[Senate Hearing 113-906]
[From the U.S. Government Publishing Office]
S. Hrg. 113-906
INDEBTED FOR LIFE: OLDER
AMERICANS AND STUDENT LOAN DEBT
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HEARING
BEFORE THE
SPECIAL COMMITTEE ON AGING
UNITED STATES SENATE
ONE HUNDRED THIRTEENTH CONGRESS
SECOND SESSION
__________
WASHINGTON, DC
__________
WEDNESDAY, SEPTEMBER 10, 2014
__________
Serial No. 113-30
Printed for the use of the Special Committee on Aging
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Available via the World Wide Web: http://www.govinfo.gov
__________
U.S. GOVERNMENT PUBLISHING OFFICE
46-918 PDF WASHINGTON : 2023
SPECIAL COMMITTEE ON AGING
BILL NELSON, Florida, Chairman
ROBERT P. CASEY JR., Pennsylvania
CLAIRE McCASKILL, Missouri SUSAN M. COLLINS, Maine
SHELDON WHITEHOUSE, Rhode Island BOB CORKER, Tennessee
KIRSTEN E. GILLIBRAND, New York ORRIN HATCH, Utah
JOE MANCHIN III, West Virginia MARK KIRK, Illinois
RICHARD BLUMENTHAL, Connecticut DEAN HELLER, Nevada
TAMMY BALDWIN, Wisconsin JEFF FLAKE, Arizona
JOE DONNELLY Indiana KELLY AYOTTE, New Hampshire
ELIZABETH WARREN, Massachusetts TIM SCOTT, South Carolina
JOHN E. WALSH, Montana TED CRUZ, Texas
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Kim Lipsky, Majority Staff Director
Priscilla Hanley, Minority Staff Director
CONTENTS
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Page
Opening Statement of Senator Bill Nelson, Chairman............... 1
Opening Statement of Senator Elizabeth Warren, Committee Member.. 2
Opening Statement of Senator Susan M. Collins, Ranking Member.... 5
PANEL OF WITNESSES
Rosemary Anderson, Older American with Student Loan Debt......... 3
Charles Jeszeck, Director, Education Workforce and Income
Security, U.S. Government Accountability Office................ 6
William Leith, Chief Business Officer for Federal Student Aid,
U.S. Department of Education................................... 7
APPENDIX
Prepared Witness Statements
Rosemary Anderson, Older American with Student Loan Debt......... 25
Charles Jeszeck, Director, Education Workforce and Income
Security, U.S. Government Accountability Office................ 30
William Leith, Chief Business Officer for Federal Student Aid,
U.S. Department of Education................................... 59
Questions for the Record
William Leith, Chief Business Officer for Federal Student Aid,
U.S. Department of Education................................... 69
INDEBTED FOR LIFE: OLDER
AMERICANS AND STUDENT LOAN DEBT
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WEDNESDAY, SEPTEMBER 10, 2014
U.S. Senate,
Special Committee on Aging,
Washington, DC.
The Committee met, pursuant to notice, at 2:16 p.m., in
Room 562, Dirksen Senate Office Building, Hon. Bill Nelson,
Chairman of the Committee, presiding.
Present: Senators Nelson, Blumenthal, Donnelly, Warren, and
Collins.
OPENING STATEMENT OF SENATOR
BILL NELSON, CHAIRMAN
The Chairman. Good afternoon. We have a vote in progress
and Senator Collins has just voted and she is on her way, so in
order to make efficient use of the time, I am going to go ahead
and start and we will recognize Senator Collins when she
arrives.
We in this Committee have taken a look at the financial
security of Americans in retirement from a variety of angles.
We have examined the difficulty of the average senior and that
difficulty of facing life as they are on a day-to-day basis
trying to make ends meet in retirement and how some of them
have turned to risky products like pay-day loans or they have
been enticed by scams. That is what a lot of the looks of this
Committee for the benefit of seniors has been over the course
of the last year-and-a-half.
Well, today, we are looking at an unusual subject, student
loan debt and how it puts the retirement security of senior
citizens at risk. While many think of student loan debt for
just a young person, increasingly that is not the case, and so,
we are going to hear from the General Accounting Office today
that a significant number of older Americans still have student
loan debt from financing their own college education, and what
happens to those folks when they hit retirement age is
absolutely frightening.
Those in default on their loans, a younger person might be
out of money, in debt, and go bankrupt, but a senior citizen
has their Social Security check coming in and it is garnished.
It is leaving them with retirement income well below the
Federal poverty line.
Now, you take the case of Janet Lee Dupree, a 72-year-old
Ocala, Florida resident. In the early 1970s, she took out a
$3,000 loan to finance her undergraduate degree, and while she
recognizes that she did not pay the original loan when she
could have, or she should have, she has now paid thousands of
dollars on this loan, and today owes an astounding $15,000 due
to compound interest and penalties.
She is in poor health. She will never be able to pay off
this sum of money, and especially because all she can afford is
the $50 the Government takes out of her Social Security check
every month, what she has left over from what they garnish.
Large amounts of any kind of debt can put a person's
finances at risk, but I think Mrs. Dupree's story shows that
student debt has real consequences for those in or near
retirement and they need to juggle debt on a fixed income and
that is a difficult thing for a senior.
In today's hearing, we would like to achieve a few things.
We would like for the public to know, especially seniors that
are nearing retirement, to think about the amount of student
loan debt that they have. We want to help folks with student
loan debt understand the options that they have for staying
current on their payments without descending into poverty, and
we want to highlight any obstacles that might get in their way
in doing that.
I will recognize Senator Collins when she gets here.
Senator Warren.
OPENING STATEMENT OF SENATOR
ELIZABETH WARREN, COMMITTEE MEMBER
Senator Warren. Thank you very much, Mr. Chairman, and I
really do commend you for all you have been doing through these
hearings to talk about many of the pressures on seniors, but I
am particularly glad you are talking today about student loans.
You know, it is easy to see that student loan debt is a problem
for young people, but we cannot forget the burden on older
Americans. Not every college student is 18 or 19 or 20 years
old, and parents, even grandparents, have guaranteed loans for
their children and their grandchildren.
More and more Americans are dealing with student loan debt
into their 50s, their 60s, their 70s, and even beyond. Mounting
student loan debts is not just a problem for borrowers. It is
an economic emergency. The Federal Reserve Bank, the Consumer
Financial Protection Bureau, and the Treasury Department have
all sounded the alarm.
Student debt is holding Americans back from making the
purchases they need to make to keep the economy growing. They
are not able to buy homes or start businesses, save for
retirement, buy cars, and student loan debt cuts significantly
into retirement security.
I am very pleased that this Committee is examining the
student loan problem. We cannot just bury our heads in the sand
and hope that it goes away. We need to face it head on and find
solutions that will reduce the burden of student debt and
provide real protection for borrowers who find themselves
struggling to pay back their loans, so I thank our witnesses
for being here today. You do a great service by joining us. Mr.
Chairman, I am ready whenever you are.
The Chairman. Okay. I just want to point out that of those
in retirement age, just six years--in a six-year period, from
2004 to 2010, the number of seniors in retirement age with
student loan debt was 150,000. That has ballooned in six years
to 700,000, and the amount of that debt in just that six years
ballooned from $3 billion to $18 billion.
Now, what Senator Warren said is true, that some of that
debt is seniors taking out student loan debt for their
grandchildren or their children, but that is only 20 percent of
it. 80 percent of it is their own student loan debt, so this is
a problem that if you ask the average American if they thought
that there was a problem here, nobody would guess this and that
is why we are having this hearing.
What we will do, we will start and I am just going to stop
you all when Senator Collins gets here, so we are going to have
Rosemary Anderson, who is struggling with student loan debt,
and Charles Jeszeck, Director for Education Workforce and
Income Security at the Government Accountability Office, GAO,
and William Leith, the Chief Business Officer of Federal
Student Aid at the Department of Education. Thank you all for
being with us. Ms. Anderson.
STATEMENT OF ROSEMARY ANDERSON,
OLDER AMERICAN WITH STUDENT LOAN DEBT
Ms. Anderson. Thank you, Chairman Nelson, and in her
absence, Ranking Member Collins, and Senator Warren, for the
opportunity to tell my story before the Senate Special
Committee on Aging. I was a little reluctant to be the poster
child for the older American, but I am still working. I am 57
years old. I was a healthy married woman with one child and
another on the way when I decided to go back to school in my
30s.
I lost a job I'd had for 16 years and decided that in order
to be more employable out into the future, that I needed to
have a college degree. By the time I had obtained both a
Bachelor's and a Master's degree to pursue career goals, I was
divorced and overcoming a debilitating illness. I owed $64,000
in student loans at that time.
I had faced a variety of expenses that made me unable to
pay my debt and that figure has now ballooned over $126,000. I
will be indebted for life. While my growing concern is that
when I reach the age to take Social Security, that a sizable
portion of that check will be garnished to pay my student loan
debt.
As a teenager, I had been accepted to Boston College and I
decided instead to move to California. I got married, I bought
a house. I worked in the field, as I said, working with
developmentally disabled adults teaching life skills. I started
a family. However, a series of life events prompted me to
return to school, as I mentioned, and I finished my
undergraduate degree in my 30s and my Master's degree when I
was just over 36.
For those two degrees, as I mentioned, I took out $64,000
in loans, but at that time, I was not worried. I was married.
My husband was gainfully employed. I had a job where I could
start paying back those loans. I had a variety of loans so I
chose, when the opportunity came about in 2001, to consolidate
those loans so I was making one payment for the convenience of
writing one check as opposed to all the checks that I was
writing, and trying to track the loans over the life of that
time.
It took about a year to go through the consolidation
process and at that time--and it still is--the interest rate
was 8.25 percent, and once you consolidated your loans, you
could never refinance them, so therein lay the problem for me,
is that over time, that interest, as they mentioned before, has
compounded and grown over time. Do I need to stop?
The Chairman. Okay, please continue, Ms. Anderson.
Ms. Anderson. That was in 2001. Then life and the economy
changed. In 2002, my husband and I divorced and I was forced
then to live on one income. I had child support, but it was
impossible to pay and get by on the income that I had. As a
result, I incurred additional debt and to address the debt that
I had to borrow--I borrowed against equity in my home. I put
things on credit cards. That increased my credit card debt and
I fell further into a financial hole.
After the child support ended and the housing market
crashed, and as a state employee I took a pay cut, my house
that I had been borrowing against and using the equity from was
now worth less than what I owed on it. It was actually worth
less than half of what I owed on it, and my mortgage was
greater at that time than my income was.
My parents raised me to be a responsible adult and I was
committed to paying down my debt. I sold everything I could, I
took extra jobs, I rented rooms in my home, which I still do
today, and I was able to pay down my credit card debt and
restructure my mortgage through the Federal Relief program that
was offered at that time, so that my mortgage payment was now
more affordable.
However, while I was struggling with the consumer debt, I
was deferring my student loan payments and I have been doing
that for the past eight years. I am not making any payments on
loans and that bottom line just grows bigger and bigger and
bigger literally by the day. I was offered this last time,
because every year you have to become eligible for some sort of
deferment program in order to stay out of default. My objective
was always to stay out of default because as you mentioned in
your introductory statement, if I default on those loans my
Social Security will be garnished at a time where I am the most
financially vulnerable.
My hope is that through hearing the testimony from the
people that are before you today and understanding how, as
Senator Warren pointed out, that it has a ripple effect on our
economic stability as well as the stability of my personal
future, I know that I will likely never retire, but I do not
want to, when I start collecting Social Security, to have the
fixed income that I have be garnished to the point where then
that is my biggest worry.
I find it very ironic that I incurred this debt as a way to
improve my life, and yet, I sit here today because the debt has
become my undoing. I am a responsible person and I would not
entertain the idea of bankruptcy, but even if I did, under
bankruptcy law, the student debt is not able to be discharged.
I thank you. That concludes my statement and I welcome any
questions that you may have later.
The Chairman. Thank you, Ms. Anderson. Senator Collins.
OPENING STATEMENT OF SENATOR
SUSAN M. COLLINS, RANKING MEMBER
Senator Collins. Thank you very much, Mr. Chairman. My
apologies for missing your opening statement, but I am glad
that I was able to hear Ms. Anderson's testimony. An issue that
we both care deeply about is whether older Americans will have
the financial resources that they need to be secure in
retirement.
After four decades in the work force, seniors should be
confident that they will have the money that they need to pay
their bills and enjoy their retirement without fearing that
they will be overtaken by debt and fall into poverty. Yet, as
this Committee has seen in our work together this session, far
too many American seniors struggle to get by with inadequate
savings and limited income. Add to this the troubling trend of
increasing debt held by older Americans.
A recent study by the Urban Institute found that the share
of Americans 65 or older who are in debt grew from 30 percent
in 1998 to 43 percent in 2010. That study also found that the
median debt held by those seniors increased by 56 percent from
about $13,600 to $21,200. About half of this debt is
attributable to mortgages.
I was thinking about the fact that at my age, my parents
were having a party to burn their mortgage; and yet,
I find myself taking on new mortgages, and that is not
uncommon. Much of the rest traces to various forms of consumer
debt such as auto loans and credit card balances, but as our
hearing topic today suggests, another source is student loan
debt.
Student loan debt held by older Americans is just a tiny
fraction of the $1 trillion Federal student loan debt
outstanding. According to GAO, about three percent of
households headed by seniors have student loan debt. One might
assume that this debt reflects loans taken out by parents for
their children or by grandparents for their grandchildren.
That does not appear to be the case. The GAO has found that
82 percent of the balances remaining on student loans taken out
by seniors are attributable to loans used to finance that
senior's own education, while only 18 percent are attributable
to loans used to finance the education of a child or a
grandchild.
The default rate for these loans, 31 percent, is more than
twice that of the default rate for loans taken out by younger
borrowers, and that is a very troubling statistic. As has been
discussed, seniors whose loans are in default can have their
Social Security benefits garnished and reduced to as little as
750 a month, a floor set by Congress in 1998. That floor was
not indexed for inflation and is now far below the poverty
line.
I will be introducing legislation shortly to adjust this
floor for inflation over the past 15 years and to index it
going forward, to make sure that this garnishment does not
plunge seniors into poverty. We will be exploring today when
and why these seniors took on such a heavy debt load, and to
what extent the burden they carry is due to the soaring cost of
a college education.
Twenty years ago, the cost of attending a four-year public
university was just half of what it is today, even after
adjusting for inflation. Similarly, the cost of attending
private four-year institutions and public two-year colleges was
one-third lower than it is now. Given these dramatic cost
increases, it is reasonable to ask what steps our nation's
colleges and universities are taking to address the problem of
student loan debt.
Are these institutions doing all that they can to control
their costs, to ensure they remain affordable not only for
older Americans, but for all who pursue a higher education? Are
they fulfilling their obligation to make sure their students
understand the burden that heavy debt will place on them,
especially older students who may be returning after a period
in the workforce and who may not remain in the workforce long
enough to pay off their loans before they retire?
Mr. Chairman, I look forward to hearing from the rest of
our witnesses. Thank you for calling this hearing.
The Chairman. Mr. Jeszeck.
STATEMENT OF CHARLES JESZECK, DIRECTOR,
EDUCATION WORKFORCE AND INCOME SECURITY,
U.S. GOVERNMENT ACCOUNTABILITY OFFICE
Mr. Jeszeck. Mr. Chairman and members of the Committee,
thank you for inviting me here today to discuss the state of
student loan indebtedness among our nation's older citizens.
Rising student loan debt has become a growing national concern.
In 2013, total student loan debt cracked the $1 trillion
barrier, up from a not insignificant $400 billion in 2005.
My testimony today focuses on the extent that older
Americans have student loan debt, the extent to which they may
default on that debt, and the consequences of default. In
summary, although student loan debt is not typically viewed as
a senior citizen issue, our analysis suggests another look.
Available data indicate that while the amount of student loan
debt held by our nation's seniors is small in comparison with
other age groups, it is growing more rapidly.
Further, borrowers 65 and older carry defaulted student
loan debt at much higher rates than other age groups. Such
defaults can, among other consequences, leave some retirees
with incomes below the poverty level. Our analysis of 2010
Survey of Consumer Finance Data finds that about three percent
of households headed by persons aged 65 and older held student
loan debt, compared to about 24 percent of households headed by
younger persons.
However, the number of student households with student
loan--senior households with student loan debt has increased
significantly in recent years. For example, among households
headed by persons aged 65 to 74, the percentage carrying
student loans grew from one percent in 2004 to four percent in
2010. Further, Education Department data shows that total
Federal student loan debt, which accounts for roughly 85
percent of all student loan debt, for those aged 65 and older
surged from $2.8 billion in 2005 to $18.2 billion in 2013.
Although older borrowers hold a small number of all Federal
loans, they are much more likely to be in default. In fiscal
year 2013, all persons aged 65 and older accounted for only one
percent of all Federal student loans. 27 percent of loans held
by persons aged 65 to 74 were in default, as were over 50
percent of loans held by persons over age 75. This compares
with a 12 percent rate for persons aged 25 to 49.
Default can have serious consequences for borrowers. It can
adversely affect one's credit rating and lead to collection
agency actions and collection fees up to 25 percent of the
interest and principle. Further, after 425 days of non-payment,
the Education Department can send defaulted loans to Treasury
for what is known as offset. Under an offset, Treasury can
reduce the tax refunds of defaulted borrowers as well as
monthly benefits like Social Security retirement, survivor and
disability benefits.
Tax refunds accounted for over 90 percent of the $2.2
billion in total 2013 offset revenue for defaulted student
loans with retirement and disability and survivor benefits at
about $150 million. While small, the number of borrowers
affected by offsets of Social Security benefits and who are
older has grown significantly in the last decade.
In 2013, 36,000 borrowers age 65 and older were offset, a
sixfold increase from 2002. Meanwhile, the total number of
borrowers who had their benefits offset increased from 31,000
to 155,000 over the same period.
There are limits on how much Treasury can offset from
monthly benefits. The amount of allowable benefits offset is
limited to the lesser of 15 percent of the monthly benefit or
any benefit amount over $750 per month. The $750 minimum has
not changed since 1998. If indexed to poverty, the $750 limit
would be over $1,000 today. Such indexation would prevent some
older borrowers from having benefits offset, but would also
reduce the Federal Government's recoveries.
In 2013, indexation would have resulted in 61 percent of
offset borrowers aged 65 and older keeping their entire
Social Security benefit. It would also have reduced
collections by $94 million, or about 4.2 percent of all offset
dollars collected on student loans. That concludes my
statement, Mr. Chairman. I will be happy to answer any
questions you or other members may have.
The Chairman. Thank you, Mr. Jeszeck.
Mr. Leith.
STATEMENT OF WILLIAM LEITH, CHIEF BUSINESS
OFFICER FOR FEDERAL STUDENT AID,
U.S. DEPARTMENT OF EDUCATION
Mr. Leith. Thank you, Chairman Nelson, Ranking Member
Collins, and distinguished members of the Select Committee on
Aging. My name is William Leith and I am the Chief Business
Operations Officer at the Department of Education's Federal
Student Aid Office. I appreciate the opportunity to join you to
discuss this very important issue, the impact of student loan
debt on older Americans.
Federal Student Aid's mission is to help students pursue
their post-secondary education goals. Last year alone, Federal
Student Aid delivered $138 billion in Federal grants, loans,
and work-study funds to approximately 14 million students. As
the cost of education continues to climb, more students are
relying on student loans and student debt now totals more than
$1 trillion and the debt owed by all students, including older
Americans, continues to grow.
We must continue to improve the tools and options available
to help Federal student loan borrowers to manage their debt.
Federal loans offer a number of flexible repayment options for
borrowers, including several income-driven repayment plans. For
example, the pay-as-you-earn plan caps a borrower's monthly
payment at 10 percent of their discretionary income and the
borrower's remaining balance is forgiven after 20 years.
While income-driven plans are not the best option for
everyone, many older borrowers with limited income may benefit
from enrolling in one of these plans. Borrowers can apply for
an income-driven plan using a central application which they
can access on our Web site. Borrowers may also be eligible to
have their loans discharged if they are totally and permanently
disabled.
As of 2013, Federal Student Aid offers a single application
and a single point of contact for the total and permanent
disability application process, and borrowers may now use the
eligibility determination of the Social Security Administration
and the Department of Veterans Affairs. In addition, borrowers
may have their outstanding loans forgiven after ten years of
qualified public service loan forgiveness under the public
service loan forgiveness program.
Finally, borrowers may qualify for deferment or forbearance
on their loans for issues such as unemployment and economic
hardship, but clearly, there are trade-offs there. It is
important to remember that under current law, a borrower may
have to pay income tax on loans forgiven under the income-
driven plans or discharge.
Federal Student Aid offers a wide range of counseling
tools, direct communication, and personal services available to
all borrowers to make sure that they are aware of the tools and
resources I am describing. The Department's Web site includes
information on repayment options, forgiveness programs, and
managing defaulted loans. It also includes a host of
interactive tools which borrowers can use to learn about the
debt and apply for various repayment plans.
We are also constantly looking for new and innovative ways
to reach our borrowers. For example, earlier this year, the
Departments of Treasury and Education included a message on the
back of 25 million tax refund envelopes to raise awareness on
Federal student loan repayment options. However, while we work
to help borrowers manage their debt, some borrowers still
default on their student loans.
Under the law, a default occurs when a borrower is
delinquent for more than 270 days. Federal Student Aid and our
servicers provide borrowers with multiple opportunities to work
with us before and after default. Services contact a borrower
when they become delinquent to help them avoid default. Even
after default, we continue to try and work with the borrower to
set up a repayment plan.
If the borrower remains in default for nearly a year after
stopping making payments, the loan is transferred to the
Department's Default Resolution Group for further outreach.
There are a number of ways that a borrower can get out of
default. Borrowers can rehabilitate their loan by making nine
one-time payments, and when a borrower rehabilitates that loan,
that loan is removed from the credit history and that borrower
then regains eligibility for other financial aid programs as
well as income-driven repayment plans.
The Department has worked to make the rehabilitation
process easier, including new rules that determine a borrower's
reasonable and affordable payment using an income-based
repayment formula. In addition to loan rehabilitation,
borrowers can resolve their defaults by consolidating their
loans or paying the loan in full.
If despite the Department's efforts to work with the
borrower for more than a year and the borrower is still in
default, the Department must apply other collection tools to
recover that debt. These tools include administrative wage
garnishment, litigation, and the Treasury Offset Program which
is referred to as TOP.
Under the Debt Collection Improvement Act of 1996, the
Department of Education must refer delinquent accounts to
Treasury, which may offset the borrower's tax refund, a portion
of the Social Security benefits, and other Federal payment.
TOP, however, may not collect on Social Security disability
insurance payments and there are protections in place for low-
income borrowers subject to this offset.
The Department of Education and Treasury both provide
notice to borrowers before the offsets begin. I just want to
reiterate that the Department is required by law to refer
defaults to the TOP program at Treasury, but we do everything
we can to contact and work with the borrower before we reach
that point. If a borrower is subject to the offset, they should
contact our loan holder immediately, and they can also find out
more information on our Web site.
In conclusion, Federal Student Aid is committed to working
with older borrowers to help them understand and manage debt. I
appreciate the opportunity to provide the Committee with a
brief overview of the Federal financial aid programs and
resources that we offer borrowers of all ages. I welcome any
questions and thank you.
The Chairman. Does that reduction of the loan because of
the economic hardship that you mentioned, does that apply to
seniors?
Mr. Leith. There are no special benefits or programs that
are based on age, so deferments, forbearances, income-driven
repayment plans, none of those plans have an age qualifier.
The Chairman. The case that I cited of the Ocala, Florida
woman who is now receiving Social Security and whose Social
Security check is garnished, and because she is in such
economic dire straits, is that a consideration that your loan
program would make in deferring or forgiving part of that loan?
Mr. Leith. Under the law, we do not have the--my
understanding is we do not have the option to take age into
consideration, but we can suspend the Treasury offset based on
undue hardship and we do have a process in place for that.
The Chairman. An undue hardship in this definition is undue
economic hardship.
Mr. Leith. Yes. I mean, without, obviously, you know,
looking at the exact case, but I think it is safe to say that
the situation you are describing would fall under a definition
of undue hardship for offset of Social Security benefits.
The Chairman. Okay. After the hearing, we are going to give
you the specifics of this case.
Mr. Leith. Okay. I appreciate that.
The Chairman. Thank you. Senator Warren.
Senator Warren. Thank you, Mr. Chairman. In June, the
Senate voted on our proposal to refinance existing student
loans down to rates currently offered to new student loan
borrowers, and even though a majority of the Senate voted to go
forward on this bill, every Democrat, every Independent, and
three Republicans, including our Ranking Member here, the
Republicans blocked it as a group and kept it from going
forward.
Ms. Anderson, you talked about that when times were tough
economically, you refinanced your mortgage to bring down the
interest rate. When interest rates are low, people refinance
all the time, but you did not mention refinancing your student
loans, and I presume the reason for that is, are you permitted
to refinance your student loans?
Ms. Anderson. No, I am not permitted to refinance my loans,
and I did want to make a comment about Mr. Leith's talk about
the resources that are available, that it is true there is an
income contingent resource available for people about
repayment, but there are very certain criteria that you have to
meet in order to be eligible for that.
All of those income-based repayment plans are based on your
gross income, not your net income. My gross income and my net
income are very, very different, so the reason that I have been
able to be--remain eligible for the various programs over the
past eight years is that I can prove I cannot pay it.
But with this negative amortization contract, which is the
latest offer for me to be in basically deferment where I pay
$100 a month, which I do not have, that then magically next May
I will be paying $526 a month for 24 years, at which time I
will be 81 years old and the total interest that I will have
paid on that original loan amount is over $88,000.
Senator Warren. $88,000 in interest on what was originally
$64,000----
Ms. Anderson. Correct.
Senator Warren. [continuing.] That you borrowed?
Ms. Anderson. That is right.
Senator Warren. All right. Well, there is much that we need
to fix here. I just want to focus for another minute, though,
on the question about refinancing the student loans just so I
am sure we get this into the record. Mr. Leith, according to
the Department of Education estimates, how many borrowers would
benefit if Congress passed the refinancing program?
Mr. Leith. My understanding from the bill that was
submitted, that it was estimated that roughly 25 million
borrowers could benefit.
Senator Warren. Okay, and I realize it is all age groups,
but we would be able to help about 25 million borrowers who
would have either lower payments or they would be paying more
toward their principle to be able to pay down these student
loans. Now, the borrowers who are able to refinance, does the
Department of Education have some rough estimate on about how
much they would be able to save?
Mr. Leith. I think under the bill that was submitted, the
estimate was that the average would be about $2,000 over the
life of the loan.
Senator Warren. I take it, it depends on how much loan debt
you have outstanding. For some people, it will be hundreds of
dollars a year; for some people, it would be thousands of
dollars a year if they have much higher loan balances. Well, I
appreciate this. Some of our Republican colleagues do not seem
to think that it is worth asking millionaires and billionaires
to pay their fair share in taxes so that we can put hundreds of
dollars a year back in the pockets of student loan borrowers. I
disagree on this.
Ms. Anderson, let us come back to you. You said you
borrowed about $64,000. It is obviously much more than that now
because of the Government programs you have been involved in.
You cannot refinance your interest rate down.
If the student loan refinancing bill had passed and you had
been able to cut your interest rate significantly--I think you
said it is over eight percent--let us say cut it down to 3.8
percent, maybe four percent depending on where you are with
your loans, what would that have meant to you?
Ms. Anderson. Well, first, it would have meant that it
would have stopped the bleed, so to speak, for the amassed
interest that I literally watched grow daily, and by cutting
that, it would be more than half of what my current interest
rate is. As I mentioned in my previous examples with my
mortgage, is that I would not be living in my home if that
refinance was not possible for people like myself who hit on
hard times in the housing market and the mortgage problem.
Senator Warren. Refinancing your mortgage.
Ms. Anderson. Right.
Senator Warren. If that had not happened, you would be out
of a home?
Ms. Anderson. Correct, and the mortgage debacle and many
other economic issues that have arisen have had some kind of a
bailout or some kind of a relief attached to it and the student
loan has not, so no matter what I become eligible for, that
fear is always a constant presence for me, and it especially
becomes more critical as I become older.
Senator Warren. Well, thank you. Student loan refinancing
is not all that is needed. We also should be talking about the
changes we need to make in bankruptcy protection and the cost
of college and the repayment programs and the loan forgiveness
programs, but I am disappointed that so many Republicans chose
to stand with millionaires and billionaires instead of our
students.
I am disappointed that borrowers like Ms. Anderson will
have to continue paying far more than they should on their
student loans, but we are not giving up on this. This exploding
student loan debt is threatening the futures of our young
people, it is threatening the economic security of our seniors,
and it is threatening our entire economy.
I remain hopeful that eventually enough of our colleagues
will listen to the voices of millions of student loan borrowers
struggling under needlessly high interest rates and drop their
filibuster so we can move this bill forward. Thank you. Thank
you, Mr. Chairman.
The Chairman. Thank you, Senator. Senator Blumenthal.
Senator Blumenthal. Thank you for having this hearing, Mr.
Chairman, which I think focuses on an aspect of the college
affordability challenge and student debt problem that a lot of
Americans simply fail to appreciate. I want to thank Rosemary
Anderson for your story, which I think says thousands of words,
volumes, about how this kind of overhang of student debt, not
only in early years after graduating from college, but
throughout lifetime can be literally crippling financially and
emotionally.
I want to join Senator Warren in everything that she has
said about our determination to continue with this effort to
make college debt and tuition more affordable in this nation.
It is one of the supremely important challenges and it is not
going away, nor are we.
Let me also say, this GAO report strikes me as a kind of
canary in the coal mine, because what it says to me is, look at
this narrow slice of the baby boom generation that now has
debt, look at its impact on people like Ms. Anderson, which is,
if anything, more pernicious and insidious than it is for
younger people because they have lifetimes ahead. They have the
hopes and dreams and energy that all of us have at that age.
And this age group is not only affected in more serious
ways, but it is also going to grow. In other words, this report
says, look out, the cliff is ahead, or the avalanche, maybe it
is a tsunami of older student debt. Am I exaggerating or is
that the message that I should take away?
Mr. Jeszeck. Well, Senator, I think two things. One, if you
look at Figure 3, you can see for the other age groups that
there is a significant amount of debt coming down, and I think
actually the one number that I think is also a cause for
concern is that the default rate for people between 25 and 49
was 12 percent. I mean, that seems quite large.
Senator Blumenthal. It is higher for that age group than
anyone else, so that is another way. I was going to raise that
issue, that this report is the canary in the coal mine, because
it says, you know, the rate of default at lower age groups is
going to be dwarfed by the rates at older ages, so I think that
is a very important point as well, and would you predict that
trend will hold steady based on what you know now?
Mr. Jeszeck. Well, I think given the findings of this
report, I think we think that is likely the case. I do want to
say, one of the real limitations of the study, we were unable
to get information on the duration of the loans, so we do not
know, for the people who are in default, or anybody actually,
whether they took the loans out a few years ago or whether
these people who are retirees took it out in their 30s.
That is data that we were not able to get from the
Department of Education in time. Apparently with their systems,
it is quite difficult to calculate, but I think that would be a
really important piece of information to have to sort of dig a
little deeper and think about how we might want to attack this
problem.
Senator Blumenthal. Thank you for that answer. Let me ask
finally, Mr. Leith, I am a strong supporter of the existing
program providing student loan forgiveness for borrowers who
choose to enter public service professions or occupations, and
the Federal Government created this program to encourage young
people to enter public service. Unfortunately, older Americans
do not have the chance to participate in this program which was
created in 2007, or did not prior to that.
Is there some way to make it available to them now, number
one? And number two, as you may know, I proposed expanding this
program so that some of the limits, for example, requiring that
people be in the same job for an excessive number of years and
borrowing, in effect, a periodic or a staged forgiveness
program be eliminated, and that is why I have introduced
legislation to eliminate, in effect, the current all or nothing
structure. Could you give me your opinion of those ideas?
Mr. Leith. On the first question, I think there is some
either statutory or regulatory issues that would have to be
addressed and I would have to take that back to our--actually,
both issues--back to our policy staff. Unfortunately--I mean,
my role at the Department is to implement the legislation that
is passed.
I would be happy to take both of these issues back to our
policy staff and make sure that the right people, you know,
have the right conversation with you on this issue.
Senator Blumenthal. On both ideas?
Mr. Leith. Yes, sir.
Senator Blumenthal. Okay. Just out of curiosity, Mr. Leith
and Jeszeck, maybe you have already said, but I wonder, did you
have student loans?
Mr. Jeszeck. Yes, I did, sir.
Mr. Leith. Yes, I do as well.
Senator Blumenthal. Are they all paid?
Mr. Jeszeck. Yes, but I am also close to retirement.
Senator Blumenthal. You are close to retirement. You may
have children who are paying.
Mr. Jeszeck. Yes, Senator.
Mr. Leith. I have three kids in college right now, so I
actually have outstanding loans.
Senator Blumenthal. You guys have skin in the game. Thank
you for being here.
Mr. Jeszeck. Thank you.
Mr. Leith. Thank you.
The Chairman. What about that, Mr. Leith? How about people
that not only have loans themselves, but they have loans on
their children? How do you go about helping them pay off that
debt?
Mr. Leith. I mean, the Department is working extremely
hard, and the Administration is extremely concerned, with the
student loan debt problem, the impact it has on individuals,
the impact it has on the nation. The Department works extremely
hard to educate all of the borrowers on the various repayment
options. We work extremely hard to make sure that students now,
when they are in school, are making smart borrowing choices.
We have a calculator up on the Web site that, you know, for
a student that is in school, allows them to pull their existing
loans into a formula that will tell that individual how much
they would pay over the life of the loan under all of the
different repayment plans, both principle and interest. You
know, we work at different communication strategies to make
sure that people understand that these tools are available and
what the options are.
We also have to work within, you know, the limits of our
regulations and statutes, so, I mean, that is what we are
doing.
The Chairman. Okay. Well, we are here also to talk about
how to improve the law, so you are saying this is something for
the policy people?
Mr. Leith. I am not sure I understand that exact question,
but I am saying as far as----
The Chairman. We want to change the law to make it more
fair for folks, so who do we need to talk to?
Mr. Leith. Well, as I said, I think the President has put
forward a number of proposals and I know that Secretary Duncan
and his staff at the Department would be more than happy to
discuss these changes with you.
The Chairman. What do you think about Ms. Anderson's
situation? She collected all of her loans together and she is
paying eight percent.
Mr. Leith. Right.
The Chairman. She cannot refinance it. What do you think
about that?
Mr. Leith. Personally, I mean, it is difficult, but
everything she said is true. You know, within the programs that
we have, she has exhausted some options, you know, and it is
difficult to work through these issues. I mean, we try very
hard and we take it very seriously to help every single
borrower, but, you know, everything she has put forward here
today seems to me to be very accurate.
The Chairman. In the case of a senior, you can garnish
their Social Security check. You also charge them fees for
doing that?
Mr. Leith. I believe Treasury charges a fee for the offset.
I would have to----
The Chairman. It just adds to the debt?
Mr. Leith. I would have to get back to you on that.
Mr. Jeszeck. Other agencies may charge fees as well,
Senator, for processing.
The Chairman. Okay. What about, how do you determine
hardship? Do we need to help you with the definitions?
Mr. Leith. There is a--when it comes to suspending the
offset for Social Security, garnishment, if a borrower calls
and says they have a hardship, we will automatically suspend
that offset for 30 days and ask the borrower to submit a
statement of income and expenses, so based on that statement of
income and expenses, then that suspension can be continued for
another 12 months and it can be continued on a 12-month basis.
The Chairman. Those employees that are making that
determination, is their training clear and is it consistent
across the board?
Mr. Leith. I believe it is, sir.
Ms. Anderson. If I may----
The Chairman. Please.
Ms. Anderson. [continuing.] Chairman, is that while that is
true, again it is 12 months at a time. My economic hardship is
not going to end at the end of 12 months, so while I might be
able to delay default by getting into a negative amortization
contract, it is saying that magically next year I am going to
be able to pay close to $600 a month for 24 years when my
economic status is not going to change significantly between
now and then.
The Chairman. Right.
Ms. Anderson. Especially at my age.
The Chairman. Well, forbearance and deferral seem like good
ideas until you realize what you just said, that delaying the
payment is making your debt grow. Mr. Leith, we are not trying
to pick on you, but we have got to get answers from you, or if
you would have one of your policy people call our staff
director here, I would appreciate it.
If the focus is on helping people and helping them to make
timely payments and stay out of debt, what we have heard here
is that it does not sound like the system is working that way.
Mr. Leith. Clearly, not everyone is current on their
payments, and I think, you know, like I said, we work, you
know, very hard to educate the students coming out of college
on the payment options and how to stay current. In certain
cases, there are not options available for every borrower, so
the income-based repayment program is an excellent program.
It is not right for everyone. It is right for many, but not
everyone is eligible, and as Ms. Anderson said, it does not
take into account net income. It takes into account
discretionary income, which is formula driven.
Ms. Anderson. I also wanted to mention that, you know,
Ranking Member Collins mentioned that there also has to be a
need on the part of educational institutions to look at their
costs. I have been working for the University of California for
21 years and I know on my campus how we have cut back
administrative costs in order to pass on those savings to
students who are seeing increases in just ways that is hard to
fathom for the cost of their education.
What we do not want to do is discourage people from
pursuing an education. For me, if there was any silver lining
is that when my daughters became eligible for college, I was
able to really counsel them about how and from whom to borrow.
Mr. Leith is correct that the communications about what the
paperwork you are signing and what the implications are out
into the future has improve exponentially over the years. For
people like myself who came a little too late, not to say that
perhaps the information was there, but in a nine-point font
that I was not paying attention to because I was driven by my
main objective, which was to get my education.
I met with Congressman Farr this morning and said, really,
there has to be some kind of bureaucracy busting advocacy
office that helps people understand really what you are signing
and be able to interpret what that impact is going to be,
beyond a calculator on a Web site, into your future life, and
for me, because I was older when I went back to school, as I
said, I was able to buy a home. That would not be true today.
The Chairman. Senator Warren.
Senator Warren. Thank you, Mr. Chairman. Mr. Chairman, I
would like to be able to talk for a minute about student loan
servicing. You know, there is more than a trillion dollars
outstanding in student loan debt, but the United States
Government does not actually go out and collect on these loans.
This is handled by contract with the United States
Government. We have private companies that are out there,
private for-profit companies that are out doing the student
loan servicing. Now, there are a lot of rules and a lot of laws
around student loan servicing, things that they are required to
do, things they are not permitted to do, that we have, in some
measured way, tried to make sure that borrowers will at least
be treated with some basic fairness.
Now, I want to start this by thinking about what happens
when you break your contract. You know, students or former
students who cannot pay on their loans pay a terrific price.
You have a document. They pay high fees, their credit is
ruined, their paychecks are garnished, their Social Security
checks can be garnished. In other words, one misstep on your
obligation under your student loan and you can be in real
financial trouble and you can pay for it for a very long time.
What happens when the contractors that service our student
loans do not meet their contractual obligations? Well, it turns
out it seems that life is not nearly so harsh for them.
Servicers like Sallie Mae, who has recently changed its name to
Navient, have broken the rules, broken the law, failed their
borrowers, and not lost a dime on their Federal contracts.
Now, in June, President Obama announced that the Department
of Education would take steps to hold these servicers, these
loan servicers, more accountable, and two weeks ago, the
Department of Education followed through on that promise by
announcing that it had renegotiated the contracts with the
student loan servicers. Now, that is good news.
Evidently, the Department of Education decided that this
should be done by paying student loan servicers a higher price
for loans that are in active repayment and less for loans that
are delinquent, so they have kind of changed the payment
schedule.
The problem is that these changes may not have the intended
effect, because the new arrangement sets such a high price for
loans that are current, servicers could make more money under
the renegotiated contracts than they did under the old
contracts without changing their behavior at all.
For example, analysts at Compass Point ran the numbers and
concluded that under the renegotiated contract, Navient, the
Sallie Mae spinoff, would make an estimated $20 million extra
every year going forward, even if it does not make a single
change to treat any of its borrowers better or to comply with
the law, so I do not get this. When Navient breaks the law,
they get a new contract from the Department of Education that
lets them make more money if they keep right on with business
as usual, so what the heck is going on here, Mr. Leith?
Mr. Leith. First of all, the contracts were renegotiated
with the intent of incentivizing all of our servicers to do
everything they can to make a borrower and keep a borrower
current, not only active in repayment, but current. We modeled
out the changes and I would have to look at the $20 million
number.
Senator Warren. I am sorry, so you modeled this out and how
much more did you figure out that they were going to make?
Mr. Leith. I do not have that with me, but I guess my point
is----
Senator Warren. Can you give me a ballpark here? Did you
figure out that it was going to be more than $20 million?
Mr. Leith. I am sorry. We looked at it in the aggregate of
our portfolio, not by individual servicer.
Senator Warren. Navient has what portion of your portfolio?
Mr. Leith. They are our third largest servicer.
Senator Warren. Here is one of your biggest servicers.
Someone else has been able to run the numbers based on what you
have published, and shown that this servicer does not have to
change a single thing and can make $20 million more a year by
continuing to treat student borrowers badly? And you do not
have any numbers on this?
Mr. Leith. Like I said, we have numbers on the aggregate
portfolio.
Senator Warren. What do your numbers show on the aggregate
portfolio?
Mr. Leith. I will provide that. I do not have it on the top
of my head.
Senator Warren. Okay. Let me ask you this. Surely, you know
this because surely you did this analysis before you
renegotiated these contracts. Did it show that in general they
were going to make more money for doing the same thing, or they
were going to make a whole lot less money if they kept doing
the same thing?
Mr. Leith. No. It shows, in general, that they will make a
little bit more across the portfolio, but the point is, we want
them to do a lot more.
Senator Warren. Let me get this straight. You break the
law, you do not follow the rules, you treat the borrowers
badly, and you all just renegotiated the contract to make sure
that across the portfolio they are going to make a little more
money if nothing changes?
Mr. Leith. We have 11 servicers, so----
Senator Warren. But you told me this is across the
portfolio.
Mr. Leith. Right.
Senator Warren. Collectively they are going to make a
little more money for continuing, I presume, to break the law,
to not follow the rules, and to treat borrowers badly. The idea
of the renegotiation was to try to help the borrowers, not to
make it worse or to make the servicers richer.
Mr. Leith. The intent of the renegotiation is exactly to
help the borrowers, so we will measure the impact of this
change over the next six to nine months, and if we do not see
significant improvement in the percentage of the portfolio that
are in current repayment status, you know, moving people from
delinquency to in repayment, then we will reset prices again.
But we are----
Senator Warren. You will reset prices again to do what, to
pay them even more money for not making any changes?
Mr. Leith. Then----
Senator Warren. Mr. Leith, I do not understand a basic
renegotiation that says, you can continue breaking the law, but
we are going to pay you more money for doing it.
Mr. Leith. With regard to the Navient, I mean, I think--and
the breaking the law issue, this came up when Secretary Duncan
said that we would complete a review within 120 days. That 120
days will be up in a couple weeks and we are on schedule to
complete that review in the time frame that was committed to. I
cannot say that I am aware that our servicers are out there
breaking the law.
Senator Warren. You are not aware that Sallie Mae has
admitted to breaking the law and that you have--your agency--I
am sorry, your title is you are the head of the Student Loan--
--
Mr. Leith. I am the Chief Business Operations Officer.
Senator Warren. Chief, Business Operations for Federal
student aid and you are not aware that the servicers have
broken the law?
Mr. Leith. I am aware of the Navient settlement with
Justice.
Senator Warren. Which was a settlement because they did
what?
Mr. Leith. It was a settlement that was a non-admission of
guilt, which is why we are doing our investigation.
Senator Warren. So your position is you are paying them
more money because you are not sure they broke the law?
Mr. Leith. I am sorry. We are paying our servicers the
prices that we are paying to try to get the borrowers into the
best current repayment plan possible.
Senator Warren. Well, I actually just wanted to point,
based on these numbers, that the other side--I mean, this is
just mad--they could actually do a worse job and still make as
much money as they are making today. I just think this is
deeply shocking. We need some real accountability here, and I
think what that accountability means is we need publicly
available data so everyone knows how each of the servicers is
performing so we can hold their feet to the fire.
It means serious penalties for violating contracts, not
bonuses. It means open competition so that different
organizations, different groups can bid for these servicing
contracts, and we need a Department of Education that is going
to be on the side of the students, not on the side of the
servicing industry, so that is it on that question, Mr.
Chairman. Thank you.
The Chairman. Senator Warren, what I intend to do is to
write a letter from the Committee. I invite you to be a part of
the drafting of this letter and the signing of the letter. We
will offer it to other members of the Committee to sign, to
Secretary Donovan on these very points that you have raised.
Senator Warren. Thank you. Can I ask one more question?
The Chairman. Please.
Senator Warren. I do not want to cut in front of you if you
have got another one here. I want to ask another one, and let
me see if I can just find my notes on this. I have kind of
shuffled things around here, but I want to ask a question
about--here we go. I think I have got it here. I want to ask
about an Inspector General report for the Department of
Education.
In 2003, the Inspector General issued a report on how well
the Department of Education was doing on monitoring these
private collection agencies that administered the student loans
and deal with students who are in default, and in this report,
the Inspector General found that the Department of Education
was failing in its central job to protect borrowers, failing to
track complaints, failing to perform audits, failing to review
deliverables, and failing to maintain adequate files.
In response, the Department of Education's Federal Student
Aid Office--I think that is your office, Mr. Leith--pledged to
change its practices, and that was 11 years ago. Now, in July
of this year, just last month, the Inspector General examined
the Department of Education's collection practices once again.
The IG found many of the same deficiencies.
According to the Inspector General, the Department is
failing to monitor borrower complaints, failing to take
corrective action, and failing to review deliverables. In other
words, the Department was still not doing its job to ensure
that the collectors were treating borrowers fairly and
following the law.
Mr. Leith, how can the Department be making the same
mistakes and failing borrowers in the same ways 11 years after
the Office of the Inspector General pointed out these flaws
Mr. Leith. I can assure you that from the last Inspector
General audit, we have put a corrective action plan in place
for every one of those issues.
Senator Warren. I am sorry. When you say the last one, do
you mean the 2003 one or the one that just came out?
Mr. Leith. No, the one that just came out.
Senator Warren. Well----
Mr. Leith. I am sorry. I cannot speak to the 2003 one, but
I can speak to what we are doing now. We have just change
contractors for the debt collection system. We followed a life
cycle methodology for the development and changes that are
being made. We are tracking both verbal and written complaints.
We are listening, doing random samples of 140 calls a
quarter per PCA, and, you know, when we find an issue, we
address the issue. We put it in. We develop a corrective action
and we follow up through resolution on that corrective action.
Senator Warren. Mr. Leith, I appreciate that and I am glad
that you are doing those things, but what I do not understand
is, there was a report in 2003 that identified the same set of
problems, so each action that you identify, why were you not
taking that action in 2004, in 2005, in 2006, in 2007, in 2008,
in 2009, in 2010, in 2011, in 2012? Why have you not already
done those things so when the Inspector General comes back in
2013, the Inspector General can say, there has been significant
change since 2003?
Mr. Leith. It is a legitimate question. I cannot answer
that, but I will certainly follow up.
Ms. Anderson. If I may interject, I think that is a perfect
illustration of what is happening with the student loan debt
and the people like myself, the borrowers, that find that they
do not have options available to them within the current
structure, is that people who are in charge of those loans and
in charge of that piece of it are given latitudes that we are
not given latitude in, and therein lays the insidious nature of
how those collections and how that money is being collected on
the backs of people who just wanted to improve their lifestyle.
Senator Warren. You make the right point, Ms. Anderson.
Students do not get to pick their servicers. They borrow from
the Federal Government and then the Federal Government picks
who will service that loan, and part of the understanding is
the Federal Government will not only pick the companies that
will treat the students well, but will follow the law, that
will be scrupulous in how they treat people who have taken out
student loans.
But also, that the Federal Government will then monitor to
make sure, day after day, week after week, month after month,
that those servicers are following the law. We depend on you,
the Department of Education, to do this, and it is clear that
it is not happening and it is not happening for millions of
borrowers out there.
Mr. Chairman, I would be glad to join you on this letter
and whatever else it is we can do. We have got to make some
changes here.
The Chairman. Whatever else we can do is going to involve
the Chairman issuing an invitation to Secretary Donovan on
behalf of the Committee, Senator Collins and the rest of the
Committee members, to come and have a discussion. We will start
with a private discussion--it may turn out into a round table
discussion at some point--about a number of the issues that
have been raised here today.
This meeting was for the purpose of concentrating on senior
citizens and the debt that they are carrying, but obviously in
the course of the discussion, we have raised a number of other
issues that apply to all borrowers.
I want to thank the panelists. I want to thank everybody
who has been interested in this subject, and the meeting is
adjourned.
[Whereupon, at 3:26 p.m., the hearing was adjourned.]
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APPENDIX
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Prepared Witness Statements
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Questions for the Record
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