[Senate Hearing 113-829]
[From the U.S. Government Publishing Office]





                                                        S. Hrg. 113-829

      STRENGTHENING THE FEDERAL STUDENT LOAN PROGRAM FOR BORROWERS

=======================================================================

                                HEARING

                                 OF THE

                    COMMITTEE ON HEALTH, EDUCATION,
                          LABOR, AND PENSIONS

                          UNITED STATES SENATE

                    ONE HUNDRED THIRTEENTH CONGRESS

                             SECOND SESSION

                                   ON

 EXAMINING STRENGTHENING THE FEDERAL STUDENT LOAN PROGRAM FOR BORROWERS

                               __________

                             MARCH 27, 2014

                               __________

 Printed for the use of the Committee on Health, Education, Labor, and 
                                Pensions


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          COMMITTEE ON HEALTH, EDUCATION, LABOR, AND PENSIONS

                       TOM HARKIN, Iowa, Chairman
 
BARBARA A. MIKULSKI, Maryland          LAMAR ALEXANDER, Tennessee
PATTY MURRAY, Washington               MICHAEL B. ENZI, Wyoming
BERNARD SANDERS (I), Vermont           RICHARD BURR, North Carolina
ROBERT P. CASEY, JR., Pennsylvania     JOHNNY ISAKSON, Georgia
KAY R. HAGAN, North Carolina           RAND PAUL, Kentucky
MICHAEL F. BENNET, Colorado            ORRIN G. HATCH, Utah
SHELDON WHITEHOUSE, Rhode Island       PAT ROBERTS, Kansas
TAMMY BALDWIN, Wisconsin               LISA MURKOWSKI, Alaska
CHRISTOPHER S. MURPHY, Connecticut     MARK KIRK, Illinois
ELIZABETH WARREN, Massachusetts        TIM SCOTT, South Carolina
                          
                                       

                      Derek Miller, Staff Director

        Lauren McFerran, Deputy Staff Director and Chief Counsel

               David P. Cleary, Republican Staff Director

                                  (ii)

  




                           C O N T E N T S

                               __________

                               STATEMENTS

                        THURSDAY, MARCH 27, 2014

                                                                   Page

                           Committee Members

Harkin, Hon. Tom, Chairman, Committee on Health, Education, 
  Labor, and Pensions, opening statement.........................     1
Alexander, Hon. Lamar, a U.S. Senator from the State of 
  Tennessee, opening statement...................................     3
Reed, Hon. Jack, a U.S. Senator from the State of Rhode Island, 
  prepared statement.............................................     8
Durbin, Hon. Richard J., a U.S. Senator from the State of 
  Illinois, prepared statement...................................    10
Warren, Hon. Elizabeth, a U.S. Senator from the State of 
  Massachusetts..................................................    20
Baldwin, Hon. Tammy, a U.S. Senator from the State of Wisconsin..    22
Murphy, Hon. Christopher, a U.S. Senator from the State of 
  Connecticut....................................................    24
Franken, Hon. Al, a U.S. Senator from the State of Minnesota.....    25
Murray, Hon. Patty, a U.S. Senator from the State of Washington..    69

                            Witness--Panel I

Runcie, James W., Chief Operating Officer, Federal Student Aid, 
  U.S. Department of Education, Washington, DC...................    12
    Prepared statement...........................................    14

                          Witnesses--Panel II

Cooper, Michelle Asha, B.A., M.P.S., Ph.D., President, Institute 
  for Higher Education Policy, Washington, DC....................    27
    Prepared statement...........................................    29
Loonin, Deanne, National Consumer Law Center, Boston, MA.........    40
    Prepared statement...........................................    42
Johnson, Roberta L., Director of Student Financial Aid, Iowa 
  State University, Ames, IA.....................................    56
    Prepared statement...........................................    58
Dill, Marian M., Director of Student Financial Aid, Lee 
  University, Cleveland, TN......................................    61
    Prepared statement...........................................    62

                          ADDITIONAL MATERIAL

Statements, articles, publications, letters, etc.
    Additional comments from Marion Dill in response to Senator 
      Harkin's request (regarding S. 546--Smarter Borrowing Act) 
      and Senator Alexander's requests...........................    79
    Response by James W. Runcie to questions of:
        Senator Hagan............................................    85
        Senator Warren...........................................    86

                                 (iii)
 
      STRENGTHENING THE FEDERAL STUDENT LOAN PROGRAM FOR BORROWERS

                              ----------                              


                        THURSDAY, MARCH 27, 2014

                                       U.S. Senate,
       Committee on Health, Education, Labor, and Pensions,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10:03 a.m., in 
room SD-430, Dirksen Senate Office Building, Hon. Tom Harkin, 
chairman of the committee, presiding.
    Present: Senators Harkin, Alexander, Murray, Franken, 
Baldwin, Murphy, and Warren.

                  Opening Statement of Senator Harkin

    The Chairman. Good morning. The Senate Committee on Health, 
Education, Labor, and Pensions will come to order. This morning 
is another in our series of hearings preparing to reauthorize 
the Higher Education Act. This morning, our hearing is on 
Strengthening the Federal Student Loan Program for Borrowers. 
So we're going to take a look at the whole student loan 
program. As I said, this is the eighth in our series of 
hearings on this. Today, our primary focus is strengthening our 
Federal loan programs to ensure they're working well for 
students and families.
    Since the passage of the National Defense Education Act in 
1958, under which I borrowed money to go to college, the 
Federal Government has played a role in helping students fund 
their college education through loans and grants. We certainly 
have much to celebrate over the last half century when it comes 
to expanding higher education access. Yet various new 
challenges today demand our immediate attention.
    In recent years, several major changes have been made to 
the Federal student loan programs to address structural issues 
of loan origination, servicing, and repayment options. In 2007, 
the income-based repayment was created specifically to help 
struggling borrowers repay their loans and avoid the severe 
financial consequences of default. In 2010, Congress made the 
historic switch from the Federal Family Education Loan lending 
program to the Direct Loan program, a process that unfolded 
smoothly, according to nearly all accounts.
    It's important to take a moment to re-state the importance 
of that action and the real impact it has had on students and 
families. We achieved the goal of 100 percent direct lending. 
This eliminated more than $60 billion in subsidies to banks and 
directed the bulk of that money to students and their families.
    Despite all the progress made, however, there is still much 
work to be done. As the current student loan landscape clearly 
illustrates, the stakes have never been higher. To put it in 
perspective, our aggregate student loan debt in this country is 
now over $1 trillion, and the average student is saddled with 
about $29,000 in debt.
    There is a growing consensus that we need to address the 
impediments to college affordability and the key drivers of 
college costs. We've had a hearing on that previous to today to 
explore those issues. But we need to examine one central 
question: How well is the student loan system, from counseling 
to repayment, working for students and families?
    I will say at the outset that I am disappointed to report 
that all four TIVAS--the title IV servicers, the largest 
contractors--were invited, but chose not to take part in this 
hearing today, which may directly concern the contracts that 
they have with the Department of Education. These servicers, 
like Sallie Mae, rely heavily on Federal dollars for their 
business and yet could not find the time to put this hearing on 
their calendars. I hope we can all agree that students and 
taxpayers need to be prioritized.
    However, I am excited today for the opportunity to discuss 
the state of our Federal loan programs with a distinguished 
panel of experts. We'll take a hard look at what's working, 
what's not, and what needs to be done to ensure that the dream 
of an affordable higher education stays in reach for the 
millions of families who rely on student aid.
    At the outset, I want to re-state a fact, an economic 
statistic that was given to me by the president of Arizona 
State University, President Crowe, and it's this: if you are a 
high-income, low-performing student, you have an 80 percent 
chance of going to college. If you are a low-income, high-
performing student, your chances of going to college are only 
20 percent. That needs to be corrected.
    Again, as we look at the different choices, students ought 
to be able to choose between repayment options and decide which 
plan is best for them. I had an interesting conversation with a 
young professional this morning. She told me she went to a very 
good high school, comes from an upper middle-class family, went 
to a great college, and went to a very good law school, and 
she's a professional.
    She had heard that we were having this hearing today, and 
she said,

          ``You know, the biggest problem is that I went to all 
        these great schools, and not once did I ever have a 
        course on personal finance. Not once in high school did 
        they teach me how to balance a checkbook or how to set 
        up a budget or what borrowing means. What are loan 
        rates? What are fees? What are the repayments? How do 
        you calculate all this? Not once in high school, not in 
        college, not even in law school.''

    And she said,

          ``So many kids go to college. I remember when I went 
        to college, I got inundated by people wanting to loan 
        me money. And it all sounds very good, and it all 
        sounds very cheap.''

    And then she said, ``I must have had at least four or five 
credit cards sent to me, just free credit cards.'' And, of 
course, when you're young like that, and you don't know what 
all that means, it's easy to use a credit card and get yourself 
in a lot of trouble.
    I wanted to say, again, maybe this is also a part of it, 
too, that we're not doing a good enough job in our secondary 
schools, and we're not doing enough--and I know some of the 
witnesses' testimonies--I read them--talk about the need for 
financial counseling when you go to college.
    I know that my old alma mater, Iowa State, has started 
doing that, and I assume there are others, too. But I wonder if 
that shouldn't be an integral part of the loan process for 
students when they are going to college.
    This, to me, is one of the most important aspects of what 
we need to address in the reauthorization of the Higher 
Education Act--how we write; how we get more equity in terms of 
high-performing, low-income students to go to college; how we 
make sure that students know their rights and responsibilities 
when they borrow money; and to make sure they have adequate 
counseling.
    Another aspect that I really believe bears looking into is 
the issue of collection agencies and how much money collection 
agencies are taking out of the system every year. I'm told it's 
been over a billion dollars just for collection agencies.
    I've heard a lot of stories--some I know are true. I don't 
know all of them--about how these collection agencies operate 
and how much money they get for very little work in what they 
do to collect this money. So I think this also bears looking 
into.
    With that, I thank our witnesses, and before we get to 
that, I'll turn to Senator Alexander for his opening statement.

                 Opening Statement of Senator Alexander

    Senator Alexander. Thanks, Mr. Chairman.
    I want to thank Senator Harkin and his staff and ours for 
coming up with some really terrific hearings on the Higher 
Education Act. I want the witnesses to know we pay a lot of 
attention to what you say and your ideas. There's a risk we'll 
actually do what you say, so we're looking forward to your 
testimony. This has been very good so far.
    I was trying to remember the last person who ever said to 
me, ``It's pretty easy to pay for college.'' I don't think I've 
ever run into anybody who said that. My own experience is 
probably like everybody else's or most other people. I had no 
money, so I had two scholarships and five jobs to try to make 
my way through.
    But I think it's important to put--this subject today is 
what we can do, I think, to simplify the various ways--and I 
think there are eight of them--that the government has come up 
with to help students pay back their student loans, $100 
billion of new loans that we make every year. But putting the 
loans into perspective accurately, I think, is helpful.
    Let me use, rather than my words, the words of one of our 
witnesses, Judith Scott-Clayton, Assistant Professor of 
Economics and Education at Columbia University in New York. She 
talked about a lot of common misconceptions about student debt 
when she was here. She said,

          ``Most people think college is much more expensive 
        than it typically is. They see stories in the news 
        media about elite private colleges charging $50,000 for 
        tuition. They hear about unemployed graduates with 
        astounding amounts of debt. But most people, in fact, 
        pay much less.''

    Dr. Scott-Clayton said,

          ``After accounting for grants, the average net price, 
        the amount students will pay after subtracting 
        scholarships and grants that the student receives and 
        doesn't have to pay back--the average net price at a 
        public 4-year institution is about $3,000 per year. And 
        at the typical community college, a student who 
        receives a Pell grant--we have about 9 million students 
        who do every year--is likely to pay nothing at all and, 
        in fact, is likely to receive money back to pay for 
        books, supplies, and other living expenses.''

    Those were her words. I took a look at those facts. Three 
out of four of our college students attend a public 2- or 4-
year college or university. Of those, about two out of five of 
all students attend community colleges where the average 
tuition and fees are under $3,300. Those students receive an 
average of $4,850 in grants and scholarships. So the average 
community college student in America is receiving about $1,500 
more in grants and scholarships than what it costs in tuition 
and fees to attend college.
    Thirty-seven percent of all of our college students attend 
public 4-year universities. The average in-State tuition and 
fees is about $8,900. Those students receive an average of 
$5,800 in grants and scholarships. We're not talking loans. So 
they have to pay $3,100, on average, in tuition and fees.
    And then we have students who attend 4-year colleges that 
are private. That's about 15 percent. Their average tuition and 
fees are $30,000, but the scholarships and grants take that 
down to $12,500. At the for-profit colleges and universities, 
the cost is about $15,000.
    According to the New York Federal Reserve, at the end of 
last year, or 2012, 40 percent of student loan borrowers had a 
debt of less than $10,000, 70 percent had a debt of less than 
$25,000, and less than 4 percent had a debt load of over 
$100,000. And the College Board says they earn more than a 
million dollars over their lifetime with a college degree, more 
than if you didn't have one.
    So while this hearing is about making it easier to repay 
loans, I think it's important for students to know, as they 
think about going to college, that it can be affordable, and 
that most students don't have to borrow too much money if they 
will borrow wisely.
    I think, Mr. Chairman, that as we move into other hearings, 
we should look at the problem of over-borrowing, which you have 
mentioned before. The Wall Street Journal had an article on 
March 2d, which I'd like to ask to add to the record, which 
talks about the Inspector General's report from the Department 
of Education warning that some students borrow excessively for 
personal expenses not related to their education, and that's a 
growing phenomenon.
    [The information referred to follows:]

                [The Wall Street Journal, March 2, 2014]

       Student Loans Entice Borrowers More for Cash Than a Degree

                           (By Josh Mitchell)

      
    
    
    Some Americans caught in the weak job market are lining up for 
Federal student aid, not for education that boosts their employment 
prospects but for the chance to take out low-cost loans, sometimes with 
little intention of getting a degree.
    Some Americans are lining up for Federal student aid, not for 
education but for the chance to take out low-cost loans, sometimes with 
little intention of getting a degree. Joshua Mitchell reports on 
MoneyBeat.
    Take Ray Selent, a 30-year-old former retail clerk in Fort 
Lauderdale, FL. He was unemployed in 2012 when he enrolled as a part-
time student at Broward County's community college. That allowed him to 
borrow thousands of dollars to pay rent to his mother, cover his cell 
phone bill and catch the occasional movie.
    ``The only way I feel I can survive financially is by going back to 
school and putting myself in more student debt,'' says Mr. Selent, who 
has since added $8,000 in student debt from living expenses. Returning 
to school also gave Mr. Selent a reprieve on the $400 a month he owed 
from previous student debt because the Federal Government doesn't 
require payments while borrowers are in school.


    Ray Selent of Fort Lauderdale, FL, who is taking courses for a 
degree in theater, says student loans allow him to cover any needs that 
arise. Andrew Kaufman for The Wall Street Journal.

    A number of factors are behind the growth in student debt The soft 
jobs recovery and the emphasis on education have driven people to 
attain more schooling. But borrowing thousands in low-rate student 
loans--which cover tuition, textbooks and a vague category known as 
living expenses, a figure determined by each individual school--also 
can be easier than getting a bank loan. The government performs no 
credit checks for most student loans.
    College officials and Federal watchdogs can't say exactly how much 
of the United States' swelling $1.1 trillion in student-loan debt has 
gone to living expenses. But data and government reports indicate the 
phenomenon is real. The Education Department's inspector general warned 
last month that the rise of online education has led more students to 
borrow excessively for personal expenses. Its report said that among 
online programs at eight universities and colleges, non-education 
expenses such as rent, transportation and ``miscellaneous'' items made 
up more than half the costs covered by student aid.
    The report also found the schools disbursed an average of $5,285 in 
loans each to more than 42,000 students who didn't log any credits at 
the time. The report pointed to possible factors such as fraud in 
addition to cases of people enrolling without serious intentions of 
getting a degree.
    Capella Education Co., which runs online schools, examined student 
costs and debt at institutions--public and private--in Minnesota and 
concluded that between a quarter and three-quarters of loans taken out 
by students were for non-education expenses. At one of Capella's 
master's programs, the typical graduate left with about $30,200 in 
student debt even though tuition, fees and book costs totaled roughly 
$18,800. Borrowers are prohibited under Federal law, except in rare 
instances, from discharging student debt through bankruptcy.
    The share of student borrowers taking out the maximum amount of 
loans--$12,500 a year for undergraduates--has risen since the 
recession. In the 2011-12 academic year, Federal Education Department 
data show, 68 percent of all undergraduate borrowers hit the annual 
loan ceiling, up from 60 percent in 2008.
    Research suggests a fair chunk of that is going to non-education 
expenses. In 2011-12, about a quarter of student borrowers took out 
loans that exceeded their tuition, after grants, by $2,500, according 
to research by Mark Kantrowitz, a higher-education analyst and 
publisher of the education site Edvisors.com.
    Some students say they intend to get a degree but must borrow as 
much as possible because they can't find decent paying jobs to cover 
day-to-day expenses.
    Tommie Matherne, a 32-year-old married father of five in Billings, 
MT, has been going to school since 2010, when he realized the $10 an 
hour he was making as a mall security guard wasn't covering his 
family's expenses. He uses roughly $2,000 in student loans each year to 
stock his fridge and catch up on bills. His wife is a stay-at-home 
mother who also gets loans to take online courses.

          ``We've been taking whatever we can for student loans every 
        year, taking whatever we have left over and using it to stock 
        up the freezer just so we have a couple extra months where we 
        don't have to worry about food,''--says Mr. Matherne, who owes 
        $51,600 in Federal loans.

    Some students end up going deeper into debt. Early last year, when 
Denna Merritt lost her long-term unemployment benefits, the 49-year-old 
Indianapolis woman enrolled part-time at the Art Institute of 
Pittsburgh's online program, aiming for a degree in graphic design. She 
took out $15,000 in Federal loans, $2,800 of which went to catch up on 
unpaid bills, including utilities, health-insurance premiums and cable.
    ``Obviously, it's better not to use it that way if you can help it, 
because you're just going to owe that much more later,'' says Ms. 
Merritt, a former bookkeeper.
    The government lets students use a portion of Federal loans for 
living expenses on the grounds that it allows students to devote more 
time to studying and improves their chances of graduating.
    Even when schools suspect students are over-borrowing, they are 
restricted by Federal Law and Education Department policy from denying 
funds.
    College and university trade groups are pushing legislation this 
year to set lower maximum Joan limits for some types of students, such 
as part-timers. Dorie Nolt, spokeswoman for Education Secretary Arne 
Duncan, says the Obama administration is ``exploring alternatives to 
see how we might ensure that students don't borrow more than 
necessary.''
    Mr. Selent, of Fort Lauderdale, knows he is getting himself deeper 
in a hole but prefers that to the alternative of making minimum wage. 
In his 20's, he earned a bachelor's degree in communications from a 
local for-profit school but couldn't find a job in the field after 
graduating and began falling behind on his student loan bills. He is 
now taking courses for a degree in theater so he can become an actor.
    Meanwhile, Federal loans allow him to cover any needs that arise 
during the semester. Says Mr. Selent: ``It keeps me from falling 
apart.''

    Senator Alexander. So over-borrowing may be partly the 
result of government policy. And I think we should in future 
hearings talk about various ways that have been suggested to 
limit the over-borrowing that saddles some students with too 
much debt, such as the current practice of allowing students 
who are enrolled half-time to take out as much in Federal loans 
as a full time student. Or perhaps we should provide colleges 
with the authority to set some borrowing limits. These are 
things we'll have to discuss.
    And, of course, in all this, we're reminded that we do have 
a grant program. That's the Pell grant--$33 billion a year--and 
we're talking about loans which should be paid back.
    In conclusion, what we found in our earlier hearing when we 
talked about the application process--and I don't know if we 
have that application or not--for loans, we found 100 questions 
that you have to--we found that the application for a loan, Mr. 
Chairman, was 10 pages and 100 questions, and every student 
hates to be presented with this. But the application for making 
it easier to pay back your loan is five pages of intimidating 
questions.
    We're working on finding ways to simplify the application 
for grants and loans, of which there are 20 million of those 
every year. And maybe as a result of the suggestions we hear 
today, we can think of a way to simplify the various ways we've 
already come up with to make it easier for students to pay back 
their loans.
    So I look forward to this, and I hope as we discuss it we 
keep a balanced view, and we don't suggest to American students 
that you can't afford to go to college when, in fact, for most 
students, you can, and that you're borrowing too much when, for 
most students, there's no need to do that. And that, I know, 
goes against the popular misconception, but I think it's 
important that we keep that in balance.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Alexander.
    First, I want to recognize Senator Warren for purposes of 
introducing some testimony.
    Senator Warren. Thank you very much, Mr. Chairman. As you 
know, Senator Reed and Senator Durbin are not members of the 
HELP Committee and so they're not with us here today. But 
they've been working hard on the student debt issue.
    So I would ask unanimous consent to submit their statements 
for the record about student debt.
    The Chairman. Without objection, so ordered.
    Senator Warren. Thank you.
    [The prepared statements of Senator Reed and Senator Durbin 
follow:]

                   Prepared Statement of Senator Reed

    I would like to commend the Chairman and Ranking Member for 
the thoughtful, thorough, and collaborative process for 
reviewing the Higher Education Act in preparation for its 
reauthorization. The Higher Education Act plays a fundamental 
role in expanding opportunity, strengthening the middle class, 
and securing our future.
    Today's hearing on student loans is of critical importance. 
The social and economic implications of the rising tide of 
student loan debt demand that we take action. I appreciate the 
opportunity to share my views and recommendations with the 
committee.
    As part of the War on Poverty we enacted the Higher 
Education Act with the idea that no American should be denied 
the ability to go to college because their family lacked the 
means to pay. My predecessor, Senator Pell, with the creation 
of the Basic Educational Opportunity Grant--later named the 
Pell grant in his honor--made that promise of a college 
education real for millions of Americans. And as part of the 
student aid programs, we invested in offering low-cost loans to 
create opportunity, spur innovation, and grow our economy.
    Our student loan programs were originally seen as an 
investment, not a profit center or even a cost-neutral 
proposition. However, today our student aid investment has been 
stood on its head.
    The Congressional Budget Office estimates that student 
loans will generate revenue at least through 2024. The GAO 
recently reported that on loans made between 2007 and 2012, the 
Federal Government is estimated to make $66 billion.
    These record revenues are being generated at a time when 
student loan debt has become a serious threat to our ladder of 
opportunity. The Federal Reserve Bank of New York and the 
Consumer Financial Protection Bureau have raised concerns about 
the economic drag of student loan debt on purchasing a house, 
buying a car, starting a business, or saving for retirement. As 
student loan repayment plans stretch out over 20 years or more, 
many in this generation will still be paying off student loans 
when it comes time to send their own children to college.
    Borrowers are struggling to manage student loan debt. The 
delinquency rate on student loans is higher than for other 
types of household debt. Default rates are on the rise. For 
borrowers who entered repayment in 2010, 14.7 percent had 
defaulted by 2013, up from 13.4 percent for those who began 
repayment in 2009.
    The Federal Government holds an estimated $1 trillion of 
the $1.2 trillion in outstanding debt. The Institute for 
College Access and Success reported that 71 percent of the 
graduating class of 2012 had student loan debt, with the 
average amount being $29,400. Between 2008 and 2012, student 
loan debt increased by an average of 6 percent per year--
significantly higher than inflation. The New America Foundation 
recently reported on the substantial rise in debt for graduate 
education. This, too, has serious implications for our economy. 
We depend on individuals with graduate education to teach in 
our public schools and our colleges and universities. 
Researchers, social workers, and health professionals require 
graduate education. Our capacity to out-educate and out-
innovate our global competitors will be seriously compromised 
if student loan debt puts graduate education out of reach.
    We need a multi-pronged strategy to reduce the student loan 
debt burden for borrowers past, present, and future. Below are 
some actions that we should take:

     First, we have to address college costs. That 
means engaging States in a true partnership. My Partnerships 
for Affordability and Student Success Act (S. 1874) would 
reinvigorate the Federal-State partnership in helping low-and 
moderate-income students afford college. The legislation would 
establish a formula grant to States with a focus on need-based 
aid to improve student outcomes and reduce college costs.
     Second, colleges and universities must assume 
greater responsibility for college costs and student debt. To 
ensure that institutions have more skin in the game when it 
comes to student loans, I introduced the Protect Student 
Borrowers Act (S. 1873) with Senators Durbin and Warren. This 
legislation would hold colleges and universities accountable 
for student loan default by requiring them to repay a 
percentage of defaulted loans. As the percentage of students 
who default rises, the institution's risk-share payment will 
rise. It also provides incentives for institutions to take 
proactive steps to ease student loan debt burdens and reduce 
default rates. Institutions can reduce or eliminate their 
payments if they implement a comprehensive student loan 
management plan. The risk-sharing payments will be invested in 
helping struggling borrowers, preventing future default and 
delinquency, and reducing shortfalls in the Pell Grant program. 
With the stakes so high for students and taxpayers, it is only 
fair that institutions bear some of the risk in the student 
loan program.
     Third, we need to ensure that current and future 
Federal and private student loan borrowers are guaranteed basic 
servicing and disclosure rights. That is why I joined Senators 
Durbin, Warren, and Boxer in introducing the Student Loan 
Borrower Bill of Rights Act (S. 1803).
     Fourth, we have to provide a real avenue to allow 
individuals straining under the weight of the estimated $1.2 
trillion in student loan debt--many with loans carrying an 
interest rate of 6.8 percent or higher--to refinance those 
loans to a lower interest rate. I am pleased to be working with 
Senators Warren and Durbin on legislation to enable borrowers 
to refinance their loans based on the current rates established 
in the bipartisan legislation enacted last summer.

    We need to get these student loan policies right: not just 
to help those in college, but to boost our economy. If we can 
make college more affordable and enable hard working college 
graduates retire their student debt in a reasonable fashion, 
they can more readily play a needed role in growing our 
economy.
    I again thank the Chairman and Ranking Member for their 
focus on this vital issue and the committee for this 
opportunity to share these proposals for addressing student 
loan debt. I look forward to working with you on ways to 
incorporate them into the reauthorization of the Higher 
Education Act.

                  Prepared Statement of Senator Durbin

    I'd like to thank Chairman Harkin and Ranking Member 
Alexander for holding this hearing and bringing focus to one of 
the major issues facing American students and looming over our 
economy today--growing student debt.
    Borrowing has long been part of the financial equation to 
pay for college for many low- and middle-income students. 
Federal student loans have allowed millions to invest in their 
futures--taking on debt in return for an education that leads 
to a good paying job that allows them to repay their loans.
    Unfortunately, the rising costs of college and bad actors 
like for-profit colleges mean that students are taking out more 
loans than they can often even fathom, let alone ever hope to 
repay. In the last decade the number of borrowers and the 
amount they're borrowing has steadily increased. The average 
debt burden for a graduate in 2012 was $27,850.
    For the first time in our history, total student loan debt 
now exceeds credit card debt. The cumulative student loan debt 
of the 40 million Americans with outstanding loans is estimated 
to be near $1.2 trillion.
    The Federal Reserve Bank of New York warns that this 
growing pile of debt threatens current and future economic 
growth. Before 2009, young people with student loan debt were 
more likely than others to own homes and more likely to have 
bought a new car. Now, the Fed says, the opposite is true. 
Increasingly, students are finding the investment is not worth 
the return.
    While we know that on average those with a college 
education earn significantly more and have lower unemployment 
rates than those without a college education, recent graduates 
are finding that they are unable to make enough at their first 
job to pay their monthly student loan payments. Furthermore, 
some parents are making hard choices including coming out of 
retirement to help another family member with high student loan 
debt.
    This isn't the system of Federal financial support that was 
designed to give everybody a fair shot at a higher education 
and better future. While we may disagree about the solutions, I 
hope we can all agree that the status quo is not acceptable and 
that we can't delay in addressing the rising student loan debt.
    Senator Jack Reed, Senator Elizabeth Warren, and I have 
committed to doing what we can to promote a national dialog 
around these issues--one that recognizes that millions of 
borrowers need help now. To help these borrowers, we have 
introduced the Student Loan Borrower Bill of Rights, which is 
also cosponsored by Senators Boxer, Gillibrand, Murphy, 
Blumenthal, and Merkley.
    The bill would ensure that borrowers know and understand 
their rights when it comes to their Federal and private student 
loans. It improves servicing standards for Federal student 
loans, making sure that borrowers are aware of Federal programs 
like income-based repayment, which provides borrowers a more 
reasonable repayment plan for their Federal loans. Too often, 
borrowers aren't told of these options or they are 
automatically put into forbearance or deferment, which is not 
always in their best interest.
    Our bill creates servicing standards for private student 
loans to ensure that borrower's rights are protected and 
borrowers are not subject to increases in loan costs. It would 
push lenders and servicers to offer borrowers alternatives to 
default. Unlike Federal loans, most private loans don't offer 
programs that link loan payments to a person's income. Instead, 
if borrowers can't make their monthly payments they have little 
choice but to eventually default or to continue racking up 
interest in deferment.
    Additionally, the bill would implement common-sense reforms 
to ensure Federal and private student loan borrowers' rights 
are protected. The bill would require that borrowers have 
access to basic information about their loans including loan 
history and original loan documents as well as notification if 
their Federal loan servicer changes or their private student 
loan is sold to another lender. If the borrower doesn't know 
who to reach out to in times of difficulty, it is nearly 
impossible for them to get any help.
    The Borrower Bill of Rights also requires servicers to 
establish a process to quickly address student loan account 
errors and to apply monthly payments to the loan with the 
highest interest rate. Borrowers should not be penalized 
because they cannot resolve errors related to their student 
loan or because their monthly payments are applied to lower 
interest loans first.
    Finally, the bill would require all Federal and private 
student loan servicers to establish a servicemember liaison to 
answer questions and help make sure servicemembers get the 
benefits they deserve and know about repayment options they 
could be eligible for. The Consumer Financial Protection Bureau 
issued a report, ``The Next Front? Student Loan servicing and 
the Cost to Our Men and Women in Uniform,'' in 2012 which found 
that servicemembers often rely heavily on their student loan 
servicers to guide them in making decisions about which 
repayment options and benefits is best for them. In some cases, 
servicemembers were receiving incorrect or confusing 
information about available benefits, leading to thousands of 
dollars in additional costs.
    No matter how many rights and protections we secure for 
student borrowers, some people are in such bad shape and so 
buried in debt, sometimes several hundred thousand dollars, 
that they'll never dig out. But unlike almost every other type 
of personal debt in America, student loans are not 
dischargeable in bankruptcy. This means that your student loans 
will literally follow you your entire life until you pay it 
off. That's just not fair when you consider all of the other 
debts that are dischargeable in bankruptcy. I've introduced 
legislation to fix this problem.
    If we are to help ensure that the investments students do 
make in their futures are worthwhile, we have to give schools a 
greater financial stake in the success of their students. 
Senator Jack Reed says schools need to have ``skin in the 
game.'' I agree. I support his Protect Student Borrowers Act 
that would require schools to pay back some of the Federal 
money they receive if large percentages of their students 
default on their loans. This will help increase accountability 
of all schools, but especially for-profit schools.
    We have to get a handle on the for-profit college industry. 
This industry only enrolls 10 percent of all college students, 
but receives more than 20 percent of all title IV funding and 
accounts for 46 percent of all loan defaults. They cost more 
than public schools and leave their students with more debt on 
average than public or private schools. Yet, their operations 
are often subsidized up to 90 percent by Federal taxpayers. 
Their investors rake in the profits while taxpayers foot the 
bill and students amass the debt.
    There is more that could be done and ideas other than those 
I've outlined that should be considered, but I commend the 
committee for bringing attention to these challenges today. I 
encourage the committee to look seriously at these issues and 
act quickly. An entire generation of students and the future of 
the American economy depend on it.

    The Chairman. Thank you all very much. First, let me 
introduce our first panelist, Mr. James Runcie. Mr. Runcie 
serves at the U.S. Department of Education as the Chief 
Operating Officer for Federal Student Aid, a performance-based 
organization created to modernize the delivery of student 
financial assistance.
    In this role, Mr. Runcie advises the Secretary of Education 
on matters related to the department's operation of student 
financial assistance programs under title IV. Before joining 
the department, Mr. Runcie served as co-head of Equity 
Corporate Finance of UBS Investment Bank and held numerous 
other executive positions with Bank of America Securities 
Corporation and the Xerox Corporation.
    Mr. Runcie is a graduate of the College of the Holy Cross 
with a bachelor's degree in mathematics and earned his master's 
in business administration with distinction from Harvard 
University's Graduate School of Business.
    Mr. Runcie, welcome. Your statement will be made a part of 
the record in its entirety. If you could sum it up in about 5 
minutes, we'd appreciate it very much.

STATEMENT OF JAMES W. RUNCIE, CHIEF OPERATING OFFICER, FEDERAL 
   STUDENT AID, U.S. DEPARTMENT OF EDUCATION, WASHINGTON, DC

    Mr. Runcie. Chairman Harkin, Ranking Member Alexander, and 
distinguished members of the committee, thank you for the 
opportunity to discuss the Federal student loan programs. FSA 
is responsible for administering and overseeing the Federal 
student financial assistance programs. These programs represent 
the largest source of student aid in the United States.
    Last year, FSA processed more than 21 million applications. 
We also delivered more than $137 billion in aid to 14 million 
borrowers. Today, our loan portfolio is valued at more than $1 
trillion with roughly 40 million recipients. FSA does not work 
alone in these efforts. Our workforce of over 1,300 employees 
is supported by over 10,000 private sector employees working 
for more than 150 private companies with employees in 35 
States.
    As you are aware, until recently, there were two primary 
Federal student loan programs, the FFEL program and the DL 
program. In 2007, the DL program's share of annual Federal 
student disbursements peaked at approximately 20 percent of 
total annual Federal student loan volume. Around that time, the 
decline in the financial markets affected student lending by 
restricting the availability of capital for private lenders.
    Many schools began moving from the FFEL program to the DL 
program. In addition, ECASLA authorized the department to 
purchase FFEL loans and assume responsibility for servicing 
these loans. In 2010, the SAFRA Act ended the origination of 
new loans in the FFEL program. FSA successfully implemented the 
transition to full direct lending, and since that time, every 
eligible student and parent who applied for a loan was able to 
receive one.
    Let me repeat that. Every eligible student and parent who 
applied for a loan was able to receive one. I stress that 
point, because since moving to 100 percent direct lending, FSA 
has disbursed over $350 billion in loans. In 2013 alone, we 
disbursed over $100 billion in direct loans to over 10 million 
borrowers. That's an increase of almost 700 percent in 5 years.
    Today, FSA contracts with 11 additional servicers. The 
competitive structure of the contracts was designed by FSA to 
ensure that borrowers receive the highest quality service at 
the lowest possible cost to the taxpayer. To accomplish this, 
the department analyzes customer satisfaction scores and 
default prevention statistics. In addition, the pricing 
schedule provides greater compensation for every borrower in a 
current repayment status.
    We continue to supplement the work of our servicers by 
providing innovative repayment options, tools, and resources to 
help borrowers manage their financial obligations. For example, 
we have launched the Financial Awareness Counseling Tool. This 
is an interactive online counseling tool that provides students 
with information about managing their student loan debt. Since 
inception, nearly 1 million students have used this tool.
    Since 2012, we have created new tools. We introduced the 
Pay As You Earn repayment plan, which helps DL borrowers manage 
their debt by limited monthly payments to 10 percent of income. 
Today, over 22 percent of all DL funds in active repayment 
status are in income-driven repayment plans. We launched our 
repayment estimator, which allows borrowers to view and compare 
repayment plans. In the past 4 months alone, over 1 million 
borrowers have accessed the tool to research repayment options.
    We also updated our entrance and exit counseling for 
borrowers. Within the exit counseling module, the borrower is 
provided with information on repayment plan eligibility and 
estimated repayment amounts. To date, over 1.6 million 
borrowers have utilized the tool.
    We worked with our loan servicers to enhance loan 
counseling for military members to increase awareness of 
benefits such as Public Service Loan Forgiveness. We also 
mandated all servicers to proactively identify and contact the 
pool of military service members to ensure that they're aware 
of the benefits they are entitled to under SCRA.
    In November 2013, the department conducted a targeted 
outreach campaign to over 3 million borrowers informing them of 
different repayment options. Almost 150,000 applications for 
income-driven plans have been filed as a result of the outreach 
campaign.
    The department launched an innovative public-private 
partnership with the Department of Treasury and Intuit to raise 
awareness about income-driven plans to the 18 million users of 
Turbo Tax online. Separately, Treasury and Education have also 
included a message on the back of envelopes containing this 
year's tax refund checks to raise awareness of Federal student 
loan repayment options. Approximately 25 million of these 
envelopes will be mailed to tax filers in the 2014 tax season.
    Finally, earlier this year we launched a new online direct 
consolidation loan application. This application makes it 
easier for borrowers to consolidate their loans. These 
borrowers can choose to upload their income information 
directly from the IRS, and in only a few months, over 100,000 
borrowers have used this new system to apply for loan 
consolidation.
    We continue to do all we can to ensure borrowers have the 
best possible customer experience and that we are being good 
stewards of taxpayer moneys. I appreciate the opportunity to 
discuss the Federal student loan programs and welcome any 
questions you may have for me.
    Thank you.
    [The prepared statement of Mr. Runcie follows:]
                 Prepared Statement of James W. Runcie
    Chairman Harkin, Ranking Member Alexander, and distinguished 
members of the committee, thank you for the opportunity to discuss the 
title IV Federal student loan programs.
    Federal Student Aid administers and oversees the Federal student 
financial assistance programs, authorized under Title IV of the Higher 
Education Act of 1965 (HEA). These programs represent the largest 
source of student aid for postsecondary education in the United States. 
Last year, Federal Student Aid processed more than 21 million 
applications for Federal student aid, the FAFSA, and delivered more 
than $137 billion in grant, work-study, and loan assistance to 
approximately 14 million postsecondary students and their families. 
Today, our loan portfolio is valued at more than $1 trillion, with 
roughly 40 million individual borrowers and 178 million loans.
    Federal Student Aid does not work alone. Federal Student Aid's 
workforce of over 1,300 employees is supported by about 10,000 private 
sector contract employees at more than 15 private sector companies with 
employees in 35 States plus the District of Columbia.
    In administering these programs, our priority is to support 
eligible students with Federal financial aid to help them pursue a 
postsecondary education and to ensure that they pay their loans back 
after completing their education. As you know, the average income for 
young adults with a college degree is more than 30 percent higher than 
their counterparts with only a high school diploma. Given today's 
global economy, having a college degree is critical for the United 
States to remain competitive with other countries, and I am proud to be 
a part of an organization whose mission is helping our students to 
reach their potential.
            background on the federal student loan programs
    There are three Federal student loan programs--the Federal Family 
Education Loan (FFEL) Program, through which lenders using private 
capital made federally guaranteed and federally subsidized loans to 
students; the William D. Ford Direct Loan Program, where Department of 
Education makes loans directly to students; and, the Federal Perkins 
Loan Program (Perkins) through which schools make student loans using 
Federal and institutional funds. For the remainder of my testimony, I 
will focus on the two main loan programs: the FFEL and Direct Loan 
Programs.
    The FFEL program was established in 1965 as part of the Higher 
Education Act and the Direct Loan Program was created in 1993. Between 
1994 and 2006, the Direct Loan program's share of annual Federal 
student disbursements peaked at approximately 20 percent of total 
annual Federal student loan volume.
    Beginning in 2008, the decline in the financial markets affected 
student lending by restricting the availability of capital for private 
lenders to make FFEL loans. The Ensuring Continued Access to Student 
Loans Act of 2008 (ECASLA) authorized the Department to implement a 
program to ensure credit market disruptions did not deny eligible 
students and parents access to Federal student loans for the 2008-09 
and 2009-10 academic years. Under this authority, the Department 
purchased FFEL loans from private lenders and assumed responsibility 
for servicing these loans. As lenders began selling their loans to the 
Department, Federal Student Aid also assumed responsibility for 
additional Direct Loan volume.
    The SAFRA Act, enacted in 2010, ended the origination of new loans 
in the FFEL Program and thus made new Federal student loans available 
only through the Direct Loan Program. Federal Student Aid successfully 
implemented the transition to full direct lending and every borrower 
was able to receive a loan without interruption. In fiscal year 2013, 
we disbursed approximately $100 billion in Direct Loans to 
approximately 10.6 million student and parent borrowers. This is an 
increase of almost 700 percent in just 5 years.
    Federal Student Aid manages a Federal student loan portfolio of 
FFEL and Direct Loans of approximately $1 trillion. We have 
successfully managed substantial growth in the title V Federal 
financial aid programs and continue to serve our customers--students 
and families--by providing information, tools and resources they need 
to pursue postsecondary education and manage their repayment 
obligations.
                         student loan servicing
    Prior to 2009, one servicer, ACS Education Solutions (ACS), 
serviced the entire Direct Loan portfolio. Today the Department works 
with and oversees multiple student loan servicing contractors. These 
companies manage the borrower's repayment process, including: (1) 
providing the borrower with information about repayment options; (2) 
billing the borrower monthly; (3) collecting payments from the borrower 
and applying those payments to loan fees, interest and principal; and, 
(4) if the borrower becomes delinquent, working with the borrower to 
get them back into a regular repayment schedule.
    In 2009, FSA contracted with four companies to service the growing 
government-held portfolio: Great Lakes Educational Loan Services, Inc. 
(Great Lakes); Nelnet Servicing, LLC (Nelnet); Pennsylvania Higher 
Education Assistance Agency (PHEAA); and SLM Corporation (Sallie Mae). 
These four servicers are the Title IV Additional Servicers (TIVAS). The 
competitive structure of these contracts is designed to ensure that 
borrowers receive the highest quality service at the lowest possible 
cost to the taxpayer.
    The metrics the Department uses to measure TIVAS performance 
include customer satisfaction measured across three distinct groups: 
borrowers, financial aid personnel at postsecondary schools, and 
Federal Student Aid and other Federal agency personnel who work with 
the servicers.
    Additionally, we measure the success of the servicer's default 
prevention efforts as reflected by the percentage of borrowers and 
percentage of dollars in each servicer's portfolio in default. The 
Department also compiles quarterly customer satisfaction survey scores 
and default prevention statistics for the TIVAS into annual measures to 
determine each servicer's allocation of new loan volume. These scores 
are published on the Department's Web site.
    Finally, the structure of the servicing contract provides higher 
levels of servicer compensation for every borrower in a regular 
repayment status. Conversely, servicers are paid less for borrowers who 
are delinquent, in forbearance or deferment or who ultimately default.
    In addition to the TIVAS, the Department has servicing contracts 
with certain not-for-profit (NFP) loan servicers. Between October 2011 
and February 2013 the Department executed agreements with seven 
servicers representing 34 NFP entities. Four additional entities had 
their implementations canceled due to the Bipartisan Balanced Budget 
Act of 2013 which eliminated the NFP provisions and mandatory funding.
    Today, Federal Student Aid has contracts with 11 Federal student 
loan servicers: the four TIVAS and seven NFPs.
                           repayment options
    In addition, we also continue our efforts to develop and provide 
optimal repayment options, tools and resources to help borrowers manage 
their financial obligations and lower delinquency and default. Launched 
in March 2013, our ``Repayment Estimator'' allows borrowers to view and 
compare repayment plans, providing comparisons of monthly payment 
amounts, total amount paid, and total interest paid based on each plan.
    Over a 6-week period starting in November 2013, the Department also 
contacted borrowers who might benefit from an income-driven repayment 
plan to ensure that they have the information needed to determine their 
best repayment option. The effort targeted borrowers at key stages in 
the repayment process including: those who were about to enter 
repayment; delinquent borrowers; borrowers with higher-than-average 
Federal student loan debt; and borrowers in deferment or forbearance 
because of financial hardship or unemployment.
    The Department sent e-mails to over 3 million Federal student loan 
borrowers. The effort complimented the work of student loan servicers 
and we are currently analyzing the data to provide meaningful insight 
into how to design more effective borrower communications to improve 
overall student loan servicing activities. As of March 1, 2014, 
approximately 30 percent have viewed the email. Borrowers were provided 
with different instructions depending on their repayment status. For 
example, some borrowers were provided information on how to apply for 
an income-driven repayment plan; others were provided a link to the 
repayment estimator tool to understand which alternative repayment 
plans were available; and others were asked to contact their servicers 
to apply for an income-driven repayment plan.
    As a result of this campaign, almost 150,000 IDR applications have 
been filed and nearly 25 percent of the most delinquent borrowers who 
opened the email took an action to avoid default.
    The Administration also created the Direct Loan Pay As You Earn 
(PAYE) Repayment plan in December 2012, which helps certain eligible 
borrowers manage their Federal loan debt by limiting monthly payments 
to 10 percent of the borrower's discretionary income. FSA also created 
an online application tool for borrowers who want to participate in 
this plan or the pre-existing Income-Based Repayment plan. Today, over 
22 percent of all outstanding Direct Loan funds in an active repayment 
status are in an income-driven repayment plan.
    Additionally, we have updated entrance and exit counseling for 
borrowers and made our Web site more user-friendly. At the end of the 
exit counseling module on StudentLoans.gov, a borrower is provided with 
preliminary repayment plan eligibility information and estimated 
repayment amounts. The preliminary information is based on the 
borrower's loan information in the National Student Loan Data System 
(NSLDS) and offers the borrower the opportunity to select a repayment 
plan they believe is best for them at the time they are learning about 
their repayment options. We then provide loan servicers with borrowers' 
repayment plan selection from these sessions.
    In July 2012, Federal Student Aid launched the Financial Awareness 
Counseling Tool (FACT), an interactive, loan counseling tool on 
StudentLoans.gov that provides students with financial management 
basics, information about their current loan debt while they are in-
school making year-to-year borrowing decisions, and estimates of 
student loan debt levels after graduation. FACT provides students with 
five interactive tutorials on topics ranging from managing a budget to 
avoiding default. Students can look at their individual loan history 
and receive customized feedback to help them understand how to make 
responsible financial decisions and manage their financial obligations. 
Since its launch, about half a million students have used this tool.
    We've also worked to streamline the application process for 
borrowers in specific circumstances. Prior to 2013, borrowers wishing 
to discharge their student loans due to Total and Permanent Disability 
(TPD) had to work with their loan servicers or guaranty agencies, each 
with a different set of forms and processes, which often led to 
confusion and frustration during the multi-year, multi-step application 
process. In July 2013, FSA implemented a new, streamlined process with 
a standardized form and a single point of contact for all FFEL and 
Direct Loan borrowers throughout the lifecycle of a TPD discharge 
application.
    Federal Student Aid worked with our loan servicers to enhance loan 
counseling for military veterans to increase awareness of benefits such 
as the Public Service Loan Forgiveness (PSLF) program.
    In January 2014, we made the new Direct Consolidation Loan 
Application and Promissory Note available on StudentLoans.gov so that 
all our loan applications were in one place for borrowers to access. 
Borrowers with non-defaulted Federal loans can submit applications 
electronically; confirm loans for consolidation; choose a consolidation 
loan servicer; select a repayment plan; and submit an income-driven 
repayment (IBR, ICR, or PAYE) plan e-application. Borrowers can choose 
to upload their income information directly from the Internal Revenue 
Service under an agreement we implemented with the IRS.
                               conclusion
    Working with our servicers, Federal Student Aid strives to provide 
borrowers with options to select the best repayment plan for their 
needs and tools and resources to assist in managing debt. While I am 
proud of the work FSA is doing, we have faced some challenges along the 
way. We continue to strive to do all we can to ensure borrowers have 
the best possible customer experience and that we are being good 
stewards of taxpayer money. My team is continually seeking ways to 
improve our services and operations and I am privileged to work with 
such a dedicated group of professionals. I appreciate the opportunity 
to discuss Federal student loan servicing and repayment options for 
borrowers, as well as the programs and services my office administers. 
I welcome any questions you have for me.

    The Chairman. Thank you very much, Mr. Runcie. Thank you 
for your stewardship. We'll start a round of 5-minute questions 
here.
    Let me talk about servicers. In my opinion, borrowers are 
in the best position to know whether their servicer is doing a 
good job. I'd like to know how much their opinion counts. For 
example, I wish that Sallie Mae would have taken up our offer 
to appear today, but they decided not to. But I can tell you we 
continue to hear how unhappy people are with Sallie Mae quarter 
after quarter, yet the servicer still receives significant loan 
volume.
    Why is that? Can you walk us through the metrics used to 
determine servicers' performance? And how do you plan on 
improving these metrics?
    Mr. Runcie. One of the metrics that we use is customer--we 
have customer surveys, borrower surveys. We also look at 
default prevention statistics, and there's also school surveys 
as well. So there are a number of different metrics that we 
look at for all of the servicers. And because it's a 
performance-based structure, and all of the TIVAS compete with 
each other for future allocations, we've noticed that the 
customer satisfaction scores have all increased over the life 
of the contract so far.
    In addition, the default metrics have also decreased. So 
while that's not saying that there aren't instances where we 
can improve our oversight or the customer service operations, 
we think that the performance-based contracts have been helpful 
in dictating behavior of the servicers.
    The Chairman. Can you briefly tell me what you look at in 
terms of your contracts with these servicers and how they, 
then, subcontract--I guess I'll use that word--with collection 
agencies? And I'm going to get into this more with some other 
witnesses this morning--but how they deal with collection 
agencies and what those collection agencies do and how they 
perform and how much money they're making. Do you look at that, 
too?
    Mr. Runcie. Yes, we do. You know, we have a number of 
private collection agencies, about 22 or so, and those 
contracts are independent of the servicing contracts. Those 
PCAs are reviewed for performance as well. We've recently 
increased our monitoring of the private collection agencies. We 
monitor them four times a quarter. We listen to dozens and 
dozens of calls, and we also have special call monitoring for 
the loan rehabilitation program.
    So we've been providing some significant level of oversight 
with respect to the collection agencies. The collection 
agencies--there are some servicers that have collection 
agencies, but those are--the contracts are independent.
    The Chairman. I guess my question was what is the 
Department of Education doing to ensure that they follow the 
law--these collection agencies--and that they're not 
overcharging borrowers and what fees they collect. Let's say 
that a collection agency gets one of these defaulted loans. 
They write a letter to the person who borrowed the money. That 
person realizes they should pay it. They pay it. How much does 
the collection agency get to keep?
    Mr. Runcie. It's percentage based--it's based upon 
circumstances. But it could be----
    The Chairman. I thought it was 20 percent.
    Mr. Runcie. It could be as much as 18 percent.
    The Chairman. So sometimes they----
    Mr. Runcie. Sometimes, depending on the circumstances, it 
could be as much as 20 percent.
    The Chairman. Therefore, if they wrote one letter and the 
debt was paid--a $50,000 debt and they got it paid, they get 18 
percent for writing one letter?
    Mr. Runcie. Yes. But I think when you look at the millions 
of defaulted borrowers, there are going to be instances where 
there's a tremendous amount of work to get some of those 
borrowers back into rehab--or to rehab those borrowers and get 
them to be making payments.
    The Chairman. I understand. But it's my understanding that 
they still get a high percentage just--if they hardly do 
anything but write one letter, they still get a high 
percentage.
    Mr. Runcie. Yes, it's based on success.
    The Chairman. That's right. Does that seem fair?
    Mr. Runcie. I think if you look at collection agency 
practices across all industries, I would think that our 
collection compensation is in line with or better than that 
within the industry. Part of it is because the experiences 
across collections for different borrowers--there's 
variability. Some require a lot more work, and some require 
less.
    Yes, you're right. If it's just one letter and they make a 
payment, then there's a lot more profit, potentially, in terms 
of that particular instance.
    The Chairman. As I pointed out in my opening statement, the 
estimate we have is about a billion dollars a year is what 
they're making. But I can tell you, we're going to take a 
further look at that.
    Senator Alexander.
    Senator Alexander. Thank you, Mr. Chairman. With all due 
respect, the line of questioning you're using sounded to me 
like a line of questioning you might use to question a trial 
lawyer who might try a lot of lawsuits and lose them all, but 
might win one and get 30 percent or 40 percent of the award.
    Mr. Runcie, Secretary Duncan, if I remember correctly, 
testified a few years ago before the Senate Appropriations 
Committee that if the Federal Government took over all the 
student loans, it wouldn't increase the cost of administering 
the loans. Yet the statistics I have show that the cost of 
administering the student loan program has increased--has 
nearly doubled since 2009 by about nearly $700 million. Why 
have the administrative costs of the student loan program 
nearly doubled since 2009 when Secretary Duncan said it 
wouldn't?
    Mr. Runcie. That may have to do with the substantial amount 
of volume that's occurred since 2007. As I mentioned in the 
testimony, between ECASLA and a transition to DL, the overall 
volume has increased substantially. But if you look at our per 
unit cost for applications or for loan disbursements, all those 
per unit costs have actually decreased.
    Senator Alexander. So none of the $700 million--you mean 
the per unit costs are less today than they were 6 years ago?
    Mr. Runcie. The per unit costs for originating, disbursing, 
and servicing a loan--all those costs have decreased. Now, 
there are additional--we've had more in terms of security, in 
terms of compliance. There are other activities, updating some 
of our systems that are legacy systems. But the actual 
transaction costs have actually gone down.
    Senator Alexander. But, overall, the cost of administering 
the student loan program has nearly doubled since the 
government took them all over. You mentioned in your testimony 
that you had a campaign to identify 3 million borrowers who 
needed help paying back their loans, and that 150,000 
responded. You helped 150,000. That's not a very high 
percentage. Why do you suppose that more borrowers didn't 
respond to your offer to help them figure out the various 
options for repayment of the loan?
    Mr. Runcie. I think that 150,000, based upon any industry 
standards for mailing or for contacting through that mechanism, 
is a very high number. But, obviously, we're looking to make 
sure that we maximize the response rates and the amount of 
people that take up the plan.
    Income-driven repayment plans are very beneficial as a tool 
that people can use to address issues around handling 
repayment. But those plans may not be for everyone, because 
income-driven plans may actually have you pay more over the 
life of a loan. So it really has to do with the borrower's 
circumstance. But, in addition----
    Senator Alexander. I have one other question I'd like to 
get in, and my time is about up--if I may.
    Mr. Runcie. Oh, I'm sorry.
    Senator Alexander. I think it might have something to do 
with the complexity of this 5-page set of instructions about 
how you sort through your various ways to help. I have one 
other question, which is this. According to figures that I 
have, two out of five college students go to community 
colleges, 2-year schools. And the average tuition and fees are 
under $3,300. These students receive $4,850, average, in grants 
and scholarships.
    So the average community college student is receiving about 
$1,500 more in grants and scholarships than it costs them in 
tuition and fees during that 2 years. They have extra money. 
The college itself is free for the average community college 
student. In fact, the Governor of Tennessee is working to 
advertise that in our State so that he can encourage more 
people to go to college.
    But are you concerned that some of the students may be 
borrowing the money, taking out these low-cost loans, simply to 
get the money, not for education, but for other purposes, and 
that many of them have little intention of getting a degree, 
and that that might be one of the reasons why we have many 
students say that they're over-borrowing more than they should 
have? Is that a concern of yours?
    Mr. Runcie. Yes, it is a concern, and I think that we've 
been, over the course of the last couple of years, looking at 
ways to make sure that we verify the intent and the actions of 
people who receive grants and loans. We've increased our 
verification. We've worked the schools to ferret out situations 
where there might be fraud or abuse of the loan and grant 
programs. We are very concerned and will continue to look at 
ways to mitigate situations like that.
    In terms of the limits, those are statutory, and so our 
function ends up being more of compliance and trying to 
maintain the integrity of the programs versus any structure 
around the limits.
    Senator Alexander. Thank you very much.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Alexander. I might say 
that if I have been taken to task for comparing trial lawyers, 
I'll say that----
    Senator Alexander. Oh, I just observed----
    The Chairman. I'll make this observation, that in terms of 
the cost, you said in your statement that the amount has gone 
up 700 percent in 5 years. The cost has doubled. That's a 100 
percent increase, which means that the cost per loan actually 
has come down. If the number has gone up 700 percent, which you 
put out, but the cost has doubled, that's 100 percent. 
Obviously, the cost per loan has decreased.
    Mr. Runcie. That's right.
    The Chairman. Let's see. I have Senator Warren, Senator 
Baldwin, Senator Murphy, Senator Franken.
    Senator Warren.

                      Statement of Senator Warren

    Senator Warren. Thank you, Mr. Chairman.
    Mr. Runcie, in January, the Government Accountability 
Office released a report on the cost of operating the Federal 
student loan program. The report calculated that the break-even 
interest rate on student loans--that is, the interest rate 
necessary to cover the cost of the program without making a 
profit--for the upcoming student loans would be about 2.5 
percent.
    But instead, we'll be charging students nearly twice that 
amount for undergraduate loans and about two and a half to 
three times that amount for graduate loans and for PLUS loans. 
The GAO acknowledged that this is only an estimate, and 
estimates can change. But that is the best estimate we have. 
We'll be charging at least twice as much as we need to charge 
to cover the cost of the loans. So when we set interest rates 
higher than we need to cover the cost, that generates revenue 
for the government.
    My question, Mr. Runcie, is where do those profits go? Do 
they get refunded back to the students who paid more than was 
necessary for the cost of their loans, or are they just used to 
fund government generally?
    Mr. Runcie. Senator Warren, they do not--they're used to 
fund government generally. They do not come back specifically 
into the program.
    Senator Warren. All right. That's the key point I wanted to 
make here. We're charging more interest than we need to run the 
student loan program, and there's no mechanism to refund that 
money to the students. It seems to me we're just taxing 
students for the privilege of borrowing money to try to get an 
education.
    I think that's obscene. I don't think the student loan 
program should be designed so that it's making profits for the 
Federal Government. As a first step, we could wring some of 
those profits out of the system by refinancing those loans and 
bringing them down to a break-even point for the government.
    Mr. Runcie, I also want to ask about servicer contracts. I 
want to pick up where Chairman Harkin went to ask about the 
relationship with Sallie Mae. You know, the Department of 
Education has multiple contracts outstanding with Sallie Mae. 
Sallie Mae has repeatedly broken the rules and violated its 
contracts with the government.
    I'll give you a few examples. In 2007, Sallie Mae agreed to 
a multimillion-dollar settlement with the New York Attorney 
General on claims related to improper marketing of student 
loans. Both the Treasury Department and the Department of 
Education have cited Sallie Mae for failure to abide by the 
terms of its Federal contracts.
    Sallie Mae is currently under investigation--let's make a 
list here--by the FDIC, the Department of Justice, the Consumer 
Financial Protection Bureau, and the Utah Department of 
Financial Institutions. And yet Sallie Mae continues to make 
millions on its Federal contracts with the Department of 
Education. Between 2009 and 2011, it made almost $100 million 
on just servicing Federal student loans, even while it broke 
the rules.
    So my question is--I understand that the Department of 
Education has already notified Sallie Mae that their contract 
will be renewed. Why did the Department of Education decide to 
renew Sallie Mae's contracts when it clearly violates the rules 
and has done so repeatedly?
    Mr. Runcie. In terms of the extension of the contract for 
Sallie Mae, it was a part of extending the contracts for all of 
the TIVAS. In extending the contract, the contracting officer 
looked at a number of different things.
    Senator Warren. Including that they've broken the rules 
repeatedly and they're under investigation in multiple places 
for breaking the rules? Have you done something different with 
these contracts to ensure greater accountability, to make sure 
that they're not going to continue to break the rules in the 
future? I just don't understand this, Mr. Runcie.
    Mr. Runcie. We strictly monitor their compliance to the 
contracts, and we're very open to looking at those contracts 
and seeing if there's additional terms and things that we 
should put in there. But in terms of their performance under 
the contract, there may be some instances where they are asked 
to remedy certain situations, whether it's an employee that 
provides the wrong information.
    But in terms of a wholesale breach of the contract, that 
has not been determined as far as I know. And, again, I'm 
speaking about the direct loan servicing contract, not about 
private loans or State laws that they might be breaking.
    So based upon our current assessment of all the servicers, 
we felt that, based upon their performance under the terms of 
the contract--and we also felt in terms of dislocations to the 
borrowers because we would have to transfer 24-plus million 
borrowers if we didn't extend the terms of the TIVAS contracts. 
So there are a number of things that we looked at in terms of 
extending the contract.
    Of course, if they're found to be in violation of any of 
the law specific that would be a breach of the contract, we 
would address that by taking whatever appropriation actions, 
including termination.
    Senator Warren. I want to suggest that--we know that there 
are problems with Sallie Mae. It has become public, and the 
actions you're taking and the oversight that you're exercising 
has obviously not been enough to correct the problem. And I'm 
very concerned about re-upping a multimillion-dollar contract 
with Sallie Mae when Sallie Mae has demonstrated time and time 
again that it's not following the rules.
    Thank you, Mr. Chairman.
    The Chairman. Thank you. I might add that it sounded like 
your answer, Mr. Runcie, was that they're too big to fail.
    Senator Warren. Yes.
    The Chairman. Senator Baldwin.

                      Statement of Senator Baldwin

    Senator Baldwin. Thank you, Mr. Chairman and Ranking 
Member.
    Mr. Runcie, as you reminded us in your testimony about the 
history, in 2008, we worked to cut out the middle man in our 
student loans by making the transition from the Federal Family 
Education Loan Program to direct lending. I was a member of the 
House of Representatives at the time of that vote and was proud 
to support a change that resulted in cutting over $60 billion 
of waste. I think it was an important step, but certainly work 
remains, as we've just heard.
    Recently, in meeting with student financial aid 
administrators from my State, Wisconsin, they shared an odd 
quirk of the student loan origination fee that for many seems 
like a relic from the days of the Federal Family Education Loan 
program. The fee is usually paid from the loan amount, 
resulting in a slightly reduced loan for the student. But, it 
places a burden on financial aid administrators who have to 
explain why there is this fee in the first place. And it feeds 
the perception that the government is making a lot of money off 
of these loans.
    So now that the Federal Government is in the business of 
direct lending, is this fee still necessary? Can the Department 
of Education and the loan servicers function properly without 
this fee?
    Mr. Runcie. The fee is a part of the structure that we 
have. And you're right. That is taken out of the loan amount 
that is distributed to the student. In terms of what that would 
mean from a cost-structure perspective, I don't believe that it 
would have--we could still operate and we could still conduct 
the loan program without that.
    In terms of other considerations, statutory and otherwise, 
I can't speak to that. But you're right. There is that fee, and 
it results in--it's a very small fee on a per borrower basis. 
But when you aggregate it together, it's a meaningful amount.
    Senator Baldwin. I appreciated hearing in your testimony 
that the Department of Education has worked with loan servicers 
to streamline the process for those needing to discharge their 
loans due to total and permanent disability. I understand that 
discharging loans due to total and permanent disability still 
remains cumbersome for many.
    I have been working for some time on student borrowers' 
bill of rights legislation. It includes the right to discharge 
a loan due to total and permanent disability, as well as avoid 
the current tax penalty that those who are able to discharge 
face.
    I want to know if there are further steps that the 
Department of Education can take to make the process of loan 
discharge in the event of total disability or death easier for 
students and families. Are there currently any incentives in 
place for servicers to expeditiously serve those students and 
families, or could you create some?
    Mr. Runcie. That's clearly a major concern and a big issue 
that we've been focused on. We have streamlined the process. 
Before, we had many different servicers. Now, we have one 
servicer so there's an ability to sort of have quality control 
around that experience.
    We now use the SSA and the Veterans determination for 
disability. So the vagueness around, what total and permanent 
disability is--that's been addressed. So I think we've improved 
the process, but there's probably still work to be done.
    It sounds like the issue around the tax at the end of the 
forgiveness--that's something that has been discussed a lot, 
and I know people are looking at that. We can operationalize 
that pretty easy if that comes to fruition. But we have made 
some significant improvements, and we're looking for additional 
ideas in terms of how we can further improve the total and 
permanent disability process.
    Senator Baldwin. Thank you.
    The Chairman. Thank you, Senator Baldwin. I don't want to 
cut anyone off, but I've just been informed that we have three 
votes at noon. I think we're going to have to call a halt to 
this hearing. We have another panel of experts that we want to 
hear from. So I'd ask if you don't really have--Mr. Runcie has 
answered a number of questions. I don't want to cut anyone off, 
but I'd like to hurry this along so we can get to our next 
panel.
    Senator Murray. Mr. Chairman, I'll hold my questions until 
the second panel.
    The Chairman. I appreciate that very much.
    Senator Murphy.

                      Statement of Senator Murphy

    Senator Murphy. Thank you very much, Mr. Chairman. I'll ask 
one question around this subject.
    When an individual goes to buy a house, the bank is going 
to assess both their creditworthiness and also the soundness of 
the investment that they're making. They're going to do an 
inspection of the house. They're going to make sure that it's a 
place worth investing in.
    For the programs that you run, the assessment on the 
borrower is different. It's not really by creditworthiness. 
It's about need. But the institution, in this case, the 
equivalent of the house, deserves to have the same kind of 
rigorous analysis applied to it. Today, we sort of have an all 
or nothing approach when we're looking at these institutions as 
to whether they are worthwhile investments for the Federal tax 
dollars.
    I look at an institution like a place called Corinthian 
College in California, a school that has revenue of $1.7 
billion, and 83 percent of it comes from the programs that you 
run. And yet they have default rates in the neighborhood of 36 
percent, a 3-year default rate of 40 percent, prices that are 
wildly out of step with other competitors in the area.
    When they ran afoul of the default rate rules, the way that 
they got back in compliance was to call their borrowers, on 
average, 110 times a month to convince them to just seek more 
deferments and forbearance. They actually didn't do much about 
the price of the degree or about the quality. They convinced 
students to push their obligations out further.
    There are other models out there rather than the all or 
nothing approach which would involve much more of a risk-
sharing model, in which schools that aren't performing or 
having higher than average default rates or low graduation 
rates would share more of a burden of the outstanding loans 
rather than just saying that if you don't meet a certain 
threshold, you aren't eligible for Federal aid--I think we've 
only sanctioned eight schools.
    Do you think that the current method by which we judge 
institutions' capability to give students a quality degree and 
allow them to make enough money to repay loans is working? And 
what do you think about some of these other models?
    Mr. Runcie. I think some of those other models are 
promising. They've been discussed, and we'd be ready to run 
compliance activities and input that in, in terms of our 
operations. Right now, we look at cohort default rates, as you 
know, and to some extent, depending on the utilization of 
forbearance and deference, that can be manipulated somewhat.
    But forbearance and deferment--those are sort of 
entitlements under the program. However, the servicers are 
ultimately the ones that can put people in deferment or 
forbearance. So the schools may guide them there, but the 
servicer also has to have a conversation and work with them to 
see if that's the best option for them at that time versus 
income-based repayment or something like that.
    The other thing is, we're going through the negotiated 
rulemaking process for gainful employment, and that would also 
have an impact in terms of addressing some of the issues that 
you mentioned potentially with the proprietary schools. But in 
terms of a wholesale change in model and a way to address those 
issues, we're open to operationalizing those.
    Senator Murphy. I'm glad to hear that. The idea that we're 
spending, in this particular institution's case, $1.4 billion 
in taxpayer money all for the benefit of getting a 40 percent 
default rate and graduation rates, that are hovering under 10 
percent at this institution is mind blowing.
    Senator Murray, Senator Sanders, myself and Senator Schatz 
have legislation that I hope will take a look at it in the 
context of HEA reauthorization that will give you and give the 
Department of Education some new tools with which to try to 
hold these schools accountable when we're making decisions on 
how to allocate $140 billion a year.
    Thank you, Mr. Chairman.
    The Chairman. Thank you.
    Senator Franken.

                      Statement of Senator Franken

    Senator Franken. Thank you, Mr. Chairman.
    I want to talk about a tool that students can use early on 
in the process of looking at colleges, the Net Price 
Calculator. I'm going to introduce some legislation on that to 
improve it. The Net Price Calculator allows kids, before they 
are even deciding whether to apply to a college, to see how 
much it's actually going to cost.
    We have a free Net Price Calculator available at the 
colleges. Some put their own up. Some are better than others. 
You know, the college board did a recent survey, and more than 
half of the students ruled out schools based on sticker price 
without considering the full effect of financial aid, and it 
said that many of them chose to attend less selective colleges 
than they were qualified for because they incorrectly believed 
they were priced out of the other schools.
    I was wondering if you had any thoughts about the net 
calculator and what the Department of Education can do to 
incentivize colleges to make these calculators more user 
friendly for students.
    Mr. Runcie. We've been very focused on financial literacy 
and outreach in making sure that students are in a good 
position from a due diligence and research standpoint to make 
good investment decisions. And there have been a number of 
items that we've put out, like the Financial Aid Shopping Sheet 
that helps students compare loan packages and financial aid 
packages across institutions.
    But your point is even before that, students make decisions 
about colleges because they see the price tag and they don't 
have a sense of what the net price is. So we do have 
calculators, but I think the promotion of those calculators is 
something that we could do better. We could put more into 
promoting the calculators, and we could work with institutions 
potentially to make the calculators a little bit more user 
friendly and more transparent.
    Senator Franken. Or just require that they be--for example, 
if you're filling out the FAFSA, that can't be completed until 
January 1st of the year in which the student seeks to enroll in 
a school. Now, by January 1st, you've already done your 
applications. You've already--basically, it's all over.
    This is an ability to see before or as you're considering. 
You can look at a school, and if you have the right calculator 
there, it gives kids a real idea of what the real net cost of 
the school is going to be, what the possible grants are, what 
the aid would cost, et cetera.
    When I go to roundtables and talk about college 
affordability, the students--very often, I hear, ``Gee, I wish 
I had applied to this school'' or ``I didn't really realize how 
much this was going to cost.'' And the financial literacy is a 
tremendous part of--we need to have these students have their 
eyes wide open when they're doing this.
    I don't want them foreclosing better options for themselves 
because they didn't realize that a school--some schools will 
give a full ride to students, and kids will say, ``I'm not 
going to apply to Harvard because I couldn't possibly pay for 
it because it's so much.'' But they don't understand that 
Harvard gives a full ride--or Princeton does, or other schools 
do this.
    I'd love to work with you on this--but to find a way to let 
kids know well beforehand, not let them know after they've 
already applied, after they've already been either admitted or 
not--let them know beforehand what the net cost of their 
college is going to be.
    Mr. Runcie. Great. We'd love to work with you and look at 
your ideas and see how we can make it better, absolutely.
    Senator Franken. Thank you very much.
    Mr. Runcie. Thank you.
    Senator Franken. Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Franken.
    Mr. Runcie, thank you very much for being here. Thank you 
for your testimony. I'm sure we'll have some follow-ups from 
other Senators who are not here today. But thank you.
    Mr. Runcie. Thank you, Chairman.
    The Chairman. Now we'll turn to our second panel. First, 
we'll go from left to right, and I'll introduce you, and then 
we'll start our testimony.
    I'd like to introduce Dr. Michelle Cooper, president of the 
Institute for Higher Education Policy, an organization 
dedicated to promoting access and success for all students in 
higher education. Most recently, Dr. Cooper led the development 
of IHEP's new policy agenda with a focus on increasing degree 
attainment, enhancing affordability, and improving 
accountability and consumer awareness. She received her 
bachelor's degree from the College of Charleston, her master's 
from Cornell, and a doctorate from the University of Maryland 
at College Park.
    I'll turn to Senator Warren for purposes of introducing our 
next witness.
    Senator Warren. I'm pleased to introduce Deanne Loonin, 
director of the National Consumer Law Center's Student Loan 
Borrower Assistance Project. At the National Consumer Law 
Center, Ms. Loonin assists attorneys representing low-income 
consumers and teaches consumer law to legal services 
representatives, private consumer lawyers, and other advocates.
    She is the author of several reports on student loan law 
and the problems inherent in the Federal student loan program. 
I worked with Ms. Loonin for many years before I made this 
career shift----
    The Chairman. You could say that with a little more 
enthusiasm.
    [Laughter.]
    Senator Warren [continuing]. Her work is first rate, and I 
appreciate her being here today.
    The Chairman. Thank you, Senator Warren.
    Our next witness is Roberta L. Johnson, director of student 
financial aid at my alma mater, Iowa State University, a land 
grant institution. With a two-decade history of handling 
student loan operations at the institutional level, Ms. Johnson 
has significant firsthand experience in the administration of 
loans through both the Federal Family Education Loan program 
and the Federal Direct Loan program.
    In 2013, Ms. Johnson was appointed vice chair to the 
Advisory Committee on Student Financial Assistance, which 
provides counsel to Congress and the Secretary of Education on 
increasing college access for students from low- and middle-
income families. She is a dual graduate of Iowa State with a 
bachelor's degree in elementary education and home economics 
and a master's degree in counselor education.
    Now, I'll turn to Senator Alexander for our next 
introduction.
    Senator Alexander. Thanks, Mr. Chairman. We welcome Marian 
Malone Dill, director of financial aid at Lee University in 
Cleveland, TN.
    The only thing that would have been better is if you had 
brought the Lee Singers with you. They did so well at the 
inauguration, and I hope you'll give them our best wishes.
    She is membership chairman of the Southern Association of 
Student Financial Aid Administrators. She has been an assistant 
director of financial aid at a community college and at 
Tennessee Wesleyan in our State. And she is a first-generation 
college student and a recipient of title IV aid, so she has a 
broad view of the subject we're talking about. We welcome her.
    The Chairman. Very good. Thank you all for being here. Your 
testimonies will all be made a part of the record in their 
entirety. We'll start with Dr. Cooper and go down the line. If 
you could sum up your testimony in 5 minutes or so, we'd sure 
appreciate it, and then we can get into our questions and 
answers.
    Dr. Cooper, welcome and please proceed.

     STATEMENT OF MICHELLE A. COOPER, B.A., M.P.S., Ph.D., 
 PRESIDENT, INSTITUTE FOR HIGHER EDUCATION POLICY, WASHINGTON, 
                               DC

    Ms. Cooper. Chairman Harkin and Ranking Member Alexander 
and other committee members, good morning and thank you for 
this opportunity. Like you heard, I am Michelle Asha Cooper, 
and I am president of the Institute for Higher Education 
Policy, an organization that we simply refer to as IHEP. At 
IHEP, we focus on issues related to college access and success, 
with a focus on emphasis on underserved student populations.
    Today, I speak to you in my role as president of IHEP. But 
just a few decades ago, I was simply a kid from South Carolina 
who had the opportunity to finance my college degrees with 
title IV financial aid. So I can say with confidence that 
financial aid and the ability to access it made a difference in 
my life, and I firmly believe that it still can make a 
difference in the lives of today's students.
    But the realities of today's students are very different 
than previous generations, and earning a college degree or 
credential is much harder now. So in re-examining the title IV 
programs, I would encourage you to be mindful of today's 
context and also be mindful of the realities and the needs of 
today's students. So we should recognize that one-size-fits-all 
approaches probably won't work, and neither will layering new 
policy ideas over old outdated ones.
    So, in turning to the issue of student loans, our goal must 
be to help the millions of student loan borrowers, who we 
currently have graduate with manageable debt levels that can be 
repaid in an affordable, easy, and timely manner. With this 
goal in mind, we at IHEP recommend that there be three types of 
improvements, improvements that will lead to more informed 
choices, improvements that will lead to more simplified 
options, and improvements that will lead to better shared 
accountability.
    For informed choices, we have two recommendations. One is 
about better information, and the second is about better 
student loan counseling. When it comes to the issue of better 
data and better information, I'm sure you've heard, like I've 
heard, that people believe that there is more than enough 
information out there. There certainly is information out 
there, but the information is not always of high quality.
    The information is not always presented in a way that 
allows students to use it in a productive, consumer-friendly 
way, and it usually sometimes does not help them to make good, 
sound, informed choices. So in our written comments, we 
recommend some very detailed but straightforward fixes to 
existing data in IPEDS and the National Student Loan Data 
System that would better help students gage the quality and the 
outcomes that they can likely experience at some institutions.
    We suggest improvements to the information around college 
costs, around debt repayment, and about student outcomes, in 
particular. We also hope that this information can be made 
available for students for multiple years and multiple cohorts.
    We also believe that student loan counseling needs 
improvement. So I'm encouraged that we've already had some good 
conversation about that, and we would actually agree that there 
needs to be counseling on student loans and financial literacy 
that happens before students even get to college. We have some 
Federal programs like the TRIO programs and the GEAR UP 
programs where we could easily incorporate financial literacy 
and student loans into that structure.
    Also, we believe that existing Federal tools like the 
College Score Card and the Net Price Calculators and the 
Financial Aid Shopping Sheets should be made to be more 
applicable and more accessible and, in some cases, even 
mandatory.
    And, third, we believe that there is much that can be done 
to improve the student loan counseling. It should be more than 
just a checklist, and we can make some improvements to the 
timing, the content, and the frequency of the counseling. It 
shouldn't just happen at the beginning and the end. We can do a 
lot more with students throughout their entire college career.
    Our second category of recommendations represent simplified 
options for loan repayment. At present, there are many options 
that we have outlined in our appendix, and we believe that the 
number of repayment options can and should be reduced. We 
believe if they were reduced, it would minimize complexity and 
help to make the loan terms more transparent and accessible. We 
suggest having a single standard repayment plan as well as 
offering a single income-based repayment plan.
    The final category of recommendations relates to shared 
accountability. Now, as State appropriations decline and 
tuitions have increased, students have been taking on more debt 
to pay for college. As a result, they have been bearing an 
increasing proportion of that risk. While students should bear 
some responsibility, so should the institutions.
    In thinking about shared accountability, we recommend 
investigating options that would lead to more meaningful 
accountability, such as risk-sharing. While the specifics of an 
appropriate risk-sharing model need to be tested and vetted 
with institutional leaders, we don't believe we have to start 
from scratch, as there are some models and proposals that 
already exist.
    In closing, I'm happy to talk more about these 
recommendations in greater detail. But I do want to stress that 
if we really want to have real, longstanding change, and we 
want to do more than simply tinker at the margins, I encourage 
you to remember that the student loan issue must be looked at 
within the broader issue of college costs, which you've already 
begun to do, because student loans and student debt are simply 
symptoms of this bigger college cost problem.
    Thank you.
    [The prepared statement of Ms. Cooper follows:]
    Prepared Statement of Michelle Asha Cooper, B.A., M.P.S., Ph.D.
    Chairman Harkin, Ranking Member Alexander, and Members of the HELP 
Committee: I am deeply appreciative of the opportunity to participate 
in this hearing discussing strategies for strengthening the Federal 
student loan programs.
    My name is Michelle Asha Cooper, and I am president of the 
Institute for Higher Education Policy (IHEP). IHEP is a nonpartisan, 
nonprofit organization committed to promoting access to and success in 
higher education for all students, with a focus on students who have 
been underserved by our postsecondary educational system. Based in 
Washington, DC, we believe that all people, regardless of background or 
circumstance, should have the opportunity to reach their full potential 
by participating and succeeding in higher education. And working 
together, we can do more to make that dream a reality.
    We believe that institutional leaders and policymakers must support 
strategies that enhance the quality of the postsecondary experience in 
ways that are appropriate and relevant to the demands of the 21st 
century. As such, it is necessary to reassess and, in some cases, 
redesign our policies to ensure that they open doors and facilitate the 
success of today's students--a growing percentage of whom are low-
income, first-generation, students of color, and returning adults.
    The reauthorization of the Higher Education Act is an opportunity 
to examine title IV financial aid programs, including student loans, 
within this context. In seeking to improve these programs, we must 
ensure that our policies and strategies help today's students complete 
college with manageable debt levels that can be repaid in an 
affordable, easy, and timely manner. In support of this goal, IHEP 
offers the following recommendations for Federal policymakers that 
reflect three strategic areas:

          Informed Choices

           Provide students with better information--more 
        useful data presented in a useable format--that can inform 
        decisionmaking about how to choose and how to pay for colleges 
        that offer real value.
           Improve student loan counseling--the timing, 
        content, and delivery--so that it helps more students make 
        better borrowing and repayment decisions, which may help them 
        avoid delinquency and default.

          Simplified Options

           Streamline Federal loan repayment options and ensure 
        that information about eligibility and terms are sensible and 
        simple.

          Shared Accountability

           Improve the shared accountability framework used in 
        college finance by holding States and institutions more 
        responsible for high loan debt and defaults.

    Details about each of these recommendations are provided in this 
testimony. As background on these recommendations, we provide the 
following overview of recent trends in student aid.
                        i. trends in student aid
    Programs authorized under title IV of the Higher Education Act (as 
amended in 2008) include all Federal grant, loan, and work study 
programs, as well as various eligibility and accountability criteria 
and authorizations for Federal higher education data collection. In 
2012-13, approximately $185 billion was provided in undergraduate 
student aid--including Federal grants, loans, work-study, and tax 
benefits, as well as State, institutional, private, and employer 
grants; an additional $53 billion supported graduate student aid. For 
undergraduates, Pell Grant funding comprised 17 percent ($32.3 billion) 
of the total, while Federal loans represented 37 percent ($67.8 
billion). Over the past decade, the Federal Government has increased 
total financial aid for undergraduates and graduates by 105 percent 
overall, and this Federal aid composes more than two-thirds of the 
total aid to students from all sources.\1\
---------------------------------------------------------------------------
    \1\ ``Trends in Student Aid 2013'' (New York, NY: College Board, 
2013). Retrieved from: http://trends.collegeboard.org/sites/default/
files/student-aid-2013-full-report.pdf.
---------------------------------------------------------------------------
    While the overall increase in Federal student aid is significant, 
it must be understood in the proper context. Increases in Federal aid 
have occurred simultaneously to decreases in per-student State support 
for higher education\2\--which has led to increases in tuition\3\--
while family incomes overall have stagnated, with low- and middle-
income families actually witnessing declines over the past decade.\4\
---------------------------------------------------------------------------
    \2\ ``State Higher Education Finance Fiscal Year 2012.'' (Boulder, 
CO: State Higher Education Executive Officers, 2013). Retrieved from: 
http://www.sheeo.org/sites/default/files/publications/SHEF-FY12.pdf.
    \3\ ``Trends in College Pricing 2013.'' (New York, NY: College 
Board, 2013). Retrieved from: http://trends.collegeboard.org/sites/
default/files/college-pricing-2013-full-report.pdf.
    \4\ ``Trends in College Pricing 2013.'' (New York, NY: College 
Board, 2013). Retrieved from: http://trends.collegeboard.org/sites/
default/files/college-pricing-2013-full-report.pdf.
---------------------------------------------------------------------------
    Together, these trends help to explain why, over time, Federal aid 
has covered less and less of college costs. Despite an increase in the 
overall maximum award for the Pell Grant, the current purchasing power 
of the grant has declined because college costs have increased. In 
2012-13, the maximum Pell Grant covered 32 percent of the cost of 
attending the average 4-year public institution; whereas it represented 
77 percent of these costs in 1979-80.\5\
---------------------------------------------------------------------------
    \5\ IHEP calculations using ``Digest of Education Statistics 2013'' 
Table 330.10. Retrieved from: http://nces.ed.gov/programs/digest/d13/
tables/dt13_330.10.asp.
---------------------------------------------------------------------------
    With tuition increasing and grant aid failing to keep pace, more 
and more students face the need to work while enrolled and/or acquire 
student loans. As such, 60 percent of Federal aid is disbursed now in 
the form of student loans\6\--with more than 16 million students 
receiving Federal loans in 2012-13\7\ and 37 million holding 
outstanding debt.\8\ Nationally, the Federal Government holds over $1 
trillion in student debt.\9\
---------------------------------------------------------------------------
    \6\ ``Trends in Student Aid 2013'' (New York, NY: College Board, 
2013). Retrieved from: https://trends.collegeboard.org/sites/default/
files/student-aid-2013-full-report.pdf.
    \7\ IHEP calculations on data from the Federal Student Aid Data 
Center, 2012-13 Award Year Direct Loan Volume by School, http://
studentaid.ed.gov/about/data-center/student/title-iv.
    \8\ Meta Brown, Andrew Haughwout, Donghoon Lee, Maricar Mabutas, 
and Wilbert van der Klaauw, ``Grading Student Loans.'' (New York, NY: 
Federal Reserve Bank of New York, 2012). Retrieved from: http://
libertystreeteconomics.newyorkfed.org/2012/03/grading-student-loans
.html.
    \9\ Rohit Chopra, ``Student Debt Swells, Federal Loans Now Top a 
Trillion.'' (Washington, DC: Consumer Financial Protection Bureau, 
2013). Retrieved from: http://www.consumer
finance.gov/newsroom/student-debt-swells-Federal-loans-now-top-a-
trillion/.
---------------------------------------------------------------------------
Impact Of Student Loans On Today's Students
    Over the years, the increase in college costs has affected all 
students, but the shift from grants to loans as a primary mechanism for 
financing college disproportionately hinders the access and persistence 
of low- and moderate-income families.\10\
---------------------------------------------------------------------------
    \10\ Mark Huelsman and Alisa F. Cunningham. ``Making Sense of the 
System Financial Aid Reform for the 21st Century Student.'' 
(Washington, DC: Institute for Higher Education Policy, 2013). 
Retrieved from: http://www.ihep.org/assets/files/publications/m-r/
reimagining-aid-design-and-delivery-final-january-2013.pdf.
---------------------------------------------------------------------------
    Despite the commonly held myth that the Pell grant program ``takes 
care of needy students,'' Pell grant recipients--with average family 
incomes near $20,000\11\--are actually more than twice as likely as 
other students to have loans. Of those who complete a bachelor's 
degree, their average debt at graduation is $3,500 higher than their 
peers.\12\ (Note: In 2012, average student loan debt among graduates 
who borrowed for a bachelor's degree was $29,400).\13\
---------------------------------------------------------------------------
    \11\ IHEP calculations on data from the U.S. Department of 
Education, National Postsecondary Student Aid Study, 2011-12.
    \12\ ``Pell Grants Help Keep College Affordable for Millions of 
Americans.'' Save Pell Coalition, 2013. http://www.edtrust.org/sites/
edtrust.org/files/Overall%20Pell%20one-pager%20FINAL
%2011-25-13.pdf.
    \13\ ``Student Debt and the Class of 2012,'' (Oakland, CA: The 
Institute for College Access and Success, 2013). Retrieved from: http:/
/projectonstudentdebt.org/files/pub/classof2012.pdf.
---------------------------------------------------------------------------
    Federal loans do provide a better value to students relative to 
those found on the private market, but they still represent a means of 
financing college through future earnings, rather than simply lowering 
the overall cost to the student. The best way to reduce student debt 
burdens would be to lessen the need to borrow by encouraging colleges 
and universities and States to reduce the cost of attendance, while 
maintaining access and quality. At the Federal level, it is critical 
that the Federal Government maintain its commitment to the Pell grant, 
which serves as the bedrock source of financial aid for more than 9 
million low- and moderate-income students. Pell grant funding should be 
made entirely mandatory in the Federal budget, the maximum award should 
be increased to make up for its lost purchasing power and reflect the 
realities of college costs today, and the maximum award should remain 
indexed to inflation.
    And while student loans can be a useful college financing strategy, 
it is important to note that they are not a risk-free or even risk-
neutral investment. In fact, for some students borrowing comes with 
considerable risk, and current policies are placing more of this burden 
on the student and less on States and institutions. For the student, 
the impact of overwhelming debt, alongside a degree/credential with 
minimal personal or professional value, or no credential at all, can be 
devastating.
    As the number of student borrowers has increased and their 
cumulative indebtedness has grown, so too have concerns about whether 
the resulting debt levels are manageable and what the long-term impact 
of student loan debt will be on their life choices and chances. The 
fact that more than two-fifths (45 percent) of all college entrants--
and 59 percent of low-income students--do not graduate within 6 years 
centralizes the importance of this issue.\14\ Borrowers who leave 
postsecondary education without graduating are more likely to 
experience difficulty in repaying their loans. In fact, 59 percent of 
undergraduate borrowers who left without a credential became delinquent 
or defaulted,\15\ and default is more likely among low-income students, 
who have fewer family resources upon which to fall back.\16\ Default 
and delinquency also is more common among students who attend for-
profit institutions.\17\ The consequences of default are severe, 
particularly because student loans are not dischargeable in bankruptcy. 
Defaulted borrowers suffer from reduced credit scores and can have 
their wages garnished, their income tax refunds intercepted, and even 
their social security payments withheld.
---------------------------------------------------------------------------
    \14\ IHEP calculations on data from the U.S. Department of 
Education, Beginning Postsecondary Students study 2003/09. In this 
analysis, students are considered low-income if their family income is 
below 200 percent of the poverty line.
    \15\ Alisa F. Cunningham and Gregory S. Kienzl, ``Delinquency: The 
Untold Story of Student Loan Borrowing.'' (Washington, DC: Institute 
for Higher Education Policy, 2011). Retrieved from: http://
www.ihep.org/assets/files/publications/a-f/delinquency-
the_untold_story_final
_march_2011.pdf.
    \16\ Jacob P.K. Gross, Osman Cekic, Don Hossler, and Nick Hillman, 
``What Matters in Student Loan Default: A Review of the Research 
Literature.'' Journal of Student Financial Aid, 39:1 (2009). Retrieved 
from: http://www.nasfaa.org/research/Journal/subs/What_Matters_in_
Student_Loan_Default_A_Review_of_the_Research_Literature.aspx.
    \17\ Alisa F. Cunningham and Gregory S. Kienzl, ``Delinquency: The 
Untold Story of Student Loan Borrowing.'' (Washington, DC: Institute 
for Higher Education Policy, 2011). Retrieved from: http://
www.ihep.org/assets/files/publications/a-f/delinquency-
the_untold_story_
final_march_2011.pdf.
---------------------------------------------------------------------------
          ii. recommendations for strengthening student loans
    The reauthorization of the Higher Education Act is an opportunity 
to reassess student loan policies with an eye toward addressing the 
needs and challenges of today's students. We offer these 
recommendations for strengthening the student loan program:

       Informed Choices

            Provide students with better information--more 
        useful data presented in a useable format--that can inform 
        decisionmaking about how to choose and how to pay for colleges 
        that offer real value.
            Improve student loan counseling--the timing, 
        content, and delivery--so that it helps more students make 
        better borrowing and repayment decisions, which may help them 
        avoid delinquency and default.

       Simplified Options

            Streamline Federal loan repayment options and 
        ensure that information about eligibility and terms are 
        sensible and simple.

       Shared Accountability

            Improve the shared accountability framework used in 
        college finance by holding States and institutions more 
        responsible for high loan debt and defaults.

    These recommendations--reinforced by numerous studies written by 
IHEP and others--could make the financial aid process more equitable 
and efficient, while simultaneously making the best use of taxpayer 
funds to better support students.
1. Informed Choices
    Policy Option 1.1: Provide students with better information--more 
useful data presented in a useable format--that can inform 
decisionmaking about how to choose and how to pay for colleges that 
offer real value.

    Students need better information to help them make more informed 
postsecondary decisions. At a time when college tuitions and fees are 
increasing faster than inflation and family income, data on college 
costs are critical. As it stands, too many of today's college students 
are paying far too much at institutions that offer them far too few 
chances for success.
    Finding answers to students' basic questions about how much college 
will cost--not just in their first year, but their entire time at an 
institution--and how much they could end up borrowing would be a simple 
way to start. Existing data provide a useful picture of the tuition and 
fees, cost of attendance, and net price that students will face their 
first year. However, students are left to guess about how much they 
will pay in subsequent years and how much debt they will likely accrue 
during their college career.
    We recommend amending the Integrated Postsecondary Educational Data 
System (IPEDS) to include college-level cost information--tuition and 
fees, cost of attendance, and net price--not just for freshmen, but 
also for continuing and transfer students. Also, we recommend adding to 
IPEDS data the amount of student loan debt accumulated for a 
certificate, associate's degree, bachelor's degree, or graduate degree, 
and the amount accumulated by non-graduates. Current debt data on the 
College Scorecard can produce confusing results by combining completers 
and non-completers, which allows colleges with high churn rates to 
appear more affordable than those where more students graduate.\18\
---------------------------------------------------------------------------
    \18\ Mamie Voight, Alegneta Long, Mark Huelsman, and Jennifer 
Engle. ``Mapping the Postsecondary Data Domain: Problems and 
Possibilities.'' (Washington, DC: Institute for Higher Education 
Policy, 2014). Retrieved from: http://www.ihep.org/assets/files/
publications/M-R/mapping_postsecondary_data_part_1_final_march_2014-
v2.pdf.
---------------------------------------------------------------------------
    Data on cost are important, but data on outcomes also are necessary 
to provide an understanding of students' chances of success in college 
and beyond. We recommend that the U.S. Department of Education begin 
collecting graduation rates for Pell grant recipients, non-Pell grant 
recipients who receive subsidized Stafford loans, and students who 
receive neither Pell grants nor subsidized Stafford loans, so students 
can gauge their chances of success at an institution. Also, we 
recommend that the U.S. Department of Education release data on 
repayment rates by institution on an annual basis (using the National 
Student Loan Data System, NSLDS) and disaggregate data on student loan 
volume and default by undergraduate/graduate status. Furthermore, 
technical issues currently make it difficult to combine and match data 
from Federal Student Aid with data from IPEDS. We recommend that the 
U.S. Department of Education further study the scope and magnitude of 
these limitations and develop strategies for addressing them, including 
a crosswalk tool.
    As stated, much of the relevant cost data is already in IPEDS or 
can be attained through modifications to current data collection. Table 
2 in the Appendix provides a comprehensive overview of currently 
available cost data and recommendations for improvement to better aid 
consumer choice, policymaking, and institutional improvement.\19\
---------------------------------------------------------------------------
    \19\ Ibid.

    Policy Option 1.2: Improve student loan counseling--the timing, 
content, and delivery--so that it helps more students make better 
borrowing and repayment decisions, which may help them avoid 
---------------------------------------------------------------------------
delinquency and default.

    Better information (see Policy Option 1.1)--when consumer-tested 
and presented accurately and simply--can help nudge students toward 
better choices. However, far too few students, especially low-income 
college goers, have access to the high-touch, data-driven counseling 
they need to help them interpret information about college outcomes and 
costs, and student loans in particular. In fact, high school counselors 
spend, on average, only 38 minutes per student per year on college 
counseling.\20\ Even the perfect tool likely will suffer from limited 
use and effectiveness, unless it is put into the hands of counselors, 
teachers, aid administrators, and others who can spend adequate time 
directly advising students.
---------------------------------------------------------------------------
    \20\ Patricia M. McDonough. ``Counseling and College Counseling in 
America's High Schools. (Alexandria, VA: National Association for 
College Admissions Counseling, 2005). Retrieved from: http://
www.inpathways.net/McDonough%20Report.pdf.
---------------------------------------------------------------------------
    Student loan counseling needs to begin early (i.e., pre-college 
level) and continue throughout college (i.e., entrance counseling, 
annual aid renewal periods) and graduation/departure (i.e., exit 
counseling). At the pre-college level, this type of counseling can be 
required of TRIO and GEAR UP programs, for example, including the 
Educational Opportunity Centers program focused on returning adults. 
Four tools--the College Scorecard, net price calculators, the Financial 
Aid Shopping Sheet, and the Financial Awareness Counseling Tool--
already developed by the Federal Government can also be improved to 
facilitate counseling at this level.

Table 1.--Summary of Financial Aid Tools to Facilitate Student Decisions
------------------------------------------------------------------------
                                                          Recommended
     Existing Federal tools           Objectives            changes
------------------------------------------------------------------------
College Scorecard...............  Examines average    More comprehensive
                                   costs and student   data needed,
                                   outcomes at         including the
                                   nearly 4,000        percent of
                                   degree-granting     students who
                                   colleges that       borrow, as well
                                   participate in      as
                                   Federal student     recommendations
                                   aid programs and    suggested in
                                   operate on a        Policy Option 1.1
                                   traditional         and Table 2
                                   calendar system.    (Appendix) and
                                   Helps students      more
                                   and families        comprehensive
                                   understand the      coverage of
                                   typical amount      schools needed
                                   borrowed and the    (such as
                                   chances of          including those
                                   completing and/or   that do not
                                   defaulting at a     operate on a
                                   particular          traditional
                                   school..            calendar system);
                                                       Conduct more
                                                       consumer-testing
                                                       to ensure
                                                       usability.
Net Price Calculators...........  Mandated to appear  Need to be more
                                   on colleges' Web    accessible and
                                   sites, these        understandable
                                   reflect estimates   for students,
                                   of what students    allow for easy
                                   pay for college     comparison of
                                   after grant and     results across
                                   scholarship         multiple
                                   awards at           institutions, and
                                   individual          prominently
                                   institutions.       identify the net
                                   Puts the sticker    price figure in
                                   price in context    the results.\21\
                                   and provides a      Conduct more
                                   more realistic,     consumer-testing
                                   early estimate of   to ensure
                                   what college        usability.
                                   costs..
Shopping Sheet..................  Model financial     Require all
                                   aid award letter    colleges
                                   that makes it       receiving Federal
                                   easier for          aid to use the
                                   students and        standardized
                                   families to         format. Conduct
                                   understand and      more consumer
                                   compare the real    testing to ensure
                                   cost of             usability.
                                   attendance and
                                   available aid
                                   options,
                                   including loans..
Financial Awareness Counseling    Offers tutorials    Integrate this
 Tool (FACT).                      to increase         information into
                                   financial           other tools and
                                   literacy,           college access
                                   including a walk-   programs to
                                   through on the      streamline
                                   basics of student   offerings. Ensure
                                   loans..             usability through
                                                       consumer testing.
------------------------------------------------------------------------

    While counseling at the pre-college level is designed to help 
students access and understand the information needed to make informed 
choices, at the undergraduate level the goal is different as it should 
help students understand their available aid, make wise decisions 
(i.e., at entrance and annually), and select appropriate repayment 
options (i.e., exit counseling). Both entrance and exit counseling are 
already mandatory for Federal student loan borrowers, and can be 
provided in person, in writing, or online, although an expert in 
financial aid is required to be available to answer questions.\22\ 
However, in a recent survey, about 40 percent of high-debt borrowers 
reported that they did not receive (or did not recall) student loan 
exit counseling. Also nearly two-thirds of private loan borrowers 
indicated that they did not understand the differences between their 
private and Federal student loan options.\23\ This lack of awareness 
and understanding signal a need to improve the process.
---------------------------------------------------------------------------
    \21\ For detailed recommendations on how to improve net price 
calculators, see ``Adding it all up 2012: Are college net price 
calculators easy to find, use, and compare?'' (Oakland, CA: The 
Institute for College Access and Success, 2012). Retrieved from: http:/
/www.ticas.org/files/pub/Adding_It_All_Up_2012.pdf.
    \22\ In 2010-11, about 6.4 million borrowers received entrance 
counseling through the Department's online tool. ``Memo: Framework for 
testing the effectiveness of and improving student loan counseling.'' 
(Oakland, CA: The Institute for Access and Success, November 22, 2011).
    \23\ Jen Mishory and Rory O'Sullivan. ``The Student Perspective on 
Federal Financial Aid Reform.'' (Washington, DC: Young Invincibles, 
2012). Retrieved from: http://younginvincibles.org/wp-content/uploads/
2012/11/Student-Perspective-on-Federal-Financial-Aid-Reform.pdf.
---------------------------------------------------------------------------
    To improve student loan counseling, it must be seen as an essential 
component of the aid process, instead of an item on a checklist. We 
recommend improving the timing of counseling, presenting borrowers with 
customized information relevant to their particular situation, and 
increasing the frequency of loan counseling. For example, the entrance 
session should occur before a student signs the promissory note. At the 
entrance session, counselors may incorporate some of the tools and 
resources referenced in Table 1, but go into more detail about terms in 
these tools and implications of them. For example, counselors--or a 
personalized, online counseling module--can use the shopping sheet to 
explain the difference between grants and loans and between types of 
loans, including subsidized Stafford loans, unsubsidized Stafford 
loans, and private loans. Counselors, counseling tools, and counseling 
materials also should explain the benefits of using Federal student 
loans instead of private loans and/or credit cards to finance college 
costs, while also communicating to students that they are not required 
to borrow the full amount offered to them if they do not need it. And 
at the exit session, the advantages and disadvantages of various 
repayment options should be discussed carefully, alongside personalized 
data and guidance on the implications of different repayment plans 
based on individual student's circumstances. At present, loan 
counseling is required twice during a student's academic career; 
however, we recommend that colleges and universities send students 
annual updates on their balance, interest rates, and repayment options. 
Additionally, students should be required, as a part of the financial 
aid renewal process, to review their loan balance, available through 
the NSLDS. While reviewing this information, students also could be 
provided an online tutorial on loan terms, interest rates, and 
repayment options. Loan counseling, including new tools and delivery 
methods, should be consumer tested and refined to be as applicable and 
useful for students as possible.
    More research is needed to understand fully the most effective 
strategies in student loan counseling. While better information and 
improved counseling offer no guarantee that all students will make 
better decisions, it does offer a significant improvement over current 
practice, as it allows for more nuanced data to be integrated into 
existing tools that can easily be improved for usability. These 
recommendations operate in tandem, as we need both better data and 
better loan counseling supports. After all, in the end, data do not 
counsel people on how to get into, pay for, and graduate from college; 
people do.
2. Simplified Options
    Policy Option 2.1: Streamline Federal loan repayment options and 
ensure that information about eligibility and terms are sensible and 
simple.

    At the Federal level, we have made significant contributions to 
simplifying the Federal aid process through HEA reauthorizations. For 
example, in the 1992 reauthorization, the financial aid application was 
redesigned, application fees were eliminated, and a single need 
analysis formula was developed. Subsequent reauthorizations (e.g., 
Higher Education Opportunity Act, 2008) and other legislation (e.g., 
College Cost Reduction and Access Act, 2007) have been important steps 
in helping reduce the barriers of confusion and complexity that 
confront hopeful students. Yet despite these advances, some areas of 
simplification are still needed, as in the case of the student loan 
repayment options.
    At present, there are many repayment options (see Table 3, 
Appendix), not including deferment and forbearance. For each plan, 
there are different eligibility criteria and a different payment 
formula. There are currently four income-driven repayment options--
income-based repayment, Pay As You Earn, income-contingent repayment, 
and income-sensitive repayment, with another slated to begin in July 
2014. While well-intentioned, these programs are unnecessarily 
confusing, and despite their benefits to borrowers, they are 
underutilized. According to the Federal Student Aid's data, only about 
11 percent of Federal loan borrowers are enrolled in some type of 
income-driven repayment program.\24\
---------------------------------------------------------------------------
    \24\ Analysis of ``Direct Loan Portfolio by Repayment Plan,'' 
Federal Student Aid, U.S. Department of Education, Retrieved from: 
http://studentaid.ed.gov/about/data-center/student/portfolio.
---------------------------------------------------------------------------
    Reducing the number of repayment options would reduce complexity 
and make loan options (and terms) more transparent to borrowers. We 
recommend maintaining the standard repayment plan and offering a single 
income-based plan, which would allow borrowers to benefit from more 
manageable monthly payments and the assurance of loan forgiveness if 
they experience extended financial hardship.
    This single income-based plan should aim to target protections to 
borrowers in most need of support, while not offering large forgiveness 
benefits to high-income, high-debt borrowers.\25\
---------------------------------------------------------------------------
    \25\ Jason Delisle and Alex Holt. ``Safety Net or Windfall?'' 
(Washington, DC: New America, 2012). Retrieved from: http://
edmoney.newamerica.net/publications/policy/safety_net_or_
windfall.
---------------------------------------------------------------------------
    Simplifying student loan repayment options will not only minimize 
confusion and complexity for students, if students are aware of and 
counseled about these options using the strategies outlined in Policy 
Option 1.1 and 1.2, they could realize debt relief. Offering debt 
relief to borrowers, in the aggregate, has the potential to 
significantly decrease defaults.
                        3. shared accountability
    Policy Option 3.1. Improve the shared accountability framework used 
in college finance by holding States and institutions more responsible 
for high loan debt and defaults.

    Historically, postsecondary college financing has benefited from a 
model of shared responsibility, with the Federal Government, State 
governments, and students all bearing some of the cost. Given the 
substantial taxpayer investment, the Federal Government and State 
governments are accountable to their constituents for their roles in 
this financing scheme. For their part, students are held accountable 
for making continued academic progress toward a degree/credential. 
Current policies tie eligibility for Federal aid to ``satisfactory 
academic progress,'' which means students need to exhibit minimal 
progress toward a credential, including maintaining adequate academic 
standing. Recent changes to Federal aid programs have mandated 
additional requirements for students, including limitations on the 
length of time they are eligible for aid. And, as noted previously, 
students bear considerable risk when their investment in higher 
education through loans does not work out given the severe consequences 
of default. Yet, the role of the institution in this partnership is 
understated.
    The investment in higher education is not a risk-neutral 
proposition for any party, but as it stands, the governments and 
students shoulder a significant, increasing proportion of the risk. HEA 
reauthorization provides an opportunity to redesign this partnership to 
reflect more accurately current realities. To do so, we suggest 
bolstering the use of accountability metrics for institutions at the 
Federal level. The current mechanism used by the Federal Government is 
the application of cohort default rates to determine continued 
institutional eligibility for title IV financial aid. Cohort default 
rates (CDR) reflect whether an institution's borrowers are successfully 
avoiding default. The U.S. Department of Education's most recent update 
to the cohort default rates found that they have increased from the 
previous year (9.1 percent to 10 percent for 2-year CDRs and 13.4 
percent to 14.7 percent for 3-year CDRs). The direction of this trend 
line is troubling, especially since the increase has been steady over 
several years and that 2-year default rates have now reached their 
highest point since 1995.\26\
---------------------------------------------------------------------------
    \26\ ``National Default Rate Briefings for Fiscal Year 2011 2-Year 
Rates and Fiscal Year 2010 3-Year Rates.'' Federal Student Aid, U.S. 
Department of Education. Retrieved from: http://www.ifap.ed.gov/
eannouncements/093013CDRNationalBriefings2YRand3YR.html.
---------------------------------------------------------------------------
    Despite this available lever, very few institutions are sanctioned 
(i.e., cutoff from Federal financial aid) using existing thresholds. In 
the most recent release of 2-year CDRs, only eight schools were subject 
to sanctions based on the 25 percent threshold for 2-year CDRs, and 218 
were required to develop default prevention plans for having a 3-year 
rate of at least 30 percent.\27\ CDRs provide some measure of 
accountability by spotlighting the worst offenders. The all-or-nothing 
approach, however, allows other poor performing schools to hide in the 
shadows.
---------------------------------------------------------------------------
    \27\ ``National Default Rate Briefings for Fiscal Year 2011 2-Year 
Rates and Fiscal Year 2010 3-Year Rates.'' Federal Student Aid, U.S. 
Department of Education. Retrieved from: http://www.ifap.ed.gov/
eannouncements/093013CDRNationalBriefings2YRand3YR.html; and Rachel 
Fishman. ``Shape Up or Lose Out: The 218 Institutions that Must Develop 
Default Prevention Plans.'' (Washington, DC: New America, 2012). 
Retrieved from: http://higheredwatch.new
america.net/blogposts/
2012shape_up_or_ship_out_the_3218_institutions_that_must_
develop_default_prevention_plans_.
---------------------------------------------------------------------------
    We suggest broadening accountability beyond the all-or-nothing 
approach, and risk sharing could be a useful tool for doing so. This 
idea, highlighted in different variations by The Institute for College 
Access and Success (TICAS)\28\ and partners in the Redesigning Aid 
Design and Delivery (RADD) consortium on student loans,\29\ could 
refine and expand to institutions the model already established for 
guarantee agencies in the Federal Family Education Loan Programs. In 
this case, institutions would be held liable for some portion of the 
school's loan balance based on their performance on a repayment measure 
like cohort default rates (although other measures like repayment rates 
might also be explored given the limitations of CDRs\30\. Another 
possibility would be to require institutions--on a sliding scale--to 
pay a penalty that is proportional to their defaulted debt.
---------------------------------------------------------------------------
    \28\ ``Aligning the Means and the Ends: How to Improve Federal 
Student Aid and Increase College Access and Success.'' (Oakland, CA: 
The Institute for College Access and Success, 2013). Retrieved from: 
http://www.ticas.org/pub_view.php?idx=873.
    \29\ ``Automatic for the Borrower: How Repayment Based on Income 
Can Reduce Loan Defaults and Manage Risk.'' RADD consortium on student 
loans. (Washington, DC: Young Invincibles, 2014). Retrieved from: 
http://younginvincibles.org/wp-content/uploads/2014/03/Automatic-for-
the-Borrower-3.19.14.pdf.
    \30\ See IHEP's recent report for an in-depth discussion of the 
limitations of cohort default rates as well as possible fixes and 
alternatives such as repayment rates. Mamie Voight, Alegneta Long, Mark 
Huelsman, and Jennifer Engle. ``Mapping the Postsecondary Data Domain: 
Problems and Possibilities.'' (Washington, DC: Institute for Higher 
Education Policy, 2014). Retrieved from: http://www.ihep.org/assets/
files/publications/M-R/mapping_postsecondary_data_
part_1_final_march_2014-v2.pdf.
---------------------------------------------------------------------------
    For example, institutions could be required to pay into a risk-
sharing fund an amount equivalent to a proportion of their total loan 
portfolio, with that proportion determined based by the loan repayment 
rate of their students. As a simple illustration, a 20 percent cohort 
default rate may translate to a risk-sharing payment equivalent to 20 
percent of the loan portfolio, or less stringently, of the loan 
portfolio not in repayment. The funds paid into the risk-sharing pot 
could provide direct debt relief for struggling borrowers or be 
reinvested into loan forgiveness or the Pell grant program.
    Some argue that a risk-sharing mechanism could lead institutions to 
pass the added expense along to students through higher prices. 
However, tying the size of the risk-sharing payment to the amount 
students are borrowing and/or the rate at which they are successfully 
repaying could help mitigate the risk of rising costs. Care must also 
be taken to protect access alongside a risk-sharing mechanism--or any 
institutional accountability system, for that matter--to prevent 
institutions from meeting performance benchmarks by limiting access. 
For instance, the system could prevent a risk-sharing payment from 
being reduced if an institution improves its cohort default rate, but 
decreases its enrollment of Pell grant recipients.
                            iii. conclusion
    In closing, I wish to thank you again for providing this 
opportunity to offer strategies to strengthen the Federal student loan 
programs. The recommendations outlined above are important both for 
helping students meet individual postsecondary and economic mobility 
goals and for meeting the Nation's economic competitiveness goals. High 
student debt loads affects the U.S. economy in that they may force 
students to delay full participation on other key economic activities 
such as home-buying and saving for retirement. Student loan delinquency 
and default lead to further negative economic consequences in that 
students are left with poor credit ratings, limited future borrowing 
options, and additional financial penalties, while the Federal 
Government loses critical revenue and must spend additional resources 
to try to recover some of its initial investment.
    As we move forward to reauthorize HEA, please know that I, along 
with my team at IHEP, are happy to serve as a resource and partners in 
this effort. Working together, will help us better serve students by 
offering them the tools and services they need in support of college 
access and success. By crafting a system that helps student borrowers 
make more informed decisions, leverage streamlined repayment options, 
and benefit from greater institutional accountability, Federal student 
loan programs are better positioned to serve their intended role--to 
provide students with the financial resources necessary to successfully 
complete a postsecondary degree and fully participate in the U.S. 
economy.
                                 ______
                                 
                                Appendix

                                           Table 2.--Cost: Data Availability and Recommended Improvements \31\
                                              [Cost: Data availability and Recommendations for Improvement]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                    Are the data available?                         How can the data be
                                                            ----------------------------------------------------------------------  collected? (Already
                                      Which measures  will                                                                            available, Amend
    What questions need answers?          answer these                                Partially available                           IPEDS, Add to IPEDS,
                                           questions?                  Yes            or needs improvement            No           or Link to other data
                                                                                                                                          source)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Cost: How much do students invest    Tuition and Fees......    ....................  Tuition and fee data     ...................  Amend IPEDS: Collect
 in college?.                                                                         are reported in the                           data for transfer
                                                                                      IPEDS Institutional                           and continuing
                                                                                      Characteristics (IC)                          students.
                                                                                      Survey. In-state, in-
                                                                                      district and out-of-
                                                                                      state tuition and
                                                                                      fees are reported
                                                                                      for first-time, full-
                                                                                      time undergraduates.
                                                                                      Average tuition and
                                                                                      fees are reported
                                                                                      for all
                                                                                      undergraduates.
                                                                                      Tuition and fee are
                                                                                      not disaggregated
                                                                                      for transfer or
                                                                                      continuing students..
Consumers need to know how much      Cost of attendance....    ....................  In-state, in-            ...................  Amend IPEDS: Collect
 they will pay and borrow to attend                                                   district, and out-of-                         data for transfer
 an institution.                                                                      state cost of                                 and continuing
                                                                                      attendance are                                students.
                                                                                      reported for first-
                                                                                      time, full-time
                                                                                      degree/certificate-
                                                                                      seeking
                                                                                      undergraduates by
                                                                                      living status (such
                                                                                      as on-campus, off-
                                                                                      campus with family,
                                                                                      and off-campus not
                                                                                      with family) In the
                                                                                      IPEDS Institutional
                                                                                      Characteristics
                                                                                      Survey..
Policymakers need to know the cost   Net Price by Income...    ....................  Average net price        ...................  Amend IPEDS: Collect
 and debt burden that students must                                                   data are available                            data for transfer
 undertake to access and succeed in                                                   for first-time. full-                         and continuing
 college, which reflects on how                                                       time under-                                   students and out-of-
 institutions invest public                                                           graduates who                                 state students at
 dollars..                                                                            receive grant or                              public institutions.
                                                                                      scholarship aid. Net                          Collect net price by
                                                                                      price data are                                income for non-title
                                                                                      disaggregated by                              IV recipients, and
                                                                                      income bands for                              calculate overall
                                                                                      first-time full-time                          net price including
                                                                                      undergraduates who                            non-grant
                                                                                      receive title IV                              scholarship
                                                                                      aid. Both of these                            recipients.
                                                                                      net price data point
                                                                                      and omit students
                                                                                      paying out-of-state
                                                                                      tuition (or publics)
                                                                                      transfer and
                                                                                      continuing students,
                                                                                      and students who do
                                                                                      not receive
                                                                                      financial aid
                                                                                      (either title IV or
                                                                                      grant/scholarships)..
Institutions need to monitor the     Cumulative Debt           ....................  The College Scorecard    ...................  Link to other source:
 impact of cost and debt on access    (disaggregated by                               reports total                                 After the completion
 and completion for students..        loan type, income or                            Federal loan debt                             flag has been tested
                                      financial aid                                   (including Parent                             and verified, use
                                      category, and                                   PLUS loan) among                              NSLDS to
                                      completion status.                              students leaving an                           disaggregate debt by
                                      and ideally race/                               institution, using                            income or financial
                                      ethnicity; also                                 NSLDS. It does not                            aid category
                                      accompanied by the                              separate completers                           completion status,
                                      percentage who                                  from non-completers,                          and loan type.
                                      borrow)..                                       disaggregate by type                         Add to IPEDs: Until
                                                                                      of Federal loan                               NSLDS completion
                                                                                      debt, include                                 data are verified,
                                                                                      private loan debt,                            report to IPEDS.
                                                                                      or report the                                 Continue collecting
                                                                                      percentage of                                 the percentage of
                                                                                      students who borrow..                         students who borrow
                                                                                                                                    in IPEDS.
                                                                                                                                   Explore: Options for
                                                                                                                                    institutions (or
                                                                                                                                    lenders) to collect/
                                                                                                                                    report data on
                                                                                                                                    cumulative private
                                                                                                                                    loan debt and
                                                                                                                                    percentage who
                                                                                                                                    borrow private
                                                                                                                                    loans.
--------------------------------------------------------------------------------------------------------------------------------------------------------

      
---------------------------------------------------------------------------
    \31\ Mamie Voight, Alegneta Long, Mark Huelsman, and Jennifer 
Engle. ``Mapping the Postsecondary Data Domain: Problems and 
Possibilities.'' (Washington, DC: Institute for Higher Education 
Policy, 2014). Retrieved from: http://www.ihep.org/assets/files/
publications/M-R/mapping_postsecondary_data_part_1_final_march_2014-
v2.pdf.

                            Table 3.--Overview of Student Loan Repayment Options \32\
----------------------------------------------------------------------------------------------------------------
                                                                  Monthly payment and
            Repayment plan                  Eligible loans             time frame            Quick comparison
----------------------------------------------------------------------------------------------------------------
Standard Repayment Plan..............  Direct Subsidized and    Payments are a fixed     You'll pay less
                                        Unsubsidized Loans;      amount of at least $50   interest for your loan
                                        Subsidized and           per month; up to 10      over time under this
                                        Unsubsidized Federal     years.                   plan than you would
                                        Stafford Loans; all                               under other plans.
                                        PLUS Loans.
Extended Repayment Plan..............  Direct Subsidized and    Payments may be fixed    Your monthly payments
                                        Unsubsidized Loans;      or graduated; Up to 25   would be lower than
                                        Subsidized and           years.                   the 10-year standard
                                        Unsubsidized Federal                              plan; If you are a
                                        Stafford Loans; all                               Direct Loan borrower
                                        PLUS Loans.                                       or FFEL, you must have
                                                                                          more than $30,000 in
                                                                                          outstanding debt in
                                                                                          that respective
                                                                                          program; You'll pay
                                                                                          more for your loan
                                                                                          over time than under
                                                                                          the 10-year standard
                                                                                          plan.
Graduated Repayment Plan.............  Direct Subsidized and    Payments are lower at    You'll pay more for
                                        Unsubsidized Loans;      first and then           your loan over time
                                        Subsidized and           increase, usually        than under the 10-year
                                        Unsubsidized Federal     every 2 years; Up to     standard plan.
                                        Stafford Loans; all      10 years.
                                        PLUS Loans.
Income-Based Repayment Plan..........  Direct Subsidized and    Your maximum monthly     You must have a partial
                                        Unsubsidized Loans;      payments will be 15      financial hardship;
                                        Subsidized and           percent of               Your monthly payments
                                        Unsubsidized Federal     discretionary income,    will be lower than
                                        Stafford Loans; all      the difference between   payments under the 10-
                                        PLUS Loans made to       your adjusted gross      year standard plan;
                                        students;                income and 150 percent   You'll pay more for
                                        Consolidation Loans      of the poverty           your loan over time
                                        (Direct or FFEL) that    guideline for your       than under the 10-year
                                        do not include Direct    family size and State    standard plan; If you
                                        or FFEL PLUS loans       of residence; Your       have not repaid your
                                        made to parents.         payments change as       loan in full after
                                                                 your income changes;     making the equivalent
                                                                 Up to 25 years.          of 25 years of
                                                                                          qualifying monthly
                                                                                          payments, any
                                                                                          outstanding balance on
                                                                                          your loan will be
                                                                                          forgiven; You may have
                                                                                          to pay income tax on
                                                                                          any amount that is
                                                                                          forgiven.
Income-Contingent  Repayment Plan....  Direct Subsidized and    Payments are calculated  You'll pay more for
                                        Unsubsidized Loans;      each year and are        your loan over time
                                        Direct Plus Loans made   based on your adjusted   than under the 10-year
                                        to students; Direct      gross income, family     standard plan; If you
                                        Consolidation Loans.     size, and the total      do not repay your loan
                                                                 amount of your Direct    after making the
                                                                 Loans; Your payments     equivalent of 25 year
                                                                 change as your income    of qualifying monthly
                                                                 changes; Up to 25        payments, the unpaid
                                                                 years.                   portion will be
                                                                                          forgiven; You may have
                                                                                          to pay income tax on
                                                                                          the amount that is
                                                                                          forgiven.
Income-Sensitive PRepayment Plan.....  Subsidized and           Your monthly payment is  You'll pay more for
                                        Unsubsidized Federal     based on annual          your loan over time
                                        Stafford Loans; FFEL     income; Your payments    than you would under
                                        PLUS Loans; FFEL         change as your income    the 10-year standard
                                        Consolidation Loans.     changes; Up to 10        plan; Each lender's
                                                                 years.                   formula for
                                                                                          determining the
                                                                                          monthly payment amount
                                                                                          under this plan can
                                                                                          vary.
Pay As You Earn PRepayment Plan......  Direct Subsidized and    Your maximum monthly     You must be a new
                                        Unsubsidized Loans;      payments will be 10      borrower on or after
                                        Direct PLUS loans made   percent of               October 1, 2007, and
                                        to students; Direct      discretionary income,    must have received a
                                        Consolidation Loans      the difference between   disbursement of a
                                        that do not include      your adjusted gross      Direct Loan on or
                                        (Direct or FFEL) PLUS    income and 150 percent   after October 1, 2011;
                                        loans made to parents.   of the poverty           You must have a
                                                                 guideline for your       partial financial
                                                                 family size and State    hardship; Your monthly
                                                                 of residence; Your       payments will be lower
                                                                 payments change as       than payments under
                                                                 your income changes;     the 10-year standard
                                                                 Up to 20 years.          plan; You'll pay more
                                                                                          for your loan over
                                                                                          time than you would
                                                                                          under the 10-year
                                                                                          standard plan; If you
                                                                                          have not repaid your
                                                                                          loan in full after you
                                                                                          made the equivalent of
                                                                                          20 years of qualifying
                                                                                          monthly payments, any
                                                                                          outstanding balance on
                                                                                          your loan will be
                                                                                          forgiven; You may have
                                                                                          to pay income tax on
                                                                                          any amount that is
                                                                                          forgiven.
----------------------------------------------------------------------------------------------------------------


      
---------------------------------------------------------------------------
    \32\ ``Repay your Direct Loans and Federal Family Education Loan 
(FFEL) Program Loans.'' Federal Student Aid, U.S. Department of 
Education. Retrieved from: http://studentaid.ed.gov/repay-loans/
understand/plans.
---------------------------------------------------------------------------
    The Chairman. Thank you very much, Dr. Cooper.
    Ms. Loonin.

         STATEMENT OF DEANNE LOONIN, NATIONAL CONSUMER 
                     LAW CENTER, BOSTON, MA

    Ms. Loonin. Thank you, Chairman Harkin, Senator Alexander, 
and other members of the panel. Thank you for inviting me to 
testify here today.
    I am here today on behalf of my low-income clients. They're 
a diverse group, really representing or reflecting the broad 
faces of student loan borrowers today, and it's important to 
keep that in mind when we look at this issue, because the idea 
of--or sort of the concept of an 18-year-old going to college, 
finishing at age 21, is actually more of an anomaly now than 
what happens in the current environment where non-traditional 
students are actually the majority of students today.
    But there is one common thread of all the clients I've 
worked with over the years, and that's that they've all 
sincerely wanted to go to college to better themselves and to 
better the lives of their families. That may not have been the 
outcome, but that was their sincere intent.
    The great advantage of our system is the opportunity for 
all to get a college education. But it should be about 
investing in students most of all, not about government and 
private profit.
    Under the current system, schools may be profiting as 
tuition continues to increase, private servicers and collectors 
may be profiting due to borrower distress, and even the 
government appears to be profiting. But it's on the back, 
largely, of students who are asked to take on nearly all of the 
risk. We can do better for borrowers, and we can do it within 
the structure of the Direct Loan program.
    The structure is not the problem. The problem is lax 
oversight, lax management, and misaligned incentives. I believe 
we need a multi-faceted approach and not assume that there's 
just one solution to all of this. I want to mention a few, and 
I have more details in my testimony.
    The approach starts with school accountability, as Dr. 
Cooper mentioned. The best way to prevent defaults is to help 
students succeed. And then we also want to look at simplifying 
the student loan system and focusing it more on borrowers. With 
servicing, which we've already talked quite a bit about, the 
focus now on private contractors and profit plays out in that 
servicers too often steer borrowers to the easiest options.
    My clients, much of the time, don't even know about IBR, 
aren't told about IBR, don't know about the optimal options for 
them. And I believe there are ways that we can streamline 
servicing, perhaps with competition. Some competition is likely 
healthy--but create a system that's about putting borrowers 
first, not ensuring that private companies get every 
opportunity to promote their brands.
    I also discuss collection in greater detail in my 
testimony. But in a nutshell, the government has given the 
private collection industry a dispute resolution and counseling 
role with borrowers, and instead, in my experience, working for 
many years with clients, the collection agencies routinely 
violate consumer protection laws and prioritize profits over 
borrower rights. It doesn't work for borrowers, it doesn't work 
for taxpayers, and I think it's time to end the experiment with 
private collection agencies.
    We've been giving examples of these problems for years to 
government agencies, but we haven't had much response. In fact, 
as has been mentioned, for the most part, the Department of 
Education has kept renewing contracts even for those servicers 
or collectors where there's been evidence of offenses. The 
problems are now more public with the GAO and Inspector General 
reports, and I believe that we can fix this.
    The administration was able to mobilize and implement the 
transition to full direct lending a few years ago. I think they 
can put the same level of commitment to fixing the servicing 
and collection system, and use all the resources available to 
them, use the CFPB, which has very much improved, the complaint 
system, oversight over servicers, and, of course, use 
congressional oversight, too.
    Ultimately, it's about giving students the best chance to 
succeed and recognizing that, as with all investments, some 
don't work out the first time around. We need to give borrowers 
another chance, more than one chance at rehabilitation, more 
than one chance at consolidation, the programs that we know how 
to get out of default.
    Instead, unlike businesses, under current policy, we hammer 
student borrowers, frankly, until they die. We take earned 
income tax credit, we take social security, we limit bankruptcy 
rights. We've basically eviscerated the safety net.
    We can do much better for borrowers. It's not just for 
borrowers. It's for society so that clients like mine who want 
to go back to school can go back to school, succeed, repay 
their loans, and enter the workforce. I believe we can do 
better.
    [The prepared statement of Ms. Loonin follows:]
                  Prepared Statement of Deanne Loonin
                                summary
    Promoting equal access to higher education depends in large part on 
improving the Federal student loan system. Although Federal student aid 
is not made up of loans alone, student loans are the centerpiece of 
Federal aid and are unavoidable for most students and their families. 
This is mainly because college costs have risen faster than family 
incomes and available grant aid.
    Although there have been some positive developments in recent 
years, overall the system is focused too heavily on profits for the 
government and private contractors rather than quality service and 
protection of borrowers. This is unacceptable and unsustainable.
    My testimony focuses on improving the student loan program through 
a multi-faceted approach. There is no one solution to help more 
students succeed in college, borrow as little as possible, and manage 
debt. My testimony highlights the following key recommendations:

    1. Target aid to the neediest students and reduce reliance on 
loans.
    2. Encourage success and prevent defaults by:

          Holding schools accountable. (The best way to prevent 
        default is through student success),
          Improving information and counseling,
          Simplifying the Federal student loan system, and
          Creating an automatic income-driven repayment (IDR) 
        option in late stage delinquency and studying other options.

    3. Create a servicing and collection system based on borrower 
service, not private profit, and make it transparent.
    4. Hold the government and contractors accountable through rigorous 
public and private enforcement.
    5. Give borrowers the opportunity for a fresh start.
    Draconian collection and default policies prevent individuals from 
getting a fresh start. They also impede economic productivity by 
preventing many students from returning to school, succeeding, entering 
repayment on their loans, and entering the labor force.
    6. Restore a student loan safety net.
    Collection should be targeted to those with resources to pay and 
there must be a safety net. This is critical for borrowers, but also 
for taxpayers. There are significant costs to taxpayers associated with 
pursuing the most vulnerable borrowers until they die. Under the 
current system, lenders and collectors profit as the government pays 
higher and higher collection fees.
    7. Mandate research and innovation.
                                 ______
                                 
    The National Consumer Law Center (NCLC) thanks the committee for 
holding this hearing and inviting us to submit this testimony on behalf 
of our low-income clients. The National Consumer Law Center is a 
nonprofit organization specializing in consumer issues on behalf of 
low-income people. We work with thousands of legal services, government 
and private attorneys, as well as community groups and organizations 
that represent low-income and older individuals on consumer issues.\1\ 
NCLC's Student Loan Borrower Assistance Project provides information 
about student loan rights and responsibilities for borrowers and 
advocates. We also seek to increase public understanding of student 
lending issues and to identify policy solutions to promote access to 
education, lessen student debt burdens and make loan repayment more 
manageable.\2\
---------------------------------------------------------------------------
    \1\ In addition, NCLC publishes and annually supplements practice 
treatises which describe the law currently applicable to all types of 
consumer transactions, including Student Loan Law (4th ed. 2010 and 
Supp.).
    \2\ See the Project's Web site at http://
www.studentloanborrowerassistance.org.
---------------------------------------------------------------------------
    In my work as the Director of NCLC's Student Loan Borrower 
Assistance Project, I provide training and technical assistance to 
attorneys and advocates across the country representing low-income 
student loan borrowers. I have written numerous reports on student loan 
issues and am also the principal author of NCLC's Student Loan Law 
practice treatise.
    I provide direct representation to low-income borrowers through 
Massachusetts-based legal services and workforce development 
organizations. I also have daily contact with a wide range of borrowers 
through our student loan Web site. Because of my extensive experience 
representing student loan borrowers and working on student loan 
matters, I have served as the legal aid representative at a number of 
Department of Education negotiated rulemaking meetings.
 promoting equal access to higher education and improving the federal 
                          student loan program
    The Federal student aid programs began during the 1960s as a way to 
improve access to education for lower income individuals. In 1965, on 
signing the Higher Education Act, President Johnson said, ``[The Higher 
Education Act] means that a high school senior anywhere in this great 
land of ours can apply to any college or any university in any of the 
50 States and not be turned away because his family is poor.'' \3\ 
President Nixon echoed this message in 1970, stating that ``No 
qualified student who wants to go to college should be barred by lack 
of money.'' \4\
---------------------------------------------------------------------------
    \3\ Quoted in Peter Sacks, Tearing Down the Gates: Confronting the 
Class Divide in American Education ( 2007).
    \4\ Id.
---------------------------------------------------------------------------
    Measured by these goals, student aid policy has failed. College 
completion rates in the United States have been flat since the 1970s 
among all sectors of higher education. Lack of completion is a 
particular problem among lower income individuals. The shocking reality 
is that despite all of the money spent on financial aid, the difference 
in college graduation rates between the top and bottom income groups 
has widened by nearly 50 percent over two decades.\5\ U.S. Education 
Secretary Duncan has admitted that college access disparities are 
``actually worsening.'' \6\ As the New York Times reported, this 
growing gap ``. . . threatens to dilute education's leveling 
effects.''\7\
---------------------------------------------------------------------------
    \5\ Tami Luhby, ``College Graduation Rates: Income Really 
Matters.'' CNN Money (Nov. 28, 2011).
    \6\ Quoted in Omari Scott Simmons, ``Lost in Translation: The 
Implications of Social Capital for Higher Education Access'' 87 Notre 
Dame Law Review 205 at 210 (Nov. 2011).
    \7\ Sabrina Tavernise, ``Education Gap Grows Between Rich and Poor, 
Studies Say'' New York Times (Feb. 9, 2012).
---------------------------------------------------------------------------
    Closing the access gap depends in large part on improving the 
Federal student loan system. Although Federal student aid is not made 
up of loans alone, student loans are the centerpiece of Federal aid and 
are unavoidable for most students and their families. This is mainly 
because college costs have risen faster than family incomes and 
available grant aid. To compound the problem, the lowest income 
borrowers tend to borrow the most.
    It is not just the levels of debt that cause problems, but the 
levels of financial distress due to unmanageable student debt. There 
are nearly 39 million borrowers carrying over $1 trillion in Federal 
student loan debt.\8\ About $120 billion of Federal student loan debt 
was delinquent in 2012--a 30.5 percent increase from fiscal year 
2011.\9\
---------------------------------------------------------------------------
    \8\ Statistics discussed in Rohit Chopra, Consumer Financial 
Protection Bureau, ``A Closer Look at the Trillion'' (Aug. 5, 2013); 
``Explainer: Changes to Federal Student Loan Interest Rates'' (June 21, 
2013).
    \9\ U.S. Department of the Treasury, ``U.S. Government Receivables 
and Debt Collection Activities of Federal Agencies,'' Fiscal Year 2012 
Report to the Congress (March 2013).
---------------------------------------------------------------------------
    These problems are exacerbated by a draconian collection system 
that provides little or no opportunity for a fresh start if a student 
borrower does not succeed in college the first time around. The 
challenges are even greater given the changing demographics of college 
students today. Most students do not follow a straight line from high 
school to a 4-year college to graduation. Only 15 percent of 
undergraduate students live on campus. Three in ten works full-time and 
one in four have their own children.\10\ Federal student aid policy 
must reflect and accommodate the reality that ``non-traditional'' 
students are now the majority of college students.
---------------------------------------------------------------------------
    \10\ HCM Strategists, ``The American Dream 2.0'' (2013).
---------------------------------------------------------------------------
    The government has nearly boundless powers to collect student 
loans, far beyond those of most unsecured creditors. The government can 
garnish a borrower's wages without a judgment, seize his tax refund, 
even an earned income tax credit, seize portions of Federal benefits 
such as Social Security, and deny him eligibility for new education 
grants or loans. Even in bankruptcy, most student loans must be paid. 
Unlike any other type of debt, there is no statute of limitations. Even 
those who can make some payments face serious damage to their credit 
reports or ability to get credit for critical purchases such as cars 
and homes.
    This is unacceptable and unsustainable. Schools may be profiting as 
tuition continues to rise and private servicers and collectors may be 
profiting due to borrower misfortune, but we should not be growing our 
student loan system on the backs of defaulted borrowers or measuring 
success by private profit rather than student success.
    My testimony focuses on improving the Federal student loan program 
through a multi-faceted approach. There is no one solution to help more 
students succeed in college, borrow as little as possible, and manage 
debt. My testimony highlights the following key recommendations:

    1. Target aid to the neediest students and reduce reliance on 
loans.
    2. Encourage success and prevent defaults by:

          Holding schools accountable. (The best way to prevent 
        default is through student success),
          Improving information and counseling,
          Simplifying the Federal student loan system, and
         Creating an automatic income-driven repayment (IDR) 
        option in late stage delinquency and studying other options.

    3. Create a servicing and collection system based on borrower 
service, not private profit, and make it transparent.
    4. Hold the government and contractors accountable through rigorous 
public and private enforcement.
    5. Give borrowers the opportunity for a fresh start.
    6. Restore a student loan safety net.
    7. Mandate research and innovation.

    There are many challenges highlighted in this testimony, but it is 
also important to recognize the positive developments, particularly in 
the government's successful transition to 100 percent Direct Lending. 
By most accounts, the origination process works well. Memories are 
short and too many have forgotten the costly abuses in the guaranteed 
loan program that ended in 2010. It is most important to look forward 
and focus on making the current programs work better for borrowers, 
taxpayers and society.
  i. target aid to the neediest students and reduce reliance on loans
    This general goal should include incentives for schools to admit 
low-income students and help them succeed. Increased support for 
targeted grants, including Pell grants, is critical.
    Although increased grant funds are necessary, we cannot solve the 
access gap through money alone. Many of the hurdles low-income 
individuals face go beyond financial issues. There are social trends at 
work that may provide challenges that are just as significant. We urge 
Congress to consider testing programs that address the additional 
challenges so many low-income students face.\11\
---------------------------------------------------------------------------
    \11\ See generally National Consumer Law Center, ``No Lost Causes: 
Practical Ideas to Help Low Income Students Succeed in College'' (March 
2014).
---------------------------------------------------------------------------
           ii. encourage student success and prevent defaults
A. Hold Schools Accountable
    One of the most effective ways to prevent defaults is to 
incentivize colleges to improve student completion and success rates 
and hold schools accountable for consistently inferior outcomes. 
Borrowers are most likely to default if they do not complete college 
and if they are unemployed or earning low wages after leaving or 
graduating.\12\
---------------------------------------------------------------------------
    \12\ See generally National Consumer Law Center ``The Student Loan 
Default Trap: Why Borrowers Default and What Can Be Done'' (July 2012).
---------------------------------------------------------------------------
    It is worth exploring requiring schools to pay directly for student 
loan defaults. However, there are dangers for borrowers if schools pay 
off loans and then attempt to collect directly from students. Borrowers 
in these cases lose the various rights available under the Higher 
Education Act for Federal student loans. Another option may be to 
adjust the cohort default rate thresholds and calculations so that more 
schools with default rate problems are sanctioned.
B. Improve Information and Counseling
    Congress and regulators should look for opportunities to improve 
the timing, content and effectiveness of counseling. However, 
counseling and disclosures should not be substitutes for substantive 
reform.
    This is an important area for additional study as there are mixed 
results on whether default aversion counseling actually prevents 
defaults.\13\ In designing these studies, it is not enough to measure 
whether borrowers increase knowledge through counseling and other 
interventions. The focus should be on measuring borrower behavior over 
time after receiving counseling or other default aversion services.
---------------------------------------------------------------------------
    \13\ Id.
---------------------------------------------------------------------------
    As part of the information and counseling efforts, Congress and 
regulators should assess the effectiveness of the various ombudsman 
programs and consider expanding them. The Department of Education's 
ombudsman office, in our experience, can play a useful role in 
fostering communication and in some cases mediating disputes between 
the government and borrowers. We also urge creation of pilot programs 
to fund non-profit, neutral counseling entities and legal assistance 
programs.
C. Simplify the Federal Student Loan System
    The Consumer Financial Protection Bureau's collection of complaints 
about private student loans indicates high levels of confusion among 
borrowers regarding their loans and the financial aid process. Many 
borrowers did not know the rules for Federal aid eligibility and some 
could not identify whether they had Federal or private loans.\14\ We 
know first-hand how difficult it is to counsel distressed borrowers 
about the differences between IBR, ICR, ISR, PAYE and a host of other 
acronyms. Our clients and others like them all too often end up stuck 
in a bureaucratic morass when seeking solutions for financial distress.
---------------------------------------------------------------------------
    \14\ Rachel Fishman, ``What Borrowers Don't Understand About 
Student Loans May Hurt Them'' Higher Ed Watch (June 18, 2012).
---------------------------------------------------------------------------
    Simplifying the servicer system will improve repayment rates and 
prevent defaults, as discussed in the next section. In addition we 
recommend:

    1. Establish a single portal for all borrower transactions. Even if 
there are multiple servicers, all borrowers should receive 
communications that are clearly from the government, not from a private 
servicer or contractor who the borrower may or may not know and may not 
even associate with student loans. We agree with the Direct Loan 
Coalition that focusing borrower activity to a single site will improve 
the simplicity and transparency of the Federal loan process.\15\
---------------------------------------------------------------------------
    \15\ National Direct Student Loan Coalition, ``Reauthorization of 
the Higher Education Act: Proposals for Legislative Change'' (September 
2013).
---------------------------------------------------------------------------
    This confusion has serious consequences. For example, the tax 
statements (1099s) after a disability discharge come in envelopes from 
the government contractor Nelnet. Those that we have seen do not 
specify that there is an important tax document inside or that it has 
anything to do with a student loan. Peg Julius from the Direct Loan 
Coalition testified that ``Because the servicers are currently allowed 
to co-brand all mailings (either paper or e-mail) with their company 
name, students may not open the correspondence and thus, miss important 
information. . . . This was not an issue when there was a single 
Federal loan servicer and all correspondence was identified simply as 
``Federal Direct Student Loans.'' \16\
---------------------------------------------------------------------------
    \16\ Statement of Peg Julius on behalf of the National Direct 
Student Loan Coalition (NDSLC) before the House Subcommittee on Higher 
Education and Workforce Training, Hearing on ``Examining the 
Mismanagement of the Student Loan Rehabilitation Process'' (March 12, 
2014).
---------------------------------------------------------------------------
    The improved disability discharge system provides some important 
lessons in streamlining a government program. While not perfect, the 
program operates much more efficiently due to a series of legislative 
and regulatory improvements. The increased effectiveness is due in part 
to a simplified system where all borrowers apply for discharges through 
one servicer regardless of whether they have FFEL, Perkins or Direct 
Loans.
    2. Simply the income-driven repayment programs. There is too much 
complexity in the numbers of income-driven repayment programs and other 
options. Streamlining these programs, including creating one IDR plan, 
will make it easier for servicers to provide quality assistance. We 
agree with the Institute for College Access and Success' (TICAS) 
proposal to consolidate the complex income-driven repayment plans into 
one new and improved plan.\17\
---------------------------------------------------------------------------
    \17\ See The Institute for College Access and Success, ``Aligning 
the Means and the Ends'' (February 2013).
---------------------------------------------------------------------------
D. Create An Automatic IDR Option in Late Stage Delinquency
    To help catch financially distressed borrowers before they fall 
into default, we recommend automatically enrolling borrowers in late-
stage delinquency in IDR. Borrowers could opt out later if they choose. 
The Institute for College Access and Success (TICAS), for example, has 
recommended automatic enrollment in IDR at the 6-month delinquency 
mark.\18\
---------------------------------------------------------------------------
    \18\ Id. at 65-66.
---------------------------------------------------------------------------
    We urge Congress to be wary of the seemingly simple solution of 
placing all borrowers into a universal IDR program whether payments are 
made via payroll deductions or other means. It is critical to maintain 
choice for borrowers and recognize that IDR is not the best payment 
plan for everyone. Some borrowers will pay more over the life of their 
loans using IDR. IDR can also increase the amount of time borrowers 
have outstanding debt, which might impede access to other forms of 
credit. Further, even a low IDR payment is not affordable for everyone. 
For example, high private student loan debts are not even counted in 
the IDR formula. There should be other options such as hardship 
suspensions or deferments for these borrowers.
    Automatic payroll deduction is an option often discussed to improve 
repayment. This option may seem simple and appealing, but this is not 
necessary the case. Small employers in particular may not be equipped 
to administer even a relatively simple repayment system and we have 
often experienced problems with both large and small employers 
mismanaging the wage garnishment process.
    In addition, student loan debt is not the same as Social Security 
payments which are currently collected through payroll deductions. 
Borrowers often have legitimate defenses to student loan repayment. 
They must have a way to be able to raise these defenses rather than 
operate under a system that assumes that the debt is valid. For 
example, we had a client recently who attended a for-profit school in 
the Boston area for about 1 month. Despite promises of superior 
instruction and job placement, the entire first month of 
``instruction'' involved the students sitting in a classroom reading 
job ads. The client left, but has a $10,000 outstanding loan. We intend 
to assist her if possible in challenging repayment based on legal 
claims against the school. This is not something that would arise in a 
payroll deduction for Social Security or Medicare. Finally, an 
automatic enrollment system must not penalize borrowers who are unable 
to work and/or not required to file taxes.
    Congress should proceed carefully and avoid latching on to a 
seemingly simple, but not necessarily optimal solution. In addition, 
without proper design, there are the potential unintended consequences 
of losing leverage to incentivize schools to improve student outcomes. 
In promoting the idea of automatic IDR, a consortium of advocacy groups 
recently acknowledged that a system of this sort would not necessarily 
solve the problem of college affordability or stem growing student debt 
levels.\19\
---------------------------------------------------------------------------
    \19\ ``Automatic for the Borrower: How Repayment Based on Income 
Can Reduce Loan Defaults and Manage Risk'' (2014).
---------------------------------------------------------------------------
  iii. create a servicing and collection system focused on borrowers, 
               not private profit and make it transparent
    Servicers and collectors must provide holistic counseling so that 
borrowers understand all available options. A well-designed system 
focused on quality service will also help simplify the student loan 
system and ultimately save money. The goal is to encourage superior 
service through some competition without bombarding consumers with too 
much information.
A. Improvements in Servicing
    In order to create an improved servicing system, we need more 
information about the current system, including information about 
contract structure and performance evaluation. We fear that the 
Department of Education is moving toward a model in which it justifies 
withholding basic information about private servicers because of 
supposed proprietary contract arrangements. This may work well for 
Department employees seeking to avoid accountability, but it does not 
work best for borrowers and taxpayers.
    The goal of the system should be to provide quality service to 
borrowers. The current system is not meeting this goal among other 
reasons because there are too many servicers and too much variation in 
service. Most important, the Department of Education is not providing 
sufficient oversight to ensure that all borrowers receive quality 
service. Regardless of whether there are multiple servicers or a single 
servicer, borrowers should have standard, quality service and the 
Department must award contracts based on metrics that focus on quality 
service.
    We urge the Department to consider different approaches. We believe 
that the system that emerges should likely involve multiple servicers 
competing for accounts. However, as discussed above, all borrowers 
should receive quality standard service and should be able to deal with 
the servicer through a single portal that clearly brands the student 
loans as a government product and service. The performance metrics must 
be relevant, rigorous and transparent. If there are multiple servicers, 
borrowers should be allowed to switch if they are not satisfied.
    Unfortunately, consistent quality service is not the current 
borrower experience. Among other problems, we see servicers pushing 
borrowers into the quickest options, such as forbearance, rather than 
explaining and assisting borrowers to obtain more favorable long-term 
solutions, such as income-based repayment. Forbearances can be costly 
for borrowers because interest accrues during forbearance periods and 
because they must be renewed more frequently than most other options.
    For example, I recently met with a financially distressed client 
who is barely managing to stay current on an old guaranteed 
consolidation loan (FFEL loan). She had been living in a domestic 
violence shelter for some time. She is temporarily living with a friend 
while her son lives with other family members. She is trying to get 
back on her feet and find work. It is difficult and she is only earning 
about $5,000/year. Yet when she called her Federal loan servicer for 
help, they put her in a short-term forbearance. For the last several 
years, they have placed her in forbearances and deferments. She says 
that no one even mentioned income-based repayment (IBR). She called the 
servicer while I was in the room and sure enough, the representative 
mentioned another forbearance. The representative only mentioned IBR 
when I got on the phone and asked about it.
    The servicers often complain that they are ``stuck'' and must push 
easier solutions because of flaws in the government servicing contract 
commission system. Essentially, servicers say that they are not paid 
enough to take the time to administer the more complex programs. This 
is unacceptable. When servicers enter into contracts with the 
government, they know what the commission system will be. Even if there 
are problems with compensation, those problems are not an excuse to 
deny borrower rights or provide inferior service. The company is not 
stuck. It can choose not to bid for a contract it deems unreasonable. 
In contrast, borrowers are truly stuck if they face servicing problems. 
They are not permitted to shop around and find better choices. The 
Department is unequivocal about this trap on the Federal loan side. In 
on-line FAQs, in response to the question, ``Do I select my loan 
servicer?'' the Department's answer is No.\20\
---------------------------------------------------------------------------
    \20\ See http://studentaid.ed.gov/repay-loans/understand/servicers.
---------------------------------------------------------------------------
    The servicing system has become so confusing that an entire 
industry of for-profit ``debt relief '' companies has sprung up to 
supposedly provide the services that the free government servicers are 
failing to provide. Borrowers run the risk not only of paying 
exorbitant fees to these companies, but also of losing important 
rights. We released a report last year focusing on abuses in the for-
profit student loan ``debt relief '' industry.\21\ New York Governor 
Cuomo's new Student Protection Unit recently announced that it had sent 
subpoenas to 13 of these ``relief '' companies.\22\
---------------------------------------------------------------------------
    \21\ See National Consumer Law Center, ``Searching for Relief: 
Desperate Borrowers and the Growing Student Loan `Debt Relief ' 
Industry'' (June 2013).
    \22\ See New York State Department of Financial Services, 
``Governor Cuomo Announces New Student Protection Unit and Launches 
Investigation into Student `Debt Relief ' Industry'' (January 22, 
2014).
---------------------------------------------------------------------------
    We have sent examples of poor service and legal violations to the 
Department of Education for years and more recently to CFPB. The 
Department has admitted to finding numerous problems with the 
performance of servicers such as Sallie Mae. For example, the 
Department responded to a request for information from Senator 
Elizabeth Warren in December 2013 with a long list of ``issues'' 
identified by the Department in audits and reviews of Sallie Mae. These 
issues with Sallie Mae's servicing of Federal loans include defects in 
conversion to repayment, incomplete adjustments to borrower accounts 
when transferred from a previous servicer, and incorrect calculation of 
income for the income-based repayment program (IBR). The Department 
also listed problems with the company's servicing of FFEL loans 
uncovered in audits and review, including incorrect billings, due 
diligence errors, and incorrect repayment terms. However, the 
Department said that compliance issues have not risen to the level 
where ``penalties were considered appropriate.''
    As the Inspector General and GAO recently reported, the Department 
has not followed up reports of problems with rigorous oversight. To 
date, we have been able to work out individual client situations, often 
in conjunction with ombudsman assistance, but have yet to see systemic 
reform.
    The CFPB's announcement in December 2013 that it will begin 
supervising large student loan servicers is a promising sign for 
borrowers.\23\ The CFPB can help fill the gaps caused by a long history 
of lax Federal oversight. The CFPB and Department of Education must 
work together to ensure that servicers are doing their jobs properly. 
State Attorney General offices also have an important role in 
protecting consumers in their States.
---------------------------------------------------------------------------
    \23\ Consumer Financial Protection Bureau, ``CFPB to Oversee 
Nonbank Student Loan Servicers'' (Dec. 3, 2013).
---------------------------------------------------------------------------
    Additional Recommendations to Improve Servicing:

    1. Ensure that all borrowers receive quality servicing with a 
minimum of confusion. We agree with the Direct Loan coalition that 
competition among a limited number of servicers can be healthy, but 
that too many servicers increase complexity and taxpayer cost.
    2. Address potential conflicts in the new program allowing 
borrowers to choose a servicer when consolidating. We are very 
concerned about the potential for abuse with this new consolidation 
system. We outlined these concerns in a letter to the Department of 
Education and CFPB dated March 6, 2014 and attached to this testimony. 
We have not yet heard back. Among other actions, the Department could 
prohibit third parties from making the choice on behalf of borrowers.
    3. Give borrowers the opportunity to switch servicers. This will 
help spur healthy competition.
    4. Ensure smooth transitions if accounts must be transferred.
    5. Provide public information about how servicers are evaluated, 
including detailed information about the current performance metrics.
    6. Ensure that borrowers have access to monthly statements, fair 
billing and other basic consumer rights that exist in most other 
consumer credit markets.
    7. Penalize servicers that violate higher education and consumer 
protection laws and fail to provide consistent quality service.
B. Improvements in Collection
    The Department of Education refers every eligible debt to one of 22 
collection agencies. The business is a huge growth opportunity for 
collectors. According to one insider, ``The student loan market is a $1 
trillion opportunity for the ARM [debt collection] industry that is not 
going to decline anytime soon.'' \24\
---------------------------------------------------------------------------
    \24\ Mark Russell, ``Student Loans: The ARM Industry's New Oil 
Well?'' Inside ARM (Oct. 20, 2011).
---------------------------------------------------------------------------
    We urge Congress to investigate this system, focusing on the cost 
to taxpayers and borrowers. Outsourcing collection is not cheap. 
Taxpayers paid about $1 billion in commissions to private student loan 
debt collectors in 2011.\25\ Department projections show commissions 
growing to over $2 billion by 2016.\26\
---------------------------------------------------------------------------
    \25\ John Hechinger, ``Obama Relies on Debt Collectors Profiting 
from Student Loan Woe,'' Bloomberg (March 26, 2012).
    \26\ Presentation of Dwight Vigna, Education Department, 2013 
Knowledge Symposium (Nov. 2013).
---------------------------------------------------------------------------
    Contractors are too often rewarded based on the amounts collected 
without regard to borrower rights. In our experience, collection 
agencies routinely violate consumer protection laws and prioritize 
profits over borrower rights. The GAO report affirmed this unfortunate 
trend, finding that the Department documented instances where 
collection agency representatives provided false or misleading 
information to borrowers. According to the GAO report, when the 
Department found these violations, it simply provided feedback.\27\ 
This is unacceptable. At a minimum, the Department of Education should 
have referred violations to other agencies that regulate debt 
collectors, including the CFPB. The tender treatment of collection 
agencies breaking the law is in sharp contrast to the way borrowers are 
hounded forever when they run into financial distress.
---------------------------------------------------------------------------
    \27\ U.S. Government Accountability Office, ``Federal Student 
Loans: Better Oversight Could Improve Defaulted Loan Rehabilitation'' 
(March 2014).
---------------------------------------------------------------------------
    The government must balance the need to collect student loans and 
the need to assist borrowers. The current system heavily favors high 
pressure collection and collector profits, to the detriment of 
financially distressed borrowers seeking the help they so desperately 
need.
    The main problem is that dispute resolution is not the primary 
mission of loan collection agencies. Debt collectors are not adequately 
trained to understand and administer the complex borrower rights 
available under the Higher Education Act, and the government does not 
provide sufficient oversight of their activities. There are certainly 
times when a borrower is uncooperative or has exhausted all options. In 
those cases, the loan holder may have no choice but to focus on 
collection efforts. Yet there are many borrowers who want to find a 
solution, but are stymied because they cannot get past the rude, 
harassing, and often abusive behavior of a collection agent.
    As noted above, we have provided the Department of Education and 
more recently the CFPB with consistent examples of problems over the 
years with little or no response. The criticism has been more public 
recently from the Inspector General and GAO. The recent GAO report, for 
example, includes very important findings of Education's failure to 
monitor its contractors and conduct oversight. In addition, the 
Department's Inspector General issued a final alert memorandum in May 
2013 informing the Department of concerns that Federal Student Aid 
(FSA) paid estimated commissions and bonuses to private collection 
agencies based on revised methodologies and without reviewing 
supporting documentation. FSA was unable to calculate the actual 
commissions earned due to problems with in-house systems and therefore 
relied on self-reported estimates during fiscal year 2012.\28\
---------------------------------------------------------------------------
    \28\ U.S. Department of Education, Office of Inspector General, 
``Federal Student Aid Paid Private Collection Agencies Based on 
Estimates,'' Control Number ED-OIG/L02N0002 (May 15, 2013).
---------------------------------------------------------------------------
    The Department and other loan holders often dismiss examples of bad 
behavior as ``anecdotal'' and point to low volumes of borrower 
complaints. This excuse does not take into account that complaints are 
relatively low in part because borrowers do not know how to complain. 
There is no clear information for borrowers about how to lodge 
complaints about collection agencies.\29\ In any case, there should be 
no more hiding given the recent GAO and IG investigations confirming 
the widespread problems in oversight and management of private 
contractors. The GAO reported that with respect to rehabilitation, the 
Department did not have data to track loan rehabilitation performance 
or data on the extent to which borrowers that rehabilitate stay out of 
default.\30\
---------------------------------------------------------------------------
    \29\ See Deanne Loonin & Jillian McLaughlin, ``Borrowers on Hold: 
Student Loan Collection Agency Complaint Systems Need Massive 
Improvement.'' National Consumer Law Center (May 2012), p. 15-17.
    \30\ U.S. Government Accountability Office, ``Federal Student 
Loans: Better Oversight Could Improve Defaulted Loan Rehabilitation'' 
at 20 (March 2014).
---------------------------------------------------------------------------
    In addition to pushing for greater oversight, we urge Congress to 
require the Department of Education to reveal how it measures 
collection agency performance. We have attempted for some time to 
obtain more information through FOIA requests, but have been 
stonewalled for the most part. We are very concerned about the trend 
away from providing the public and legislators with the information 
needed to ensure that borrowers and taxpayers are protected.
    An accessible complaint system and increased transparency will not 
solve all student debt problems. However, improvement in these areas 
can help restore the balance between borrower rights and extraordinary 
government collection powers. The government has nearly unlimited power 
to collect student loans. At a minimum, the government must be 
accountable to the public about how it uses this power and how much it 
costs all of us in the long run.
    We urge Congress to monitor the Administration's response to the 
recent GAO and Inspector General findings. It is past time to focus on 
fixing not just loan rehabilitation, but the entire Federal loan 
servicing and collection system. The Administration was able to 
mobilize and implement the transition to full direct lending a few 
years ago. Now the government must put this same level of commitment to 
fixing the servicing and collection system.
    We will know the collection system is working better if servicers 
and collectors start complying with existing laws and learn to explain 
these laws without bias to borrowers. The government must measure 
success on this basis instead of focusing only on higher collection 
levels.

Additional Recommendations to Improve Collection

    1. Eliminate private collection agencies from the dispute 
resolution role.
    Until such time as the government identifies viable alternatives to 
private collection agencies, we call on the Administration to issue a 
moratorium on using private collection agencies for student loan 
dispute resolution. Congress should also act to prohibit use of private 
debt collectors and create a pilot program to study the effectiveness 
of other debt collection techniques.
    2. Provide public information about the cost of outsourcing to 
private debt collectors and about performance. Collection agency 
performance must be about more than dollars collected.
    3. Monitor Department oversight of collection and require public 
information about how performance is tracked and the results.
    4. Require information about the process for handling complaints 
against collection agencies and any disciplinary actions taken against 
those agencies.
   iv. hold private entities and the government accountable through 
                rigorous public and private enforcement
    As the recent GAO and IG studies confirm, Federal and State 
enforcement of HEA requirements has been generally lax. While 
government enforcement is important, borrowers cannot rely on public 
actions to get relief. Congress must act to ensure that borrowers have 
private enforcement rights, not only to challenge predatory school 
practices, but also servicer and collector abuses. This requires 
amending the HEA to create an explicit private right of action.
    Congress has created many new and improved options for borrowers. 
The Department of Education also signs numerous contracts with 
servicers and collectors to provide essential services. Theoretically, 
these entities could lose their contracts if they do not comply with 
the law. But even if this occurs, there are no provisions requiring 
relief for borrowers harmed by these practices. For example, what 
happens if the lender, guaranty agency or school refuses to discuss 
loan rehabilitation even when a borrower clearly has a right to such a 
plan? Currently the borrower can complain to the Department of 
Education. Given documented problems with the Department's oversight, 
this is less than a complete solution even for those borrowers who 
persist and manage to speak to someone. Beyond complaining, it is 
virtually impossible for a borrower to enforce her rights. Even in the 
case of the now well-documented breakdown in the Department's 
rehabilitation system, the GAO report shows in detail how most 
borrowers were left in the cold. According to GAO testimony, less than 
10 percent of the estimated 80,000 borrowers affected by the delays in 
loan rehabilitation received assistance to make them whole.\31\
---------------------------------------------------------------------------
    \31\ Statement of Melissa Emrey-Arras, U.S. Government 
Accountability Office, Testimony before the Subcommittee on Higher 
Education and Workforce Training, Committee on Education and the 
Workforce, House of Representatives (March 12, 2014).
---------------------------------------------------------------------------
    The lack of private enforcement shuts the door on borrowers seeking 
to access programs that they are entitled to under the Higher Education 
Act. This glaring problem also undermines the effectiveness of new 
borrower-friendly programs because loan holders and servicers are not 
held accountable when they fail to comply with the law.
    Congress should also prohibit mandatory arbitration clauses in 
school enrollment and lending contracts. Mandatory arbitration 
provisions, buried in many kinds of consumer contracts, require 
consumers to waive their right to use the court system, and instead 
limit consumers to resolving their disputes with the lender or seller 
through a binding arbitration process. This constraint puts the lender 
or seller in a stronger position, because little discovery is 
available, the business can pick the arbitration service provider (and 
repeat players bring more business, leading to an incentive for the 
arbiter to rule for the lenders), and decisions cannot be appealed.
          v. give borrowers the opportunity for a fresh start
    Current Federal aid practices and policies hammer students who do 
not succeed the first time around. Draconian collection and default 
policies prevent individuals from getting a fresh start. It also 
impedes economic productivity by preventing many students from 
returning to school, succeeding, entering repayment on their loans, and 
entering the labor force.
    I am always moved by how hard so many of my clients try even if 
they do not always succeed. Each client has an individual story and 
entire populations never fit into neat categories, but I can say that 
most of my clients keep their dreams of higher education alive even 
after repeated failures. This is why we need to provide them with the 
opportunity to start fresh.
    Providing a fresh start recognizes the reality that everyone makes 
mistakes and that not everyone succeeds the first time around. The main 
difference for low-income individuals is that one slip can be the end 
of the educational journey. There is little or no margin for error or 
cushion when they fall.
    The first step to a fresh start is, as discussed above, to ensure 
that borrowers are working with neutral entities, not aggressive 
collection agencies, in accessing programs to assist them.
A. Study and Improve Existing ``Get Out of Default'' Programs
    Rehabilitation and consolidation are the two main options currently 
available to Federal student loan borrowers seeking to get out of 
default. Overall, consolidation is much faster than rehabilitation, 
mainly because a borrower in default does not have to make any 
preliminary payments to qualify. Further, there is no resale 
requirement. The faster process is especially important for borrowers 
seeking to go back to school quickly. In addition, with consolidation, 
borrowers do not have to make preliminary payments and so are not 
forced to negotiate ``reasonable and affordable'' payments with a 
collector. The main advantage of rehabilitation relates to credit 
reporting. However, this benefit is often oversold.
    There is a dearth of research on the effectiveness of either 
consolidation or rehabilitation, particularly with respect to borrower 
success rates.\32\ Department of Education staff confirmed in a phone 
call with NCLC that they did not know of any studies comparing the 
effectiveness of the two programs. This is particularly shocking since 
the Department collection contracts incentivize rehabilitation. The GAO 
also noted the Departments' failure to track the effectiveness of 
rehabilitation.\33\
---------------------------------------------------------------------------
    \32\ See generally ``The Student Loan Default Trap: Why Borrowers 
Default and What Can Be Done'' (July 2012).
    \33\ U.S. Government Accountability Office, ``Federal Student 
Loans: Better Oversight Could Improve Defaulted Loan Rehabilitation'' 
(March 2014).
---------------------------------------------------------------------------
    We urge Congress to study these programs to evaluate effectiveness 
and in the meantime enact the recommendations below to ensure that the 
programs truly afford borrowers a fresh start.

Key recommendations:

    1. Eliminate the one-time limit on rehabilitation.
    2. Eliminate the FFEL program resale requirement. Because of this 
``requirement,'' borrowers who make the necessary payments can get 
stuck with no possibility of completing the rehabilitation simply 
because their guaranty agencies cannot find buyers. At a minimum, 
agencies that cannot find buyers should be required to assign the loans 
to the Department of Education.
    3. Provide full credit reporting benefits. Lenders should be 
required to erase all negative history in the borrower's credit report, 
not just the default notation. This is a much more complete ``credit 
clearing'' benefit.
B. Prevent Ballooning Loan Balances by Limiting Collection Fees
    Collection charges should be limited to only those fees that are 
bona fide and reasonable and actually incurred. As long as collection 
agencies are still employed to collect student loan debts, Congress 
should act to limit the profits they earn on the backs of borrowers.
C. Provide a Fresh Start for Those Harmed by Predatory Schools
    Through our work consulting with legal services and other attorneys 
across the country, as well as our direct representation work, we have 
seen a continuous stream of student loan borrowers who are struggling 
to pay 10, 20, and even 30-year old loans. The vast majority of these 
borrowers, including single parents, veterans, non-English speakers, 
first-generation students, and seniors, enrolled in for-profit schools 
in order to earn higher wages and improve their lives and the lives of 
their families. Too many of these schools, however, preyed on these 
borrowers' dreams by falsely promising high quality educations that 
would lead to high paying careers. By the time our clients reach us, 
their hopes and dreams have been shattered. Unable to find the 
employment promised, they face aggressive debt collection tactics for 
student loan debts they cannot afford to repay. Many of them have no 
way out.
    A July 2013 New York Times article describes hundreds of borrowers 
(and maybe more) in New York City facing financial devastation due to 
loans incurred at a number of cosmetology schools that have been closed 
for years.\34\ One of the borrowers summed up the trap she is in: ``It 
would have been worth it,'' she said ``for a school that gave me a 
future.''
---------------------------------------------------------------------------
    \34\ Emily S. Rueb, ``Beauty School Students Left with Broken 
Promises and Large Debts,'' The New York Times (July 28, 2013).
---------------------------------------------------------------------------
    Although the Department of Education has recently worked at 
creating regulations designed to curb future abuses, these regulations 
do nothing to provide relief for the countless number of borrowers who 
have been harmed by fraudulent schools. The three main types of 
existing cancellations (or ``discharges'') that are intended to address 
fraud--closed school, false certification, and unpaid refund 
cancellations--are narrowly defined and provide relief to only a small 
subset of harmed borrowers. These cancellations are not available to 
borrowers harmed by other kinds of deceptive practices, including those 
that are prohibited by Federal regulation. For example, a school may 
routinely pay admissions officers by commission, fail to provide 
educational materials or qualified teachers, or misrepresent a 
student's likelihood of finding a job or earning a particular salary 
after completion. All of these violations harm students, but none of 
them are currently included as grounds for student loan discharges.
    Congress and the Department of Education can fill in these gaps by 
creating a fresh start relief program. For too long, the risk of 
predatory school practices has fallen almost entirely on individual 
borrowers, who were not in a position to discover fraud and police 
schools before they enrolled.\35\
---------------------------------------------------------------------------
    \35\ For more information about existing authority to create this 
type of program and ideas for legislative change, see National Consumer 
Law Center, ``Promoting Higher Education Access and Success: Higher 
Education Act Reauthorization Recommendations'' (August 2013).
---------------------------------------------------------------------------
D. Use HEA Authority to Provide Relief for Private Loan Borrowers
    Much of the statutory authority for private lending is outside of 
the HEA. However, the government can use the HEA as an oversight tool 
to protect private loan borrowers attending schools that receive title 
IV funds. We recommend using this tool to require schools to certify 
private loans. As part of the certification process, schools should be 
prohibited from certifying loans that fail to provide basic consumer 
protections such as death and disability discharges.
      vi. restore a safety net for all all student loan borrowers
    Collection should be targeted to those with resources to pay and 
there must be a safety net. This is critical for borrowers, but also 
for taxpayers. There are significant costs to taxpayers associated with 
pursuing the most vulnerable borrowers until they die. Under the 
current system, lenders and collectors profit as the government pays 
higher and higher collection fees.
    At the National Consumer Law Center, we see and hear the human toll 
of the tattered student loan safety net every day from the low-income 
borrowers we represent. Here is just one example.
    I had a client (Mr. A) who passed away last year at age 84. He was 
a veteran of the Korean War. After retiring from the insurance industry 
in his 70s, he was living alone, subsisting only on limited Social 
Security income.
    Mr. A sought legal assistance because the government had started 
taking a large chunk of his Social Security income and he could no 
longer afford to buy the medications he needed for an array of serious 
health problems. It took a while to unravel the source of the offset 
because Mr. A insisted that he had never taken out any student loans to 
pay for education. He was correct that he had never taken out loans to 
finance his own education because he was able to use the G.I. bill. 
Instead, the offset occurred because of parent PLUS loans from the 
early 1990s. There was a large balance outstanding and Mr. A could not 
pay. His children could not help him financially either.
    I contacted the loan holder Sallie Mae to figure out a way to at 
least reduce the Social Security offset. We submitted detailed proof of 
Mr. A's income and expenses. It took hours to document these expenses. 
Sallie Mae eventually agreed to reduce the offset to an amount that 
allowed Mr. A to purchase most of the medications he needed to keep 
going.
    I discussed the possibility of a disability discharge with Mr. A, 
but this proud man insisted despite all evidence to the contrary that 
he could still work. Even after the suspension of the offset, Sallie 
Mae kept placing the account with collection agencies. I asked the 
Sallie Mae representatives to take the file back from the collection 
agency. Among other problems, the constant phone calls and letters were 
very upsetting to Mr. A. The Sallie Mae representative said they cannot 
take files back from collection agencies, but they did agree to put our 
name on the account as the contact.
    Eventually after numerous stints at nursing facilities due to 
declining health, Mr. A agreed to apply for a disability discharge and 
was successful. However, he missed the paperwork requiring him to 
document his inability to work for 3 years because he was not picking 
up his mail while he was hospitalized. We were able to restore the 
discharge, but then Mr. A received a tax statement claiming he owed 
taxes on the discharged amount. This was one of the most upsetting 
aspects of the case for Mr. A. We were in the process of proving his 
insolvency when he died.
    Despite this human toll, there is a common view that aggressive 
collection is necessary to shore up the student loan system. An 
attorney filing lawsuits on behalf of the government to collect student 
loans stated,

          ``For every dollar collected from defaulted student loans, 
        it's money that can be used again for student loans or taken 
        off the deficit or used for other issues.'' \36\
---------------------------------------------------------------------------
    \36\ Ron French, ``Michigan Goes Hard After Student Loan 
Defaulters'' Bridge Magazine (May 15, 2012).

    One of the government's largest collectors, ECMC, justified 
aggressive collection practices by emphasizing that its efforts keep 
Federal financial aid programs solvent.\37\
---------------------------------------------------------------------------
    \37\ John Hechinger, ``Taxpayers fund $454,000 Pay For Collector 
Chasing Student Loans'' Bloomberg (May 15, 2012).
---------------------------------------------------------------------------
    These statements emphasize keeping the loan programs alive, but at 
what cost? Should the Federal Government support a growing student loan 
program on the backs of defaulted borrowers? If the goal of Federal 
policy is to hound defaulted student loan borrowers until they die, 
then Mr. A's case and others like them are policy successes. But we do 
not believe that this should be the goal.
    Key reforms to restore a safety net include:

    1. Eliminate offset of earned income tax credits (one of the most 
important programs that help working families keep working).
    2. Eliminate Social Security offsets. Social Security helps give 
aging and disabled Americans peace of mind. Offsetting this lifeline is 
an extraordinary collection tool that should be eliminated.
    In the meantime Congress should increase the exempted amount from a 
flat $9,000/year to an amount that is sufficient for basic survival and 
tied to an annual index. The $9,000 limit has not been raised since the 
legislation was passed in the mid-1990s. It is even below the current 
poverty level for a single person of $11,670.
    3. Eliminate the 3-year reinstatement period for borrowers in the 
Social Security Medical Improvement Not Expected category. The 
Department of Education recently amended the HEA regulations to allow 
borrowers to provide certain SSA determinations as presumptive proof of 
disability discharge. However, the Department did not eliminate the 
reinstatement period for these borrowers. This is in contrast to the 
V.A. process in which certain veterans may receive discharges without a 
3-year reinstatement period. Eliminating the reinstatement period for 
these most disabled borrowers will also save money by reducing 
unnecessary bureaucratic requirements and oversight.
    4. Place a moratorium on offset of borrowers receiving SSDI so that 
they can apply for disability discharges.
    5. Restore Bankruptcy rights for all student loan borrowers.
    6. Restore a statute of limitations for Federal student loans. The 
elimination of the statute of limitations for government student loans 
in the early 1990s placed borrowers in unenviable, rarified company 
with murderers, traitors, and only a few violators of civil laws. 
Despite the governmental and social interest in pursuing criminals, 
statutes of limitations apply to nearly all Federal criminal actions. 
Among other reasons, statutes of limitations are essential because of 
the serious problems and abuses associated with adjudicating old 
claims. The limitless pursuit of vulnerable student loan borrowers has 
serious human and financial costs.
    7. Eliminate adverse tax consequences for Borrowers Receiving 
Administrative Discharges. Under current law, borrowers obtaining 
discharges due to disability or death (e.g., for parents surviving 
their children) or after IBR forgiveness face potential tax 
consequences while most other borrowers obtaining discharges do not. 
The current insolvency system is insufficient to protect many 
vulnerable borrowers.
                  vii. mandate research and innovation
    One way to improve efficiency is to conduct more empirical research 
and pilot projects to find out what works. According to New America, 
higher education generally suffers from a lack of rigorous 
experimentation, both in terms of practice and policy.\38\
---------------------------------------------------------------------------
    \38\ Stephen Burd, Kevin Carey, Jason Delisle, Rachel Fishman, Alex 
Holt, Amy Laitinen, and Clare McCann, New America Foundation, 
``Rebalancing Resources and Incentives in Federal Student Aid'' (Jan. 
2013).
---------------------------------------------------------------------------
    We urge the Department of Education to make long-term data 
available to researchers AND to conduct internal studies using this 
data. Requiring private lenders to report data on private student 
loans, potentially through the NSLDS system, would open up another set 
of data to study borrower behavior over time.
    It is critical to isolate the main predictors of default by using 
appropriate regression analyses. This regression research should focus 
particularly on the extent to which lack of completion causes higher 
default. Studies should also include interviews and surveys of 
borrowers. Many of these studies will take time as borrowers are 
tracked over longer periods.
    In addition to research mandates, Congress should require the 
Department of Education to release data about key Federal aid metrics 
including extensive default rate information, effectiveness of post-
default programs, costs of collection, commissions to collectors and 
servicers, and other critical information.
    Giving borrowers a chance to get back in good standing may be less 
costly in many cases than the relentless gauntlet of collection 
tactics. We particularly need more information about the costs of the 
Department's collection programs.
                               conclusion
    The student loan programs work well for many students who are able 
to complete their educations and earn sufficient income after 
graduation to repay their debts within a reasonable period of time. 
Unfortunately, this scenario is becoming less common as borrowers get 
deeper into debt earlier in the process and do not know about available 
options that could help them avoid problems down the road. Once these 
problems begin, collection costs and fees accrue so rapidly and 
aggressive collection efforts hit so hard that many borrowers never 
recover.
    While the student loan programs are here to stay, there are ways to 
alleviate the burden for the most vulnerable and lower income 
borrowers. Our higher education system and economic productivity depend 
on how we resolve these issues.
    Thank you for your consideration of these recommendations. Please 
contact Deanne Loonin ([email protected]; 617-542-8010) with questions 
or comments.
                                 ______
                                 
                               ATTACHMENT

                       National Consumer Law Center (NCLC),
                                                    March 10, 2014.

Rohit Chopra,
Assistant Director and Student Loan Ombudsman,
Consumer Financial Protection Bureau.

James Runcie,
Chief Operating Officer,
Office of Federal Student Aid,
U.S. Department of Education.
    Dear Mr. Chopra and Mr. Runcie: We have been following the 
Department of Education's plans to launch a new Direct Loan 
consolidation system. We understand from the January 7, 2014 
announcement that the Department has begun implementing the first phase 
of this system and that the second is likely to occur this spring.\39\ 
According to the announcement, most borrowers without loans in default 
should be applying for consolidation through the new studentloans.gov 
portal.
---------------------------------------------------------------------------
    \39\ We refer to this announcement: http://www.ifap.ed.gov/
eannouncements/010714NewDirect
ConsolidLoanProInfoPhaseOneTran.html.
---------------------------------------------------------------------------
    We have been unable to navigate the system because it requires a 
borrower PIN number. Based on the announcement and discussions with 
Department staff, we understand that borrowers will, for the first 
time, be required to choose a specific loan servicer as part of the 
consolidation application. This ``chosen'' servicer will be responsible 
for completing the consolidation application and acting as the 
borrower's general loan servicer. Borrowers will be able to choose 
between FedLoan Servicing (PHEAA), Great Lakes Educational Loan 
Services, Nelnet and Sallie Mae.
    Although we agree generally with enhanced borrower freedom to 
choose servicers, we are very concerned about the potential for abuse 
with this new consolidation system. This could occur in a number of 
ways, including:

    1. Collection agency referrals: Phase one does not include 
borrowers with loans in default. However, the current plan is to 
require these borrowers to use the new system once phase two is 
implemented. These borrowers are almost always dealing with a 
collection agency. Although borrowers should be able to bypass 
collection agencies and consolidate on their own, our experience is 
that the collection agencies pressure borrowers to allow the agencies 
to process the consolidation applications. Under the new system, we 
fear that these agencies will make servicer choices without consulting 
the borrowers.
    There is very serious potential for abuse. Kickback arrangements 
are one possibility. Even more directly, one of the servicers on the 
list, Sallie Mae, owns collection agencies.
    2. For-Profit Debt Relief Companies. The National Consumer Law 
Center released a report last year focusing on abuses in the for-profit 
student loan ``debt relief '' industry.\40\ New York Governor Cuomo's 
new Student Protection Unit recently announced that it had sent 
subpoenas to 13 of these ``relief '' companies.\41\
---------------------------------------------------------------------------
    \40\ See National Consumer Law Center, ``Searching for Relief: 
Desperate Borrowers and the Growing Student Loan `Debt Relief ' 
Industry'' (June 2013), available at: http://www.nclc.org/issues/
searching-for-relief.html.
    \41\ See http://www.dfs.ny.gov/about/press2014/pr1401221.htm.
---------------------------------------------------------------------------
    We found that the only ``service'' most of these companies perform, 
if they perform any service at all, is processing government loan 
consolidation applications on behalf of borrowers. This appears to be 
yet another area of potential abuse if these companies seek 
compensation to steer borrowers to particular servicers. Our 
investigation found that these companies generally do not provide 
reliable information to consumers. Therefore it would not be surprising 
if they selected servicers on behalf of borrowers without informing the 
borrowers about their right to choose servicers. Most of these 
companies seek powers of attorney to act on behalf of borrowers.
    3. School Referrals. A number of our clients with loans in default 
have told us that for-profit school staff seeking to recruit them have 
offered to get their loans out of default for free. Many then tried to 
process loan consolidation applications on behalf of the borrowers. In 
some cases, we believe that the schools may be working with ``debt 
relief '' companies described above.
    In addition, many schools, both for-profit and non-profit, counsel 
students on handling loans after leaving school. In many cases, the 
schools are working with borrowers seeking to consolidate loans. It is 
unclear how these schools can counsel borrowers on comparing servicers 
and making informed selections.
    4. FFEL (Federal Family Education Loan or Guaranteed Loan) 
Conflicts. Borrowers with FFEL loans often seek to consolidate into the 
Direct Loan program. All four of the ``consolidation servicers'' has a 
legacy FFEL portfolio. All but Sallie Mae were FFEL guaranty agencies, 
although Sallie Mae owns a guaranty agency. We fear that these agencies 
will steer borrowers into choosing them as the Direct Loan servicer, 
perhaps even inaccurately informing borrowers that they are required to 
keep the same servicer as they transition to Direct Loans.

    We are also concerned about the lack of information available to 
consumers to help them make servicer choices. The only information we 
know of showing servicer performance is the quarterly servicer survey 
information that is generally available only on the Department's 
Information for Financial Aid Professionals (IFAP) Web site.\42\ While 
imperfect, this information gives borrowers some sense of servicer 
performance. However, it is hidden on a site that consumers rarely 
visit or even know about. Further, we have noticed that the most recent 
information has not been posted. We have not seen an update since 
August 2013. There are media reports that the Department is making 
adjustments to some of the data categories. However, we do not 
understand why this would preclude the Department from continuing to 
release updated information in the other categories.
---------------------------------------------------------------------------
    \42\ See, e.g., http://www.ifap.ed.gov/eannouncements/
082213LSIQrtlyCustSatisSurveyBegin
Sept2013.html.
---------------------------------------------------------------------------
    We are requesting that you send information about any and all 
information that is publicly available for consumers to learn about 
servicer performance. Please also indicate whether any information will 
be available in the future. Please be specific about this information. 
For example, can borrowers access the redacted transcripts from 
borrower satisfaction surveys? What other information is available?
    In addition, we request that you contact us as soon as possible to 
explain any precautions the Department or other agencies have taken to 
avoid potential abuses and to provide information so that consumers can 
truly shop for servicers. This is particularly critical since once they 
make a choice, as far as we know, the Department will not let borrowers 
switch to a different servicer.
            Sincerely,
                                             Deanne Loonin,
                                          National Consumer Center.

    The Chairman. Thank you, Ms. Loonin.
    Ms. Johnson, welcome back.

STATEMENT OF ROBERTA L. JOHNSON, DIRECTOR OF STUDENT FINANCIAL 
              AID, IOWA STATE UNIVERSITY, AMES, IA

    Ms. Johnson. Thank you. Chairman Harkin, Ranking Member 
Alexander, and members of the committee, thank you for inviting 
me here today to testify.
    As has already been mentioned, I've been at Iowa State 
University for a number of years. I have had experience with 
both the FFEL program as well as the Direct Loan program. Iowa 
State University was a year-one school in 1994 in the Direct 
Loan program, and I have the experience of the Direct Loan 
program prior to 100 percent DL and post that period of time. 
So I can talk to both sides of that issue.
    To help you better understand the whole borrower 
experience, I want to start with the application process, which 
Senator Alexander showed. It's a 10-page process through the 
FAFSA form, and it cannot be completed until January 1st of the 
student's senior year in high school. For many students, 
they're already emotionally invested in the institution.
    Because many institutions, like ours, use a deadline for 
making decisions about disbursement of campus-based and 
institutional dollars of March 1st, students are often 
estimating their information and getting that application in by 
March the 1st. Then what ends up happening, of course, is that 
they don't have their taxes filed until April 15th, and the 
information is incorrect. Schools are going back and forth with 
them several times to try to rectify this situation.
    I would suggest that some of the recent studies on the 
prior-prior year evaluation of tax--or using that tax 
information would be something that bears consideration, 
primarily because it would allow that information to go to 
students in the fall semester of their senior year, 
potentially, so that they would have opportunity to think about 
saving, they would know their cost, and they could potentially 
make other plans before they're so emotionally invested in your 
institution if it turns out that that institution is simply 
financially unfeasible for them.
    Iowa State University is using the Financial Aid Shopping 
Sheet as our official award notification to students. I was 
very skeptical about using this initially, but the feedback 
that we've received from our students and their families is 
that they're very appreciative of this information, it's clear 
to understand, and it did provide them with a definite picture 
of what their costs would be prior to borrowing any loans.
    However, the shopping sheet does not work well for graduate 
and professional students because the metrics are all tied to 
undergraduate performance indicators. So we need to think about 
how we can change that. Also, there are a number of consumer 
information required disclosures, College Navigator, the 
Shopping Sheet, and the Score Card--we need to think about 
making these consistent and utilizing the same measurement 
points so that they're truly helping families to compare their 
school choices rather than adding to their confusion.
    Now, once a decision has been made to borrow, the students 
are directed to the Department of Education's Web site, 
studentloans
.gov, to complete the master promissory note, entrance 
counseling. They will ultimately utilize the site for entrance 
counseling, and they also go here to use the Financial 
Awareness Counseling Tool, which Mr. Runcie discussed.
    The Financial Awareness Counseling Tool is very robust. Our 
institution is using it when working with students to develop 
their own budgets, to help explain repayment plans, and to 
assist them in realizing what their repayment amounts will be 
once they complete the degree program.
    The up front processing of loans, known as origination, 
works very well via an electronic transmission of information 
that goes to a contractor that the department has working for 
them. And this year, we will be providing even additional 
information beyond just loan period and grade level, as we need 
to also provide program information so that when students have 
received 150 percent of their program borrowing, they will no 
longer be able to borrow through a subsidized Stafford loan.
    But it's after the loan is disbursed that things are now 
more challenging for the borrowers. When the Direct Loan 
program was first implemented, there was a single servicer, and 
all correspondence was branded as the Federal Direct Student 
Loan Program. Now, the correspondence that comes to borrowers 
is co-branded with the name of the servicer on it, and, 
oftentimes, it's my experience that the name of the servicer 
appears in larger print than the Department of Education's 
information. So it is difficult for the borrower to know that 
this is coming from the Direct Loan program.
    I would suggest that also the studentloans.gov needs to be 
the single point of contact for borrowers to be able to log 
back in to access their student loans. Currently, a student has 
to go to that individual servicer's Web site, sign up, get a 
sign-in, login, and that is very confusing and, I think, leads 
to a lot of challenges with repayment, because students have to 
take some extra steps. If we can streamline this and put it 
into one stop for students, I think it will help.
    I think because loan contracts are up later this year, the 
department has the opportunity to think about how contracts 
need to be awarded. Do the loan servicers need to come from a 
previous FFEL environment, or are there servicers that are 
working in other financial sectors, such as credit card 
agencies, that may do just as good if not a better job?
    I think the plethora of student loan repayment plans can be 
confusing, particularly all of the income-based plans for 
students. We need to think about that.
    And, finally, I would say in response to comments about the 
cost of loans, I think there is some substantial revenue that's 
being made, and we need to look at things like the origination 
fee, as well as the capitalization of interest for our 
borrowers, and see if there are some ways that we can 
streamline those processes.
    So, in conclusion, let me state that it works well, but 
there are definitely areas that we can fine tune and find 
efficiencies to assist our borrowers.
    Thank you.
    [The prepared statement of Ms. Johnson follows:]
                Prepared Statement of Roberta L. Johnson
                                summary
    Testimony on Strengthening the Federal Student Loan Programs for 
Borrowers walks through the process of borrowing a student loan, both 
from the perspective of the borrower as well as that of the school.
    Starting with the financial aid application process, comments 
include ways to minimize the burden to both borrowers and schools by 
suggesting serious consideration be given to utilization of prior-prior 
year financial information to minimize the amount of followup required 
to confirm the family's estimated financial contribution. Comments are 
also made on the benefits and challenges of utilizing the Financial Aid 
Shopping Sheet, a mechanism by which schools indicate to borrowers how 
much they can borrow.
    Once a decision has been made to borrow, the lifecycle of the loan 
begins. Commencing with completion of the master promissory note and 
entrance loan counseling, continuing with in-school servicing and exit 
counseling, and concluding with repayment, the testimony highlights 
both the positive and negative aspects of the current environment with 
suggestions as to how the challenges might be addressed.
    Finally, comments are made regarding areas where legislation could 
effect changes to impact the perception that the Federal Government is 
making money off student loans through the elimination of the 
origination fee and capitalization of interest.
                                 ______
                                 
    Chairman Harkin, Ranking Member Alexander, and members of the 
committee: thank you for inviting me to testify today at this hearing 
regarding Federal student loans. My name is Roberta Johnson and I am 
the director of Student Financial Aid at Iowa State University in Ames, 
IA. Iowa State University is the public land-grant institution in Iowa, 
enrolling 33,241 students. Last year, 84 percent of our total student 
body received some type of financial aid and 53 percent of all students 
received a student loan. Average indebtedness at graduation has hovered 
near $30,000 for the last 5 years, although the percent of students 
graduating with debt has dropped from 71.2 percent to 61.8 percent over 
the same period.
    My tenure in the financial aid office at Iowa State University 
spans 31 years, including 29 years involved in some capacity with the 
administration of the student loan programs on our campus. I was 
involved in Iowa State University's transition to the Federal Direct 
Loan Program as one of the original 104 schools that entered the 
program in 1994 and have remained fully committed to this program in 
the ensuing years, working both locally and nationally to strengthen 
and streamline the program.
    To help you better understand the experience of borrowers of 
Federal student loans, I would like to start at the beginning of the 
financial aid process. Regardless of the type of Federal loan, all 
borrowers must complete the Free Application for Federal Student Aid 
(FAFSA). Because the FAFSA cannot be completed until January 1 for the 
year in which the student seeks enrollment, information regarding how 
to finance educational costs is often the last piece of information a 
student and their family receives prior to deciding whether to 
matriculate. Many institutions, including Iowa State University, have a 
priority financial aid filing deadline of March 1 to be considered for 
aid from campus-based allocations and institutional sources. Because 
the tax filing deadline occurs 6 weeks later, estimating errors are 
common and require significant followup by both students/parents and 
financial aid personnel. Recent studies on prior-prior year tax 
information are promising. Not only would the possibility for 
estimating errors be virtually eliminated, but students and their 
families would have information regarding college costs and available 
resources much earlier. This additional time would allow more time for 
saving, additional incentive to apply for non-institutional 
scholarships, and the opportunity to make decisions regarding 
enrollment before the student is so emotionally invested in the 
institution that they are willing to incur whatever debt is available 
to matriculate.
    In the short time between when a family files the FAFSA form and 
the official financial aid award letter is sent, many families must 
participate in a process known as verification. For most institutions, 
approximately 30 percent of their FAFSA filing population will be 
selected for additional review, requiring them to submit extra forms 
and/or obtain copies of the Tax Return Transcript from the IRS. While 
Iowa State University, along with 142 other institutions of higher 
education, participates in the Quality Assurance Program which enables 
us to determine our own selection criteria for verification, we are 
still verifying a sizable number of FAFSA applications. Schools have 
the option to delay release of the financial aid award letter until 
verification is completed or send an award that may change due to the 
fact it is based on estimated data. Our institution has chosen the 
latter option since the time between receipt of the FAFSA and when a 
family should hear something about financial aid is short. But it means 
that we see some changes and have difficult conversations with students 
when the initial financial aid award changes after they've already 
committed to our institution. Use of prior-prior year would mitigate 
these situations.
    Due to the requirement that military students covered by the 
Principles of Excellence Executive Order 13607 receive a Financial Aid 
Shopping Sheet prior to enrollment, Iowa State University transitioned 
to utilizing the Shopping Sheet as our official financial aid award 
letter. Incoming students receive this document both via a hard-copy 
sent via mail and a link directing them to an electronic version within 
our secure student portal. Continuing students receive only the 
electronic version. While originally skeptical that the Financial Aid 
Shopping Sheet would provide families with the details necessary to 
fully understand their financial aid award, we provided supplemental 
information that met this need. Feedback from incoming families 
indicated they found the information clear to understand and provided 
them with a definite picture of what their costs would be prior to 
borrowing any loans. However, the Shopping Sheet does not work well for 
graduate and professional students as the metrics are all tied to 
undergraduate performance indicators. The number of consumer-
information required disclosures, College Navigator, Shopping Sheet, 
and Score Card need to be consistent, utilizing the same measurement 
points so that they are truly helping families to compare school 
choices rather than add to their confusion.
    Once the decision has been made to borrow, students are directed to 
a Department of Education Web site, www.studentloans.gov, to complete 
the master promissory note, entrance loan counseling, and ultimately 
will utilize this site for exit counseling. The Department worked with 
their contractor to develop a Financial Awareness Counseling Tool to 
provide additional information regarding student loans, repayment 
options and obligations, and budgeting. The Financial Awareness 
Counseling Tool is very robust and our office uses it when working with 
students to develop their own budgets, to help explain the repayment 
plans, and to assist them in realizing what their repayment amounts 
will be once they complete their degree program.
    The up-front processing of students loans, known as origination, 
works very well via an electronic transmission of specific information 
such as loan period, grade level, and accepted loan amount being part 
of the transmission. Beginning this academic year, schools are also 
required to submit additional information regarding the program in 
which the student is enrolled so the Department can calculate when a 
student has reached 150 percent of the published length of their 
program and the expiration of subsidy for any future Stafford Loans. 
The vast majority of students would probably have reached the 
cumulative maximum in their subsidized Stafford Loan of $23,000 or have 
been identified via a school's Satisfactory Academic Progress policies 
without this requirement. While supportive of the desire to encourage 
students to graduate as quickly as possible and be good stewards of 
taxpayer resources, the requirement currently feels like additional 
regulatory burden.
    After the loan is disbursed, things get more challenging for 
borrowers. When the Direct Loan program was first implemented, there 
was a single servicer and all correspondence with the borrowers was 
identified only as the William D. Ford Federal Direct Loan Program. The 
servicer was invisible to the borrower for this Federal loan. 
Understanding that the Department needed to have greater capacity in 
the servicing arena when we moved to 100 percent Direct Lending, 
initial utilization of servicers who had experience with student loans 
through the FFEL program was probably the most expedient option. 
However, servicers have been permitted to co-brand correspondence with 
the Department, often times with the Servicer's logo appearing so much 
larger that the Department's logo is almost unnoticeable. Borrowers are 
confused why they are receiving correspondence, whether via letter or 
e-mail, from an agency they've not heard from previously. In 
conversations I have had with servicers, it has been reported that the 
percentage of their e-mails that are opened is very low. This indicates 
to me that borrowers believe the correspondence to be junk mail or 
spam. These comments are concerning as it would indicate the potential 
for delinquency and default is greater when borrowers don't heed their 
correspondence.
    From a school perspective, counseling borrowers whether in-school 
or during repayment is also difficult. Rather than providing a single 
telephone number or Web site for borrowers to make contact with their 
servicer, we must now go to the National Student Loan Data System, 
locate the servicer and contact information, and then share that with 
the borrower. It would be far more expedient to utilize 
www.studentloans.gov as the single portal through which the borrower 
accesses loan information. Technology is sophisticated enough that 
students should be able to log in on www.studentloans.gov and be routed 
directly to the company servicing their loan(s) and/or dial a single 
toll-free telephone number which will route them to their servicer 
after supplying appropriate identifiers. Borrowers need not know who 
their servicer is. Borrowers and schools should be confident that 
payments, deferments, forbearances, etc. are all being handled 
identically across servicers. Servicers should not advertise for 
private loan products on the sign-in page for a Federal loan as is 
currently the case with at least one Federal Student Loan servicer. And 
servicers should cease offering training on topics that have nothing to 
do with student loans to garner more favorable responses from financial 
aid personnel when the Department conducts quarterly surveys. I contend 
that the most important respondent in the surveys should be the 
borrowers and their feedback would be even more meaningful if they were 
not aware of which entity is providing the service. Other agencies in 
the Federal Government, such as the IRS or the Social Security 
Administration, contract with other agencies to service the work and 
student loans should be no different.
    Because the contract for loan servicers is up for renewal later 
this year, the Department has the opportunity to rethink how contracts 
are awarded. Does a loan servicer need to come from the previous FFEL 
environment or can superior service be achieved by contracting with 
entities from other financial sectors, such as credit card processors? 
How should servicers be compensated and are contracts equitable and 
``right priced''? Surpluses, if any, should be reclaimed to enhance the 
Federal Pell Grant rather than being used at the discretion of the 
servicer only for a subset of the borrowing population.
    Another area of confusion is the plethora of repayment plans from 
which borrowers can choose. While it is good that options exist, 
understanding the intricacies of Income-Based Repayment, Pay as You 
Earn, Income Contingent, and Income Sensitive plans besides the 
Standard, Extended, and Graduated repayment plans is overwhelming. 
Servicing contracts should be set up to help borrowers understand their 
options and guiding them into a payment plan that best meets their 
needs should be rewarded more than placing a borrower in forbearance to 
minimize the telephone time required for the transaction. Better yet, 
the opportunity to consider a repayment plan such as H.R. 1716, the 
Earnings Contingent Education Loans (ExCEL) Act, introduced by 
Representatives Petri and Polis, which ties repayments amounts to a 
borrower's income is an idea worth serious review. While I would 
advocate that assisting borrowers to repay their loans quickly is 
always the most desirable option, collecting loans by linking 
repayments to the borrower's income could completely eliminate defaults 
and assist recent borrowers seeking employment in a still weakened 
economy to tie their payments to their income without the additional 
hassle of submitting significant paperwork annually.
    There is no doubt Federal budget scoring rules are complicated and 
I am no expert on them, but it seems that potentially substantial 
revenue is raised for the Federal Government in its student loan 
programs. Loans are clearly an investment in the future and a good 
investment by government, but I think the return should be in improved 
human capital, better earnings, increased participation in civic life 
and general well-being. I would encourage the committee to support 
these long-term benefits and reduce the immediate revenue that may 
accrue from the loan programs and raise the expense of borrowing for 
students. An example of what should be reviewed is the existence of an 
origination fee. It is difficult to explain to the student or parent 
why the Federal Government must keep a portion of their loan funds. And 
with the advent of sequestration, the origination fee adjustments 
became even more difficult for schools. A second area that should be 
reviewed is interest capitalization whenever there is a change in a 
borrower's status. Legislatively, student loan interest capitalization 
doesn't seem to be prescribed so why does this practice exist? 
Eliminating capitalization (not interest accrual) seems to be an area 
that could minimize burgeoning indebtedness.
    In conclusion, let me state that the Direct Student Loan program 
works extremely well but like any program that has existed 20 years, 
some areas need fine tuning to enhance efficacy for all--borrowers, 
schools, and taxpayers. Thank you for the opportunity to provide 
insights as one who has been in the trenches for years and I look 
forward to the changes you will enact to improve the program for years 
to come.

    The Chairman. Thank you very much, Ms. Johnson.
    Ms. Dill, welcome and please proceed.

STATEMENT OF MARIAN M. DILL, DIRECTOR OF STUDENT FINANCIAL AID, 
                 LEE UNIVERSITY, CLEVELAND, TN

    Ms. Dill. Thank you. Chairman Harkin, Ranking Member 
Alexander, and members of the committee, thank you for inviting 
me to testify today.
    I currently serve students at Lee University, a Christ-
centered institution located in east Tennessee, with an 
enrollment of almost 5,000 students. In 2013, 55 percent of our 
students participated in the Federal Direct Loan programs, and 
the average per borrower indebtedness for graduates was just 
over $29,000.
    Today, I want to give you some practical insights from my 
experience, and I will divide my comments into two parts, 
first, focusing on student success strategies, and, second, 
focusing on simplification and reduction of non-essential 
administrative burdens.
    First, student success strategies. Currently, the Federal 
Government, the regulations, prohibit schools from requiring 
additional loan counseling for students who appear to be over-
borrowing or who, by statistical indicators, appear most at 
risk for defaulting. Statistical indicators may include 
marginal academic performance or borrowing beyond direct cost. 
Also, schools are not permitted to limit part-time students 
from borrowing at full-time rates.
    Based upon the research and discussion with my fellow aid 
administrators, I submit the following recommendations.
    No. 1, institutions should be allowed to require additional 
counseling for students meeting those various identified risk 
factors before any loan disbursement, not just the first. 
Currently, schools can offer additional counseling, but we 
can't require it. Additional counseling would reinforce key 
borrower responsibility.
    Educating the borrowers while they're still in school is 
key to successful repayment. Institutions need the authority to 
require such training in order to promote student success and 
to reduce default rates.
    No. 2, institutions should be allowed to limit borrowing 
based upon broad categories of students, for example, those 
students who are enrolled part-time and still able to borrow 
the annual loan amounts. In doing so, they can exhaust their 
aggregate limits prior to completing even half of their 
academic programs.
    As an aid administrator, this is alarming. Yet we have no 
authority over borrowing, thus no practical tools to stop this 
from occurring. This over-borrowing pattern can have severe 
consequences for the student, the institution, and the Federal 
program.
    No. 3, parent-plus loans should be held to a more 
restrictive underwriting standard. Currently, plus approvals 
are based solely upon credit worthiness and are blind to the 
ability to repay. In moving to direct lending, I observed a 
drastic increase in plus loan approvals.
    I recall one conversation with a single mom living solely 
on various forms of public assistance. She was approved. She 
didn't have bad credit. She had no credit and was thus 
approved. And she said to me, ``What are they thinking? I 
cannot pay this back.''
    No. 4, income-based repayment should be considered the 
automatic repayment plan for borrowers. This would provide a 
simplified process and ensure that no borrower's repayment 
amount would ever exceed their ability to repay and, therefore, 
reduce the probability of default.
    Next, I believe there are some practical administrative 
shifts that would both strengthen the loan program and reduce 
the unnecessary administrative burden.
    No. 1, Congress should mandate the creation of a single web 
portal where institutions and students can go and easily access 
information about all Federal, private, and institutional 
loans. The nonprofit organization, National Student 
Clearinghouse, currently provides a free service, Meteor 
Network, which has the capacity to meet this objective. The 
department's directive is needed to achieve reporting of all 
student loan information.
    No. 2, the department should overhaul existing entrance and 
exit counseling to provide clear, concise information which 
meets the legislative requirements. This generation is 
dependent on social media and is accustomed to sound bites and 
You Tube videos. The Financial Awareness Counseling Tool, FACT, 
is well designed and student friendly, but it doesn't satisfy 
the legislative requirement. This resource needs to be enhanced 
to meet those standards.
    No. 3, the primary responsibility of default management 
should shift back to the Federal servicers or the former 
guarantee agencies. This responsibility shifted to the schools 
in the transition from FFEL to DL, direct lending. Schools are 
now faced with the need to hire additional staff to oversee the 
process, hire costly third-party servicers, or risk the 
penalties of rising cohort default rates. We do not have the 
system resources to conduct skip tracing, robo-calling, or 
other means formerly employed by the FFEL lending community.
    Finally, I hope that my testimony provides insight into how 
our current student loan policies could be enhanced to better 
serve our students. Thank you for your time, and I'm happy to 
answer your questions.
    [The prepared statement of Ms. Dill follows:]
                  Prepared Statement of Marian M. Dill
                                Summary
             student success strategies regarding borrowing
Research
     Research shows student borrowers are not in the most 
appropriate repayment plans.
     Research shows that degree completion and making the first 
payment on a student loan is critical.
Recommendations
     Allow institutions the authority to require additional 
counseling and financial literacy while students are still in school.
     Allow institutions the flexibility to limit borrowing, 
based on broad categories of students (enrollment status, degree, or 
program level), without compromising the authority to let students 
borrow up to the Federal annual and aggregate limits, on a case-by-case 
basis.
     Hold Federal Parent PLUS Loan borrowers to a more 
restrictive underwriting standard based more on ability to repay.
     Consider making the Income-Based Repayment (IBR) plan the 
default payment plan for student loan borrowers.
         simplification and reduction of administrative burden
Recommendations
     Mandate creation of a single web portal where institutions 
and students can easily access information about Federal, private and 
institutional loans.
     Overhaul the existing on-line entrance and exit counseling 
making it easier for student navigation and clearer understanding.
     Update the Financial Awareness Counseling Tool (FACT) to 
meet legislative requirements to be used for an enhanced counseling 
option.
     Shift the primary responsibility of default management to 
the Federal servicers or former guarantee agencies.
                               conclusion
     Complexity of the current system is not working for 
students and families. It also creates an unnecessary administrative 
burden on institutions.
     The above recommendations are practical administrative 
shifts that would strengthen the student loan program and reduce 
administrative burden.
                                 ______
                                 
    Chairman Harkin, Ranking Member Alexander, and members of the 
committee: Thank you for inviting me to testify today. I am Marian 
Malone Dill and am currently serving as director of Financial Aid at 
Lee University in Cleveland, TN. I am a first generation college 
graduate and was a recipient of title IV aid as both an undergraduate 
and graduate student. During my 20 years of aid administration, I have 
served at 2-year and 4-year institutions in the public and private 
sectors. I believe in the power of financial aid to assist students in 
attending college in order to propel them to a better life personally 
as well as for the prosperity of this great nation. America's brightest 
and most talented should not be inhibited by their socioeconomic 
status. Federal student aid exists to help students reach their fullest 
potential and empower them to lead America and continue our prominence 
as the greatest country on earth. Education is critical to keeping 
America competitive in the world market.
    To assist the committee in understanding the student population 
that I currently serve, please allow me to introduce Lee University. 
Lee is a comprehensive, Christ-centered university located in the 
Appalachian region of east Tennessee. Lee has become a higher education 
pioneer by incorporating service learning and cross-cultural studies as 
a regular part of every student's educational experience. In 2013, Lee 
University enrolled almost 5,000 students. Of Lee's undergraduate 
student population:

     Twenty-five percent were first generation college 
students.
     Thirty-five percent received a Federal Pell Grant.
     Fifty-five percent participated in the Federal Direct Loan 
Programs.
     Sixty-one percent of the graduating class borrowed Federal 
student loans with an average per borrower indebtedness of just over 
$29,000.

    Today I want to give you some of the practical insights from my 
experience as a financial aid administrator working directly with 
students and parents on Federal student loan issues. These insights 
will demonstrate why our current student loan policies--and how the 
complexity of regulations in particular--aren't working well for 
students, families and financial aid administrators. I will divide my 
comments into two parts, first focusing on student success strategies 
regarding borrowing and second focusing on simplification of Federal 
student loan programs and reduction of nonessential administrative 
burdens.
                       student success strategies
    In recent research to determine the profile of Lee students who 
find themselves most economically harmed by student loan debt, the 
following information was found:

     Seventy percent of Lee borrowers were in the standard 
repayment plan, and only 13 percent were in the Income Based Repayment 
(IBR) plan.
     The 2010 national 3-year Cohort Default Rate (CDR) is 14.7 
percent. Lee University's CDR for the same period is 12.9 percent as 
calculated by the U.S. Department of Education. Of the Lee students who 
defaulted,

          Eighty percent did not complete their degree, and
          Ninety-four percent of those students did not make 
        the first payment.

    Under current Federal regulations, schools are prohibited from 
requiring additional loan counseling for students who appear to be 
over-borrowing or who by statistical indicators appear most at risk of 
defaulting. Statistical indicators may include marginal academic 
performance, borrowing beyond direct cost or borrowing beyond potential 
future earnings based on program of study. Also, schools are not 
permitted to limit part-time students from borrowing at full-time rates 
or to slow over-borrowing by students enrolled in academic programs 
that produce a disproportionate share of loan defaults.
    Based on the research and discussion with my fellow aid 
administrators, I submit the following recommendations:

    1. Institutions should be allowed to require additional counseling 
(if deemed appropriate) for students meeting various identifiable risk 
factors and before any loan disbursement, not just the first one. 
Currently, schools can offer additional counseling and financial 
literacy programs, but cannot require it in order for the loan to be 
disbursed. Financial literacy goes beyond the required loan counseling. 
Its purpose is to educate students on basic budgeting principles and 
living within their financial means. Additional counseling would 
reinforce key responsibilities on the part of the borrower and assist 
in keeping students updated and informed. Institutions should also be 
allowed to require financial literacy in addition to entrance 
counseling. I believe educating the borrower while they are still in 
school, is key to successful repayment. Institutions need the authority 
to require such training in order to promote student success and reduce 
default rates.
    2. Institutions should be allowed to limit borrowing based on broad 
categories of students while retaining the authority to allow students 
to borrow up to the Federal annual and aggregate limits on a case-by-
case basis. Currently financial aid administrators are prohibited by 
regulation from requiring extra counseling or financial literacy as a 
prerequisite to the disbursement of Federal student loans. For example, 
students who are enrolled part-time are still able to borrow the full 
loan annual amount. This past year, I discovered a student who had only 
earned 58 credit hours and had virtually exhausted her loan 
eligibility. How is she going to graduate? She hasn't even reached the 
junior status. How is she going to successfully repay the almost 
$57,000 in student loan debt? As an aid administrator, this situation 
is very alarming, yet because we have no authority over borrowing, we 
have no practical tools to stop this student from going into further 
debt. This over-borrowing pattern can have severe consequences for the 
student, the institution and the Federal program.
    3. Parent PLUS loan borrowers should be held to a more restrictive 
underwriting standard. Currently PLUS approvals are based solely upon 
credit worthiness and are blind to debt to income ratios or ability to 
repay. In the shift from FFELP to Direct Lending, I observed a drastic 
increase in PLUS loan approvals. Some parents were actually astonished 
when they received an approval. I recall one phone conversation with a 
parent from Baltimore. She was a single mom living solely on various 
forms of public assistance and was approved for a PLUS loan. She didn't 
have bad credit. Rather she had no credit and was thus approved. She 
said to me, ``What are they thinking? I can't pay this back.'' However, 
in the absence of bad credit the parent was approved.
    4. Income-Based Repayment (IBR) should be considered as the 
automatic repayment plan for borrowers. This would provide a 
dramatically simplified process for the borrowers and ensure that no 
borrower's repayment amount would ever exceed their ability to repay 
and therefore reduce the probability of default. The various iterations 
of repayment plans can be daunting for borrowers and a move to 
automatic IBR could help streamline the options. At Lee, we recently 
held a short seminar for faculty and staff, to assist them in 
determining what repayment plan would be most appropriate for their 
individual situation. One participant reported they had been out to the 
studentloans.gov Web site and had been researching for over an hour 
trying to find the right answer. There was just too much information 
along with unfamiliar terms to easily come to clear understanding.
         simplification and reduction of administrative burden
    Of course, there are other areas of consideration to strengthen the 
student loan programs. I believe there are some practical 
administrative shifts that would both strengthen the program and reduce 
some unnecessary administrative burden. This is the second area I would 
like to submit for your consideration today.

    1. Congress should mandate the creation of a single web portal 
where institutions and students can go and easily access information 
about Federal, private and institutional loans. The nonprofit 
organization National Student Clearinghouse (NSC)--currently provides a 
free service, Meteor Network, to both students and schools via a single 
portal access for both Federal and private loans. NSC serves as the 
unified point of connection between 3,300 institutions representing 93 
percent of the national postsecondary enrollment. The Clearinghouse 
Meteor has the capacity to meet the objective. The U.S. Department of 
Education should facilitate the development and delivery of a single 
web portal which would contain all student loan information (Federal, 
private and institutional).
    Currently institutions and borrowers must go to multiple sources to 
determine their entire loan portfolio. This creates an unnecessary 
burden for institutions and borrowers. In addition, it increases the 
probability that an outlier loan will be missed in the repayment or 
consolidation process. The lack of a simple single source for obtaining 
all student loan information increases the probability of default.
    2. The Department of Education should overhaul existing entrance 
and exit counseling to provide clear, concise, customer friendly 
information which meets legislative requirements. Borrowers need ample 
information to make an informed decision not volumes of consumer 
information rhetoric. Currently students quickly become lost in the 
overwhelming amount of information on www.studentloans.gov, which leads 
to further confusion. This generation is dependent on social media and 
is accustomed to sound bites and YouTube video for obtaining 
information. The counseling tools need to provide student friendly 
verbiage.
    Also, the Financial Awareness Counseling Tool (FACT) does not 
satisfy legislative requirements. FACT is a well-designed and student 
friendly interactive resource, but does not meet the regulatory 
requirements for counseling. This resource needs to be enhanced to 
satisfy legislative requirements for loan counseling. FACT should 
provide enhanced counseling options that can be used by institutions to 
promote success for students meeting various statically at-risk trigger 
points. These trigger points include poor academic performance, 
academic programs with high default rates or students borrowing above 
fixed cost.
    3. The primary responsibility of default management should shift to 
the Federal servicers or the former guarantee agencies. In the shift 
from FFELP to Direct Lending the burden of default management shifted 
from the lenders and guarantee agencies to the schools. Schools are now 
faced with the need to hire additional staff to oversee the process, 
hire costly third party servicers or risk the penalties of rising 
cohort default rates.
    Over the last year, the Lee University staff has spent a 
considerable amount of time researching this one topic. The task is 
daunting. We do not have the system resources to conduct skip tracing, 
robo-calling or other means formerly employed by the FFELP lending 
community.
    The task of evaluating a student's situation alone is very time 
consuming for the financial aid administrator. Weeding through the 
various types of loans a student may have from various schools and 
multiple servicers adds to the confusion and hinders repayment efforts. 
For example, the research for one delinquent borrower might take up to 
45 minutes. Then staff reported taking as much as 1 hour to assist just 
one delinquent borrower on a three-way call with the Federal servicer 
to ensure the borrower received all the appropriate repayment options 
in order to prevent default.
    Students sometimes believe they are successfully repaying their 
loans or have consolidated all their loans to later find out one was 
omitted from the process and is now in default. Without expensive 
software, adequate staff and time to assist students in preventing or 
resolving defaults, schools are left to outsource default management to 
third-party servicers.

    In summary, I hope that my statement and testimony provides insight 
into why our current student loan policies--and how the complexity of 
these regulations in particular--are not working well for students and 
families. I have offered four recommendations regarding student success 
strategies regarding borrowing that will allow institutions to educate 
students and families on borrowing, to control loan indebtedness and to 
assist students and parents regarding loan repayment.
    I have also offered three areas of consideration to strengthen the 
student loan program. These recommendations are practical 
administrative shifts that would both strengthen the student loan 
program and reduce administrative burden.
    Thank you for your time. I am happy to answer your questions and 
reserve the right to revise and extend my remarks.
                               References
Lee University Student-Body Statistics (2014). Office of Institutional 
    Research, Cleveland, Tennessee: Lee University.
NASFAA (2013). Report of the NASFAA Task Force on Student Loan 
    Indebtedness. Washington, DC: NASFAA. Retrieved from http://
    www.nasfaa.org/indebtedness-report.aspx.
NASFAA (2014). Report of A Loan Program Simplification That Could 
    Drastically Lower Default Rats and Help Struggling Borrowers. 
    Washington, DC: NASFAA. Retrieved from http://www.nasfaa.org/Main/
    orig/2014/A_Loan_Program
    _Simplification_That_Could_Drastically_Lower_Default_Rates_And_Help
    _Struggling_Borrowers.aspx.
National Student Clearinghouse (2011). National Student Clearinghouse 
    Launches Redesigned Web Site for Recently Acquired Meteor Network. 
    Retrieved from http://www.studentclearinghouse.org/about/
    media_center/press_releases/files/release_2011-07-28.pdf.
U.S. Department of Education (2013). Default Rates Continue to rise for 
    Federal Student Loans. Retrieved from https://www.ed.gov/news/
    press-releases/default-rates-continue-rise-Federal-student-loans.

    The Chairman. Thank you all very much. You all touched on 
all the elements of what we're trying to grapple with here on 
students loans, just every aspect of it. We'll start our 5-
minute rounds of questions.
    We have two divergents here. Dr. Cooper, you discussed a 
need to streamline current repayment options. You recommended 
also that maintaining the standard repayment plan and offering 
a single income-based plan would allow borrowers to benefit if 
they experience extended financial hardship. You go on to note, 
``The single income-based plan should aim to target protections 
to borrowers in most need.''
    I think Ms. Dill is saying that the income-based system 
ought to be basically everybody. Am I wrong in that?
    Ms. Dill. I'm suggesting that the income-based be the 
automatic plan that students are assigned to, but that the 
students still be allowed to opt in to the standard repayment 
plan.
    The Chairman. You said that we should maintain the 
standard.
    Ms. Cooper. We do.
    The Chairman. Why would you disagree with this?
    Ms. Cooper. The issue about making the income-based 
repayment plan automatic or universal--sometimes those terms 
are used interchangeably--I think is an interesting concept, 
and it's a concept that we at IHEP actually recently studied in 
depth with five other organizations. From the conclusion of our 
work with those other organizations, we as an organization came 
out of it believing that while we should study it and it might 
be viable, there are just too many things about it right now 
that don't make it ready yet.
    For example, some of the problems are that some students 
may end up actually borrowing more over time. That's not 
something that we want. We don't want them to borrow--not 
borrow more--repay more. We don't want that. They actually--
some will pay longer than they would pay under the standard 
repayment plan. We don't want that, either.
    And the third thing is without the proper institutional 
reforms in place, we might be incentivizing bad actors to 
really take advantage of the most vulnerable students. So while 
I definitely believe that there is some promise in this maybe 
down the road, until we work out and refine these kinks that 
can ultimately hurt students more, I'm not ready to say full 
scale that we should make it automatic just yet.
    The Chairman. Ms. Dill, I don't know if you want to respond 
to that. I understand from your testimony that 70 percent of 
the students at Lee are in the standard repayment plan.
    Ms. Dill. Yes, sir.
    The Chairman. It seems like you don't have any kind of an 
exorbitant default rate. Your default rate seems to be right in 
place with everybody else.
    Ms. Dill. That's correct, sir.
    The Chairman. So it appears that most of those borrowers 
are repaying their loans. So if that's the case, why would we--
that's the current default system right now.
    Ms. Dill. Yes, sir.
    The Chairman. Why would we want to change it? I'm just 
trying to figure this out. I don't have a dog in this fight one 
way or the other. I'm just trying to figure it out.
    Ms. Dill. Sure. My goal is student success, not just in the 
classroom, but once they graduate from the classroom. And by 
allowing the income-based repayment to be the initial, the 
automatic repayment plan, it ensures that no student would have 
a loan repayment that would exceed their ability to repay, 
therefore, reducing the default rate. It simplifies the 
process, it makes it more user friendly for the borrower, and 
it ensures their ability to repay.
    The Chairman. This is something I think we're going to have 
to take more of a look at. I like income-based repayment, but 
should it be the default, or should it be just one in an 
arsenal of different things?
    The problem I have with that is sometimes people will take 
the easiest course out, which means they lower their payments. 
Even though they could pay more, they stretch it out. And what 
do they do over that period of time? They wind up paying more 
in interest charges rather than on the principal. That's the 
only kind of problem I personally see with it.
    Ms. Loonin, I want to talk to you about--could you respond 
a little bit on the issue of--and you mentioned it in your 
testimony--on collection agencies and how they operate? And I 
think you were very provocative. You even said something about 
doing away with them or something.
    Ms. Loonin. Yes.
    The Chairman. How can you do that?
    Ms. Loonin. I don't know if I meant do away with them 
completely in the world. I was just speaking, obviously, on 
student loan issues. It isn't the case that all government 
agencies use third-party private collectors to collect debts. 
The IRS, for example, tried it for a while and changed their 
minds and went back to using other internal collection.
    So what I'm saying is that from my experience, having dealt 
directly with the collection agencies myself on behalf of the 
clients for years, it's not a typical collection model. It's 
not just about collection. It's about the Higher Education Act, 
and I don't think it works.
    The Chairman. And I've had experience in that area, too, 
and I've seen where a collection agency writes one letter, and 
they get to keep 18 percent to 20 percent for doing almost 
nothing. I know that's the trial lawyer little thing we got 
into earlier today. But it seems to me that is an outlandish 
kind of thing, and plus the hounding that goes on from these 
collection agencies. I think we need to look at that. My time 
has run out.
    Senator Alexander.
    Senator Alexander. Thanks, Mr. Chairman. I won't bring it 
up again.
    [Laughter.]
    Just an observation--and this was a debate we had in 2013 
when we, by 81 to 18, passed the law which put a new market-
based interest rate formula on the student loan program. Our 
goal there was for neither taxpayers nor students to profit off 
of each other. So we asked the Congressional Budget Office to 
tell us how we could get as close to zero as we could. And 
those of us who voted for that felt we did not change what was 
already happening, according to the Congressional Budget 
Office.
    It's true that if you take the way the law says, you 
cannot--whether students are profiting or students are paying--
that over 10 years, it is $185 billion based upon what we were 
already doing. On the other hand, if you do what the 
Congressional Budget Office says we should do, which is called 
fair market accounting, which is the way we did TARP, the 
Troubled Relief Asset Program, then the students would pay $85 
billion more. In other words, the students are profiting off 
the taxpayers.
    That's a debate we're likely to have this year between two 
different ways of accounting. But our goal there was not to 
have one profit over the other when we imposed that new rate on 
loans that cut in half the undergraduate rate to about 3.86 
percent.
    I thank you for your testimony today and your specific 
suggestions.
    Ms. Johnson, your comments about early notification of the 
amount of money you can borrow or loan, we heard before, and 
we're taking that into account dealing with the FAFSA and 
trying to simplify it. All of you suggested ways to simplify 
the--you could count eight different options, if you count 
forbearance and other things, available to a student in terms 
of repaying a loan.
    So I'd like to specifically ask you--and we asked our 
earlier witnesses about the application form--if you could--
although some of you have done it in your testimony, if you 
would like to give us very specific suggestions in a letter 
about how you would rewrite this 5-page--these 5 pages, which 
is very small type, that would be very helpful to me and I 
suspect to others here. This is not an ideological inquiry. 
This is just a simplification inquiry.
    And I think, Dr. Cooper, you used the words, layering new 
over old. We don't want to layer new over old. We've 
reauthorized the Higher Education Act eight times, and that 
happens when we do that.
    So if you were starting from scratch and saying--you 
mentioned the single standard repayment plan, the single 
income-based repayment plan--what would you include on this 5-
page form if you were starting from scratch, each of you? That 
would be very, very helpful to me and I suspect to others.
    Senator Alexander. Finally, I would like to ask you, Dr. 
Cooper, or anyone else--you mentioned skin in the game. One of 
the problems with over-borrowing--that's not really the subject 
of this hearing but several of you have commented about it. Ms. 
Dill commented on things we could do, like you shouldn't be 
able to borrow as if you were a full-time student if you're a 
part-time student. That's one suggestion.
    Second, we could change the law or the regulations that 
prohibit institutions from counseling students in some cases or 
limiting the amount of money that could be borrowed. Or a third 
idea is the skin in the game idea, that an institution or some 
institutions, at some point, if they lend more money to a 
student, would have some responsibility for repaying that.
    What do you mean by skin in the game? And have you got 
recommendations about that?
    Ms. Cooper. In terms of addressing the issue of skin in the 
game, we believe that when it comes to higher education and the 
cost of it and how to pay for it, it's a shared responsibility. 
It's one that goes with the States, the institutions, and the 
government, as well as students. So we believe that everyone 
should be involved in that particular endeavor. When it comes 
to the issue of over-
borrowing, specifically, I think----
    Senator Alexander. But how would you do skin in the game? 
Give me an example. What would you say to the University of 
Tennessee? How would the University of Tennessee put skin in 
the game on borrowing?
    Ms. Cooper. One of the proposals that we recommend is a 
risk-sharing model. There are some risk-sharing models that are 
already out there. For example, guarantee agencies have used 
them. TICAS has proposed some. We participated in the 
consortium that I just talked about, where we----
    Senator Alexander. Can you give me an example? I'm very 
interested in it.
    Ms. Cooper. Yes. What we could do is we could have the 
institutions pay into a fund a proportion that is--they could 
pay a proportion that's equivalent to their cohort default 
rates, for example, so if their cohort default rate is about 20 
percent, then they can themselves put 20 percent into that 
fund, and that----
    Senator Alexander. That's 20 percent of the amount they----
    Ms. Cooper. Of students who are in default or who are in 
repayment. And it's really a way of trying to better protect 
students from institutions that have a history of causing this 
issue of over-
borrowing, and not just over-borrowing for the sake of over-
borrowing, but over-borrowing and then students not getting a 
high-quality degree at the end where they can get a job to 
repay it back.
    Senator Alexander. Thank you. My time is up. If any of you 
would like to respond in writing, I would appreciate that.
    Mr. Chairman, I think one of the things we should examine 
is how do we get the institution more involved, either to have 
some say in how much money they loan or some responsibility for 
paying it back.
    The Chairman. I agree with that, and I have some thoughts 
on that. But I'm going to recognize Senator Murray since 
Senator Murray didn't have a chance in the last round.
    Senator Murray.

                      Statement of Senator Murray

    Senator Murray. Thank you very much, Mr. Chairman. This is 
such an important hearing that you're having, and I really 
appreciate all of the thoughts and the panelists' discussion on 
this.
    It's so telling when we have so many people in our country 
today who are spending all of their extra income paying back a 
student loan, and they're not buying clothes, houses, cars, you 
know, contributing to our economy in other ways. And it is 
really prohibiting young people from even thinking about their 
future beyond college. So I think this is extremely important, 
and I really appreciate all of our panelists for being here.
    One of my priorities during the negotiations last winter on 
the Bipartisan Budget Act was to maintain our investments in 
student aid and not ask our students to contribute even more 
toward deficit reduction. And, fortunately, as you know, 
Congressman Ryan and I were able to work together and provide 
some relief to struggling borrowers. The way we did it was by 
reducing the collection fees that guarantee agencies charged on 
defaulted loans.
    Ms. Loonin, I'm really glad you're here, and I wanted you 
to talk a little bit more about how these guarantee agencies 
collect fees on student loans. And do you have any estimates on 
how many struggling students will save because of the changes 
that we all did put in place because of that budget agreement?
    Ms. Loonin. Yes. Thank you. It was a very sensible idea, 
among many, to save some money. I believe the Congressional 
Budget Office estimated that that particular reduction in the 
amount of guarantee agency collection fees, as well as both the 
amount that's charged to the borrower and the amount that goes 
to the government, would save somewhere around $2.5 billion.
    Specifically, on the point of reducing the 18.5 percent 
that is, frankly, automatically--the guarantee agencies 
automatically put that onto the loan balance, so it's 
capitalized. So a borrower coming out of rehabilitation 
actually has a very much higher balance, which makes it even 
harder for them to repay the loan. And as was mentioned 
earlier, it's not tied at all to what amount of time or work 
the collection agency has actually put into that account.
    I actually have a client right now, for example--I can't 
get the collection agency to call me back to do a 
rehabilitation. I've been working on it for the last couple of 
weeks. Even the ombudsman's office actually has been involved.
    Eventually, I'm going to do most of the work that, I think, 
will get this rehabilitation done. This borrower really wants 
to work. She's had a stroke and she's doing her best. But that 
collection agency will automatically put 18.5 percent onto 
about a $40,000 balance.
    Senator Murray. Describe so we all understand how these 
guarantee agencies actually collect these fees on student 
loans.
    Ms. Loonin. Most of them use third-party collection 
agencies, just like the Department of Education does as well. 
And then the fees are actually charged to the borrower as 
payments are made, so it's on a commission system, essentially, 
whether a borrower makes a voluntary payment or, as in this 
case, post-rehabilitation.
    Senator Murray. Or how much work the guarantee agency 
actually does.
    Ms. Loonin. Again, it's third-party debt collectors, and 
it's not tied to how much work is actually done per borrower.
    Senator Murray. Thank you very much.
    Mr. Chairman, the other issue that I am extremely 
interested in is this issue of financial literacy, and it's 
something I've talked and worked a lot about and have authored 
legislation to help ramp up some financial and economic 
education efforts for students, beginning a lot younger than 
when they get to college. But I think the more you know, the 
more you can make reasonable decisions, and we just do a very 
bad job in this country of doing financial literacy.
    But several of the panelists here have talked about 
strengthening loan counseling, and I want some of you to 
comment on how much loan counseling is done right now. Is it 
done by colleges, or do the servicing agents do it? How do most 
students get the information about the interest rate that 
they're paying or how long they're going to have to pay it off 
or what all this means to them?
    Anybody?
    Ms. Johnson.
    Ms. Johnson. Sure. At our institution, this happens through 
a variety of mechanisms. Primarily, we started this because our 
average indebtedness has hovered near $30,000 for about the 
last 5 years. And as a large public institution, I'm 
continually questioned about why, as a public institution, our 
debt is as high as it is, and there are a variety of reasons. 
But we implemented some counseling. The first primary mechanism 
for counseling is the entrance loan counseling that borrowers 
can do prior to completing the promissory note.
    Senator Murray. Can do or----
    Ms. Johnson. They are required to do it.
    Senator Murray. They are required to do it?
    Ms. Johnson. They are required to do it. So if they haven't 
done entrance counseling, we don't----
    Senator Murray. Is this a university requirement?
    Ms. Johnson. No, this is a Federal requirement. So they can 
do the master promissory note and then do entrance counseling 
all as one process on studentloans.gov. We put a hold on any 
disbursement of funds until that entrance counseling has 
occurred. The challenge with the entrance counseling is that, 
like many other things that are internet-based, it's text 
heavy, and you can scroll through, scroll through, click, 
click, click, and it doesn't take you very long to do all the 
clicks and get through that process.
    Senator Murray. Without really reading it.
    Ms. Johnson. Without really reading it. Anecdotally, we've 
also heard that there are parents that are doing this on behalf 
of their children. That makes us shudder, because the borrower 
is not getting that information.
    We are utilizing a Financial Awareness Counseling Tool on 
our campus for our private loan borrowers. We are mandating 
that they come in and visit with us in person before they 
borrow through a private loan program and using that tool to 
assist them to make sure they understand things like interest 
rates. We've been very successful in reducing or even averting 
some of that private loan borrowing that has occurred.
    One of the pieces that we're most pleased with is that 5 
years ago, 71 percent of our undergraduate students were 
graduating with debt. We've dropped that to about 61 percent. 
So over a 5-year period of time, 10 percent fewer of our 
students are leaving our institution with debt. Now, those that 
are borrowing are still borrowing the same amount of debt, but 
there are fewer of them that are borrowing. So we're making 
some progress, we think.
    Exit counseling is also mandatory for borrowers. So prior 
to their departure from our institution, they must go through 
the exit counseling. But you don't have a lot of teeth in that, 
because if a student does not do their exit counseling, you 
don't withhold their diploma or put a hold on their transcript 
for getting a job. So we tell them it's a requirement, but they 
may not do it.
    Senator Murray. I think this is a really important area. 
And, again, Mr. Chairman, thank you to you and Senator 
Alexander for focusing on this.
    The Chairman. I think if there's one thing that definitely 
cuts across party lines here and that we all agree on is that 
there has to be better loan counseling. Senator Alexander has 
talked about even going into high schools and getting it at 
that level, which I agree with. I think the central thesis is 
that we need to have better loan counseling. There may be some 
differences on the edges, but I think that's sort of a common 
theme, I think, that runs through all of this.
    Senator Warren.
    Senator Warren. Thank you, Mr. Chairman.
    Ms. Loonin, you recently wrote a report on Sallie Mae, 
which is doing both servicing under the Direct Student Loan 
program and, of course, still has outstanding old federally 
guaranteed loans. Sallie Mae touts its status as the loan 
servicer with the lowest default rates.
    I recently sent a letter to Sallie Mae, asking for more 
information about its default prevention strategies, because I 
think it's 
important to understand the default aversion programs that 
borrowers are using, whether it's a deferment, a forbearance, 
an income-based repayment, or something else. And I asked for 
data on all of its Federal loans, including both the federally 
guaranteed and the Direct Loan program.
    Sallie Mae recently responded to my letter, but it did not 
respond to the extensive data request. Instead, Sallie Mae 
cited three pieces of data, all related only to the Direct Loan 
program, its default rate, its forbearance rate, and its 
income-based repayment rate.
    Ms. Loonin, I wanted to ask if these data are sufficient to 
give us an accurate picture of Sallie Mae's default prevention 
strategies?
    Ms. Loonin. Thank you. It's great that your work has been 
in holding Sallie Mae more accountable, and I really am sorry 
that they're not here today. But it's excellent that they 
revealed some information, because we do want to have more 
data. But that's very incomplete.
    First of all, by not including the FFEL information, it 
does not give a complete picture. And, surely, Sallie Mae has 
control over its FFEL--no worries about any kind of 
instructions from the Department of Education not to release 
that information. So that would be extremely useful information 
that would be--and you'd get more historical data, too, because 
the program has gone on for longer.
    Also, within default prevention, it's helpful to see what 
their statistics are. But default prevention is about much more 
than just this cliff of who actually falls into default. We 
like to parse that out and see by times of delinquency, for 
example, and look at similar--observe the HAMP program, which I 
know you're familiar with, or one of the mortgage programs; how 
many people inquired about income-based repayment or other 
things; what was the acceptance rate; and what's the retention 
rate. That would give you a much deeper picture of whether 
people are just out of default one moment in time, but over 
time.
    Senator Warren. Good. Thank you very much. I'm very 
disappointed that Sallie Mae did not come today. I think it's 
important that we take a closer look at how all of our 
servicers are performing. But we need accurate data to be able 
to do that. So thank you.
    I want to ask a second question, and that's about the 
student loan program. Just loans from 2007 to 2012 are now on 
target to make $66 billion in profits for the U.S. Government--
just that small cohort. And let's keep in mind that these are 
the best data that we have available. These are Government 
data. These are not data anybody else made up. The GAO, the 
CBO, the Fed are all looking in the same direction on what's 
happening to students that are loading up on student loan debt.
    Right now, the best estimate we have is that the interest 
rate that we're going to charge next year to our students is 
double, nearly double, the rate that undergraduates would have 
to pay in order to have the program break even, and as much as 
triple for graduate students and for plus loans. I think it is 
obscene for the Federal Government to be making profits like 
this, measured in the billions of dollars, off the backs of our 
students.
    So the question I want to ask is with $1.2 trillion in 
outstanding student loan debts and a third of borrowers more 
than 90 days delinquent on their student loan debt--this is 
crushing our young people. I'd like you to talk about what the 
implications of this are for young people who are trying to 
start their lives.
    Dr. Cooper, could you talk about that, please?
    Ms. Cooper. Absolutely. I think that we definitely need to 
keep these things in mind, because as we extend even some of 
our repayment options to 20 or 25 years out, we have to 
recognize that that then delays students' ability to make some 
life choices, like buying a home, saving for retirement, things 
that we've all heard about, I'm sure, in various articles and 
reports. So we need to be mindful.
    We want our students to be effective and active parts of 
our economy. We don't want them saddled with debt for the first 
20 years out of college.
    Senator Warren. Thank you very much. I see that my time is 
up.
    Would it be all right if we had a couple more responses on 
that, Mr. Chairman? Just responses. I won't ask another 
question.
    The Chairman. Go ahead.
    Senator Warren. Anyone else?
    Ms. Loonin. Sure. Thank you. And I want to say that what I 
see with my clients--many of whom, as I mentioned, did not 
succeed the first time around--is that the debt is really 
crushing their opportunity to try again. They really are trying 
again. I think if we looked at the cost that way in the long 
term, it would cost us less to have them actually succeed.
    Ms. Johnson. I would answer from the perspective of having 
a number of new young staff in my office, as well as the 
students that we serve, and, yes, they're delaying those life 
choices. They are utilizing the income-based repayment plans 
just to assist them. But home ownership and all of the things 
that we think contribute to a successful economy and that we 
want to have happen to drive our economy toward more health are 
being deferred or delayed because of the debt.
    Ms. Dill. I would say that it is a burden, and I concur 
with what the other individuals have said. I appreciate what 
this committee is doing to help our students be successful, not 
only in school, but in the repayment process.
    Senator Warren. I appreciate all of you coming here today. 
I appreciate the work you're doing day in and day out.
    Thank you, Mr. Chairman and Ranking Member Alexander, for 
having this hearing today. There is no problem that is more 
urgent in our economy and in our country. We don't build a 
future if we crush our young people with debt and don't let 
them have a fighting chance to get a start.
    Thank you.
    The Chairman. Thank you, Senator Warren.
    None of you in your testimony touched on something that we 
also need to look at. That is the lack of any limits on 
graduate student loans. Prior to 2005, kids going to graduate 
school could borrow Stafford loans up to a certain limit. In 
2005, a new program was started, the Grad-Plus Loan program. So 
today, a student going into graduate school can borrow up to 
the maximum of their Stafford loan, and then they can go to 
this new program created in 2005 that has no limits.
    I'm just amazed at this. I'm wondering if--I've seen that a 
lot of these loans to grad students has really accelerated 
since 2005--huge. I'm going to get more data on that--what's 
happened there.
    I have two questions. No. 1, should we be looking at, 
again, establishing limits on Grad-Plus loans? And, No. 2, how 
much does the fact that these graduate loans, going up to 
$100,000, $200,000, raise the average national loan 
indebtedness that we see of all students? I've said before that 
I think the average is $29,000. How much of that is boosted up 
because of the Grad-Plus loans that are out there? So those two 
questions--do we put limits on it?
    Ms. Johnson.
    Ms. Johnson. First of all, the statistic about the average 
indebtedness--when schools are required to report their 
indebtedness on common data set, et cetera, the question is 
always asked: What is the average indebtedness of your 
undergraduate students?
    The Chairman. Oh, I see.
    Ms. Johnson. I have never been asked to report on the 
average indebtedness of my graduate students.
    The Chairman. Do you have that data?
    Ms. Johnson. No.
    The Chairman. How come?
    Ms. Johnson. We've been trying to do a study on our campus, 
because we did get a grant to study this. It's difficult, 
because you have to sort out--many students come to you later, 
after having done their undergraduate study. They've already 
consolidated some of their loans, which are then in a big 
balance, and trying to figure out what's graduate and what's 
undergraduate is a difficult prospect. But, no, we've never 
been asked to do that.
    The Chairman. Are you telling me that we don't really 
know----
    Ms. Johnson. I don't know.
    The Chairman [continuing]. the indebtedness of these Grad-
Plus loans? Is that a fact?
    Ms. Cooper. Senator Harkin, what I can say to that is that 
I don't know the indebtedness, but I do know that graduate 
student borrowing has increased between 2008 and 2012, which 
does suggest that we may want to take a closer look at Grad-
Plus loan policy.
    The Chairman. But the Grad-Plus loans come through the 
Department of Education Direct Loan program, right?
    Ms. Cooper. That's correct.
    Ms. Johnson. Yes.
    The Chairman. We really don't have a handle on how much is 
going out there and how much students are borrowing? I find 
that very disturbing, because I have--some of it is anecdotal--
about $200,000 debts and things like that. Kids go to graduate 
school, and they have these huge debts, and they may not get 
jobs after that that really can cover that. Maybe they're going 
into teaching, and they can't pay that back. Am I missing 
something here?
    Ms. Cooper. It would also be worthwhile to look at how much 
of that is grad school debt versus how much of that is 
undergraduate debt. Sometimes in the reported totals, we're not 
able to disaggregate what belongs to the undergraduate level 
versus what's at the graduate level. But, as I said before, it 
has been for the Grad-Plus loan program that we have seen 
increases in the number of borrowers in that program.
    The Chairman. Just a moment. I wish Mr. Runcie or anyone 
else was here from the Department of Education. I intend to ask 
them and find out for this committee what kind of data they 
have on these Grad-Plus loans, how much is outstanding, how 
many are being defaulted on, and separate that out from the 
regular Stafford loans. This is amazing.
    The last thing I would say is I have a bill in, which is S. 
546, the Smarter Borrowing Act, to strengthen loan counseling, 
to create more requirements for schools. I have a lot of co-
sponsors on it. I would ask you to take a look at it and tell 
me what needs to be done to it. What else do we need to do to 
change it and modify it?
    [The information referred to may be found in additional 
material.]
    The Chairman. One more question I have--Ms. Dill, you said 
something that, again, startles me. You said under current 
Federal regulations, schools are prohibited from requiring 
additional loan counseling for students who appear to be over-
borrowing or who, by statistical indicators, appear most at 
risk of defaulting. Is this so?
    Ms. Dill. Yes, sir. Thank you, Mr. Harkin. Absolutely. The 
Federal regulations require entrance counseling as a 
prerequisite to disbursement, the initial disbursement.
    The Chairman. Yes.
    Ms. Dill. But after that, institutions are not allowed to 
require additional counseling for disbursement. We can offer 
it, but we're not allowed to require it. And without the 
ability to require it, there's no teeth in it.
    The Chairman. Does anybody have any--I saw you nodding your 
head.
    Ms. Johnson. I would agree with her assessment. There was 
one school, I believe, in Florida that was attempting to do 
this, and then the department told them to cease, because it 
was not written in the statute. So they didn't have a legal----
    The Chairman. Is there a reason for this? Is there any kind 
of logical reason that schools are prohibited from doing this? 
Anybody?
    [No verbal response.]
    Again, I think that's definitely something we have to look 
at. I was not aware of that.
    Thank you very much, Ms. Dill. I'm sorry.
    Senator Alexander.
    Senator Alexander. I appreciate Senator Harkin's line of 
inquiry. I was handed this information from an article this 
year from Inside Higher Education that said the median overall 
indebtedness for a borrower who earned a graduate degree 
increased in inflation adjusted dollars from $40,000 in 2004 to 
$57,000 in 2012.
    Ms. Dill, you said that the average indebtedness--Lee is a 
university with--you don't have graduate programs, right?
    Ms. Dill. We do have graduate programs.
    Senator Alexander. You do have, but most of your students 
are undergraduates.
    Ms. Dill. That's correct, sir.
    Senator Alexander. And your average indebtedness is 
$29,000?
    Ms. Dill. That reported data element is, as Ms. Johnson 
referred to, the undergraduate.
    Senator Alexander. That's undergraduate.
    Ms. Dill. Yes.
    Senator Alexander. Ms. Johnson, yours is $30,000 for 
undergraduates.
    Ms. Johnson. Correct.
    Senator Alexander. Is that because that's about the maximum 
a student can borrow in an undergraduate 4 years or 5 years? 
What I'm trying to get to--are students simply--because the 
interest rate is 3.86 percent today, are they borrowing all 
they can, all they're allowed to? Is that not right? Why are 
your numbers about the same?
    Ms. Dill. That is an interesting question. The aggregate 
loan limit for a dependent undergrad student is $31,000. The 
aggregate limit for an independent student is $57,000.
    Senator Alexander. So they could borrow more.
    Ms. Johnson. Correct.
    Senator Alexander. Is it your judgment that if you were 
allowed to--if students were required with each disbursement to 
have some sort of financial counseling, that that would be good 
for the student? Or would that just be another Federal 
regulation that causes college administrators to do a lot of 
unnecessary work?
    Ms. Dill. What I am advocating is that it would be allowed 
that we could require the additional counseling.
    Senator Alexander. But not required.
    Ms. Dill. But not required, because you do have the 
statistical indicators of the students that are most probably 
capable and will repay, and you don't want to create an 
unnecessary administrative burden. But I am asking and 
advocating for the authority.
    Senator Alexander. Ms. Johnson.
    Ms. Johnson. What we have done at our institution is that 
prior to disbursement, we require a student to at least say, 
``Yes, I still want this disbursement'' or ``No, I don't.'' And 
there is a link to a repayment, which says, ``Oh, by the way, 
if you take this disbursement, here's how much it's going to 
cost you now.''
    Senator Alexander. You just slide around it.
    Ms. Johnson. Yes.
    Senator Alexander. But you do do it with private loans.
    Ms. Johnson. Yes, we do.
    Senator Alexander. You'd like to have it as a tool. Is that 
correct?
    Ms. Johnson. Correct. I would agree. I would not make it 
mandatory, but allow it to--or permit it.
    Senator Alexander. And that would require changing a 
department regulation. Is that correct?
    Ms. Johnson. Correct, yes.
    Ms. Dill. Yes.
    Senator Alexander. The only other thing--I'd like to end up 
where I started out. I can't remember anyone who said to me 
it's easy to pay for college, and for me, it wasn't so easy--
scholarships and jobs and all that. But I think it's important, 
as we have this discussion, to remember that according to the 
New York Federal Reserve at the end of 2012, 40 percent of 
borrowers had loans of less than $10,000 or less, 70 percent 
had loans of less than $25,000, and less than 4 percent had 
Federal student loan debt above $100,000, and the college board 
said the college degree is worth a million dollars over your 
lifetime.
    While all these problems we've raised, we need to address, 
I don't want to exaggerate them so much that students are 
afraid--that students miss the point that if you want to go to 
community college, it's free, basically, on average, as far as 
tuition and fees are concerned, and it's a few thousand dollars 
at a public university, as far as tuition and fees are 
concerned, and that loans are available, and the opportunity is 
there.
    My hope is that because of this, we can simplify the 
application form and simplify the various options people have 
for loan repayment--and we'll probably have a debate about 
expanding those opportunities--and as a result, many more 
students will find it easier to go to college and easier to 
find out in advance, as you've suggested, what their loan and 
grant will add up to before they apply to Iowa State or to Lee 
or somewhere else, and that they'll have an easier way to find 
out what their loan repayments are. So I thank the chairman for 
such an excellent hearing and appreciate being involved.
    The Chairman. Thank you very much.
    Senator Warren. We have time. I know the vote has been 
called, but we've got time.
    Senator Warren. Thank you, Mr. Chairman. I appreciate you 
holding this hearing. It's very important, and thank you all 
for coming.
    The Chairman. This has been great. We had really good 
testimony here today. I, again, would ask all of you to please 
look at that bill I mentioned and tell me what we need to do to 
modify or change it, that type of thing. I would really 
appreciate that.
    I want to thank all of our witnesses for sharing their 
expertise today and all my colleagues. I request the record 
remain open until April 10th for members to submit statements 
and additional questions for the record.
    Ms. Johnson, I can't let this moment pass without thanking 
you for wearing the red and gold of the Cyclones, and I'll take 
advantage of the fact that Mr. Murphy is not here to say 
tomorrow night, ``Go, Cyclones.''
    [Laughter.]
    Senator Alexander. Just a minute here.
    [Laughter.]
    At 7:15, Tennessee plays Michigan.
    The Chairman. Oh, tonight? I thought it was tomorrow night. 
Well, we're about the same----
    Senator Alexander. We'll all be cheering.
    The Chairman. Right.
    Thank you very much.
    [Additional material follows.]
                Additional Comments from Marion M. Dill
    Chairman Harkin, Ranking Member Alexander, and members of the 
committee: Thank you for the opportunity to submit followup comments 
regarding practical strategies to improve the student loan process. 
First, I would like to commend the work of the Senate HELP Committee on 
their efforts with student loan reform. The hearing held on March 27 
regarding Strengthening the Federal Student Loan Program for Borrowers 
was the first time I have ever testified before a Senate Committee. I 
left with the impression that Senators from both parties are seeking to 
gain a greater understanding of the grassroots effects of the current 
legislation and to find ways to improve the process for students. 
Student success is the priority! I appreciate your determination to 
gain greater understanding and insights and for taking the time to 
listen. As I stated in my testimony, there are a number of enhancements 
I believe could contribute to the advancement and improvement for 
student borrowers.
    My followup comments and recommendations will be divided into 
specific topics for ease of readability. Some of the recommendations 
are framed from the perspective of questions that I believe should be 
answered. Finding the answers to the questions should lead to greater 
insight and understanding for improving student access, student success 
and the integrity of the Federal Direct Loan Program.

    Response to Senator Harkin's Request Regarding S. 546--Smarter 
Borrowing Act

    Enhancing loan entrance counseling is important and beneficial to 
the borrower. This would both improve the integrity of the program and 
hopefully reduce the national cohort default rate.

    Recommendation 1: Provide clear authority to schools to require 
additional counseling as a contingency for disbursement. It seems the 
proposed bill stops short of providing this authority. Schools are held 
accountable for the cohort default rates, but are not given the 
authority and tools to either limit borrowing or to require additional 
counseling. The Office of Postsecondary Education provided additional 
guidance in GEN-11-07. Pam Moran is the Senior Policy Analyst with the 
main focus of FFELP and Direct Lending Programs and could provide 
additional insight to this regulation.
    During the Tennessee Association of Student Financial Aid 
Administrators (TASFAA) conference held this week, the Federal Trainer 
reminded the aid community that we are prohibited from adding 
additional eligibility requirements. Institutions are not allowed to 
require additional restrictions. Since there is nothing in the statute 
to allow for additional counseling, schools are prohibited from 
requiring any additional (beyond the entrance) counseling as a 
requirement for disbursement.

          Statutory Citation

    Sec. 685.304 Counseling borrowers
    (a) Entrance counseling. (1) Except as provided in paragraph (a)(8) 
of this section, a school must ensure that entrance counseling is 
conducted with each Direct Subsidized Loan or Direct Unsubsidized Loan 
student borrower prior to making the first disbursement of the proceeds 
of a loan to a student borrower unless the student borrower has 
received a prior Direct Subsidized Loan, Direct Unsubsidized Loan, 
Subsidized or Unsubsidized Federal Stafford Loan, or Federal SLS Loan.

    Recommendation 2: Tie any mandated additional counseling to a set 
cohort default rate rather than the national average. This is 
consistent with current regulation. The national average is a moving 
target and could quickly become confusing in the administration of the 
regulation. Precedence has already been set regarding the use of a set 
threshold of 15 percent.

          Statutory Citation and Guidance

    34 CFR 682.604
    34 CFR 685.303
    Cohort Default Rate Guide--Benefits for schools with low official 
cohort default rates--Page 2.4--2
    A school with a cohort default rate of less than 15.0 percent for 
each of the three most recent fiscal years for which data are 
available, including eligible home institutions and foreign 
institutions.

    Response to Senator Alexander's Request--Regarding Simplification 
of the Application Process

    Recommendation 1: Implement the use of income data from the second 
prior year, commonly referred to as prior-prior year as the basis for 
the EFC calculations across the board. Listed below are some expected 
benefits and off-sets:

      Should increase the use of the IRS data retrieval, thus 
making the process easier for students and parents.
      Should allow earlier application processing (as early as 
fall of the senior year).
      Earlier notification should assist families in making 
better informed decisions earlier in the admissions application 
process.
      Should decrease the amount of verification which should 
reduce administrative burden.
      As per NASFAA research--A Tale of Two Income Years: the 
use of prior-prior year income should not drastically change the 
eligibility for dependent students. For a view of the full report go 
to: http://www.nasfaa.org/ppy-report.aspx.
      Realistically will increase the number of professional 
judgment requests due to 2 years for possible change to income. This 
would increase the administrative burden; however that should be off-
set by the reduced number of verifications.

    Recommendation 2: As recommended in NASFAA's Preliminary 
Reauthorization Task Force Report, research the feasibility of 
utilizing the 1040 as the application for Federal student aid. For a 
view the full report go to: http://www.nasfaa.org/reauth/.

    Determining the best repayment plan for the borrower (Standard vs. 
IBR Repayment Plans)

    Recommendation 1: I recommend the following questions be answered. 
Are the servicers reaching out to the borrowers that indicated 
something other than the standard repayment plan during the exit 
interview provided on studentloans.gov? If not, I hope you will ask why 
not!
    Currently the exit interview provided on Studentloans.gov explains 
the various repayment options. It provides a detailed overview of how 
much will be repaid over the life of the loan using each repayment 
option and asks the borrower which repayment option they would like to 
use.
    According to Wood Mason, Program and Management Analyst for the 
U.S. Department of Education, this information is being forwarded to 
the Federal servicers. How is it being used? Is it being used at all? 
Additional research is needed here. Are the servicers using this 
information to assign repayment plans? Thus the questions, are the 
servicers reaching out to the borrowers that indicated something other 
than the standard repayment plan? If not, I hope you will ask why not!
    Below is a screenshot from the www.studentloans.gov exit 
counseling.




    Recommendation 2: I recommend the following question be answered. 
Who is helping delinquent student borrowers with exploring deferment, 
forbearance, and repayment options? Another possibility would be to 
require servicers to communicate the various repayments options to any 
borrower that is beyond 60 days delinquent. If servicers were 
systematically required to explore repayment options with delinquent 
borrowers, then more students might utilize the various options to 
avoid default and continue to make on-time monthly payments. Thus, 
helping the student and improving the integrity of the program.

    Response to Senator Alexander's Request--Why is the undergraduate 
per borrower indebtedness for Iowa State University, a public 
institution, and Lee University, a private institution, almost the 
same--approximately $29,000?

    This might speak to affordability of some private institutions that 
have similar cost structures to State institutions. There are schools 
that are providing excellent educational opportunities at an affordable 
cost and with self-initiated accountability. Lee University has worked 
extremely hard to keep our cost low in order to allow the greatest 
access to students from all socio-economic backgrounds. In 2014-15 
Lee's tuition & fees for all full-time undergraduate students is 
$14,280 and Iowa State Out-of-State tuition & fees for a full-time 
undergraduate student is $20,617. According to The College Board, as 
seen in the following chart, public 4-year institutions have incurred a 
greater average annual increase during the last two decades.




    Currently, Lee's cost is similar and sometimes less than the amount 
charged for out-of-State tuition at many State institutions. There are 
institutions that do a great job in providing a quality education at an 
affordable rate. It is my hope that legislators will consider the 
integrity of these institutions when developing legislation regarding 
accountability. Indeed, there are bad apples out there and Congress 
needs to address those cases of abuse. Abuse can be addressed without 
making blanket regulations that create unnecessary administrative 
burden for all institutions.
    The Tennessee Independent Colleges and Universities Associations 
(TICUA), published the following: TICUA Fact--April 9, 2014.




    Another contributing factor might be the institution's lack of 
authority to reduce loan amounts for specific populations, academic 
programs, credential levels, or other broad categories.
    As per GEN-11-07, institutions only have authority to reduce the 
loan amounts on a case-by-case basis Section 479A(c) of the Higher 
Education Act, as amended (HEA), and the Direct Loan Program 
regulations at 34 CFR 685.301(a)(8). This creates a considerable 
administrative burden and many schools do not have sufficient staffing 
to accomplish such a burdensome task, therefore resulting in awarding 
maximum annual amounts.
    GEN-11-07 goes on to state,

          ``Schools do not have the authority to limit Direct Loan 
        borrowing by students or parents on an across-the-board or 
        categorical basis. For example, schools may not limit all 
        student and parent Direct Loan borrowing to the amounts needed 
        to cover only institutional costs, if the borrowers would 
        otherwise be eligible to receive additional loan funds.''

          Statutory Citation

    Loan Limits
    HEA Sec. 428(b)(1)
    [20 U.S.C. 1078(b)(1)]

    Professional Judgment
    HEA Sec. 479A(c)
    [20 U.S.C. 1087tt(c)]

    Recommendation: Allow institutions to set lower loan limits for 
specific populations, academic programs, credential levels or other 
categories established by the school. Some examples might include:

     students enrolled in associate degree programs borrowing 
more than 50 percent of the aggregate limit.
     part-time students borrowing full-time loan amounts.

    Response to Accountability of Institutions--Any legislation must 
consider the populations being served by the institution rather than 
just looking at a base scorecard

    Considerations--How can Congress help schools who are doing the 
right thing by making college affordable and by enrolling low-income 
students? Accountability must consider the schools that are doing the 
noble thing of helping all students attain a higher education degree 
rather than just those that are most academically and financially 
prepared for college. Lee University is an institution of excellence, 
doing the right thing by keeping cost low and allowing students who are 
less academically prepared to attend. Doing the noble thing does not 
help the institutions' statistical indicators on the current score 
card. Nonetheless serving a broader base of students is still the right 
thing and creates accessibility. Critical data elements that must be 
considered are:

    i. Admissions requirements
    ii. Percentage of Pell Eligible students

    Congress should mandate the creation of a single web portal where 
institutions and students can go and easily access information about 
Federal, private and institutional loans.

    The lack of a single web portal has significant impact on students 
today. Loans are missed during the consolidation process. Students 
think they are making satisfactory payments, to later learn that one 
loan was omitted and is now in default. The capability is presently 
available through the ``Meteor Network'' managed and operated by the 
National Student Clearinghouse (NSC).
    According to Eugene G. Cattie, managing director, Financial Aid 
Services National Student Clearinghouse, this can be remedied without 
legislation or anything more than a letter of approval from the 
Department of Education/Federal Student Aid (DOE/FSA). The Meteor 
Network is a free portal access to borrowers of their loans in real 
time. NSC has owned the rights to this system for 3 years and has 
upgraded and enhanced its capabilities to include the Federal Direct 
Loan Program (FDLP). Although this free system is able to access the 
Federal Family Education Loan Program (FFELP) and a majority of the 
private loans through the TIVAs, it has been prevented access to the 
FDLP loans by the DOE/FSA. Mr. Cattie reports that, NSC has repeatedly 
made the request for the last 3 years. All questions related to 
security, privacy and administration of Meteor have been addressed 
through several meetings with DOE/FSA yet they have not responded to 
NSC's request.
    It is interesting to note, that a simple letter authorizing NSC to 
access the FDLP loans would allow immediate access to students and 
schools to utilize this system in real time review. Mr. Cattie further 
indicates this system was offered to DOE/FSA for free to use. Why is 
this beneficial resource which would be provided at no cost to the 
national budget, being withheld from student borrowers?
                           default management
    The primary responsibility of default management should shift to 
the Federal servicers or the former guarantee agencies. Even for 
schools with low cohort default rates, there is a disproportionate 
workload associated with default management. For example: at Lee the 
2010 3-year cohort default rate is 12.9. Even so, we could easily 
increase staff hours associated with DL by 50 percent to effectively 
implement a default management plan. Let me clarify--if it takes 40 
hours per week to manage the DL portfolio for 100 percent of borrowers 
at Lee, it would take an additional 20 hours per week to implement the 
default management plan for less than 15 percent of those borrowers. 
The labor is disproportionate to the volume of students.
    It is true that Lee's current cohort default rate is below the 14.7 
percent national average. This ``low'' rate might cause some to ask, 
``Why should we be concerned?'' Even these ``low'' rates translate to 
significant amounts at the national level. Our goal should be 
successful repayment for every borrower. This is important to the 
student, the institution and the Federal program. The at-risk borrowers 
even at schools with low cohort default rates need reasonable access to 
the income-sensitive repayment options.

    Create a U.S. Department of Education Hotline for Loan Borrowers.

    Consider tapping into the $66 billion of yearly profits created 
from the DL program and provide a resource for students to have ALL 
their Federal loan questions and options answered by highly trained 
staff (similar to the hotline already provided for the application 
process at 1-800-4FED-AID) This is a ``middle ground'' for shifting the 
primary responsibility for Default Management back to the servicers and 
guarantors.
    In a recent survey to NASFAA members (Katy Hopkins, NASFAA 
Communications Staff, 3/6/2014), 34.19 percent of the aid professionals 
reported the biggest challenge to be ``understanding Loan Repayment 
Options and conveying the `right' message to students.''
    In short, colleges across the country are struggling to have 
working call centers and ``high touch'' services by highly trained 
staff. In the absence of this, community colleges in particular may be 
required to ``outsource'' these types of services for borrowers in 
school or who become delinquent in order to avoid the consequences of 
rising Cohort Default Rates.
    Let's work together to wisely utilize some of the $66 billion of 
yearly profits generated from Direct Loans to serve students better, 
provide meaningful services and to improve the integrity of the 
program.

    Hold the Direct Loan Servicers to the same standardized Due 
Diligence standards as the former FFELP lenders.

    Listed below is the Common Manual which prescribes the FFELP 
collection due diligence requirements in Chapter 12.4.A (it's a huge 
document and takes a few minutes to upload). The Common Manual is the 
FFELP ``bible'' that translates regulation into procedure and is used 
uniformly by all guarantee agencies. http://www.commonmanual.org/doc/
ECMarchive/ECM2013.pdf. Why aren't Direct Loan Servicers held to the 
same standard? Why doesn't legislation provide the same protection to 
borrowers under DL? Examples of requirements:

      Make at least four diligent efforts (each consisting of 
one successful contact or at least two attempts) to contact the 
borrower by telephone.

          Statutory Citation: Sec. 682.411(d)(1); Sec. 682, Appendix D, 
        Q&A #1; DCL 96-L-186/96-G-287, Q&A #53

      Send the borrower at least four written notices or 
collection letters informing the borrower of the delinquency and urging 
the borrower to make payments. The required notices or collection 
letters sent during this period must include, at a minimum, information 
regarding deferment, forbearance, income-sensitive repayment, income-
based repayment, loan consolidation, and other available options to 
avoid default.

          Statutory Citation: Sec. 682.411(d)(1) and (2)

      The lender must engage in collection efforts that ensure 
that no gap in collection activity of greater than 45 days occurs 
through the 270th day of delinquency. These efforts must urge the 
borrower to make the required payments on the loan. At a minimum, these 
efforts must provide the borrower with options to avoid default and 
advise the borrower of the consequences of defaulting on a loan.

          Statutory Citation: Sec. 682.411(e); DCL FP-04-08]

    In summary, I hope that my statement and testimony provides insight 
to the current functioning of the Federal student loan program and some 
possible enhancements that would benefit students and improve the 
integrity of the program.
    Thank you for your time.
                               References
Common Manual Guarantors (2013) Common Manual: Unified Student Loan 
    Policy 2013 Annual Update. Retrieved from http://
    www.commonmanual.org/doc/ECMarchive/ECM2013.pdf.
Federal Student Aid An Office of the U.S. Department of Education 
    (2013) Cohort Default Rate Guide--Operations Performance Division. 
    Washington, DC: FSA. Retrieved from http://www.ifap.ed.gov/
    DefaultManagement/guide/attachments/CDRMasterFile.pdf.
NASFAA (2013) Article Prior-Prior Year Study Shows Stability in 
    Financial Aid Packages for Low-Income Students. Washington, DC: 
    NASFAA. Retrieved from http://www.nasfaa.org/media/releases/
    NASFAA_Report_Simple_Change_in
    _Tax_Year_Data_Collected_Would_Streamline_Aid_Process_For_Needy
    _Students.aspx.
NASFAA (2013) Report A Tale of Two Income Years: Comparing Prior-Prior 
    Year and Prior-Year Through Pell Grant Awards. Washington, DC: 
    NASFAA. Retrieved from http://www.nasfaa.org/ppy-report.aspx.
NASFAA (2014) Article And The Biggest Financial Aid Challenge Is . . . 
    Washington, DC: NASFAA. Retrieved from http://www.nasfaa.org/Main/
    orig/2014/
    And_The_Biggest_Financial_Aid_Challenge_Is%e2%80%a6.aspx.
Office of Postsecondary Education (2011) Dear Colleague Letter: GEN-11-
    07 Guidance on Participation in the William D. Ford Federal Direct 
    Loan (Direct Loan) Program. Washington, DC: OPE. Retrieved from 
    http://ifap.ed.gov/dpcletters/GEN1107.html.
The College Board (2014) Article Average Rates of Growth of Published 
    Charges by Decade. New York, NY: College Board. Retrieved from 
    http://trends.collegeboard
    .org/college-pricing/figures-tables/average-rates-growth-tuition-
    and-fees-over-time.
      Responses by James W. Runcie to Questions of Senator Hagan 
                           and Senator Warren
                             senator hagan
    Question 1. 1. How is someone who was just called to serve our 
country supposed to determine if consolidating their loans for the 
Public Service Loan Forgiveness program is a better bet than taking the 
6 percent interest rate cap? Or if deferring payment on their student 
loans would be better than opting into an income based repayment 
program? Can you tell me what steps the Department of Education is 
taking to make it easier for servicemembers to understand their 
benefits?
    Answer 1. The Department is committed to ensuring that our 
servicemembers fully understand and have access to all of the student 
loan-related benefits for which they are eligible. We have taken a 
number of steps to ensure that clear, comprehensive guidance on these 
benefits is broadly available. Last year, the Department worked with 
our contracted servicers on a servicemembers' brochure that provides 
explanations of all benefits. The brochure is available on all servicer 
sites, as well as on our main Web site here: https://studentaid.ed.gov/
sites/default/files/military-student-loan-benefits.pdf.
    In addition, the Department worked with our Federal student loan 
servicers to develop servicemember-focused Web sites, interactive voice 
response (IVR) functionality, and robust scripts and processes to 
identify military personnel during counseling /conversations/servicer 
contact. Our servicers provide tailored guidance to borrowers 
identified as servicemembers on many topics, including:

     Public Service Loan Forgiveness (PSLF) benefits;
     Steps and processes to apply for benefits under the 
Servicemembers Civil Relief Act (SCRA);
     The advantages and disadvantages of various repayment 
options, including income-driven plans, deferment or forbearance.

    Finally, we now require our Federal loan servicers to check the 
names of all their borrowers against the Department of Defense's 
Defense Manpower Data Center (DMDC) database to identify borrowers who 
qualify for the SCRA interest rate limitation, and then apply the limit 
to a borrower's eligible loans if the borrower would benefit from the 
change without requiring a specific request from the borrower and 
without additional paperwork from the borrower.

    Question 2. Given that the Nation's largest loan servicer--Sallie 
Mae--is facing an enforcement action due to its violating the rights of 
servicemembers. Can you describe for me steps the Department can take 
to hold Sallie Mae and other loan services accountable going forward?
    Answer 2. The Department is committed to providing a high quality 
customer experience to our borrowers. We investigate all allegations of 
wrongdoing, and appropriately resolve any issues. If we determine that 
any of the Department's loan servicers have violated any laws, 
regulations, policies, or other contractual terms and conditions, the 
Department will assess the findings and determine the most appropriate 
course of action. Remedies could include monetary relief, termination 
of the contract in whole or in part, or other appropriate corrective 
actions.
    As you are aware, on May 13, 2014 the Department of Justice and 
Sallie Mae (now Navient) agreed to a consent order to address Sallie 
Mae's compliance with the SCRA on the private and Federal student loans 
it owns or services. Building on our work with the Department of 
Justice, the Department has initiated its own review of all of our loan 
servicers, starting with Sallie Mae, to determine their compliance with 
all provisions of the SCRA for our federally serviced loans, and 
determine if further actions should be taken.

    Question 3. What is the Department doing, in both the FFEL program 
and the Direct Loan program, to ensure compliance for servicemembers?
    Answer 3. Federal Student Aid (FSA) is reviewing all of its 
servicers? operations and procedures on providing servicemembers their 
benefits under SCRA. Our internal review of the servicing of the Direct 
Loan program will inform how and when we review Federal Family 
Education Loan (FFEL) lenders and servicers.
    In addition, we now require our Federal loan servicers to check the 
names of all their borrowers against the DMDC data base to identify 
borrowers who qualify for the SCRA interest rate limitation, and then 
apply the limit to a borrower's eligible loans if the borrower would 
benefit from the change without requiring a specific request from the 
borrower and without additional paperwork from the borrower. Prior to 
this recent process change, a borrower seeking benefits under SCRA was 
required to make a written request and provide a copy of their military 
orders reflecting active duty status.
    We will issue guidance to the FFEL community through a Dear 
Colleague letter on how to implement the SCRA and access the Department 
of Defense's data base soon.
                             senator warren
    The Federal Reserve Bank of New York reports that more than 30 
percent of borrowers whose loans are in repayment are 90 days or more 
delinquent on their debts. This is an alarming number. The Department 
of Education does not seem to make similar data public.
    What measures do you believe the Department of Education, Congress, 
and the public should focus on to judge how well student borrowers are 
faring in the Federal loan program? Do you think delinquency rates are 
an important measure? Please explain what student loan data the 
Department of Education makes public, and why.
    In February, I sent a letter to Sallie Mae requesting more detail 
regarding its recent claims about its success at keeping borrowers out 
of default. I requested this information because I think it is 
important to understand which default aversion programs borrowers are 
using--Whether it's a deferment, forbearance, income-based plan, or 
something else. As you know, not all strategies to reduce defaults put 
students on a path to successful repayment, and some may even add to a 
borrower's debt load.
    In my letter, I asked for data on all of Sallie Mae's Federal 
loans, including both federally guaranteed and Direct Loans. Sallie Mae 
responded to my letter by citing only three pieces of data, all related 
to its Direct Loan portfolio only; its default rate, its forbearance 
rate, and its income-based repayment rate. In explaining their limited 
response to my request, Sallie Mae argued that the company is 
restricted from releasing certain information under its contract as a 
Federal student loan servicer. The information they did provide, 
however, is presumably covered by those same restrictions, suggesting 
that the Department of Education is willing to release data, at least 
in certain instances.
    Please provide the following information about Sallie Mae's 
performance relating to servicing Federal loans, distinguishing Sallie 
Mae's servicing performance on its portfolio of privately held FFEL 
loans, Federal Direct Loans, and federally owned FFEL loans. Please 
also provide relevant data for each of the servicers under the Direct 
Loan program.

    1. The share of borrowers who successfully moved directly from a 
deferment or forbearance into an income-based repayment plan in the 
last year.

    For the number of borrowers who moved from a deferment or 
forbearance into an income-based repayment plan, the Department 
considered loans in an Income-Based Repayment (IBR) plan up to 
September 4, 2014. The logic used to determine if a loan was 
successfully transitioned to an IBR schedule looked for an IBR plan 
start date before or within 10 days of the deferment or forbearance end 
date. The denominator used to calculate the percentages consists of 
loans that exited a deferment or forbearance in the last year. Please 
note that some borrowers may have successfully transitioned into other 
repayment plans.

    2. The portion of borrowers not currently in school who have used 
multiple forbearances or deferments (excluding in-school deferments).

    For borrowers who have used multiple forbearances or deferments, 
the data include only borrowers who were not in an ``in-school'' or 
``grace'' status as of the date of the query.

    3. The portion of loans that became delinquent in the last fiscal 
year, the percentage (by dollar value and number of borrowers) that are 
currently in various statuses.

    Responses for all servicers are based on Direct Loans. The 
responses related to the Not-for-Profit Servicers are provided on a 
separate page. For comparison purposes, it is important to note that 
there are significant differences in the way borrowers were allocated 
to TIVAS versus the NFPs. In general, the NFPs received accounts that 
had been in active repayment for several years. The TIVAS have received 
loans in all statuses. In addition the TIVAS have been receiving new 
borrowers entering repayment for the first time since 2010. The NFPs 
have not received first-time repayment borrowers. Also, ``income-driven 
repayment plan'' includes borrowers in Income-Based Repayment, Pay As 
You Earn, and other income-driven repayment options.

    4. Of loans that became delinquent in the last fiscal year, the 
percentage (by dollar value and number of borrowers) that are currently 
in various statuses.

    For the portion of loans that have become delinquent in the last 
fiscal year, the data include all loans greater than 30 and fewer than 
361 days delinquent. The data reflect the servicer at the time the loan 
became delinquent. The denominator used to calculate the percentages 
consists of loans that became delinquent at any point during the fiscal 
year. Also, ``income-driven repayment plan'' includes borrowers in 
Income-Based Repayment, Pay As You Earn, and other income-driven 
repayment options.

    5. The number of defaulted loans assigned to Pioneer Credit 
Recovery that were originally serviced by Sallie Mae, as well as the 
amount paid in commissions for these loans.

    Included is the requested data for defaulted loans assigned from 
Sallie Mae's Federal portfolio to all private collection agencies 
(PCAs) under contract with the Department of Education. These 
assignments are made based on a methodology determined by each agency's 
performance as determined by metrics specified in the PCA contracts. 
Department loan servicers have no role or influence in determining 
which PCAs receive defaulted loans from their portfolio.

    [Whereupon, at 12:02 p.m., the hearing was adjourned.]

                                 [all]