do not see those
    third-party subprime loans for most of our clients anymore.
    There has been a correction because of the failure, really, of
    the market and that is why it is such an important time right
    now for policymakers.
        There are sort of two broad themes that I want to emphasize
    and there is more detail in my testimony about why this is such
    a critical time.
        The first theme is that the opportunity is now to shape the
    market that is going to reemerge. There are more responsible
    lending practices going on now and we are all very heartened to
    see that, but we want to make sure that the same things that
    happened before do not happen again even if that means that it
    is a smaller private student loan market; that is better for a
    lot of our clients if it means that they are not going to be
    stuck with these predatory loans, with these unaffordable
    loans.
        The second theme that we spend a lot of detail on in our
    testimony is that we need to figure out ways to provide relief
    for those who were harmed by the predatory practices of the
    past.
        The lenders, as we have seen and we will hear I am sure
    more from Sallie Mae today, have moved on for the most part but
    the borrowers have not been able to. Their futures are
    shattered in a lot of cases, these are my clients with both
    Federal and private loans but the difference that we find on
    the private loans side is that there is so little flexibility
    on the part of the lenders.
        We talk with the private lenders all the time. We try to
    negotiate modifications, income-based repayment, things like
    that; and generally, the relief that is available is very
    short-term relief.
        Unfortunately, it is short-term relief but these are long-
    term structural problems. We understand that there are some
    barriers.
        Senator Corker mentioned, for example, that there are
    problems with the prudential regulators. That is what we hear.
    We do not know if that is really the problem that is preventing
    the lenders from offering broader relief; and if it is, then we
    want to hear more detail and find out ways to be flexible about
    those.
        In some ways, just like what is happening in the mortgage
    market and also heeding some of the lessons that we have
    learned from the modification programs in the mortgage market
    that these have to be flexible, affordable modifications and
    also some principal reduction because that is going to make it
    less likely that the borrowers will redefault.
        We also like to look at the possibility of cancellations in
    extreme situations like death and disability. Some lenders
    offer this at their discretion but the idea is to have a more
    standardized, transparent policy so borrowers can know what to
    expect in these extreme situations.
        Again, I have more detail in my testimony including policy
    prescriptions, and I am happy to take questions at the end
    about those.
        Senator Brown. Thank you very much, Ms. Loonin.
        Ms. Mishory, thank you for joining us.

         STATEMENT OF JENNIFER MISHORY, DEPUTY DIRECTOR, YOUNG
                              INVINCIBLES

        Ms. Mishory. Thank you. Chairman Brown, Ranking Member
    Corker, and other Members of the Subcommittee, thank you for
    having me here. My name is Jennifer Mishory and I am the Deputy
    Director of Young Invincibles.
        Young Invincibles is a nonprofit, nonpartisan organization
    that seeks to represent the interests of 18- to 34-year-olds,
    making sure that our perspective is heard whenever decisions
    about our collective future are being made.
        This spring we released a report detailing the experiences
    of high-debt borrowers with private student loans. The report
    analyzed the subset of an online self-selected survey of about
    13,000 borrowers.
        Additionally, Young Invincibles just completed a 20-State,
    40-city national bus tour, talking to young people from all
    walks of life. Our interactions with young people make it
    clear. Borrowers are struggling, students are confused; and as
    the private loan market reemerges, future students need more
    guidance and more protection.
        As has been detailed already, the private loan market has
    shifted significantly in the past 10 years. Looser, more
    predatory lending led to a significant increase in the pre-
    recession private market.
        After the credit market dried up, lending standards
    tightened and the market merged and consolidated. Recently,
    there have been signs that the private student loan market may
    again be on the rise.
        For example, Sallie Mae is expecting growth in new loans
    for the second consecutive year. Private lenders have also
    begun offering new fixed-rate loan options. As the student loan
    market expands and evolves again, stakeholders must assist
    struggling borrowers and set up the next generation of college
    goers for a better financial future.
        Borrowers have encountered an array of difficulties amidst
    this marketplace. While students do have a responsibility to do
    their homework, the sheer complexity of student loan terms and
    the fact that many young students are making their first major
    financial decision necessitates that key institutions involved
    take aggressive steps to ensure that students are informed.
        Unfortunately, this does not happen enough right now. For
    example, about two-thirds of private loan borrowers in our
    survey said that they did not understand the major differences
    between private and Federal loan options.
        This is problematic, given that Federal loans often have
    better rates, better repayment terms based on income, temporary
    relief when a borrower faces unemployment, and more
    standardized payment fee requirements.
        Current law requires disclosures regarding Federal options
    and about some private terms, but these are often too little
    and too late. At the same time, 80 percent of borrowers in the
    survey turned to their schools as trusted sources of
    information on these loans. Yet, those offices do not always
    have the right answers and they are not involved enough.
        Bus tour roundtable participants at the high school level
    also voiced similar problems. Career and college counseling in
    high schools are understaffed and often undertrained on these
    issues.
        We also hear frequently about significant problems after
    loans go into payment as borrowers attempt to navigate life
    crisis, customer service, repayment, and the loan terms.
        For example, Cassandra in Cleveland, Ohio, has about
    $90,000 in private loans. When she was struggling, she said
    that Sallie Mae did not process your request to make interest-
    only payments and she was denied a deferment when her husband
    lost his job.
        Repayment terms are nearly impossible for inexperienced
    borrowers to anticipate on the front-end or to fight while in
    repayment.
        When another borrower, Bridget, went into the Peace Corps
    after graduation, she said that she was able to defer her
    Federal loans but not $46,000 in private loans.
        Her mother agreed to help make payments while she was gone.
    A few months before Bridget's return in 2009, her grandfather
    passed away. The turn of events that ensued led to one missed
    payment and then one more.
        After that second missed payment, she was told that the
    loan was charged off and the full amount came due. She said
    that she was told that the only way to move it back into
    regular repayment would be to pay 60 percent of the balance up
    front. That is over $27,000.
        Currently, she says she pays $300 in monthly payments and
    that nothing has been put in writing. She does not get a bill.
    She is unable to check her balance online and she continues to
    receive bullying calls from that bank.
        After 3 years of these monthly payments, she told us that
    all five separate loans still show up as delinquent every
    single month. So, her credit score has predictably plummeted.
        She tells us that she has no hope of coming up with the
    lump sum required to rebuild her financial future as none of
    her monthly payments can count toward that lump sum.
        In the wake of the Great Recession and as millions of
    borrowers struggle to deal with unemployment, delinquencies,
    defaults, and high debt, and millions more attempt to navigate
    the post recession private loan market, we must act.
        We must rethink the way we treat private loans in
    bankruptcy. The Department of Education should use its email
    system and online outreach to inform struggling borrowers about
    the new options in student loan complaints and send them up to
    the CFPB, which is a resource that we have sent many borrowers
    to already.
        We also must take aggressive action to protect future
    borrowers as they make their choices. Lenders should be
    required to obtain school certification of financial need
    before dispersing private student loans.
        Marketing materials should include clear explanations of
    repayment terms and be available earlier. We need to ease the
    application process of proving independence from parents so
    that borrowers receiving no help from their family can access a
    fuller set of Federal loans. And stakeholders must ensure that
    borrowers fully understand the difference between private and
    Federal loans--particularly with the new options on the table.
        For example, if a future teacher getting a master's degree
    is receiving a competitive interest rate on a fixed-rate
    private loan, he or she will often be better served taking out
    a Federal loan due to other terms such as flexible repayment or
    the ability to defer during times of unemployment.
        As the private loan market evolves and potentially
    reemerges, we must ensure that new borrowers are fully informed
    and have access to fair-lending terms and current borrowers
    find some relief and help.
        Thank you very much.
        Senator Brown. Thank you very much Ms. Mishory.
        Mr. Remondi, thank you for being with us.

       STATEMENT OF JACK REMONDI, PRESIDENT AND CHIEF OPERATING
                          OFFICER, SALLIE MAE

        Mr. Remondi. Good afternoon, Chairman Brown, Senator
    Corker, Members of the Subcommittee.
        My name is Jack Remondi. I am President and Chief Operating
    Officer of Sallie Mae and I thank you for the opportunity to
    testify today on the private education loan business.
        Private education loans help families fill the gap between
    their own resources, financial aid, grants, and the total cost
    of the college or university of their choice.
        They are not for everyone. They were never intended to
    replace Federal aid, and in fact, they were originally called
    supplemental loans indicating their stated purpose.
        In most cases, higher education is a family commitment
    which our private education loans are designed to support. Last
    year over 90 percent of our private education loans had a
    cosigner, typically the parent.
        Our loans provide important features and protections that
    benefit the family, including extensive disclosure, interest
    rate and repayment options, embedded tuition insurance and
    death and disability loan forgiveness.
        But, the best protections inherent in any loan, including
    private education or Federal student loans is quality
    underwriting and thoughtful planning before one borrows.
        Our free Education Investment Planner helps families know
    before they go by assisting them with the following important
    steps for turning access into success: pick the right school,
    and most important, consider lower-cost options; create a
    financial plan that covers the entire cost of completing a
    college degree, not just one semester; make loan payments to
    keep borrowing costs down; and graduate. Student loans without
    a degree mean loan payments without the higher earnings to
    support them.
        During the application process, we disclose monthly and
    total payment information and present customers with a side-by-
    side choice of interest rate and payment options available to
    them.
        Customers receive multiple disclosures that quantify
    expected monthly payments and finance charges; highlight the
    availability of Federal loan programs; encourage the applicant
    to shop for lower-cost options; and outline the right to cancel
    the loan.
        After disbursement, our customers receive monthly
    statements that detail their loan balance and accruing
    interest. Customers who elect to defer payments while in school
    are reminded of the positive impact that in-school payments
    would have on the total loan costs.
        The most recent findings of our How America Pays for
    College study shows how effective these disclosures and
    reminders are. Of private education loans borrowers, 98 percent
    filled out a FAFSA, the first step for taking out a Federal
    student loan.
        Among all education loan borrowers surveyed, just 3 percent
    borrowed only private loans. Two-thirds of our customers are
    making payments while the student is in school--allowing them
    to save thousands of dollars in interest charges over the life
    of the loan.
        Sallie Mae has pioneered new products and procedures
    designed to help families make informed decisions. For example,
    we advocate school certification as an important safeguard. We
    will not disperse a loan until the school certifies it.
        Until recently, nearly all borrowers deferred loan payments
    while in school. In 2009, Sallie Mae became the first lender to
    encourage school payments because they save the borrower
    thousands of dollars in interest charges over the life of the
    loan. Our in-school customers who opt for either interest
    payments or a fixed payment of $25 a month can save an
    estimated 30 to 50 percent in total interest costs.
        The results are encouraging even in these tough times. The
    stories we heard today are certainly important to hear, but
    they are not the norm. Ninety percent of our loans in repayment
    are current, and the charge-off rates have dropped from a high
    of 6 percent to under 3 percent this year.
        Still, we recognize that the recession has posed real and
    significant challenges for many Americans including some of our
    customers--and because our success depends on our customers'
    success--we actively assist borrowers experiencing difficulty
    by understanding their individual circumstances.
        To customers who need help, we offer a mix of repayment
    products and counseling and collection programs that give them
    the best opportunity to manage their debt obligations. These
    options include reduced monthly payments, interest only
    payments, extended repayment terms, temporary interest rate
    reductions, and if appropriate, forbearance--all scaled to the
    customer's individual circumstances and ability.
        Since 2009, we have modified $1.1 billion in private
    education loans to help our customers. Nonetheless, loan
    modifications and other efforts are sometimes insufficient. For
    this reason, Sallie Mae supports bankruptcy reform that would
    require a period of good-faith payments, is prospective so as
    to not rewrite existing contracts with customers, and that
    applies to Federal and non-Federal education loans alike.
        We would also be interested in increasing the options
    available to defaulted borrowers, specifically the Federal
    rehabilitation program allows defaulted borrowers to cure their
    default and rebuild their credit. If a customer makes the
    required payments, his loan is rehabilitated and the default is
    removed from their credit history. For all other consumer
    loans, however, the Fair Credit Reporting Act does not allow
    for a second chance; and so, there is no provision to
    rehabilitate private student loans. For some time, we have been
    discussing the promise of providing this option to private
    education loan borrowers. We would certainly recommend that
    Congress consider it.
        In sum, market forces and legislative changes, some of
    which were developed here in this Committee, have combined to
    make private education lending better understood by students
    and families, better underwritten, and more targeted to provide
    the needed financing that can help American families achieve
    their education dreams and create the opportunity for a
    brighter future.
        Thank you. I would be pleased to answer any questions.
        Senator Brown. I want to interrupt this meeting just for a
    moment. On the Senate floor and the House floor and by the gate
    of the Capitol Senator McConnell and Senator Reid are marking
    the 14th anniversary of the murder of the two Capitol police
    officers.
        On July 24 at 3:40, Officer Jacob Chestnut and Detective
    John Gibson were shot in the line of duty, and if I could ask a
    moment of silence from the room.
        [Pause.]
        Senator Brown. Thank you all.
        Thanks to all three of you for your testimony. I want to
    start with Ms. Loonin. You made a rather telling statement.
    Predators have moved on, borrowers can not.
        Mr. Chopra's beginning comments on the first panel spoke
    about the difficulty of refinancing. It is partly the students,
    potential student, the borrowers know enough about those
    refinancing opportunities and it is also the paucity of
    refinancing opportunities, if you will.
        Do you see what types of relief or refinancing
    opportunities are currently available to private student loan
    borrowers?
        And I would like Ms. Loonin's answer but also the other two
    of you if you would briefly comment on sort of your insight
    there and at the same time as you answer this, elaborate on any
    sort of barriers or Federal rules that may impede the lender's
    ability to provide those relief options to those borrowers.
        Ms. Loonin. Thank you, Senator. Right now what we have been
    able to see mostly working with our clients is that there are
    very few private loan refinancing options even available.
        A lot of our clients have lower credit scores and so it may
    be because of that but we also hear from borrowers through our
    Web site and others who are looking, who are prime borrowers
    really and are having the same problems. So, I would say there
    are very few products and opportunities out there.
        As far as barriers, just one point that I wanted to make
    especially since the issue of the regulators has come up
    numerous times. I think it is very telling, as Mr. Remondi
    mentioned, the number of options that Sallie Mae, for example,
    is offering.
        So, clearly it is possible to offer some of these options
    and I would like to hear more if they are hearing from
    regulators that they can offer some things just not too much.
        But one of the problems that we find is that there is this
    haphazard nature to the options, that some of the lenders will,
    for example, offer or say that they have programs where they
    will offer cancellations for death or disability, and sometimes
    we will call on behalf of our clients and they will say that
    they have them and sometimes we will call the same lender and
    they will say that they do not.
        So, in terms of barriers it is a little bit harder for us
    to know exactly what those problems are because we all want to
    work together to figure those out.
        Senator Brown. Ms. Mishory, your comments.
        Ms. Mishory. I would say similarly the borrowers that have
    come to us have increasingly expressed frustration at the
    inability to work with their lender to find better terms and
    have not found other options in the marketplace.
        Mr. Chopra earlier mentioned educating borrowers as well;
    if there are options, then we also need to make sure that
    students and borrowers know about those.
        And so, that is another issue as well.
        Senator Brown. Mr. Remondi.
        Mr. Remondi. I think, as Rohit Chopra described in his
    comments, there are a couple of factors here. One is that these
    are principally, in Sallie Mae's case, family education loans;
    and the price that we charge or set for the interest rate to
    the borrowers is based on the highest credit score of both the
    parents and the student. So, to some extent, they are already
    gaining the benefit of the parental cosigning on that account
    based on the interest rate at the time.
        Second is that the loans are variable. Most refinancing
    options that we hear about are talking about fixed-rate loans
    made in a higher interest rate environment being refinanced
    into a lower interest rate environment.
        Very rarely do we see interest rates or loan products being
    refinanced because the credit profile of the obligor has
    changed in such a dramatic way as to change the overall
    interest rate structure.
        And, I think because of those two reasons you see a very
    limited marketplace for private education loan consolidation or
    refinancing activities.
        Senator Brown. What can we do about it?
        Mr. Remondi. Well, as I said, I think in most cases those
    loans would be offered at the same terms and conditions that
    they are offered at today because they are based on the parents
    credit worthiness and based on a variable interest rate.
        So, as interest rates have come down since 2008, all of the
    interest rates on our student loans have been coming down with
    that fall in the short-term interest rate market.
        Senator Brown. What steps do you take in your individual
    responsibilities or should we take in Congress to ensure
    students are aware of the differences between these loans and
    Federal loans, not just the initial interest rate but other
    kinds of terms of repayment and other problems that might arise
    during the repayment process?
        Ms. Loonin, why do you not start again?
        Ms. Loonin. So, there are some changes in the Truth-in-
    Lending Act, as you know, so that the disclosures are more
    expansive than they have been in the past; and there were some
    very positive changes there.
        But, I think, we hope that Congress will take a look at the
    timing of some of the disclosures also as well so that
    borrowers get the terms of their actual loans earlier in the
    process not just a sample of what they may be getting because,
    as we know, the private loan products really vary quite a lot.
        The certification process that a number of people have
    alluded to here and Mr. Chopra talked about in his testimony as
    well, we think is another opportunity to make that a mandatory
    program. Some schools use that opportunity to counsel borrowers
    as well, and we think that that is an opportunity right then to
    give a lot of information before the student has actually
    signed on the dotted line.
        Senator Brown. Ms. Mishory, your thoughts about that.
        Ms. Mishory. I would also add in addition to the options
    that Ms. Loonin referenced, you know, on the bus tour we talked
    to a lot of high school juniors and seniors trying to figure
    out their next steps, and they were confused, and they did not
    have clear options on where to go.
        High school counselors often are not prepared to talk about
    differences in loans and how students can finance their college
    education. So, I think a lot needs to be done in college
    counseling offices. We need to be teaching financial literacy
    skills even earlier so that families can really prepare their
    education.
        Senator Brown. Mr. Remondi.
        Mr. Remondi. Well, I think, as we heard in the CFPB report,
    there is more disclosure today on private education loans than
    there is on any other consumer lending product out there,
    period.
        And, we do provide all of this information to the borrowers
    as they are going through the application process. So, they get
    an indicative rate and, once their credit is approved, they get
    their actual rate and they see their monthly payment. They have
    a 30-day term to accept the offer without any changes that we
    would make and then they also have 30 days after the loan has
    been funded to cancel the loan. Each time in that process they
    are encouraged to consider lower-cost Federal loans and to shop
    for lower-cost options.
        So, I think, on the one hand, we are providing an awful lot
    of good disclosure today. I think to the other participants
    comments here, one of the pieces that could improve
    dramatically is helping students and families know where they
    go. Figure out what they can afford to spend on a college
    education, pick the right school (that matches the financial
    abilities of the family along with the prospective earnings
    they can gain from that career) and think about the full cost
    of education.
        The number one reason students default on student loans,
    and this is true whether it is Federal loans or private
    education loans, is the kid does not graduate from school. They
    have the debt burden but they do not have the economic benefit
    of the education.
        If we can help families plan better through that process
    and be more prepared before they go, we would have a better
    educated consumer and I think better results in both the
    Federal program as well.
        Senator Brown. Do you agree with Mr. Chopra's statement
    that you should not need an attorney and a magnifying glass?
        Mr. Remondi. He made that statement on all loans, not just
    student loans; but in our disclosure statements, you are
    required to have a certain print font, size font on every
    disclosure statement, and we certainly meet or exceed all of
    those standards.
        He was referring, I think, to the credit card statement
    book that we get each, you know, when you get your new credit
    card that everyone throws away.
        Senator Brown. Are you referring to the 25-year-old eye or
    55-year-old eyes?
        [Laughter.]
        Mr. Remondi. I have my glasses on.
        Senator Brown. OK. Senator Corker.
        Thank you.
        Senator Corker. Thank you all for your testimony. I do
    appreciate that we have, you know, three folks of differing
    backgrounds that are trying to solve the problem, and again, I
    know all of us are concerned when we see people that are unable
    to make payments or paying for life for their education.
        Let me ask, Ms. Mishory, what are some of the predatory
    lending instances, if you will, that you are seeing out in the
    market place right now?
        Ms. Mishory. Sure. I mean, as I think was discussed,
    fortunately a lot of those instances have improved over the
    last couple of years. We certainly saw from 2005 to 2007 a lot
    of direct to consumer marketing and a lot of students taking on
    burdens that they did not need to.
        So, I think that we have seen a lot of improvements. I
    would say that we still see marketing materials that are
    unclear to students. We need to make sure that marketing
    materials show terms and they show those terms in a way that
    students who do not have the ability or experience with these
    products actually understand them.
        Senator Corker. So, it is more an issue of just people
    understanding what they are getting into and maybe it being
    explained in clear language. It is not necessarily that people
    are out there purposefully trying to take advantage of
    students.
        Ms. Mishory. I would say that again, as a lot of the
    panelists discussed, the market certainly has improved over the
    last couple of years, but that leaves us with the problem of
    folks who already have all of this debt that they took on.
        Senator Corker. Right.
        Ms. Mishory. And then also ensuring that going forward, as
    the market changes, we make sure that students know what they
    are getting.
        Senator Corker. Mr. Remondi, of all the loans that you all
    make, I am sure there has to be data that shows that people who
    go to certain colleges are more likely to pay back their loans
    than others.
        Are you all able to look out across our country and see
    certain outliers where people go to a particular institution
    and they have more difficulty paying back their loans than
    others?
        Mr. Remondi. Sure. We have over seven million borrowing
    customers. So we have a wealth of data that really goes across
    both Federal student loan programs and the private educational
    loan marketplace and there absolutely are differences in
    repayments, success rates, and therefore, the flip side of
    that, default rates.
        Senator Corker. Right.
        Mr. Remondi. Depending on where.
        Senator Corker. And, when people are making loans to
    students who attend these institutions, are they taking those
    kind of things into account?
        Mr. Remondi. I think what happened over the last couple of
    years is that people were not aware of some of the changes that
    were coming, firstly the economic environment. More recently, I
    think lenders are trying to take into consideration the overall
    success rate of students at a particular institution.
        We do not make private education loans to students at every
    school in the country. We have an approved school list that we
    use to determine whether or not the borrower is eligible to
    participate in our programs.
        Senator Corker. On the Federal side, we are making loans to
    students at every institution regardless, is that correct?
        Mr. Remondi. The Federal program also has a cutoff and it
    is based on the school's cohort default rate or CDR, but that
    is a very high default rate standard. I believe it is 25
    percent for a couple of years and it is only measuring the
    incidence of default in the first 2 years after repayment has
    begun.
        Senator Corker. But obviously the private lenders have to
    take things like that into account because unlike us, we just
    cannot make up the numbers and go ahead and kick the can down
    the road to future generations, is that correct?
        Mr. Remondi. No one else is writing us a check when the
    borrower defaults.
        Senator Corker. So, let me ask you this question. Is there
    any way, is it possibly fathomable that an institution like the
    Federal Government can make loans at 3.4 percent to all comers,
    no collateral, no credit checks, no payments made for years,
    and come out in a way that is net positive on the basis of the
    loan?
        Is that even within the realm of--and to any institution
    whether they actually have a lot of default rates or not or
    students attending those institutions, is that fathomable?
        Mr. Remondi. No.
        Senator Corker. It is not?
        Mr. Remondi. No.
        Senator Corker. So, I just want to say, and I know I have
    demonstrated a little bit of an attitude here, that the
    tremendous hypocrisy, the attitude is at us, it is at us, and
    that is that, you know, obviously, Ms. Loonin, great testimony
    and I appreciate your work in this regard and you were talking
    a little bit about how the private sector side has certain
    constraints, sometimes the prudential regulators place them on.
        Maybe some of them are not as tight as some of them
    advocate as you mentioned earlier. But, on the private side,
    they actually have to survive to the next year. I mean they
    actually have to make it in a solvency way.
        On the public side, and in an election year, we can just
    make things up and you can decide that we want to try to get
    votes from students and young people by doing things that we
    know make us even more insolvent as a country but we can just
    do that.
        And so, can you understand why there might be differences
    between what the private sector is doing that has to actually
    exist into the future and the public side which we can just
    print money and borrow money from other people and do things
    that make us more insolvent during the time of elections?
        Can you understand why you would have sort of different
    types of lending arrangements taking place?
        Ms. Loonin. I can understand but I should say that the
    loans that I saw during the heyday of the predatory lending
    were the worst products I have ever seen and I do not think
    there was any caution put into those when the private lenders
    were making those.
        They were lending to schools that they are talking about
    now with the bad outcomes. They were lending to students of
    those schools back then at rates that I have never seen before
    also, and those were some of the loans that failed at the
    highest rates.
        So, we are talking about it now because the market has
    changed because of the crash. So, you are right about that but
    that is actually still a problem, frankly, in the private
    sector.
        Senator Corker. And by the way, for any entity that is out
    there doing things like you just mentioned, we ought to do
    everything we can to put them out of business. I could not
    agree more.
        I am really just talking about really us, not you guys. I
    thank you for what you do. I just continue to be appalled at
    our ability to be a responsible.
        And, candidly, as I listen to Mr. Remondi, it sounds like
    that they are trying to be responsible. I do not know if you
    all would take any issue with some of the things that he just
    discussed regarding Sallie Mae's policies.
        Would you do that?
        Ms. Loonin. I mean, I can say that I agree that they are
    trying to be responsible now and that I do have very good
    working relationships with their customer advocate office at
    Sallie Mae. I think very respectful relationships.
        But, unfortunately, for a lot of our clients, they are
    still not able to offer anything but I do think that a lot of
    the products that they have created going forward do show much
    more responsible lending practices.
        Senator Corker. I thank you for your help as advocates in
    making that happen.
        Just in closing, Mr. Remondi, on the institutions, I know
    there was an effort by the Administration to make it so and it
    might have been a good policy so that, you know, if a private
    entity had students that were attending and they were borrowing
    money that there had to be certain outcomes there or they could
    no longer participate in certain governmental programs.
        It sounds like there may be a number of public institutions
    around the country that we may need to look at him that same
    way.
        Would you agree or disagree?
        Mr. Remondi. Yes. I mean, there are good schools and there
    are bad schools that are for-profit and not-for-profit in
    educational outcomes for their students.
        Senator Corker. And I guess, as far as consumers go,
    equally bad outcomes for students if they borrow money in a
    responsible way from a responsible entity whether it is public
    or private and end up attending one of these schools that
    really is not equipping them to perform in the 21st century,
    there is a consumer issue they are also, is that correct?
        Mr. Remondi. Yes.
        Senator Corker. Do you know of a way that we might be a
    with that?
        Mr. Remondi. Well, I think having information available to
    students, information about the school's graduation rates,
    information about the default rates of students who attend
    those schools is a good step in that direction.
        I would go back, though, to my earlier comment that says a
    lot of this is trying to address how to make a decision about
    the current semester. I have the tuition bill on the kitchen
    table, what do I do?
        And I think more students and families need to think about
    the total cost. How am I going to get from first year of
    college through to graduation so that I actually get the
    economic benefit from the money we are investing?
        Senator Corker. And for the people that you are dealing
    with, it is very important to you, as a lender, that they sit
    down at that kitchen table and try to think through the entire
    process through graduation because otherwise it is going to end
    up creating a loss for your institution, is that correct?
        Mr. Remondi. That is correct and that is why we offer our
    Education Investment Planner as a free Web site tool to
    customers and noncustomers alike.
        Senator Corker. Are we doing that with the Federal loan
    program, to your knowledge?
        Mr. Remondi. No, we are not.
        Senator Corker. So, we have a lot of students that are
    borrowing money from the Federal level and do not have this
    type of input at the Federal level, that do not have this kind
    of input on the front end and we, in essence, again us here,
    not you guys and not certainly any of the witnesses that are
    trying to overcome some of the predatory issues, we have a
    policy that may be, in fact, harming people throughout their
    lifetime, is that correct?
        Mr. Remondi. We are certainly not making the information
    available to those customers and all of the disclosure examples
    that were provided today certainly do not exist in the Federal
    student loan program.
        Senator Corker. Do you know why that would not be the case?
        Mr. Remondi. It is exempt from the Truth-in-Lending law.
        Senator Corker. Yeah. I think you can understand my
    frustration with the hypocrisy in this institution.
        Thank you.
        Senator Brown. I guess I share Senator Corker's views about
    hypocrisy but I look at many of these for-profit schools that
    the administration is trying to write some rules for and
    getting resistance from so many on that when we should know
    more about the student that you suggest, Mr. Remondi, that is
    coming for a student loan should know more about, as they look
    at the whole picture of education, what are the graduation
    rates of this school, a for-profit or not-for-profit, a 2-year
    or 4-year, public or private should let them know what
    placement rates, what kinds of placement counselors and job
    placement offices they have at these for-profit or not-for-
    profit schools and what the rate of getting a job are, what the
    rates of job placement are.
        So, I think all of that should be in this picture so there
    is plenty to go around. Senator Akaka.
        Senator Akaka. Thank you very much, Mr. Chairman. I want to
    tell the panel that I really appreciate your presence and the
    sharing of your experiences in the student loan programs.
        We have heard from you today you information that included
    that expanding the role of colleges and universities in working
    with private lenders. However, since 2008, average tuition at
    private not-for-profit schools has gone up almost 10 percent
    and tuition at public 4-year schools has gone up 15 percent.
        These increases are surely leading students to look for and
    take out additional loans. Schools both determine tuition and
    help students find ways to pay their tuition.
        I would like to hear from the panel what can be done to
    ensure that schools continue to provide advice with the best
    interest of their students in mind and do you see a need for a
    mutual third party to offer advice to students?
        Ms. Loonin.
        Ms. Loonin. Thank you. The cost of college clearly has, as
    Mr. Chopra mentioned, gone up across all sectors and that is a
    huge problem; and unfortunately, there are a lot of students
    going to school who borrow more because obviously the cost is
    more and it is a complicated problem that is actually driving
    the costs.
        I mean, one thing that I think is important to look at is
    accountability, something that Senator Corker was just talking
    about, accountability across all sectors of higher education
    for outcomes, for completion, for job placement, because the
    ability to repay the loans frankly even at some of the higher
    cost institutions is very much dependent on what the outcome is
    on the education.
        If you succeed, and particularly in the Federal programs
    where there is a lot of flexibility and a lot of options, most
    likely it is going to be a situation where the borrower is
    going to come out ahead and, you know, it is good for the
    economy and all of that as well.
        As far as having a neutral third-party advisor, I am not
    sure at what point of the process that you are talking about
    specifically.
        I think it is always important for borrowers to get neutral
    advice. I think that the schools themselves sometimes do have
    conflicts of interest where they want the student to come to
    the school. They are selling their product in a lot of ways and
    it may be difficult in some schools to be able to give neutral
    advice.
        On the other hand, a lot of financial aid officers do a
    very good job now of providing that kind of advice.
        Something that Ms. Mishory mentioned is to get that kind of
    information out to people before they get into the school
    doors, and that could be in the schools with counselors and
    that should be as neutral and objective as possible.
        Senator Akaka. Ms. Mishory.
        Ms. Mishory. Yes, I mean, I would absolutely agree the cost
    of college is a huge issue. We hear about it from all the
    students that we talk with. Families are really struggling to
    figure out how to pay for college; and the issue of student
    debt is simply related and the cost of college is what is
    impacting this debt.
        I do think there are larger issues that we need to address,
    like State investment in our public institutions. Public
    institutions are no longer supportable like they used to be.
        Someone from my mom's generation paid a third of what I
    paid to go to a public institution. We need schools to be
    accountable for the money that they do receive and there are
    not that many ways in which we hold schools accountable like we
    should, and we need more information.
        We need kids to be able to go and look and say:

            OK, well, the school down the street has a lot of students
            default on loans and a 50 percent unemployment rate for the
            past two years' graduating class. But, if I go across the city,
            kids 2 years out have an 80 percent employment rate. I am going
            to go to that school across the city.

    We do not have that information right now for students and they
    desperately need it.
        Senator Akaka. Mr. Remondi.
        Mr. Remondi. I would agree that the cost of college has
    risen dramatically. I think the sticker price though is
    sometimes a lot different than what the consumer pays and we
    have not seen debt burdens grow at a more rapid pace than
    tuition levels.
        So, the average student is graduating with about $26,000
    worth of debt which is about 2 percent more per year over the
    last 10 years.
        I think one of the challenges they face is that the
    economy, coming out of school today, it is very difficult for
    students to get a job either in their field or pay level that
    they were expecting maybe when they started, and that is
    creating some of the issues.
        But again, going back to this concept of know-before-you-
    go, if students understand the dynamics, how much it is going
    to cost to complete their education, what the graduation rate
    is at that school, what the default rate is, they can make
    better, more informed decisions in that process.
        Senator Akaka. Let me ask a final question here, Mr.
    Remondi. Has the recent scandal over LIBOR had any effect on
    how Sallie Mae sets lending rates and have you thought about
    the possibility of using a different measure for rate setting?
        Mr. Remondi. Our interest rates are set using the LIBOR
    index. We have not seen any issues or problems with that. The
    allegations that have been made to date have said that LIBOR
    was set artificially low wage which, if that is true, would
    have been to the benefit of the borrowers.
        Senator Akaka. Thank you very much, Mr. Chairman.
        Senator Brown. Thank you, Senator Akaka.
        Thank you each of you, Ms. Loonin, thank you, Ms. Mishory
    and Mr. Remondi thank you very much.
        If you have additional comments, you can submit them to the
    Committee within the next 7 days. Committee Members may also
    write questions to you, if you would get the answers to us
    promptly. So thank you very much for your testimony and your
    service.
        The Committee is adjourned. Thanks.
        [Whereupon, at 4:08 p.m., the Subcommittee was adjourned.]
        [Prepared statements, responses to written questions, and
    additional material supplied for the record follow:]
                       PREPARED STATEMENT OF ROHIT CHOPRA
          Student Loan Ombudsman, Consumer Financial Protection Bureau
                                 July 24, 2012
        Chairman Brown, Ranking Member Corker, and Members of the
    Subcommittee, thank you for holding this hearing today on an issue that
    touches so many American students, families, and our economy.
        A few days ago marked the 1-year anniversary of the opening of the
    Consumer Financial Protection Bureau. In this year, the CFPB has taken
    important steps to improve the consumer financial marketplace. The
    mortgage market, in particular, was especially bruised and battered
    during the financial crisis. We hope that the CFPB's measures to
    increase transparency and improve oversight will help restore
    confidence and heal this multi-trillion dollar market with broad impact
    for consumers and the economy.
        But we have also placed a great deal of attention on a growing
    market deeply connected to the American Dream--the student loan market.
    To prosper in today's global economy, our workforce needs skills to
    innovate in a highly competitive environment. For millions of
    Americans, student loans have opened doors to a college degree-offering
    new opportunities to create a better life. But the rapid growth of
    student debt raises concerns that warrant significant attention of
    policymakers and regulators.
        With outstanding student loan debt reaching the $1 trillion mark
    late last year,\1\ our economy has not just crossed a psychological
    threshold. Student loans are now the largest form of unsecured
    household debt, and the CFPB will play an active role in contributing
    to a properly functioning student loan marketplace.
    ---------------------------------------------------------------------------
        \1\ Consumer Financial Protection Bureau and U.S. Department of
    Education: Report on Private Student Loans (2012).
    ---------------------------------------------------------------------------
    College is Still a Good Investment, But Not without Risk
        College is still a good investment, and higher education remains
    the surest path to a good career and job security. The unemployment
    rate for workers with college degrees is 4.1 percent, compared to 8.4
    percent for those with just a high school diploma.\2\ For younger
    workers, the unemployment rate for those with college degrees is 8.9
    percent compared to over 13 percent for those with just a high school
    diploma.\3\
    ---------------------------------------------------------------------------
        \2\ Bureau of Labor Statistics: Current Population Survey,
    Household Data, Table A-4, Employment status of the civilian population
    25 years and over by educational attainment (June 2012).
        \3\ Bureau of Labor Statistics: Current Population Survey,
    Household Data, Table A-16, Employment status of the civilian non-
    institutional population 16 to 24 years of age by school enrollment,
    age, sex, race, Hispanic or Latino ethnicity, and educational
    attainment (June 2012).
    ---------------------------------------------------------------------------
        But there is another side to this story. Much attention has been
    paid to the growing ``college wage premium''--the difference between
    wages for those with a college degree versus those without.
        Over the past decade, wages for young college graduates have
    actually declined by 5.4 percent when adjusting for inflation.\4\ This
    growing ``premium'' is largely explained by declining wages for young
    people without a degree. Between 1990 and 2010, wages for workers with
    only a high school diploma declined by 12 percent, when adjusted for
    inflation.\5\ Put another way, the growing gap is not due to a college
    degree becoming more valuable--it's that the wages are of non-degree
    holders are falling.\6\
    ---------------------------------------------------------------------------
        \4\ Economic Policy Institute: The Class of 2012: Labor market for
    young graduates remains grim (2012).
        \5\ National Center of Education Statistics: Digest of Education
    Statistics, Table 395, Median annual earnings of year-round, full-time
    workers 25 years old and over, by highest level of educational
    attainment and sex: 1990 through 2010 (2011).
        \6\ National Center of Education Statistics: Digest of Education
    Statistics, Table 395, Median annual earnings of year-round, full-time
    workers 25 years old and over, by highest level of educational
    attainment and sex: 1990 through 2010 (2011).
    ---------------------------------------------------------------------------
        But the cost of attendance at our Nation's colleges and
    universities has not been falling. In the past decade, the cost of
    attendance at public schools increased 42 percent, and prices at
    private not-for-profit schools increased 31 percent, when adjusting for
    inflation.\7\ Tough economic times have led State governments to slash
    higher education budgets, exacerbating this trend. The cost of tuition
    and fees has risen more than tenfold since 1979, vastly outpacing
    inflation, wage growth and healthcare costs.\8\
    ---------------------------------------------------------------------------
        \7\ National Center of Education Statistics: Digest of Education
    Statistics, Chapter 3 (2011).
        \8\ Bureau of Labor Statistics, Consumer Price Index for All Urban
    Consumers (CPI-U), College tuition and fees, 1979-2011 (2012); Bureau
    of Labor Statistics, Consumer Price Index for All Urban Consumers (CPI-
    U), All Items, 1979-2011 (2012); Bureau of Labor Statistics, Median
    usual weekly earnings, Employed full time, Wage and salary workers,
    1979-2011 (2012); Bureau of Labor Statistics, Consumer Price Index for
    All Urban Consumers (CPI-U), Medical Care, 1979-2011 (2012).
    ---------------------------------------------------------------------------
        Growing costs, declining real wages, and job market uncertainty
    have led to more debt and more risk. The consequences of this increased
    risk are real, as evidenced by troubling employment outcomes and
    student loan defaults, which are disproportionately felt in the for-
    profit college sector. While perhaps fewer in number than the struggles
    of American homeowners, the stories of distressed young college
    graduates reveal the impact of the financial crisis and the significant
    work that lies ahead.
    Private Student Loans Carry More Risk
        While seemingly quite different, dysfunction in the student loan
    market bears some remarkable similarities to the mortgage market in the
    years leading up to the financial crisis. High-credit-quality
    conforming mortgages and Federal student loans originated in this time
    period were rather ordinary.
        But, of course, not all mortgages were so ordinary, and phrases
    like ``no-doc'' and ``Alt-A'' were well-known in the subprime market.
    While student loans have been originated outside of the Federal loan
    programs for years, private student loans boomed in the years leading
    up to the crisis.\9\ From 2003 to 2007, the number of undergraduates
    who took out private student loans almost tripled.\10\
    ---------------------------------------------------------------------------
        \9\  Consumer Financial Protection Bureau and U.S. Department of
    Education: Report on Private Student Loans (2012).
        \10\ Ibid.
    ---------------------------------------------------------------------------
        Fueled by investor appetite for asset-backed securities, many
    private student lenders reduced their underwriting standards and
    marketed directly (and sometimes heavily) to students. Holders of these
    securities likely did not expect the levels of delinquency and default
    on these loans.\11\ Theoretically, the rating agencies who evaluated
    the securities would have served to police quality issues and align
    incentives of investors and issuers. That alignment appears, in
    retrospect, to have been imprecise.
    ---------------------------------------------------------------------------
        \11\ Ibid.
    ---------------------------------------------------------------------------
        Like the subprime mortgage industry, lax lending practices are far
    less common in the current environment. Most private student loans
    today are co-signed by creditworthy borrowers and have significant
    disclosure requirements.\12\ But like the mortgage market, there are
    still cracks in the system that need mending.
    ---------------------------------------------------------------------------
        \12\ Ibid.
    ---------------------------------------------------------------------------
        Private student loans often lack repayment flexibility \13\ when
    young graduates face a difficult labor market--a marked contrast to the
    Federal student loan program. In 2007, Congress and President Bush
    enacted the College Cost Reduction and Access Act, which recognized the
    need for student loan borrowers to have an option to service their debt
    as a portion of their income.\14\ The income-based repayment program
    allows a student loan borrower to remain current on a loan, so long as
    they are paying a fixed percentage of discretionary income; but this is
    generally not a feature offered to private student loan borrowers.
    ---------------------------------------------------------------------------
        \13\ Lenders have voiced that the offering of alternate repayment
    schedules is limited by prudential guidance, which might often require
    greater provisions for loan losses when granting modifications.
        \14\ P.L. 110-84.
    ---------------------------------------------------------------------------
        In addition, some for-profit colleges arrange institutional lending
    programs for students to borrow directly from the school or a school-
    affiliated entity. These companies report that they anticipate high
    levels of default on these loan portfolios.
        Private student loan borrowers also experience significant
    challenges when attempting to restructure their loan obligations, due
    to an unusual status in the Federal bankruptcy code and a nearly
    nonexistent refinance market.
        Compared to other forms of consumer debt, like credit cards,
    private student loan debt is more difficult to restructure. In the
    bankruptcy code, distressed private student loan borrowers are put in
    the same category as those who cause injury when driving drunk, skip
    out on taxes, or avoid child support.\15\
    ---------------------------------------------------------------------------
        \15\ 11 U.S.C.  523 (a).
    ---------------------------------------------------------------------------
        Even some of the most responsible borrowers--those who may be
    making significant sacrifices to make payments on their private student
    loans--have sought help to better manage their debt burden. Despite a
    significant change in the interest rate environment, we see that many
    borrowers feel stuck in high interest rates and high monthly payments,
    because they cannot easily refinance.
    Important Steps Forward in the CFPB's First Year
        The CFPB has already begun to act to address concerns in this
    market. In March, we launched a student loan complaint system where
    borrowers can get help. Any consumer with a student loan can come to
    our Web site (consumerfinance.gov) or call our toll-free call center to
    get help. For borrowers with private student loans, we receive
    complaints directly from borrowers and, through our Web-based portal,
    connect borrowers with their lender or servicer and work to resolve
    their complaints.
        In our monitoring of the student loan market, as well as through
    what we hear in complaints and other feedback from borrowers, we
    observe many issues similar to those experienced by consumers in the
    mortgage servicing industry. For example, borrowers have told us about
    problems in the crediting of payments and processing of paperwork,
    confusion when financial institutions buy and sell portfolios of loans,
    and difficulty getting clear guidance from student loan servicing
    personnel when facing financial hardship.
        Our complaint system has already helped many borrowers when faced
    with billing errors, lost paperwork, and other loan servicing issues.
    We will continue to monitor these servicing issues and plan to provide
    a report to Congress later this year.\16\
    ---------------------------------------------------------------------------
        \16\ This report is pursuant to Section 1035 of the Dodd-Frank Wall
    Street Reform and Consumer Protection Act of 2010.
    ---------------------------------------------------------------------------
        We also worked closely with the Department of Education on a Know
    Before You Owe ``financial aid shopping sheet'' to help schools provide
    better information on student loans and grants. And we've developed
    online tools, used by tens of thousands of consumers, on how to
    navigate their student loan repayment options, avoid default, and
    protect their credit history. We've also begun to supervise the
    Nation's largest banks, where much of today's private student loan
    origination takes place, for compliance with Federal consumer financial
    laws and to detect and assess risks to consumers.
        The CFPB hopes to continue and expand our work with other agencies
    that might play a critical role in addressing roadblocks to
    facilitating repayment flexibility and a robust refinancing market.\17\
    ---------------------------------------------------------------------------
        \17\ Consumer Financial Protection Bureau and U.S. Department of
    Education: Report on Private Student Loans (2012).
    ---------------------------------------------------------------------------
        Congress can also play a role. Last week, CFPB Director Richard
    Cordray and Secretary of Education Arne Duncan presented a report to
    Congress on the private student loan market. Both Director Cordray and
    Secretary Duncan provided recommendations on potential improvements to
    the marketplace. They each asked Congress to consider requiring school
    certification of loans, modifying the definition of a private student
    loan, and further investigating whether the 2005 change to the
    bankruptcy code met its intended goals.\18\
    ---------------------------------------------------------------------------
        \18\ Ibid.
    ---------------------------------------------------------------------------
    Student Debt in the Broader Economic Puzzle
        Over the past year, the CFPB collected thousands of comments from
    individual student loan borrowers about their experiences with private
    student loans. A common theme in these stories was the impact of their
    debt on reaching economic milestones.
        Compared to mortgages, student debt does not pose the same sort of
    systemic risk to the banking system. While policymakers are highly
    focused on conditions in the labor and capital markets, it would be
    imprudent to dismiss that growing student indebtedness can act as a
    drag on economic recovery.
        Consider a private student loan borrower with a high interest rate
    (which could creep even higher given today's interest rates) on a large
    balance. Many borrowers are dutifully meeting these obligations. But
    without a robust refinancing market, they struggle to reduce their
    monthly payments, even though they might have built a solid credit
    history since their early days of college. Will these honest borrowers
    be precluded from reaching the economic milestones familiar to American
    life? And if so, what might be the broader consequences?
        Take the housing market: first-time homebuyers are typically an
    important source of demand and help facilitate move-up purchases from
    existing buyers. Census data reveals that 6 million Americans ages 25-
    34 lived with their parents in 2011, a sharp increase from just a few
    years ago.\19\ The 25-29 year old age cohort has experienced
    significant reduction in homeownership rates since the financial
    crisis.\20\ The National Association of Realtors estimates that people
    aged 25-34 made up 27 percent of all home buyers in 2011, the lowest
    share in the past decade.\21\
    ---------------------------------------------------------------------------
        \19\ U.S. Census Bureau: Families and Living Arrangements, Table
    AD-1, Young Adults Living at Home: 1960 to Present (2010).
        \20\ U.S. Census Bureau: Housing Vacancies and Homeownership (CPS/
    HVS), Table 15, Housing Inventory Estimates by Age of Householder and
    by Family Status: 1982 to Present (2011).
        \21\ National Association of Realtors: Profile of Homebuyers and
    Sellers (2011).
    ---------------------------------------------------------------------------
        A recent Federal Reserve Study shows the share of individuals age
    29-34 getting a first-time mortgage dropped significantly in the past
    decade.\22\ According to Chairman Ben Bernanke, ``Lending to first-time
    homebuyers has dropped precipitously, even in parts of the country
    where unemployment rates and housing conditions are better than the
    national average.''\23\
    ---------------------------------------------------------------------------
        \22\ Board of Governors of the Federal Reserve System: US Housing
    Market: Current Conditions and Policy Considerations (2012).
        \23\ Speech to the 2012 National Association of Homebuilders
    International Builders' Show (February 10, 2012).
    ---------------------------------------------------------------------------
        It is not just the goal of homeownership that seems further out of
    reach. A recent report revealed that just 50 percent of workers under
    the age of 30 have enrolled in their employer's 401(k) plan.\24\ Forty-
    three percent of young workers do not save enough to receive a full
    employer match,\25\ and are more likely to cash out their plans when
    changing jobs.\26\ The inability to afford making contributions to
    these employer plans can lead to significant reductions in future nest
    eggs, calling into question whether young, debt-burdened graduates will
    enjoy a retirement like previous generations of Americans.
    ---------------------------------------------------------------------------
        \24\ Northern Trust: Line of Sight: The Path Forward--Engaging the
    Younger Employee in DC Plan Participation (2011).
        \25\ Aon Hewitt: Navigating the Path to Retirement: 2011 Universe
    Benchmarks Highlights (2011).
        \26\ Northern Trust: Line of Sight: The Path Forward--Engaging the
    Younger Employee in DC Plan Participation (2011).
    ---------------------------------------------------------------------------
        While there are certainly many factors that could explain these
    trends, we might find continued economic stress for young graduates due
    to high debt levels--even if the broader labor and capital markets
    improve significantly.
        Congress \27\ and Federal agencies have taken steps to increase
    liquidity and the functioning of the credit markets in recent years,
    but the current conditions in the student loan market may have a long-
    term impact on the economic vitality of many student loan
    borrowers.\28\ Many student loan borrowers today--even those who are
    making large monthly payments on-time--are unable to secure adequate
    credit accommodations to refinance or modify their debt burden, despite
    today's historically low interest rate environment.
    ---------------------------------------------------------------------------
        \27\ In 2008, Congress enacted the Ensuring Continued Access to
    Student Loans Act, which gave the Department of Education the authority
    to provide liquidity to financial institutions originating student
    loans through the Federal Family Educational Loan Program. The
    Department of Education established programs, including a buyer-of-
    last-resort supported asset-backed commercial paper conduit, which
    purchased in excess of $100 billion in student loans.
        \28\ It is worth noting that Federal agencies have intervened in
    the private student loan market in recent years. Citing ``unusual and
    exigent circumstances,'' the Federal Reserve Board of Governors
    exercised its authority pursuant to Section 13(3) of the Federal
    Reserve Act to establish the Term Asset-Backed Securities Loan Facility
    (TALF), which facilitated the issuance of a wide range of ABS,
    including those backed by private student loans.
    ---------------------------------------------------------------------------
        Policy makers have paid significant attention to the refinancing
    and modification conditions in the mortgage market. But given the
    potential impact of student debt on the broader economy, the situation
    is rapidly demonstrating the need for attention to determine whether
    action is required.
        The CFPB will continue its work to make the private student loan
    marketplace work better for borrowers, schools, and honest lenders. We
    look forward to working with Congress and policymakers to address risks
    in the marketplace and identify ways to ensure that economic mobility
    is still within reach for those who borrowed to invest in an education.

                                     ______

                                     ______

                                     ______

                       PREPARED STATEMENT OF JACK REMONDI
               President and Chief Operating Officer, Sallie Mae
                                 July 24, 2012
        Good afternoon Chairman Brown, Senator Corker and Members of the
    Subcommittee. My name is Jack Remondi. I am the President and Chief
    Operating Officer of Sallie Mae. I thank you for the opportunity to
    testify on the private education loan marketplace, which has witnessed
    a significant transformation in recent years. More than ever, a college
    degree provides a pathway to a lifetime of higher income and
    employment. Yet, with today's cost, most families find they need to
    finance a portion of the total cost. Private education loans provide a
    small, but important, supplement for students and families that can
    help them access a higher education. In our 40 years, Sallie Mae has
    helped more than 31 million Americans achieve their college dream. As a
    result of our experience, Sallie Mae understands the importance of
    education, and how it can drive positive economic change for
    individuals and families across the economic spectrum. We take
    seriously our role of providing responsible private education loans to
    those who rely on them when making the college investment.
        As the country's leading saving-, planning- and paying-for-college
    company, with the mission of helping make higher education accessible
    and affordable for American families, Sallie Mae is grateful for this
    opportunity to share our perspective in this discussion.
    Overview
        The market for private education loans is a small, but important,
    source of funding that helps students and families responsibly fill the
    gap between their own income and savings, financial aid, grants,
    Federal loans, and the total cost of their chosen college or
    university. Created decades ago, at a time when available aid was not
    enough to meet the full cost of education, private education loans were
    introduced to support families in meeting remaining costs after other
    resources and were never intended to replace Federal aid. In fact, they
    were originally called ``supplemental'' loans, indicating their stated
    purpose. We recommend that the Committee consider today's market in
    terms of size and providers, and its limited, but important,
    supplemental role in financing higher education.
        In academic year 2007-08, students and families borrowed $23.2
    billion in ``non-Federal,'' or private education loans, representing
    about 6 percent of all spending on higher education. With increases in
    Federal loan limits, more robust underwriting standards and a very
    difficult economic environment, 3 years later, in academic year 2010-
    11, students and families borrowed less than $8 billion in non-Federal
    education loans, representing about 1 percent of total spending on
    higher education.\1\
    ---------------------------------------------------------------------------
        \1\ College Board, ``2011 Trends in Student Aid'', McKinsey &
    Company.
    ---------------------------------------------------------------------------
        Over the same period, however, the Federal loan program grew by 50
    percent, from $69 billion to $104 billion.\2\ Today, Federal loan
    originations are 13 times that of private education loans.
    ---------------------------------------------------------------------------
        \2\ College Board, ``2011 Trends in Student Aid''.
    ---------------------------------------------------------------------------
        We believe that education loans are not meant to be the sole source
    of higher education funding. In fact, we administer 529 college savings
    plans and interest-free tuition installment plans for millions of
    families. When those and other aid are not enough, families consider
    borrowing, and when they do, as with any loan, education loans should
    be taken out with care. Students and their families need to assess the
    total cost of education, not just the bill for the current semester,
    and be sure that what they borrow is what they can afford based on
    current and projected financial resources.
        As a means for achieving economic success in America, a higher
    education is more valuable than ever. Various studies have estimated
    that college graduates will earn, on average, between $650,000 and
    $1,000,000 more over the course of their careers than those with only
    high school diplomas.\3\ In addition to increased earnings potential, a
    higher education results in lower unemployment rates. National
    unemployment figures for June were at 8.2 percent; however, Americans
    with a bachelor's degree or higher had a jobless rate of just 4.1
    percent. The benefits of employment extend to new college graduates, as
    well. The unemployment rate of new graduates is 9.8 percent compared to
    20.6 percent for their same-age peers with no post-secondary
    education.\4\
    ---------------------------------------------------------------------------
        \3\ Georgetown University Center on Education and the Workforce,
    August 2011.
        \4\ Bureau of Labor Statistics, Current Population Survey, June
    2012.
    ---------------------------------------------------------------------------
         Higher education is a major lifetime investment and helping
    college-bound students and their families responsibly make this
    investment is Sallie Mae's top priority. Experience has taught us that
    a one-size-fits-all approach does not work. That is why we have
    developed a suite of tools and products that help students and families
    build plans that are right for their situations and that will assist
    them whether college is a long way off or right around the corner.
        Our goal is to educate families up front about the entirety of the
    education finance process, and to make sure that access yields success.
    Families will be their own best defense against over-borrowing if they
    keep these basic principles in mind:

        Choose a school that is within financial reach.

        Create a financial plan that goes beyond the first year and
            includes all the expected costs through graduation.

        Consider career plans and likely starting salary in the
            borrowing decision.

        Remember that loans require repayment.

        Explore Federal loans first.

        Keep balances down by doing whatever can be done to make
            loan payments while in school.

        Make loan payments, even partial ones, if at all possible
            when out of school to keep balances from growing out of
            control. Deferring payment is the same as borrowing more--the
            loan balance grows every day.

        Perhaps most important of all, graduate. Nobody wins when
            debt is incurred for a degree that does not materialize.
            Student loans without a degree mean loan payments without the
            increased employment prospects and higher earnings to support
            them.

        Sallie Mae has a long-standing practice of advising a ``1-2-3
    approach'' to paying for college to empower families to make informed
    decisions. Specifically, we recommend that families do the following:

      1.  Use scholarships, grants, savings and income.

      2.  Explore Federal loans.

      3.  Consider an affordable, responsible private education loan to
            fill any remaining gap.

        The Administration's recent report on private education loans
    stated, ``Students and their families would be better served by having
    access to all pertinent financial information concerning the college
    decision prior to deciding which college to enroll at and how much debt
    to incur.''\5\ Sallie Mae couldn't agree more. Although applying for
    financial aid is an annual exercise, we encourage families to plan for
    the multi-year commitment required to fund a college degree. In fact,
    we design our planning tools to assist families in determining how to
    meet the full costs of a college education. A 1-year snapshot is simply
    not enough.
    ---------------------------------------------------------------------------
        \5\ Consumer Financial Protection Bureau and Department of
    Education, ``Private Student Loans,'' July 2012.
    ---------------------------------------------------------------------------
        Our free Education Investment Planner gives families the tools and
    information they need to become educated planners and savers. The free
    tool helps users ``know what they will owe'' over the entire course of
    completing their college degree, and assess before borrowing whether
    that amount will be manageable given their current and expected future
    income.
        In most cases, higher education is a family commitment. Sallie
    Mae's How America Pays for College research found that three out of
    four families believe parents and students should share the
    responsibility for paying for college. In practice, six out of 10
    parents contribute, either through savings or borrowing, to fund their
    children's educations. Our private education loans are designed to
    support that shared responsibility and commitment. Last year, over 90
    percent of our new private education loans had a cosigner, usually a
    parent.
        At Sallie Mae, efforts to inform students and families about their
    loans begin at loan application and continue until the loan is paid in
    full. During the application process, students and their cosigners view
    monthly and total payment information customized to their borrowing
    amount and qualifying interest rate. Applicants are presented with a
    choice of interest rate structure, variable or fixed, and a choice of
    repayment options that include in-school payments of interest, nominal
    payments of $25 a month or deferred payments.
        Once approved, customers receive multiple disclosures with detailed
    loan information. These communications clearly highlight the
    availability of Federal loan programs, quantify expected monthly
    payments and finance charges, encourage the applicant to shop around,
    and outline the right to cancel the loan after disbursement.
        The education process continues after loan proceeds are disbursed.
    Our private education loan customers receive statements monthly that
    detail their loan balance and accruing interest. Customers who elected
    to defer payment while in school are reminded of the effect that making
    in-school payments would have on their total loan costs. This
    continuing education has been successful, and we are pleased that so
    many of our customers have benefited from this cost-saving practice.
        Sallie Mae's private loan portfolio is strong, and our underwriting
    is sound. Even in these tough times, the vast majority of our customers
    are successfully making on-time payments. In fact, 90 percent of our
    loans in repayment are current. Our private loan delinquencies have
    steadily declined since the peak of the recession, and charge-offs have
    dropped from a high of 6 percent of loans in repayment to 3 percent
    this year.
        Still, we recognize that the economic recession has posed real and
    significant challenges for some of our customers. Our success depends
    on our customers' success, and therefore, we are committed to working
    with customers to help them navigate difficult financial circumstances
    and preserve their good credit standing. To assist borrowers with past
    due loans, we reach out to gain an understanding of the individual
    circumstances they face. To customers who have exhausted traditional
    repayment options and are demonstrating a reduced ability to pay, we
    offer a mix of repayment products, counseling and collection programs
    that give them the best opportunity to manage their debt obligations
    and succeed. These options include reduced monthly payments, interest-
    only payments, extended repayment schedules, and temporary interest
    rate reductions, all scaled to a customer's individual circumstances
    and ability to make manageable payments. Since 2009, we have modified
    $1.1 billion in loans to help our customers manage their loans.
        Nonetheless, in some cases, loan modifications and other efforts
    are insufficient and bankruptcy may be the only path. Sallie Mae
    supports reasonable reform to bankruptcy laws that would allow
    borrowers to discharge their education loans--both private and
    Federal--after a good faith period of attempting to repay. Any reform
    must recognize that education loans have unique characteristics and
    benefits. They are unsecured credit extended to borrowers whose assets
    are initially limited, but can be expected to grow over a lifetime of
    greater earnings power attributable to the value provided by the
    education obtained through these loans. Consequently, given the
    lifelong nature of this ``collateral,'' Congress saw fit that neither
    private nor Federal loans be easily dischargeable in bankruptcy. This
    has been the case for Federal loans since the late 1970s. Private
    education loan rules, which had mixed treatment depending on the
    lender/guarantor, were standardized with the same protection in 2005.
        Recent graduates with sizable education loans and relatively few
    assets, a common combination in education lending, create a moral
    hazard that drove the creation of these bankruptcy protections. ``Many
    Students Avoiding Payment of Loans by Filing for Bankruptcy'' was a
    1976 New York Times headline about this unique problem. As graduates
    become employed, increase their earnings and assets and recognize the
    value of establishing good credit, this hazard diminishes. Sallie Mae
    supports bankruptcy reform that would require a period of good faith
    payments, that is prospective so as not to rewrite existing contracts,
    and that applies to Federal and non-Federal education loans alike.
        Education loans are an important financial tool for responsible
    borrowers. They help provide access to a brighter future. Responsible
    lending standards, clear information and consistent laws are good for
    borrowers and lenders alike. We take this point seriously. Sallie Mae
    is ever mindful that our success is tied directly to the financial
    success of our customers, and our products and practices reflect that
    reality.
        Our loans provide important protections for the family, including
    tuition insurance, and death and disability loan forgiveness. But the
    best protection inherent to any loan, including a private education
    loan, is the underwriting of the loan itself. Further, we all have a
    role to play in preventing over borrowing and working to assure as many
    students graduate as possible.
        In the last 5 years, the private education loan marketplace has
    undergone significant change. Driven by the credit market crisis and
    changes at the State and Federal levels--including changes developed by
    Congress--today's smaller private education loan marketplace provides
    extensive disclosures, adherence to new rules for financial aid
    offices, and tightened underwriting standards that better match loans
    with a family's ability to repay.
        As you examine the private education loan marketplace, we hope
    Congress will recognize the comprehensive series of legislative and
    marketplace changes implemented in recent years that strengthened
    consumer protections and witnessed product innovations that have
    reduced costs for borrowers.
        It is a mistake to believe ``private'' or ``non-Federal'' is
    synonymous with ``un-regulated.'' The private education loan
    marketplace is extensively regulated. The vast majority of private
    education loans are made through highly regulated traditional banking
    channels, to borrowers protected by numerous State and Federal consumer
    lending laws. As the Consumer Financial Protection Bureau and U.S.
    Department of Education noted in their report:

            Private Student Loan borrowers have significant protections
            under the Truth-in-Lending Act (TILA), the Equal Credit
            Opportunity Act (ECOA), the Fair Credit Reporting Act (FCRA),
            the Fair Debt Collection Practices Act (FDCPA), the Federal
            Trade Commission Act (FTCA), and the Consumer Financial
            Protection Act. (p. 67)

        The Higher Education Opportunity Act of 2008 amended the Federal
    Truth-in-Lending Act to establish a series of extensive, modernized
    disclosures to provide private education loan borrowers clear,
    consistent, and easy-to-compare information about private loans.
    Quoting again from the report:

            The new Truth in Lending Act (TILA) disclosures for Private
            Student Loans are unique to that product. No other installment
            loan is subject to quite so much disclosure. (p. 68)

        Also, the private education loan marketplace operates in accordance
    with important common safeguards to private education loans that were
    developed by Congress and passed as part of the Higher Education
    Opportunity Act of 2008. The HEOA established borrower protections such
    as a guaranteed 30-day window to accept the loan without term changes
    and the right to cancel loans after approval; it limited certain
    practices, such as school co-branding; it regulated campus lender
    lists; and it required borrowers to self-certify their costs of
    education and to confirm they are aware of the availability of Federal
    loans before completing their private education loan applications.
        As a result of the Dodd-Frank Wall Street Reform and Consumer
    Protection Act, rulemaking authority under many of these laws and
    regulations has been transferred to the Consumer Financial Protection
    Bureau. We have been working with the CFPB, including participating in
    their recent study, to ensure that consumers have access to responsible
    education loan products that not only help provide access to higher
    education, but also are designed to help produce success.
        At Sallie Mae, our disclosures provide borrowers clear, consistent,
    and easy-to-compare information about private education loans.\6\ These
    disclosures inform borrowers of the potential life-of-loan costs and
    provide multiple reminders to explore the availability of lower-cost
    options, including Federal loans. In the most recent findings of our
    How America Pays for College study, we found how effective these
    reminders are:
    ---------------------------------------------------------------------------
        \6\ Examples of these disclosures are available at
    www.SallieMae.com/primer.

        Of private education loan borrowers, 98 percent filled out
            the Free Application for Federal Student Aid form, or FAFSA,
    ---------------------------------------------------------------------------
            which is the first step toward taking out a Federal loan.

        Last year, 25 percent of students borrowed Federal loans
            only, 9 percent used a mix of Federal and private loans, and 1
            percent tapped private loans only.

         We believe that these significant results are directly related to
    the increased disclosures provided to consumers. In addition, Sallie
    Mae has pioneered new products and procedures designed to further help
    families make more informed, affordable choices.
        Today, most private education loans are certified by the school.
    Sallie Mae advocates school certification as an important safeguard
    against over-borrowing; we will not disburse a private education loan
    until the school financial aid office certifies the need for and the
    amount of a loan. This is not because we are required to--we are not--
    but because it is an important check against over-borrowing.
        Until 3 years ago, nearly all borrowers deferred loan payments
    while in school. In 2009, Sallie Mae became the first national lender
    to encourage payments while in school. In addition, we designed shorter
    repayment periods based on loan amounts, which, combined with in-school
    payments, dramatically reduce finance charges.
        We encourage payments before graduation because it saves thousands
    of dollars over the life of the loan, and we reward customers who elect
    an in-school payment option with lower interest rates. Our in-school
    customers who opt for either the interest payment plan or the fixed $25
    per month plan can save an estimated 30 to 50 percent in total interest
    costs.
        In academic year 2011-12, when offered the choice of three
    repayment options, including no payments while in-school, 63 percent of
    Sallie Mae in-school customer families choose to lower their costs of
    borrowing by making payments. This compares to just 5 percent of
    customers who made in-school payments before we introduced the practice
    of encouraging them.
        One area where we are anxious to see some change is in the area of
    working with defaulted borrowers. For those who have defaulted on their
    Federal loans, the Federal rehabilitation program provides a powerful
    incentive to borrowers to return to regular repayment and rebuild their
    credit. Under this program, if a customer makes a specified number of
    timely payments, his loan is ``rehabilitated'' and, by law, the default
    must be removed from his credit history. The statute requires the
    lender to report this change to the credit history. For all other
    consumer credit, however, the Fair Credit Reporting Act does not allow
    such a ``second chance.'' There is no provision for lenders to
    rehabilitate defaulted private loans and then request the removal of a
    default that did, in fact, occur. For some time, we have identified the
    need for a similar rehabilitation solution. We believe it is
    appropriate for Congress to consider legislative changes that could
    provide this option to private education loan borrowers.
    Conclusion
        Higher education is an American priority, and how to pay for
    college is a family decision. Families will maximize the return on
    their investment when students graduate; thus, they should approach
    paying for college as they would any other serious investment: by
    understanding the full cost and the expected return.
        Sallie Mae has long recommended that students and their families
    finance higher education from savings, scholarships, grants, Federal
    student loans, and, if necessary, a responsible private education loan.
        Private education loans are a small but critical component of how
    families pay for college. Used by just 10 percent of families, private
    education loans help families cover the gap between other financial aid
    and their chosen school's cost of attendance.
        Legislative changes and market forces have combined to make private
    education lending better understood by families, better underwritten,
    and more targeted to provide the needed financing that can be the
    difference between achieving an academic goal and failing to do so.
        Sallie Mae is proud to have helped more than 31 million Americans
    achieve their dream of a higher education. We pledge to continue
    responsible lending practices and to work with policymakers where there
    are opportunities to make further improvements.
        Thank you. I would be pleased to answer any questions you may have.

    RESPONSE TO WRITTEN QUESTIONS OF SENATOR REED FROM ROHIT CHOPRA

    Q.1. Are we seeing some signs of renewed growth in volume for
    private student loans? What steps should we take now to prevent
    a return to the lax underwriting and predatory lending that we
    saw between 2001 and 2008?

    A.1. Since 2008, origination of private student loans has
    grown, but has not reached the level seen prior to the
    financial crisis. In the Report on Private Student Loans
    submitted by the Director of the Consumer Financial Protection
    Bureau (CFPB) and the Secretary of Education, CFPB Director
    Richard Cordray and Education Secretary Arne Duncan each
    recommended that Congress consider requiring all private
    student loans to be ``certified'' by the school's financial aid
    office. This step could help students to avoid overborrowing
    and help to ensure that schools have the opportunity to counsel
    students about potentially lower-cost loan options before
    students take out private student loans.

    Q.2. Are you seeing patterns of complaints from borrowers? What
    are some of the more frequent complaints? How have they been
    resolved?

    A.2. Since launching our consumer response function for student
    loan complaints in March of this year, we've received over
    2,500 complaints from borrowers experiencing difficulties with
    their private student loans. Prior to the establishment of the
    CFPB and the ombudsman function for private student loans,
    there was no single point of contact for consumers to file
    complaints about private student loans.
        The most notable subset of these complaints involves
    borrowers seeking loan modifications due to difficulty securing
    adequate employment. A significant number of borrowers are
    experiencing general servicing problems, ranging from billing
    disputes and lost paperwork to difficulties obtaining
    alternative payment plans advertised by lenders and servicers.
        We are pleased that many of these complaints have been
    favorably resolved by lenders and servicers. Borrowers have
    been able to enroll in new payment plans and have received
    refunds for errors by lenders and servicers. Pursuant to
    Section 1035 of the Dodd-Frank Act, we will provide a report to
    Congress later this year providing further details on the
    student loan complaints we have received.

    Q.3. In the private student loan report that the CFPB and the
    Department of Education submitted to Congress last week, it was
    noted that in the wake of the student loan boom and bust there
    is more than $8 billion in defaulted private student loans.
    What steps can lenders take to assist borrowers who are in
    default on their private student loans? Are there examples of
    lenders that have made significant efforts in this regard?

    A.3. Unlike many other consumer financial products, such as
    auto loans and mortgages, student loans are not secured by
    collateral and very difficult to restructure in bankruptcy.
    These attributes might reduce the incentive of lenders to
    employ typical loss mitigation interventions. It is also very
    difficult to restructure private student loans in bankruptcy
    proceedings, further diminishing lenders' incentives to offer
    loan modifications.
        To our knowledge, there have not been examples of
    successful large-scale efforts by lenders to modify private
    student loans in default. Generally speaking, defaulted loans
    are charged off and lenders often take legal action or utilize
    third-party debt collectors to make recoveries.
                                    ------

       RESPONSE TO WRITTEN QUESTIONS OF SENATOR REED FROM DEANNE
                                 LOONIN

    Q.1. How much responsibility do institutions of higher
    education bear in the private student loan boom and bust
    described in the CFPB report? What should their
    responsibilities be going forward?

    A.1. There are many ways in which institutions of higher
    education bear some responsibility for the boom and bust cycle
    and the resulting harm to student borrowers. The clearest
    example is the cost of higher education. There are many reasons
    why costs have skyrocketed and schools are not fully to blame,
    but they do share some of the blame and responsibility to help
    curb costs and therefore reduce student borrowing.
        In addition, particularly prior to the credit crisis, many
    schools engaged in practices that created conflicts of
    interest, including promoting certain lenders, marketing lender
    products at schools, and referring students to particular
    lenders. Schools bear the responsibility of ensuring that they
    are acting in the best interests of students, not lenders.
        Some schools bear direct responsibility for the boom and
    bust cycle due to irresponsible institutional lending
    practices. These practices are documented in detail in the CFPB
    report and in NCLC's January 2011 report, ``Piling It On.''
        Going forward, schools can help prevent harm to students by
    establishing effective counseling and loan certification
    programs. They can also provide transparent information about
    financial aid packages, clearly delineating grants vs. loans
    and Federal loans vs. private loans.
        Schools should work only with lenders that include FTC
    Holder notices in their loan agreements. In addition, schools
    that refer students to particular lenders should provide as
    much information as possible to students about these products.
    Schools should investigate lender practices and take steps to
    work only with lenders that meet minimum standards and do not
    engage in deceptive and abusive practices.

    Q.2. The CFPB and the Department of Education recently made
    recommendations regarding improvements to private student loans
    to Congress. What are your thoughts on these recommendations?
    What additional recommendations to Congress would you suggest?

    A.2. We support the recommendations in the July 2012 CFPB
    report. However, we believe even stronger action is needed. Our
    additional points below focus on recommendations to Congress:

      a. LBankruptcy reform. The CFPB and Department of Education
            recommend investigating whether changes are needed to
            the treatment of privateloans in bankruptcy. Although
            further investigation may be helpful, we believe that
            Congress has sufficient information to restore
            bankruptcy rights to these borrowers. There was no
            valid reason to eliminate these rights for private
            student loan borrowers in 2005. Congress should act
            quickly and restore bankruptcy rights for struggling
            borrowers.

      b. LNon-bankruptcy relief for private student loan borrowers.
            The report notes that private student loans do not
            offer any of the debt management or mitigation options
            enjoyed by Federal loan borrowers. We agree with the
            conclusion that Congress should work with the CFPB and
            Department of Education to investigate this issue
            further. However, this is not enough. We recommend
            additional action, including:

         LInvestigating any regulatory barriers to private
            student loan relief and working with regulators to
            amend guidance as necessary to ensure that private
            lenders have flexibility to offer meaningful relief to
            distressed student loan borrowers.

         LRequire that private lenders offer a standardized
            set of loss mitigation relief prior to acceleration of
            debts.

         LCreate a mandatory, standard loan modification
            program for distressed borrowers.

         LRequire private student lenders to offer death
            and disability discharges and investigate the current
            discretionary death and disability private loan
            discharge programs to determine whether lenders are
            offering accurate information about these options.

      c. LBan mandatory arbitration clauses in private student loan
            agreements.

        We also urge Congress and the Federal agencies to
    investigate servicing practices in the private student loan
    industry. Ultimately, we recommend creation of national
    servicing standards that will establish minimum protections
    that must be offered to borrowers. This may also require
    amendments to ensure that the Fair Credit Billing Act applies
    to private student loans.
        Thank you for holding this hearing and soliciting
    additional input.
                                    ------

    RESPONSE TO WRITTEN QUESTIONS OF SENATOR REED FROM JACK REMONDI

    Q.1. In the Consumer Financial Protection Bureau's report to
    Congress, it was noted that there was approximately $8 billion
    in default from 850,000 distinct private student loans that
    were made prior to the credit crisis in 2008. What percentage
    of these loans are Sallie Mae loans?

    A.1. Sallie Mae and eight other lenders provided a dataset
    comprised of loans originated between 2005 and 2011. As CFPB
    stated in their report, this information was provided under a
    non-disclosure agreement and is protected under various Federal
    laws as proprietary and confidential business information (see
    footnote 3 on page 109 of CFPB's Report on Private Education
    Loans).
        Sallie Mae does provide a significant amount of public data
    and information on the performance of its private education
    loan portfolio, every quarter, through its investor releases
    and its submissions to the Securities and Exchange Commission.
    In terms of defaults, Sallie Mae reports the amount of loans
    that have been charged off, meaning the amount that has failed
    to make a payment for 212 days. With the credit crisis and the
    onset of the recession, Sallie Mae experienced an increase in
    private education loan defaults, i.e., charge-offs. Annual
    charge-offs peaked in 2009 at $1.3 billion and have since
    declined steadily since. For the first half of 2012, private
    education loan charge-offs were $459 million.

    Q.2. In your testimony, you state that since 2009 Sallie Mae
    has modified $1.1 billion in loans to help your customers.
    Please provide a breakdown of the types of modifications
    offered, broken down by the number of borrowers, the dollar
    value of the modification provided, and the percentage of
    modified loans that are currently in good standing.

    A.2. During 2009, we instituted an interest rate reduction
    program to assist customers in repaying their private education
    loans through reduced payments, while continuing to reduce
    their outstanding principal balance. This program is offered in
    situations where the potential for principal recovery, through
    a modification of the monthly payment amount, is better than
    other alternatives available. Along with demonstrating the
    ability and willingness to pay, the customer must make three
    consecutive monthly payments at the reduced rate to qualify for
    the program. Once the customer has made the initial three
    payments, the loans status is returned to current and the
    interest rate is reduced for the successive 12-month period.
        Since the inception of the rate reduction program, we have
    cured over 32,000 unique borrowers for $1.3 billion in
    outstanding loans. All of the borrowers in the program have
    their interest rates reduced to a level where they can manage
    to keep up with timely monthly payments. Roughly 50 percent of
    the customers in the rate reduction program have their interest
    rate lowered to 1 percent interest rate during the program
    period. Currently we are experiencing a 78 percent success
    rate, as defined by borrowers remaining current and completing
    their 12-month program.

    Q.3. When is a Sallie Mae private loan determined to be in
    default? Please describe any programs or procedures that Sallie
    Mae has in place to prevent borrowers from defaulting on their
    loans.

    A.3. At Sallie Mae, we charge off the estimated loss of a
    defaulted loan balance, at the end of each month, for loans
    that are 212 days past due. Other lender's policies may vary,
    since each lender makes this determination as a result of
    guidance from their respective Federal banking regulator. In
    the Federal programs, a borrower is considered in default if
    they have not made a payment in over 271 days.
        It is important to recognize that the vast majority of our
    private loan customers manage their payments successfully. In
    our most recent quarter, our annualized private loan charge-off
    rate was 3.1 percent, down from 5.4 percent in 2009, a
    remarkable decline particularly in light of the current raised
    levels of unemployment.
        The first step in preventing defaults is the loan
    underwriting process, which assesses a borrower's ability and
    willingness to repay the loan. In most instances, our private
    education loans are made to the family where a parent and
    student borrower share the responsibility of evaluating loan
    choices and in making decisions about loan amounts required to
    supplement other resources and fill the financing gap.
        One vital component of reducing defaults is early education
    for borrowers on the value and costs associated with higher
    education. That is why we provide tools, such as our Education
    Investment Planner, to make sure that students and families can
    plan for the full cost of attaining a degree.
        We find that customers who make in-school payments have
    lower delinquency rates when commencing full payment because
    they have already developed good payment habits and have kept
    the amount due lower. That is why we design our loan products
    to encourage in school payments, providing financial incentives
    to make payments in school to keep borrowing costs low. We go
    beyond the mandatory Truth-in-Lending disclosures, to show our
    customers the choices that they have in products and the long-
    term costs/savings of those choices. We provide monthly
    statements to all private education loan customers in school.
    Even for the one-third of our customers who chose to defer
    payments while in school, we provide them monthly statements
    and encourage them to make any payments to defray the long-term
    costs of their loans.
        We also encourage customers to enroll to make payments via
    auto debit, which results in significantly lower rates of
    delinquency. To incent them to enroll in this program, we
    typically offer a 0.25 percentage point interest rate
    reduction.
        Loan repayment and default prevention programs should be
    part of a thoughtful strategy that (1) reduces the likelihood
    of default over the life of the loan and related impacts to a
    consumer's credit, (2) makes the payment amount manageable
    given income and necessary expenses, and (3) manages and
    reduces the overall and lifetime cost of borrowing. Sallie
    Mae's position is that repayment plans and strategies that
    ignore any of these components are likely to yield unintended
    consequences in the long term.
        Some of the repayment plans that Sallie Mae offers to
    distressed borrowers include: tiered monthly payment options,
    interest-only payment periods, extensions of loan terms, and
    forbearances. In additional to the traditional programs, Sallie
    Mae developed the rate reduction program described in the
    previous response. Critical to the success of any of these
    tools is the process that we undertake with the customer to
    make sure that the program will work. We work with the customer
    to assess their overall financial situation. With the customer,
    we assess their current private loan obligations, Federal
    student loan payments, other consumer debts, income, and
    discretionary and essential spending in order to put together a
    comprehensive view of their personal budgets. We use this view
    to help identify repayment options to best meet their
    individual situations and ability to pay. However, in all
    cases, we make clear to the borrower that alternative payment
    schedules will increase the overall cost of the loan.
        We have modified loans for tens of thousands of borrowers,
    and continue to make these modifications based on the
    borrowers' personal situations. The great majority of these
    consumers have successfully kept their loans from returning to
    delinquency or defaulting.

    Q.4. For loans made between 2004 and 2008, what percentage are
    in default? What is the dollar value of these defaulted loans?

    A.4. Response: As part of our public disclosures, we provide
    detailed default information. The vast majority of defaults
    occur within 3 years of entering repayment. As a result, the
    vast majority of our charge-offs since 2008 have been
    associated with our older loans. Our charge-offs are reported
    in our quarterly investor disclosures that we file with the
    Security and Exchange Commission, which we discuss in our
    response to the first question. As part of our public investor
    information, we do provide default information on certain
    private education loans, which are eligible for securitization
    trusts, by year of entering repayment and year of default. A
    sample table showing this information is included below. The
    most recent public release was in our Q2 2012 Investor
    Presentation, which can be found at https://www1.salliemae.com/
    about/investors/webcasts/

    Q.5. For loans made after 2008, what percentage are in default?
    What is the dollar value of these defaulted loans?

    A.5. See previous answer.

    Q.6. How has Sallie Mae's private student loan underwriting
    changed since 2008?

    A.6. In 2008, we tightened our underwriting requirements and
    applications with coborrowers increased. Our proprietary
    underwriting model uses multiple factors to assess ability,
    stability, and willingness to repay. To determine the ability
    to repay we look at such factors as a family's debt-to-income
    ratio and cash-flow available to manage outstanding debt. We
    assess the willingness to pay by looking at credit scores and
    prior payment history. Today, our loan originations have high
    levels of cosigners (currently about 90 percent for
    undergraduate loans). Our private education loans are designed
    to support that shared responsibility and family commitment. In
    fact, in the majority of cases, a creditworthy cosigner helps
    applicants receive a lower interest rate offer than they would
    otherwise and serves as a vital influence on the student's
    borrowing experience.
        Since 2008, both the average FICO on new private education
    loans and the percentage of loans that are cosigned have
    steadily increased, as shown below:

       L2007: average winning FICO of 709 and 55 percent
            were cosigned.

       L2008: average winning FICO of 726 and 65 percent
            were cosigned.

       L2009: average winning FICO of 745 and 83 percent
            were cosigned

       L2010: average winning FICO of 739 and 89 percent
            were cosigned.

       L2011: average winning FICO of 748 and 91 percent
            were cosigned.

                  Additional Material Supplied for the Record