[Senate Hearing 113-445]
[From the U.S. Government Publishing Office]





                                                        S. Hrg. 113-445


           STUDENT LOAN SERVICING: THE BORROWER'S EXPERIENCE

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

                                HEARING

                               before the

                            SUBCOMMITTEE ON
             FINANCIAL INSTITUTIONS AND CONSUMER PROTECTION

                                 of the

                              COMMITTEE ON
                   BANKING,HOUSING,AND URBAN AFFAIRS
                          UNITED STATES SENATE

                    ONE HUNDRED THIRTEENTH CONGRESS

                             SECOND SESSION

                                   ON

 EXPLORING BORROWERS' INTERACTIONS WITH STUDENT LOAN SERVICERS BEFORE 
 AND DURING REPAYMENT AND WHETHER AND HOW THE ACTIONS OF STUDENT LOAN 
    SERVICERS MAY AFFECT BORROWERS' ABILITY TO MAKE TIMELY PAYMENTS

                               __________

                              JUNE 4, 2014

                               __________

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

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


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

                         U.S. GOVERNMENT PUBLISHING OFFICE 

90-950 PDF                     WASHINGTON : 2015 
-----------------------------------------------------------------------
  For sale by the Superintendent of Documents, U.S. Government Publishing 
  Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; 
         DC area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC, 
                          Washington, DC 20402-0001            


















            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                  TIM JOHNSON, South Dakota, Chairman

JACK REED, Rhode Island              MIKE CRAPO, Idaho
CHARLES E. SCHUMER, New York         RICHARD C. SHELBY, Alabama
ROBERT MENENDEZ, New Jersey          BOB CORKER, Tennessee
SHERROD BROWN, Ohio                  DAVID VITTER, Louisiana
JON TESTER, Montana                  MIKE JOHANNS, Nebraska
MARK R. WARNER, Virginia             PATRICK J. TOOMEY, Pennsylvania
JEFF MERKLEY, Oregon                 MARK KIRK, Illinois
KAY HAGAN, North Carolina            JERRY MORAN, Kansas
JOE MANCHIN III, West Virginia       TOM COBURN, Oklahoma
ELIZABETH WARREN, Massachusetts      DEAN HELLER, Nevada
HEIDI HEITKAMP, North Dakota

                       Charles Yi, Staff Director
                Gregg Richard, Republican Staff Director
                       Dawn Ratliff, Chief Clerk
                       Taylor Reed, Hearing Clerk
                      Shelvin Simmons, IT Director
                          Jim Crowell, Editor

                                 ______

     Subcommittee on Financial Institutions and Consumer Protection

                     SHERROD BROWN, Ohio, Chairman

       PATRICK J. TOOMEY, Pennsylvania, Ranking Republican Member

JACK REED, Rhode Island              RICHARD C. SHELBY, Alabama
CHARLES E. SCHUMER, New York         DAVID VITTER, Louisiana
ROBERT MENENDEZ, New Jersey          MIKE JOHANNS, Nebraska
JON TESTER, Montana                  JERRY MORAN, Kansas
JEFF MERKLEY, Oregon                 DEAN HELLER, Nevada
KAY HAGAN, North Carolina            BOB CORKER, Tennessee
ELIZABETH WARREN, Massachusetts

               Graham Steele, Subcommittee Staff Director

                                  (ii)



























                            C O N T E N T S

                              ----------                              

                        WEDNESDAY, JUNE 4, 2014

                                                                   Page

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

                               WITNESSES

Nancy Hoover, Director of Financial Aid, Denison University......     3
    Prepared statement...........................................    22
William Hubbard, Vice President of External Affairs, Student 
  Veterans of America............................................     5
    Prepared statement...........................................    24
Robert Geremia, Social Studies Teacher, Wilson High School, on 
  behalf of the American Federation of Teachers (AFT) and 
  Washington Teachers' Union (WTU)...............................     7
    Prepared statement...........................................    28
Lindsey M. Burke, Will Skillman Fellow in Education Policy, The 
  Heritage Foundation............................................     8
    Prepared statement...........................................    30

              Additional Material Supplied for the Record

Prepared statement of the Consumer Bankers Association...........    34
Prepared statement of the Education Finance Council..............    43

                                 (iii)

 
           STUDENT LOAN SERVICING: THE BORROWER'S EXPERIENCE

                              ----------                              


                        WEDNESDAY, JUNE 4, 2014

U.S. Senate, Subcommittee on Financial Institutions 
                           and Consumer Protection,
          Committee on Banking, Housing, and Urban Affairs,
                                                    Washington, DC.
    The Subcommittee met at 10:03 a.m., in room SD-538, Dirksen 
Senate Office Building, Hon. Sherrod Brown, Chairman of the 
Subcommittee, presiding.

          OPENING STATEMENT OF CHAIRMAN SHERROD BROWN

    Senator Brown. The Subcommittee will come to order. Thank 
you all for joining us. Ms. Hoover, the Ohioan on the panel, 
thank you for coming back and being of assistance to us in a 
number of ways.
    About a decade ago, we began to see the warning signs of 
problems in the housing market. A few years later, we watched 
the combination of Wall Street greed and inattentive regulators 
helping to destroy our economy. We are still picking up the 
pieces.
    This crisis and the topic of today's hearing, student loan 
servicing, are very much interconnected. Over the course of the 
last few years, we have seen that far too many homeowners 
become victims of improper foreclosures when their mortgage 
servicer could have assisted them to enroll in a loan 
modification program but chose not to. And here we are again.
    Outstanding student debt is $1.2 trillion--more than credit 
card debt, more than auto loans. Student debt is second only to 
mortgage debt, as we all so painfully have heard. Roughly 7 
million borrowers are in default on a student loan. When these 
borrowers lose, our economy loses.
    In May 2013, the Consumer Financial Protection Bureau 
released a report describing the impact of heavy student loan 
burdens. A growing group of business leaders and regulators 
have joined the CFPB to describe how student loans can 
interrupt the slowly recovering economy.
    Excessive student debt can defer or destroy the dreams of 
prospective first-time homebuyers, small business formation and 
entrepreneurship, and limit the options of young graduates who 
might work as teachers or doctors in underserved areas.
    Defaults will have long-term impacts on our economic 
recovery. It is critical that we ensure that student loan 
servicers do their jobs properly to protect individual 
borrowers and our economy as a whole.
    Last year, I wrote a letter to some of the largest banks 
and student loan companies asking about their efforts to modify 
loans for borrowers in trouble and measuring their success in 
enrolling borrowers in affordable income-based plans. The 
numbers were dismal. No bank has enrolled more than 5 percent 
of borrowers who were in trouble. I am concerned that student 
loan servicers care more about maximizing profits than giving 
proper customer service.
    Among the questions to consider: Is the complex and opaque 
repayment system set up to make borrowers fail? Are servicers 
ensuring that borrowers fully understand their full range of 
repayment options, including those most advantageous to 
borrowers experiencing financial hardship? Many of the loan 
repayment options are better suited for contract lawyers than 
recent graduates. If we do not give graduates the tools to 
succeed, we cannot expect them to have a fair shot at building 
a successful livelihood.
    How can borrowers understand the repayment options best 
suited to their specific needs when written in legalese that 
only lawyers are trained to understand? That is clearly 
unrealistic at best.
    In the Dodd-Frank Act, I proposed a student loan ombudsman 
within the CFPB, and, again, a shout-out to Senator Warren for 
her terrific work at the beginning and since on that Bureau. 
That office has issued reports describing pervasive and 
troubling practices: servicers allocating borrowers' payments 
in order to maximize late fees, servicemembers facing 
challenges activating their military benefits on their student 
loans, and all borrowers facing obstacles enrolling in loan 
modification programs.
    Based on referrals from this office, the Department of 
Justice and the FDIC found that the Nation's largest servicer 
had broken a series of laws, including the Servicemembers Civil 
Relief Act. It has been ordered to pay fines and compensation 
of more than $90 million.
    In February, another major player in the private student 
loan market revealed that it too was under investigation by the 
CFPB for its student loan servicing practices. CFPB reports 
have recommended that Congress examine some of the reforms to 
the credit card and mortgage servicing markets, such as ones 
related to payment processing and servicing transfers, in order 
to improve the student loan servicing market.
    To help address some of these problems which harm borrowers 
and our economy, I have sponsored a number of reforms such as 
the Student Loan Borrower Bill of Rights, which would provide 
protections and require workable, alternative repayment options 
for private loan borrowers who are at risk of default. It would 
require lenders to notify borrowers about income-based 
repayment plans for Federal loans and would protect borrowers 
from penalties due to errors on the part of the servicer.
    We know that private student loans generally have 
significantly higher interest rates, offer limited payment 
options, and offer no relief for the many graduates who do not 
make the amount of money that they expected, who have been laid 
off, or who are even unable to find work. My Refinancing 
Education Funding to Invest for the Future Act addresses this 
problem by authorizing Treasury to make the private student 
loan market more efficient. It would allow borrowers to 
refinance their costly private loans into more affordable 
loans, at no cost to taxpayers.
    I look forward to our witnesses' views on student loan 
servicing practices and the opportunities to ensure 
accountability and quality customer service.
    Senator Warren, do you want to make an opening statement 
now?
    Senator Warren. No.
    Senator Brown. OK. Thank you.
    Let me introduce the four witnesses. We have votes at 11 
o'clock. We will go as much past 11 as we can, but we obviously 
will--I ask people to stay within their time limits if they 
can.
    Nancy Hoover, Director of Financial Aid at Denison. Nancy 
Hoover is the Director of the program in Granville, Ohio. She 
is past Chair of the National Direct Student Loan Coalition, a 
grassroots organization that works to improve the Federal 
direct loan program. Thirty years working in financial offices, 
Ms. Hoover has dedicated her career to helping students afford 
secondary education.
    William Hubbard, sitting next to Ms. Hoover, served as Vice 
President of external affairs for Student Veterans of America, 
has considerable experience advocating on behalf of veterans. 
He joined the Marine Corps at 17, currently is a drilling 
reservist out of Joint Base Anacostia-Bolling. Welcome, Mr. 
Hubbard.
    Mr. Robert Geremia is an educator at Woodrow Wilson Senior 
High School. He teaches AP U.S. history and District of 
Columbia history. My understanding is he has some students with 
him here today. Thank you for that. He has served as a student 
mentor, grade level leader, track coach, union building co-
representative, and co-faculty adviser for the Gay Straight 
Alliance, a member of the American Federation of Teachers and 
the Washington Teachers' Union.
    Lindsey Burke is the Will Skillman Fellow in Education 
Policy at the Heritage Foundation. She has done extensive 
research around the Federal Government's role in education. 
Welcome, Ms. Burke.
    Ms. Hoover, if you would begin. Thank you.

 STATEMENT OF NANCY HOOVER, DIRECTOR OF FINANCIAL AID, DENISON 
                           UNIVERSITY

    Ms. Hoover. Chairman Brown, Ranking Member Toomey, and 
Members of the Subcommittee, thank you for inviting me to 
testify today at the hearing regarding the borrower's 
experience with student loans servicing.
    My name is Nancy Hoover, and I am the Director of Financial 
Aid at Denison University in Granville, Ohio. Denison 
University is a selective independent, undergraduate liberal 
arts college with an enrollment of approximately 2,200 
students. I have been the Director of Financial Aid at Denison 
since 1994 and administered the implementation of the Direct 
Loan program in Year 2 of the program.
    Denison's endowment allows us to award annually financial 
aid from our university's funds to 97 percent of our student 
body. An average of 47 percent of our graduates borrow Federal 
loans and 4 percent borrow private loans. The cumulative 
Federal indebtedness for Denison's Class of 2014 was a little 
over $21,000.
    The William D. Ford Federal Direct Loan program turns 20 
years old this year. The direct loan delivery process for loan 
funds to students has continued to be efficient, reliable, and 
easy for schools to administer, even after the 100-percent 
transition of all schools to the Direct Loan (DL) Program.
    When the Direct Loan Program was first implemented, all of 
the loans were serviced by a single contractor. All 
correspondence to borrowers was identified as the William D. 
Ford Federal Direct Loan Program, and the logo for the 
Department of Education made the servicing contractor for these 
loans invisible to the students. The Department had to expand 
the number of servicers to accommodate the increased volume of 
loan servicing required for the purchase of federally backed 
loans in 2008 and the transition of all schools to the Federal 
Direct Lending Program.
    The Department issued new DL servicing contracts to 
agencies who had experience servicing loans to students in the 
FFEL program and allowed, but did not require, these new 
servicers to co-brand all their correspondence with the 
Department's logo. Since the servicer's logo appears larger 
than the Department's logo, borrowers are confused as to why 
they are receiving written or electronic correspondence from an 
unknown agency. Servicers report a large percentage of unopened 
emails from the borrowers because they believe the 
correspondence is junk mail or spam. The inherent flaw with the 
current multiple servicer environment is that borrowers do not 
understand who is servicing their loans and are at a greater 
risk of defaulting.
    Currently there are 15 contractors servicing federally held 
loans. The current Federal loan servicing environment needs to 
be simplified by a mandate that contractors be invisible agents 
of the Federal Government with identical processes and policies 
and the number of contractors be limited. Congress made 
progress in this area with the Bipartisan Budget Act of 2013 
which eliminates the special treatment for nonprofit student 
loan servicers.
    When the Department of Education has the opportunity to 
renew the servicer contracts, it should consult with all of the 
stakeholders in student loan servicing and open the contract 
bidding process to other entities in financial sectors outside 
the previous FFEL environment.
    Borrowers need their point of contact for all repayment 
activities to be a single Web portal and one phone number for 
account access. The Department of Education has made 
significant progress toward creating a single portal for 
students who borrow Federal loans with the creation of 
StudentLoans.gov, an efficient and robust portal at which 
students can execute every required process for their Federal 
loans except to initiate the repayment process. 
StudentLoans.gov can be expanded so students can begin the 
repayment process of their Federal loans at this site instead 
of going to a specific servicer's Web site.
    Senator Brown, I would like to thank you and other Members 
of the Committee for your support of Bank on Students Emergency 
Loan Refinancing Act and the Student Loan Borrower Bill of 
Rights. These bills assist borrowers with loans at multiple 
servicers to refinance all of their loans to have a single 
servicer. And it also requires servicers to notify delinquent 
borrowers about income-based options.
    However, with all of the good options of repayment from 
which the borrower can choose, it is extremely confusing for 
students to understand the intricacies of all the current 
repayment options. I encourage Congress to reduce the current 
number of loan repayment plans to two--standard and income-
based--from which students can choose. Repayments should be 
collected through the payroll withholding.
    Many borrowers are unaware that the servicer has changed 
until they encounter a problem. According to the report by the 
Consumer Financial Protection Bureau, many borrowers have filed 
complaints to correct errors related to the servicing 
contracts. Student loan servicers need to provide notice to 
borrowers about a change in their service like the mortgage 
servicers are required to do.
    Thank you again, Chairman Brown, for the opportunity to 
provide a financial aid administrator's perspective on student 
loan servicing, and I am happy to respond to any questions you 
or the Members of the Subcommittee might have.
    Senator Brown. Thank you, Ms. Hoover.
    Mr. Hubbard.

   STATEMENT OF WILLIAM HUBBARD, VICE PRESIDENT OF EXTERNAL 
              AFFAIRS, STUDENT VETERANS OF AMERICA

    Mr. Hubbard. Chairman Brown, Ranking Member Toomey, and 
Members of the Subcommittee, thank you for inviting Student 
Veterans of America to submit our testimony on ``Student Loan 
Servicing: The Borrower's Experience.'' As the premier advocate 
for student veterans in higher education, it is our privilege 
to share this on-the-ground perspective with you today.
    As veterans graduate across the country, we believe that 
the student debt burden will ultimately be one of the largest 
inhibiting factors to their long-term success. This in part 
stems from the lack of access to information at individual and 
institutional levels. Veterans consistently cite the following 
challenges: difficulty obtaining accurate information about 
loans, convoluted pathways to gathering information and 
implementing programs, and unnecessary roadblocks put in place 
by servicers.
    Despite avid efforts to increase protections against 
abusive practices, getting servicemembers and veterans the 
right information about the protections at the right time 
remains a challenge. Servicemembers and veterans have access to 
protections under the Servicemembers Civil Relief Act--SCRA--
and access to many different student loan repayment options. 
Unfortunately, this web of support does not function 
cohesively, and programs often function independent of each 
other.
    We have seen that many servicemembers enter the military 
with pre-service student loan debt. This existing debt is also 
a major source of the overall debt owned by servicemembers and 
veterans. Existing debt is particularly harmful to a 
servicemember or veteran when servicers do not comply with 
protections afforded by SCRA.
    There is also a common misconception that veterans who go 
to school on the GI bill have a ``free ticket,'' but we know 
that this is simply not true. As an earned benefit, not only is 
the GI bill not free, it may not always cover the cost of a 
full education. This is especially true for those attending 
private institutions or for those considered out-of-State 
residents.
    To prevent situations that may violate a servicemember's or 
veteran's rights, we believe that institutions need to have 
access to a full range of financial data. This data is 
necessary for institutions to be able to effectively counsel 
their students about their financial futures. Individuals 
should also have access to this data to achieve the highest 
level of consumer awareness.
    Currently there is no widely used system that would allow 
any individual with education debt to see all of their loans in 
a centralized place. METEOR, run by the National Student 
Clearinghouse, could be such a tool. The METEOR program has the 
unique function of providing all private lender data. It would 
simply require the approval from the Department of Education to 
access direct loan data.
    To date, this has yet to happen. While we might not know 
the full effect of student debt for this generation of 
veterans, we are beginning to see the first and second order 
effects today. Servicemembers and veterans with student debt 
are significantly less likely to build their own business, save 
for a home, or save for their retirement.
    The effect of these issues will impact the economy for 
years to come and will continue to distort economic behavior if 
not taken seriously.
    In light of the issues we have identified, SVA has 
recommended various solutions. Of the solutions we have 
submitted to the record, we would like to highlight one in 
particular: program coordination.
    Many programs exist to support the repayment of student 
loans, though very few of these programs have coordinated 
inter-program relationships. A major opportunity exists if 
current programs were coordinated and streamlined to function 
seamlessly. Putting the pieces of this puzzle together would be 
an important step forward.
    The investment that America has made in the GI bill and its 
veterans becomes an even clearer asset to our economy when 
those veterans are empowered with the right tools. By reducing 
the debt burden on servicemembers and veterans, we can set them 
up for long-term success.
    We thank the Chairman, Ranking Member, and the Subcommittee 
Members for your time, attention, and devotion to the cause of 
veterans in higher education. As always, we welcome your 
feedback and questions, and we look forward to continuing our 
work with this Subcommittee, the Senate
    Committee on Banking, Housing, and Urban Affairs, and the 
Congress to ensure the success of all generations of veterans 
through higher education.
    Thank you.
    Senator Brown. Thank you, Mr. Hubbard.
    Mr. Geremia.

  STATEMENT OF ROBERT GEREMIA, SOCIAL STUDIES TEACHER, WILSON 
 HIGH SCHOOL, ON BEHALF OF THE AMERICAN FEDERATION OF TEACHERS 
           (AFT) AND WASHINGTON TEACHERS' UNION (WTU)

    Mr. Geremia. Mr. Chairman and the distinguished Members of 
this Committee, my name is Robert Geremia, and I am a social 
studies teacher at Woodrow Wilson High School here in 
Washington, D.C. I come to you as a member of the American 
Federation of Teachers and the Washington Teachers' Union. I 
want to thank Chairman Brown for the opportunity to testify on 
my experiences with student debt and loan repayment. I hope 
that sharing my experiences in the financial aid process makes 
it easier for students and their families to pay for higher 
education.
    Growing up in Rhode Island in a family of teachers, I 
always felt like I could make the world a better place by 
helping kids. I graduated from Rhode Island College with a 
bachelor's degree, having double-majored in secondary education 
and history. While I was fortunate that my parents were able to 
cover my college tuition, I still had to pay for books and 
other expenses during my undergraduate years, so I started my 
teaching career, like so many of my colleagues, with some 
credit card debt.
    At the urging of my professors, I sought to teach in an 
urban area, and that is how I ended up here in Washington, D.C. 
I have to admit I was not fully prepared for the high cost of 
living in Washington, D.C., on a starting teacher's salary. 
After several years of teaching, I knew I needed to further 
develop my skills, but I did not want to take time off from 
teaching, and I knew that going to school for my master's 
degree at night would take my energy from my students and their 
work. I was accepted into one of the most respected teaching 
programs in the country, Teachers College at Columbia 
University. I was able to earn a master's degree in Social 
Studies Education over three consecutive summers, and the 
program, I believe to this day, was the right professional 
choice for me.
    However, in order to attend this highly regarded program, I 
had to take out several loans despite my full-time salary. On 
top of tuition and fees, I had to account for two apartments as 
I could not contractually sublet my apartment in D.C. In 
addition, I had to pay for travel to New York, books, and the 
other typical living expenses. I would like to point out that 
while the focus of college affordability is often on tuition, 
it was really those other expenses that drove up my borrowing. 
After three summers, I graduated with my master's degree and 
approximately $37,000 of debt. While I received some grant 
money during my program and subsidized loans of over $25,000 
for 3 years, I had to take an additional $11,000 in 
unsubsidized loans.
    As I am working to pay off these loans, I have been puzzled 
by several issues.
    First, my loans have switched providers twice, and it has 
never been quite clear to me why the transfers were made. As a 
matter of fact, an additional amount has been debited from my 
checking account for my monthly payment when the loans were 
transferred the last time.
    Second, when I recently set up an online account for my 
loans, I found that the information about my loan, including 
payoff options and payoff dates, was available. That 
information was never provided to me on my paper statements.
    I am proud of my 12-year career here in the District of 
Columbia as a Highly Effective Teacher--I earned that rating 
last year--yet my financial life has been put on hold because 
of the loans I have taken to stay in the classroom. My loans 
have a current interest rate of over 6 percent, and I will pay 
over $10,000 in interest on top of the principal. It is hard to 
see how I can save to buy a home with some of this debt burden, 
though I definitely could secure a mortgage at an interest rate 
of about 4 percent. And I have a car loan currently that is at 
a 1.9 percent interest rate. Yet there is nothing I can do to 
lower my student loan interest rate. With more and more 
students being forced to take on debt, I believe we must make 
it easier for them by having access to grants and lower 
interest rate loans.
    I made a decision to get an advanced degree to be able to 
further my career and benefit the students I am committed to 
serving. After about 2 years of payment, I learned that I am 
likely eligible for two programs that could lower my monthly 
payments and shorten the life of my loan. I believe many 
college students would be more likely to pursue teaching, and 
many of my colleagues would be more likely to pursue advanced 
degrees if these programs were streamlined and better 
understood. I suggest Congress find a way to reach out 
proactively to teachers about these options.
    Because the process was so convoluted for me, I worry about 
what will happen to my students, many of whom are graduating as 
I testify today, and begin this whole process. Many will be the 
first generation in their families to attend college. Others 
have worked hard and have been admitted to the Nation's top 
colleges and universities, but will be unable to attend because 
of costs. I am afraid some of my students do not understand the 
ways high interest rates and basic living expenses will 
multiply their debt, and when they graduate, I do not want them 
to be faced with the same lack of transparency and confusion. I 
hope that Congress can find a way to ease the burden on 
students and families and make attending college and continuing 
education more affordable. I fear if we do not, a generation, 
like myself and my peers, will be too saddled with debt to 
invest in housing, businesses, or to make career choices based 
on anything other than earning potential.
    Thank you, Mr. Chairman, distinguished Member. I look 
forward to responding to questions.
    Senator Warren. [Presiding.] Thank you, Mr. Geremia.
    Ms. Burke.

    STATEMENT OF LINDSEY M. BURKE, WILL SKILLMAN FELLOW IN 
           EDUCATION POLICY, THE HERITAGE FOUNDATION

    Ms. Burke. Thank you, Mr. Chairman, distinguished Members 
of the Committee. My name is Lindsey Burke. I am the Will 
Skillman Fellow in Education Policy at the Heritage Foundation. 
The views I express in this testimony are my own and should not 
be construed as representing any official position of the 
Heritage Foundation.
    For many, earning a college degree is the way to climb the 
ladder of economic mobility. Higher educational attainment is 
associated with greater earnings. Median earnings for 
individuals whose highest degree was a high school diploma 
totaled $30,000 in 2011, compared to $45,000 for those earning 
a bachelor's degree. College graduates, on average, earn 
$650,000 more over the course of a 40-year career. While a 
college degree is not the only route to upward mobility, for 
many, it represents the most promising path for achieving their 
full earnings potential.
    The value of earning a college degree is demonstrable. The 
cost of earning that degree, however, has become prohibitively 
expensive for many as college costs have risen. Average tuition 
at 4-year public institutions for out-of-State students reached 
$22,200 this academic year, and at private universities average 
tuition is over $30,000 annually. Many students leave with a 
bachelor's degree in hand, but burdened with tens of thousands 
of dollars in student loan debt. Worse still, many students 
leave college without graduating, burdened with debt and 
lacking the paper credential they had hoped would put them on a 
path toward middle-class stability or better.
    Well-intentioned Federal policies have failed to drive down 
college costs. An easy flow of Federal student aid has enabled 
students to take out sizable student loans, with little if any 
credit check or consideration of their future earnings 
potential. Some have even argued that such policies have 
enabled universities to raise tuition, creating a vicious 
lending and spending cycle.
    Federal higher education subsidies have increased 
substantially over the past decade and now represent 71 percent 
of all student aid.
    According to the College Board, during the 2012-13 academic 
year, 43 percent of all student aid was in the form of Federal 
student loans. The College Board notes that, over the past 10 
years, the number of students borrowing through Federal student 
loans increased by 69 percent, from 5.9 million students during 
2002 to over 10 million today.
    Approximately 60 percent of students who earned a 
bachelor's degree during the 2011-12 academic year left school 
more than $26,000 in debt. And as the Chairman mentioned, total 
cumulative student loan debt now exceeds $1 trillion, which is 
more than credit card debt cumulatively.
    Increases in debt have been driven by increases in college 
costs. In the last 30 years, inflation-adjusted tuition and 
fees at private colleges increased by 153 percent; tuition and 
fees at public universities increased in real terms by 231 
percent. That is an increase that is greater than increases in 
the cost of health care.
    Increases in tuition and fees over the past 30 years 
suggest that growth in Federal subsidies such as loans and 
grants has done little to mitigate the college cost problem.
    In order to make college more affordable, Federal policy 
should do three things: stop the higher education spending 
spree; employ fair-value accounting to understand the true cost 
of Federal student loans; and decouple Federal financing from 
accreditation.
    If history is any guide, continuing to increase Federal 
subsidies will fail to drive down college costs.
    In 2014, the $33 billion Pell Grant program provided grants 
to 9 million college students, making it the largest share of 
the Federal education budget. Congress grew the Pell Grant 
program in 2007 by expanding eligibility and funding, resulting 
in a doubling of the number of Pell recipients since 2008. In 
order to control higher education spending, Pell Grant funding 
should be targeted to the low-income students the grants were 
originally intended to help.
    In addition, as long as the Federal Government finances 
Federal student loans, it should use fair-value accounting 
practices to get an accurate measure of what those programs are 
costing taxpayers, to ensure the loans use a nonsubsidizing 
interest rate.
    In a report released last month, CBO calculated that the 
four largest student loan programs--Subsidized Stafford Loans, 
Unsubsidized Stafford Loans, PLUS Loans, and Parent PLUS 
Loans--will cost taxpayers money, not result in a net gain (a 
negative subsidy) for the Federal Government as is often 
claimed. While the report states that the four loan programs 
will yield a savings of about $135 billion from 2015 to 2024, 
CBO calculates in the same report that using fair-value 
accounting measures, the four loans would actually have a net 
cost of $88 billion over the next 10 years, not including 
administrative costs. In other words, the four largest student 
loan programs represent an $88 billion taxpayer-financed 
subsidy.
    CBO explains the utility of using fair-value accounting to 
fully understand the cost of Federal lending, stating that, 
``The Government is exposed to market risk when the economy is 
weak because borrowers default on their debt obligations more 
frequently and recoveries from borrowers are lower.'' Fair-
value estimates take this market risk into account and, as a 
result, are a more accurate reflection of the cost of Federal 
student loans.
    Congress should not expand the Federal student loan program 
without requiring that fair-value accounting be used to 
calculate the cost of these loans. Any loan program should use 
a nonsubsidizing interest rate, e.g., the rate at which the 
program breaks even; absent fair-value accounting, it is 
impossible to tell the extent to which the student loan program 
is providing a subsidy to borrowers. Specifically, the 
Department of Education should be required to use fair-value 
accounting estimates calculated by CBO and adjust loan rates 
accordingly going forward, on an annual basis. This would help 
determine whether the programs are costing money for taxpayers 
and where to set interest rates to ensure the programs break 
even.
    Finally, if Federal policymakers want to drive down college 
costs and increase access to higher education for those 
historically underserved by the traditional 4-year system, the 
single most important reform that can be made is to decouple 
Federal financing from accreditation.
    Continuing to simply increase Federal subsidies for higher 
education will fail to solve the college cost problem. 
Moreover, such subsidies shift the responsibility of paying for 
college from the student, who directly benefits from attending 
college, to the taxpayer. Transferring the burden of student 
loan financing from university graduates--who will earn 
significantly more over the course of a lifetime than someone 
with a high school diploma--to the three-quarters of taxpayers 
who do not hold bachelor's degrees is inequitable.
    In order to drive down college costs and increase access to 
higher education opportunities, policymakers should stop the 
Federal spending spree, employ fair-value accounting practices, 
and ultimately, work to decouple Federal financing from 
accreditation.
    Thank you.
    Senator Brown. [Presiding.] Thank you, Ms. Burke. And my 
apologies both to Mr. Geremia and to Ms. Burke. I have never 
left a Committee I have chaired, but there was a call I just 
had to take, and I apologize. And I know of your story after 
Columbia, and I appreciate that. And, Ms. Burke, sorry to you, 
too, at the beginning of your remarks.
    Ms. Hoover, I will start with you, and I appreciate your 
comments. Your testimony and others' on the panel point out 
obviously that the financial futures of students depend on 
fair, responsible servicing practices, but students are not 
able to choose who will service their student loan. They are 
selected by lenders often paid by the number of loans they 
service rather than the quality of that servicing. Talk about 
that structure. I know from your testimony you do not consider 
that the right structure. Explore with us the better way to do 
this, sort of an analysis of that structure, the way it is now, 
and the better way to do that, if you would explain your 
thoughts that way.
    Ms. Hoover. Thank you, Senator Brown. Currently the 
servicer contractors, the volume of loans assigned to the 
servicer is based on metrics. There are three metrics that are 
based on satisfaction: school satisfaction, customer 
satisfaction--borrower satisfaction, and some satisfaction from 
FSA and some other Federal agencies. And the other two metrics 
are the percentage of loan defaults and percentage of the 
dollars in default. So those are metrics that for each of the 
servicers that are measured to get their volume of loans.
    The loans are assigned to these servicers. The student does 
not know to whom the servicer--their loan has been serviced. 
The Department of Education has done a good job of trying not 
to have mixed borrowers. They are trying to have all the loans 
for a student with one servicer. However, there are some 
students who have loans that are still FFEL loans that were not 
sold to the Department. So there still are cases where students 
have more than one servicer.
    What I am suggesting is that these servicers are 
contractors. They can still service the Federal loans, but they 
need to be invisible to the students, because when a student 
calls, a student needs to understand it is a Federal loan they 
are repaying, they go to StudentLoans.gov to do everything, 
their master promissory note, they do their counseling, they 
know everything about their loans there. They should just 
continue the trajectory of being able to start the repayment of 
their Federal loan. And when they go there, if they have an 
inquiry, there is technology today that would transfer that 
call to the contractors. The contractors can still be the 
servicers. It just needs to be invisible to the students, 
because students are getting emails from the various servicers, 
and they do not understand who these agencies are. They think 
it is spam mail or junk, and they are ignoring it. That is my 
suggestion.
    Senator Brown. Mr. Geremia, how could your experience going 
after getting your degree for your master's at Columbia, how 
could yours have been better and different based on that 
structure and the way that you were treated and your 
interaction with the servicer?
    Mr. Geremia. I believe the best way would be a little bit 
more information about how much interest I would pay over time. 
I was not quite sure about the process, even though I went 
through interviews, exit interviews. I was not sure what the 
total debt would look like at the time, and so I wish I 
actually had a conversation with someone of my servicers. I 
think yesterday might have been the first time that I actually 
might have had a telephone call, a conversation. So definitely 
more in-person conversations or phone interviews, yes.
    Senator Brown. Mr. Hubbard, you represent a group of people 
that have had some significant legal issues, if you will. If a 
servicer is found to repeatedly violate their Federal contracts 
or Federal laws, should there be consequences? And what should 
they be to the servicer?
    Mr. Hubbard. Thank you for the question, Chairman. This is 
a critical question. Right now there are many bad actors out 
there, some of which are very obvious; others are more under 
the table. The recent Sallie Mae case was a good example, a 
clear signal to the industry that these kind of issues will not 
be accepted, they will not be tolerated. Sixty million dollars 
being paid out is a sign that if you are going to take 
advantage of the system, you are going to abuse servicemembers 
and their loans, then it will not be tolerated.
    I think absolutely compliance is a critical step in that 
process and ensuring that servicemembers are treated with the 
protections that they are afforded under SCRA.
    Senator Brown. OK. Ms. Hoover, the CFPB Student Loan 
Ombudsman 2013 Annual Report said:

        Student loan servicers might consider providing notices prior 
        to and following a change in servicer so the consumer can 
        monitor the transition to ensure there are no servicing 
        interruptions. Many consumers were unaware of the servicing 
        change until problems arose.

    Talk about your views on borrowers' experiences with 
servicers prior to and following transfer and the costs to 
borrowers from servicers' lack of or poor communications.
    Ms. Hoover. I will have to say that the experiences that I 
have had with my students have been limited in this respect 
because for the number of years my students have been in the 
Direct Loan Program and already had one contractor, I have not 
had students telling me of significant issues with their 
servicing of their loans, and that is, again, because of my 
student body. But I do believe that the complaints that have 
been registered with the Consumer Bureau are true. And as we 
monitor, as our students begin to be more into this multiple 
servicer environment, I shall certainly be listening to it very 
carefully. But so far I have not heard that from my actual 
students as graduates.
    Senator Brown. Anybody else want to comment on that? Yes, 
Mr. Hubbard.
    Mr. Hubbard. I think this brings up a very important point, 
and that is just a level of opaqueness in the system. When you 
are a student and you have different loans, you might not even 
known where those loans are. You do not even see them. If you 
go to log onto some dashboard to figure out what those loans 
are, how much you even owe, that can be a challenge to figure 
out sometimes. Having an aggregated view of this loan data 
would be absolutely implement.
    Senator Brown. Senator Warren.
    Senator Warren. Thank you, Mr. Chairman. Thank you for 
holding this hearing. You know, we should be doing everything 
we can to help student loan borrowers repay their loans, and 
part of that is improving loan servicing.
    But if we want to make sure people can repay their student 
loan debts, shouldn't we start by doing what we can to reduce 
the size of their debt loads? Right now the Federal Government 
is collecting loans at 6 percent, at 8 percent, at 9 percent, 
at 10 percent, and even higher. So what I would like to do is I 
would like to just ask a question about whether or not you 
could talk about the impact on people if we refinanced their 
student loans down to lower rates. And I thought, Mr. Geremia, 
you might start that.
    Mr. Geremia. Thank you, Senator, and thank you, Mr. 
Chairman. It would be a wonderful opportunity to have the 
ability and opportunity to refinance my student loan. As I move 
into my 30s and would like to begin a family and buy a home, I 
would like to be able to have that opportunity.
    Senator Warren. And you talked about it, Mr. Geremia. You 
said you have a home mortgage, did you say? At what interest 
rate?
    Mr. Geremia. I do not have a home mortgage.
    Senator Warren. Oh, I am sorry. I thought you said--you had 
a car loan?
    Mr. Geremia. I have a car loan at 1.9 percent interest 
rate.
    Senator Warren. At 1.9 percent.
    Mr. Geremia. And many car loans are offered at 0 percent.
    Senator Warren. You also want to be careful about those.
    [Laughter.]
    Senator Warren. Read closely.
    Mr. Geremia. Yes, yes. So it would make sense to me that 
maybe there are more options available to refinance at perhaps 
a lower rate.
    Senator Warren. Thank you.
    Mr. Geremia. Thank you.
    Senator Warren. Mr. Hubbard, could you speak just a little 
bit about what the impact would be on people's lives if we 
brought down the interest rate on student loans?
    Mr. Hubbard. Absolutely. Thank you for the question, 
Senator. This is huge problem right now. If you look at 
individuals who go into the service with existing debt to begin 
with and then they are in the service, they have deployments, 
they have loss of protections. They are taken advantage of, and 
they cannot even do anything about it. When you are in a combat 
zone, are you really thinking about your student loans? 
Probably not. That is a problem.
    On the back end, as you are potentially going for your 
education and you are, say, a reservist, you might not have the 
GI bill, so you are taking out large loans.
    You are taking out those loans with very little information 
at your disposal, and you might have just been coming off 
active duty where it was very difficult to have access to 
anyone who even know anything about getting that right 
information. So that makes it very complicated.
    You are not able to buy a house when you come out of your 
education. You are not able to invest in your retirement. That 
impact is when the GI bill--the investment of the GI bill is 
completely lost when you are mired in student debt. When you 
see what an individual can do without student debt, when they 
take advantage of the GI bill, it is impressive. It really is 
impressive. You have got 25- to 30-year-olds buying houses for 
the first time. They are very young. They are investing in the 
future. And the impact of this is on the larger economy.
    But I would actually like to point out something that is 
not often looked at, and that is the issue of security. 
National security is a big problem with existing debt for 
veterans and servicemembers. If a servicemember loses a 
clearance as a result of their high credit, their high student 
debts, that is a direct impact to the national security of the 
United States. So that is something that I think is worth 
looking at.
    One thing that is an issue that would be great, refinance 
would be terrific for servicemembers. Unfortunately, the 
protections offered by SCRA are lost when a student--a veteran 
goes to refinance their loans, and that is something that has 
not been addressed.
    Senator Warren. I think that is a very powerful point, and 
I appreciate it, because what we are talking about here is 
how--the impact of student loan debt on individuals and also, 
as you rightly point out, the impact on the larger economy. We 
have got studies now showing that it is causing people not to 
be able to buy homes. They are not able to start small 
businesses. They are not able to start their economic futures 
and build something strong. This is why more than 30 Senators 
have introduced the Bank on Students Emergency Loan Refinancing 
bill. We want to lower interest rates so that more people have 
a fair shot at getting started in life.
    I want to pick up on the point you made, though, Mr. 
Hubbard. You know, in March, the Consumer Financial Protection 
Bureau put out a report analyzing complaints from veterans 
about financial products, and the report suggests that private 
student loan debt collectors may be making misleading or 
intimidating statements to coerce veterans into paying their 
debts, including threatening to contact a servicemember's chain 
of command or repercussions under the Military Code of Justice 
for failure to pay. And in March, the GAO released a report 
raising issues regarding the oversight of contractors who 
collect on Federal student loan debt.
    Mr. Hubbard, are you concerned that the Federal student 
loan debt collectors are also using military servicemembers' 
service to pressure them to repay?
    Mr. Hubbard. It is a great question, Senator. I am not only 
concerned; I am absolutely outraged. This is something that is 
unacceptable. The Sallie Mae case was a clear signal that this 
is not something that will be accepted in our society. When an 
individual goes into service, that is not an opportunity for a 
servicer to take advantage and abuse those servicemembers 
because they do not have the right information. If you have an 
individual who does not have access to clear information and 
then somebody calls them offering what they believe is 
information, taking advantage of them, that is just--that is 
simply unacceptable.
    Senator Warren. Well, thank you very much. I remain deeply 
concerned that that debt collectors for the Federal student 
loan program are breaking the rules and misleading borrowers. 
If a borrower fails to pay a loan, the Federal Government 
should be able to collect. But contractors must be following 
the law and should not take advantage of people. I think this 
is an issue that deserves very serious attention.
    Senator Brown. Thank you, Senator Warren.
    Senator Reed.
    Senator Reed. Well, thank you very much, Mr. Chairman, and 
I thank you and Senator Warren for your extraordinary 
leadership on this issue, which is critical to not just 
individual progress but to our economy overall.
    I want to recognize everybody, particularly Robert Geremia. 
You are from Rhode Island, aren't you, Bob?
    Mr. Geremia. Yes, sir, originally.
    Senator Reed. Where in Rhode Island? Excuse us, ladies and 
gentlemen.
    [Laughter.]
    Mr. Geremia. Yes, South Kingstown, Rhode Island.
    Senator Reed. Are you related to Kenny Geremia?
    Mr. Geremia. No.
    Senator Reed. OK. Only in Rhode Island can you have this 
conversation. I played peewee football with Ken Geremia from 
Cranston, Rhode Island. He is your uncle, he is your cousin, 
correct?
    Mr. Geremia. Yes, a distant cousin, sir.
    [Laughter.]
    Senator Reed. See, I knew it.
    Senator Brown. Whether he is or not.
    Senator Reed. No, no. He is.
    You, after graduating from Rhode Island College, which is a 
great school, went on to Columbia and are teaching at Wilson 
High School now in Washington. But I have a question. Federal 
law requires that the individual borrower be informed of his or 
her rights for repayment options before they enter the program 
and as they graduate. Do you think you got effective advice, 
information, or counseling so that you understood the full 
range of repayment options, public service loan forgiveness? 
Can you comment?
    Mr. Geremia. Thank you, Senator. Yes, I did receive 
counseling. I do not believe, especially with my graduate 
loans, that was particularly effective. It involved sort of an 
exercise going through the motions, clicking on boxes. There 
really is not that ``Do you have a question?'' kind of--that 
one-on-one interaction.
    At Rhode Island College during my undergraduate years, I 
felt like I had that opportunity. Things were a little bit more 
clear, spelled out. Of course, there were your parents. Our 
parents were helping out.
    As we advance in our careers and our lives and sort of 
looking to fine-tune teaching skills, yes, I read through it. 
It was not clear; it was not effective, especially for someone 
like myself who is trying to pay rent, trying to teach 100 
students, grade their essays, finish a master's thesis.
    Senator Reed. You know, Rhode Island College, I was there 
for the graduation. The tuition is still roughly $8,000 a year, 
and, in fact, we have a Federal limit on what you can borrow at 
the undergraduate level. There is no limit in graduate school. 
So the counseling for graduate school has to be more focused, 
more intense, and more effective, because there you are really 
talking about big sums of money. There is no limit on that. But 
I appreciate that very much.
    Mr. Hubbard, thank you for your service, thank you for your 
testimony. Under the Servicemembers Civil Relief Act, there are 
lots of--they used to call it the Soldiers and Sailors Civil 
Relief Act, but it is now the Servicemembers. There are many 
rights that servicemembers have, but they have to be aware of 
those rights. How did the Department of Defense do about 
informing servicemembers, particularly those who are about to 
leave the service, about their rights as veterans or their 
rights as servicemembers?
    Mr. Hubbard. Well, there are a couple of pieces to that 
puzzle, and I think this is a great question, so thank you for 
that, Senator.
    The Department of Defense is certainly responsible to some 
degree for making sure that their people are taken care of. On 
the other end of things, if a servicer is giving them false 
information, simply lying to them, who is to say that the chain 
of command--you know, some captain--is an expert on education 
loans. They are probably not. There are definitely individuals 
within the Department of Defense that are, but can they reach 
every single individual? I doubt it.
    Unfortunately, servicers are reaching every single 
individual, and they are giving them false information. For 
that member of the military to be able to reach out and find 
their own information with, say, through an aggregated 
dashboard or something similar, that would hopefully allow them 
to alert some red flags. Those red flags would bring that 
person to go out and seek that information from that DOD 
education expert, and then hopefully that would circumvent the 
process of those servicers simply lying to those 
servicemembers.
    Senator Reed. Again, this is a rough historical analogy, 
but in the old days, you used to be able to put places off 
limits because they treated soldiers and sailors and marines 
and airmen badly. And I think we have to--and would urge 
Secretary Hagel to think about this. Maybe there has to be a 
consistent effort of identifying servicers who are consistently 
not just, you know, negligent but doing worse, and maybe that 
is where, you know, that dashboard or at least in the company 
or the battalion or the squadron you can have ``Do not go 
there.'' So I think that is important.
    Ms. Hoover, can I ask a question? It goes right back to the 
services. We, I think, become sometimes over reliant on major 
entities to do the servicing, and that has an inherent risk of 
failure. Do you have any sort of advice about how we can 
provide better services to students? Just a general question.
    Ms. Hoover. How we can do better with the servicers?
    Senator Reed. Right.
    Ms. Hoover. Thank you, Senator. As I indicated in my 
testimony, I still believe there needs to be one place of 
contact for all borrowers and that the contractors be invisible 
to the students. I think if the student--if the servicers were 
mandated to be contractors with identical processes and 
policies, a lot of this confusion could be eliminated. And that 
is where I keep coming back to one place, keep it simple, and, 
therefore, some of the--when the contracts are renewed for 
servicing, maybe they could be offered to entities outside of 
FFEL, because credit cards and mortgage servicers have some 
excellent technology and do not have the default rates that we 
have that are inherent today.
    Senator Reed. Thank you very much.
    Thank you very much, Mr. Chairman.
    Senator Brown. Thank you, Senator Reed. And we will try to 
do a second round, if we can, before the votes.
    A question for all of you. Federal student loans are seen 
as safer than private loans because they offer repayment 
options, but we often hear that Federal loans lack 
comprehensive and consistent servicing standards. So I would 
like each of you, just a yes-or-no question on this: Do 
regulators, the CFPB and the Department of Education, do 
regulators need to establish standards so that borrowers have 
more protections? Ms. Hoover?
    Ms. Hoover. Yes.
    Senator Brown. Mr. Hubbard?
    Mr. Hubbard. Yes.
    Senator Brown. Mr. Geremia?
    Mr. Geremia. Yes.
    Senator Brown. Ms. Burke?
    Ms. Burke. No.
    Senator Brown. All right. Thank you.
    Let me talk for a moment about credit ratings. Student loan 
borrowers are typically young--not always but typically young--
typically limited credit history. They enter this marketplace. 
If the servicer does not serve them quite right, they end up--
if the servicer makes mistakes, report loans that are in a 
payment plan, is delayed, borrowers can be penalized for 
irresponsibly managing their debt, if you will. Mr. Geremia, 
how do servicers affect credit cards--credit scores, excuse me. 
How do servicers affect credit scores and inability to access 
credit later in their lives?
    Mr. Geremia. Well, I would imagine that if there were 
issues repaying, there was a default payment, that would affect 
credit scores down the line and, therefore, would inhibit 
ability to make home purchases, car purchase even, even apply 
for jobs or Government jobs. Thank you.
    Senator Brown. Mr. Hubbard, you talked about a soldier in 
combat. You talked about veterans, soldiers, sailors, and air-
men and -women coming home and facing various kinds of student 
loan problems and just how it is much more difficult to launch 
their economic lives, as Senator Warren said. Talk to me about 
what a credit score means to current and former military 
personnel who may have to pass credit checks in order--in terms 
of security clearance and getting their economic lives in order 
both, if you would.
    Mr. Hubbard. Thank you for the question, Senator. There are 
two sides to this coin. There is the security issue, and there 
is the economic issue.
    On the security side, if an individual has a bad credit 
score, they are not going to get a good clearance. They are not 
going to get a clearance. That might be critical to their 
future in the military or even their personal future on the 
private side. Alternatively----
    Senator Brown. Have you seen examples of that?
    Mr. Hubbard. Yes, absolutely.
    Senator Brown. OK.
    Mr. Hubbard. And then, alternatively, the economic issue is 
huge. The investment that America has made in servicemembers is 
ultimately crippled when these individuals cannot invest in 
themselves and then further on in the economy. When they cannot 
buy a home, that money is lost. It is lost to servicers, and it 
is taken out of the economy and not reinvested.
    Senator Brown. And you see in terms of Government 
investment, you see a soldier who, for whatever reason, now has 
a lower credit score. Sometimes the reason is beyond her or his 
control. You see that soldier eligible for a promotion, 
eligible--perhaps the military is looking to provide, to give 
them a security clearance for this new position, this new rank, 
and they are denied because of the credit score, and the 
Government investment then goes to waste in that sense.
    Mr. Hubbard. It does. It goes to waste. And this comes to a 
question of common sense. We have good individuals who are 
strong soldiers, sailors, airmen, marines, they do well, but 
they have a bad credit score, what it looks like is they are 
not responsible. When if you take it back and look at the 
context, a servicer might have taken advantage of this 
individual, flat out lied to them, and allowed this person to 
take out more loans than they were capable of or just 
completely inflated the rate on them. They go deploy, they have 
got $50,000 in loans; they come back, it is $75,000. That is a 
big problem.
    Senator Brown. And there is no real--for the soldier 
looking to get security clearance for a new position, there is 
no real appeal on this, I assume, to the military of, well, my 
credit score is lower because of X, Y, and Z that I had nothing 
to do with.
    Mr. Hubbard. Well, there are appeals, but it does not take 
away the doubt. And the doubt is something that, once seated, 
is very difficult to scrub.
    Senator Brown. Thank you, Mr. Hubbard.
    Senator Warren.
    Senator Warren. Thank you. So we have talked a lot today 
about how Federal investigators have uncovered serious problems 
with student loans, servicers, and collectors. Just recently 
the GAO raised questions about Federal debt collectors that are 
breaking the rules, and Federal regulators have cited Sallie 
Mae for violating Federal laws by overcharging servicemembers 
on their student loans.
    Now, when loan servicers break the rules, they push 
borrowers to do things that are good for the bottom line of the 
servicer, but not good for the borrower. And ultimately if 
students are not able to repay, then it is the taxpayers who 
will pick up the bill here.
    Part of the problem, as you have pointed out, is the rules 
are complex, and it makes it hard for borrowers to know what 
they should expect from their servicers.
    But I want to ask the question from a little different 
angle, and that is, when a borrower thinks that something is 
wrong, thinks that maybe they have not been told the truth or 
that someone has broken the law, where do they turn? Where do 
they go now? Ms. Hoover, how about if I start with you?
    Ms. Hoover. Most of the time, the students now are going 
back to their financial aid office because they are so confused 
about where else to go. But the tragedy is that sometimes 
students do not do anything.
    Senator Warren. Well, fair enough.
    Ms. Hoover. But in a small school like mine, we do due 
diligence, and we continue corresponding with our students who 
are delinquent so they do come back to us. But, again, I am a 
small school, and that is not realistic for large schools.
    Senator Warren. And the further people get out of school, I 
am sure the less likely it is they are going back to their own 
financial aid offices to be able to get any help. So basically 
what you are telling me is they do not have much of any place 
to turn, or at least do not know much of any place to turn.
    Ms. Hoover. Until we had the Consumer Bureau Protection 
Agency, but, again, the students are not aware of that, and it 
is, again, just the lack of not understanding of where to go.
    Senator Warren. Mr. Hubbard, how about for vets?
    Mr. Hubbard. Well, I would like to point out one scenario, 
if I can, Senator. There was a servicemember cited by the CFPB 
after they solicited comment on this very particular topic, and 
this individual went to lower--under SCRA, went to lower their 
loans to 6 percent. The servicer looked at their loans. 
Everything that was below 6 percent was raised. That 6 percent 
did not get lowered. This individual made a call and in the end 
had all of their loans raised as a result. That is a prime 
example of what happens.
    This particular issue was found out by the CFPB, which is 
the primary route for individuals to make that complaint. Since 
the Consumer Bureau has come out and been soliciting this 
information, these stories have come out in droves. And stories 
like that, they make me sick.
    Senator Warren. Yes, as they very well should. You know, 
borrowers should not bear the responsibility for keeping 
servicers in line. Federal contracts should include 
accountability and oversight protections that require servicers 
to perform to a high standard. But at the very least, if 
borrowers have questions or they believe they have been 
mistreated, it should be clear where they can turn for some 
kind of relief.
    I want to ask about one other issue, if I can, and that is, 
you may know that Sallie Mae has been touting its status as the 
Federal student loan servicer with the lowest default rates. 
And in February, I wrote a letter to Sallie Mae asking for data 
about the company's default prevention strategies. I asked for 
these data because not all strategies to reduce defaults are 
going to provide a path to successful repayment, and some may 
even leave borrowers deeper in debt.
    Now, Sallie Mae responded to my letter, but cited only a 
few limited pieces of information about its direct loan 
portfolio. It did not provide the data needed to evaluate their 
default prevention program. And as a result, I have asked the 
Department of Education to provide default prevention data for 
Sallie Mae and other Federal loan servicers. So far, no answer.
    So I want to try this from another direction. Mr. Hubbard, 
do you believe that borrowers are getting sound advice from 
servicers like Sallie Mae about what to do when they get behind 
on their payments?
    Mr. Hubbard. Thank you for the question, Senator. Off the 
bat, the single metric of the lowest default rate is pure 
nonsense. Just because you have a low default rate does not 
mean that individuals are not mired in high amounts of debt. If 
I make a low payment every day for the rest of my life, I will 
not default, but I will be paying forever. I will never get a 
house. I will never have the money to start a family. I will 
never have the money to start a business. I will never be able 
to put back into the economy what the American economy has 
given to me. That is a huge problem.
    In addition to that, just because an individual goes out of 
their way to find out information does not mean on the back end 
it is not being treated properly. We found issue after issue 
with Sallie Mae in particular with tons of complaints coming 
into the CFPB. They were the number one complaint servicer of 
any servicer by a long shot. Just because they have a low 
default rate, well, congratulations, but you still have a ton 
of debt for student veterans who are dealing with that debt, 
and it is impacting them in their daily lives.
    Senator Warren. Well put, Mr. Hubbard. You know, about a 
quarter of Sallie Mae's loan portfolio is in deferment or 
forbearance. And these borrowers are trying to get their heads 
above water by deferring their payments, but as you point out, 
the interest continues to accumulate. This is going to add to 
their debt burden and ultimately may drown them. We need real 
data to tell us which strategies work as a life preserver and 
which work as an anchor for borrowers. Also, better data can 
help drive stronger accountability for Sallie Mae and other 
loan providers.
    I hope we continue to push for that.
    Mr. Chairman, thank you, and thank you all for being here 
today and sharing your stories. Thank you.
    Senator Brown. Thank you, Senator Warren. And to the 
witnesses, thank you all for joining us. There is a vote call. 
Ms. Hoover, thank you, Mr. Hubbard, Mr. Geremia, and Ms. Burke, 
thank you for your testimony.
    There may be written questions from Members who were here 
or not here and please answer them within a week, if you can. 
Thank you.
    [Whereupon, at 11:03 a.m., the hearing was adjourned.]
    [Prepared statements and additional material supplied for 
the record follow:]
                   PREPARED STATEMENT OF NANCY HOOVER
             Director of Financial Aid, Denison University
                              June 4, 2014
    Chairman Brown, Ranking Member Toomey, and Members of the 
Subcommittee, thank you for inviting me to testify today at this 
hearing regarding the borrower's experience with student loan 
servicing.
    My name is Nancy Hoover and I am the Director of Financial Aid at 
Denison University in Granville, Ohio. Denison University is a 
selective independent, residential, undergraduate liberal arts college 
with an enrollment of approximately 2200 students. I have been the 
Director of Financial Aid at Denison since 1994 and administered the 
implementation of the Direct Loan program in Year 2 of the program. I 
have served as a National Chair of the National Direct Student Loan 
Coalition, a grass roots organization comprised of schools dedicated to 
the continuous improvement and strengthening the Federal loan programs 
for our students.
    Denison's endowment allows us to award annually financial aid from 
Denison University funds to 97 percent of our student body. The 
generous financial aid that Denison awards to our students results in 
an average of 47 percent of our graduates borrowing Federal loans and 4 
percent borrowing private loans during their 4 years of attendance. The 
cumulative Federal indebtedness for Denison's Class of 2014 is $21,470.
    The William D. Ford Federal Direct Loan program turns 20-years old 
this year. The first direct loan was disbursed on July 1, 1994. The 
delivery of loan funds to students, known as the loan origination 
process, is done via an electronic exchanges of key eligibility 
information between the schools' systems and the Department of 
Education's Common Origination and Disbursement (COD) System. The 
Direct Loan delivery process for loan funds to students has been 
efficient, reliable, and easy for schools to administer. The Department 
of Education is to be commended for ensuring the superior quality of 
the loan delivery process was not compromised as it transitioned all 
schools to the DL program.
    When the Direct Loan program was first implemented, all loans were 
serviced by a single contractor and any correspondence to borrowers was 
identified as the William D. Ford Federal Direct Loan Program and the 
logo for the Department of Education made the servicing contractor for 
these Federal loans invisible to the students. The Department of 
Education had to expand the number of servicers to accommodate the 
increased volume of loan servicing required for the federally backed 
student loans purchased in 2008 and the 100 percent transition of all 
schools to the Federal Direct Lending program. The Department issued 
new DL servicing contracts to agencies who had experience servicing 
loans to students in the FFEL program and allowed, but did not require, 
these new servicers to co-brand all their correspondence with the 
Department's logo. Since the Servicer's logo appears larger than the 
Department's logo, borrowers are confused as to why they are receiving 
written or electronic correspondence from an unknown agency. Servicers 
report that they experience a large percentage of unopened mails from 
borrowers because they believe the correspondence is junk mail or spam. 
When borrowers ignore the correspondence from the servicers of their 
Federal loans they will ultimately default on their loans. The inherent 
flaw with the current multiple servicer environment is that borrowers 
do not understand who is servicing their loans.
    Currently there are 15 contractors servicing federally held loans. 
These servicers are provided a broad latitude in determining the best 
way to service their assigned loans to yield high performing portfolios 
and high levels of customer service. The current Federal loan servicing 
environment needs to be simplified by a mandate of contractor anonymity 
and limiting their numbers. Congress made progress in this area with 
the Bipartisan Budget Act of 2013 which eliminates the special 
treatment for nonprofit student loan servicers. A limited number of 
contractors can provide healthy competition while too many contractors 
can increase complexity and administrative cost.
    The Federal contractors who service the loans need to be invisible 
agents of the Federal Government with identical processes and policies. 
When the Department of Education has the opportunity to renew the 
servicer contracts, it should rethink how contracts are awarded. It 
should consult with all of the stakeholders in student loan servicing 
to find best practices to eliminate the confusion and frustration that 
exists today for borrowers. The Department should open the contract 
bidding process to other entities in financial sectors outside the 
previous FFEL environment such as credit card or mortgage servicers.
    Borrowers in repayment need their point of contact for all 
repayment activities to be a single Web portal and one phone number for 
account access which utilizes available technology to route the 
borrower to the contractor. The Department of Education has made 
significant progress toward creating a single portal for students who 
borrow Federal loans with the creation of StudentLoans.gov, a very 
efficient and robust portal at which students can:

    sign their Master Promissory Note

    complete their Entrance and Exit loan counseling,

    complete the Financial Literacy counseling at any time in 
        the college career to monitor their loan indebtedness and 
        calculate the monthly payments based on the type of repayment 
        option selected

    complete the entire process for the Direct Consolidation 
        Loan based on data pulled from the National Student Loan Data 
        System (NSLDS); this includes signing the promissory note and 
        selecting the repayment plan

    complete the process to request an income based repayment 
        of Federal loans through Income-Based (IBR), Pay as You Earn, 
        or Income-Contingent (ICR) repayment plans

    StudentLoans.gov can be expanded to allow students to begin the 
repayment process of their Federal loans that are listed in the 
National Student Loan Database (NSLDS) at this site without going to a 
servicer's Web site to begin their repayment process. Students are 
repaying their Federal loans to the Department of Treasury, not the 
agency that is servicing their loans. Borrowers in repayment can make 
inquiries at StudentLoans.gov and can be transferred to the appropriate 
servicing contractor who would remain invisible to the borrower. This 
approach can reduce the cost of Federal servicing since only one 
borrower ``front end'' servicing operation has to be created and 
maintained.
    Senator Brown, I would like to thank you and other Members of the 
Committee for being a cosponsor for the following two Senate bills that 
are focusing on student loan debt and the repayment of these loans: S. 
2292--Bank on Students Emergency Loan Refinancing Act Students in 
repayment of Federal loans that were originated when interest rates 
were higher, would certainly benefit from having the ability to 
refinance these loans to rates that are being offered to new Federal 
loan borrowers established by the Bipartisan Student Loan Certainty Act 
of 2013. ``In addition, about 6 million borrowers have one Direct Loan 
and at least one FFEL loan, which requires them to submit two separate 
monthly payments, a complexity that puts them at greater risk of 
default.''\1\ The ability to refinance these loans could be another 
opportunity for students, who still have multiple loan servicers, to 
consolidate their loans for a lower payment and a single servicer and 
to reduce the risk of defaulting on their loans.
---------------------------------------------------------------------------
    \1\ The White House, Office of the Press Secretary (2011). FACT 
SHEET: ``Help Americans Manage Student Loan Debt'' Retrieved from 
http://www.whitehouse.gov/the-press-office/2011/10/25/fact-sheet-help-
americans-manage-student-loan-debt.
---------------------------------------------------------------------------
    The current Federal student loan caps often force students to pay 
college costs with private loans that have none of the benefits and 
protections provided in the Federal student loan program. The provision 
in S. 2292 to allow borrowers with private loans an option to refinance 
into the Federal program would provide these students access to the 
better terms and conditions for their loans and the advantage of having 
one servicer for all of their educational loans.
S. 1803--Student Loan Borrower Bill of Rights
    The additional disclosures to student borrowers that are being 
proposed in this bill for servicers of private loans are needed to help 
borrowers from defaulting on these loans and adversely impacting their 
credit rating for a long time. I concur with the provision in the bill 
that requires servicers to notify borrowers who are delinquent in 
repayments with information about income-based repayment options. 
However, with all of the good options of repayment from which a 
borrower can choose, it is extremely confusing for students to 
understand the intricacies of Income-Based Repayment, Pay as You Earn, 
Income Contingent, and Income Sensitive plans in addition to the 
Standard, Extended, and Graduated plans.
    To streamline student loan repayment, reduce confusion for the 
students, and eliminate defaults, I encourage Congress to reduce the 
current number of loan repayment plans to two options--standard and 
income based. The loan repayments in the income-based plan would be 
based on Adjusted Gross Income with the payment not to exceed a small 
percentage of the borrower's income and would be collected through 
payroll withholding to the IRS and passed through to the Department of 
Education. The concept of this income-based repayment option is based 
on the student loan repayment model in the United Kingdom which sees 
almost no default from borrowers who continue to live in the U.K. after 
college.
    The bill also addresses problems related to servicing transfers for 
borrowers. Many borrowers were unaware that their servicer had changed 
until they encountered a problem. According to a report by the Consumer 
Financial Protection Bureau, many borrowers have filed complaints to 
correct errors related to servicing transfers.\2\ Student loan 
servicers need to provide notice to borrowers about a change in the 
servicer like mortgage servicers are required to do.
---------------------------------------------------------------------------
    \2\ Consumer Financial Protection Bureau, ``Annual Report of the 
CFPB Student Loan Ombudsman'', p. 14, October 16, 2013.
---------------------------------------------------------------------------
    In conclusion, I want to reiterate that the Federal Direct Student 
Loan program works extremely well and provides all students with a 
reliable and efficient source of loan funds. Any program that has 
existed for 20 years can always have areas that can be enhanced to 
provide excellent service for borrowers, schools and taxpayers.
    Thank you again Chairman Brown for the opportunity to provide a 
financial aid administrator's perspective on some areas of student loan 
servicing that could be enhanced to eliminate the confusion and 
complexity that current borrowers in repayment are experiencing and to 
decrease significantly the number of defaulted loans in this country.
    I look forward to any of the changes you will enact to improve the 
program for years to come and I am happy to respond to any questions 
you or the Members of the Subcommittee might have.
                                 ______
                                 
                 PREPARED STATEMENT OF WILLIAM HUBBARD
    Vice President of External Affairs, Student Veterans of America
                              June 4, 2014
    Chairman Brown, Ranking Member Toomey and Members of the 
Subcommittee:

    Thank you for inviting Student Veterans of America (SVA) to submit 
our testimony on ``Student Loan Servicing: The Borrower's Experience.'' 
As the premier advocate for student veterans in higher education, it is 
our privilege to share our on-the-ground perspective with you today.
    In 2008, veterans in colleges and universities across the Nation 
came together to form SVA. Using a network of peer-to-peer 
relationships and determined to achieve beyond expectations, these 
veterans relied on their military training and skills to succeed in 
higher education--sometimes while simultaneously serving in our 
military.
    SVA's top priorities include improving access to higher education 
and scaling effective services that empower veterans to graduate on 
time, with little-to-no student debt, well-prepared for fulfilling 
futures. We look forward to this important conversation and hope to 
share the perspective of veterans in higher education with this 
Subcommittee.
Current Issues
The First Step: Greater Access to Information
    As veterans graduate across the country, we believe that their 
student debt burden will be one of the largest inhibiting factors to 
their long-term success. This issue is partly the result of the lack of 
access to information at individual and institutional levels. Veterans 
consistently cite the following challenges: difficulty obtaining 
accurate information about loans, convoluted pathways to gathering 
information or implementing programs, and unnecessary roadblocks put in 
place by servicers. These three issues manifest in various ways as 
servicemembers and veterans seek to pay off their education debt.
    Ensuring that servicemembers and veterans are able to base their 
borrowing decisions on sound information is of the utmost importance to 
SVA. In the Consumer Financial Protection Bureau's (CFPB) mid-year 
report released this April, comments were collected from more than 
1,300 individuals with student debt. Of the top 5 complaints 
representing 93 percent of the responses, all were related to 
misinformation. These include: communication tactics, continued 
attempts to collect debt not owed, disclosure verification of debt, 
false statements or representation, and improper contact or sharing of 
information.\1\
---------------------------------------------------------------------------
    \1\ Consumer Finance Protection Bureau, 2014, ``Mid-year update on 
student loan complaints'', http://files.consumerfinance.gov/f/
201404_cfpb_midyear-report_private-student-loans-2014.pdf, pg. 6.
---------------------------------------------------------------------------
    Despite avid efforts to increase protections against abusive 
practices, getting servicemembers and veterans the right information 
about those protections at the right time remains a challenge. 
Servicemembers and veterans have access to protections under the 
Servicemember Civil Relief Act (SCRA) and access to many different 
student loan repayment options. Unfortunately, this web of support does 
not function cohesively and programs often function independent of each 
other.
The Unspoken Burden of Existing Debt
    Of particular concern, we have seen that many servicemembers enter 
the military with pre-service student loan debt. This existing debt is 
also a major source of the overall debt owned by servicemembers and 
veterans. Though some still believe that only officers are college-
educated, the simple fact is that today's professional military is the 
most highly educated all-volunteer force that this country has ever 
seen. Existing debt is particularly harmful to a servicemember or 
veteran when servicers do not comply with protections afforded by the 
SCRA.
    As the loan servicing system stands now, there are many other 
scenarios that present additional obstacles for servicemembers and 
veterans. For example, a servicemember who took out student loans to 
attend school prior to enlisting has many repayment options available. 
However, when they call their loan servicer to discuss such options, 
the typical response is that the servicemember can defer payments until 
they return from deployment. While that might sound helpful, the 
servicemember probably wasn't informed that they will continue to 
accrue interest. The sparkling deal they were just ``sold'' results in 
their $50k loan becoming a $75k burden. In effect, this deferral is 
akin to purchasing a car without knowing the true cost.
Additional Factors for Borrowers
    There is a common misconception that veterans who go to school on 
the GI Bill have a ``free ticket'', but we know that this is simply not 
true. As an earned benefit, not only is the GI Bill not free, it may 
not always cover the full cost of an education. This is especially true 
for those attending private institutions or considered out of state 
residents. Furthermore, as quintessential nontraditional students, take 
longer to complete their degree. In such scenarios, veterans likely 
take on additional loans to complete their programs or risk stopping 
short of graduation.
    Student loans are a reality for both servicemembers and veterans. 
Former Secretary of Defense Leon Panetta noted that 41 percent of 
servicemembers were dealing with education loan debt and that in some 
cases, this was leading to loss of security clearances.\2\
---------------------------------------------------------------------------
    \2\ Stars and Stripes, 2012, ``New partnership aims to protect 
troops against student loan problems'', http://www.stripes.com/news/
new-partnership-aims-to-protect-troops-against-student-loan-problems-
1.193550.
---------------------------------------------------------------------------
    Last year, the Assistant Director & Student Loan Ombudsman for CFPB 
testified before this Committee on several examples of misconduct by 
loan servicers. He cited cases where servicemembers were expected to 
jump through excessive or impossible hoops to invoke their protections. 
In one case, a servicemember called their loan servicer to try to claim 
the 6 percent interest rate cap under the SCRA, but instead of lowering 
the high interest rate loans to 6 percent, the loan servicer raised the 
low interest loans on all their other loans.\3\
---------------------------------------------------------------------------
    \3\ Chopra, Rohit, 2013, ``Testimony of Rohit Chopra Before the 
Senate Committee on Banking, Housing, and Urban Affairs'', http://
www.consumerfinance.gov/newsroom/the-cfpb-before-the-senate-committee-
on-banking-housing-and-urban-affairs/.
---------------------------------------------------------------------------
    In other cases, servicemembers will seek to consolidate and/or 
refinance their student loans, only to find that they then lose the 
protections under the SCRA. At the root of this issue, servicemembers 
do not have access to clear and actionable information about their 
student loans from their loan servicers.\4\
---------------------------------------------------------------------------
    \4\ Bloomberg BusinessWeek, 2012, ``Military Student-Loan Borrowers 
to Get More U.S. Advice'', http://www.businessweek.com/news/2012-10-18/
military-student-loan-borrowers-to-get-more-u-dot-s-dot-advice.
---------------------------------------------------------------------------
    Additionally, National Guard and Reservists do not always receive 
the same GI Bill ratings as their active duty counterparts, which can 
lead to high amounts of borrowing. The most recent Department of 
Defense (DoD) demographic reports show that well over one-third of our 
military servicemembers serve in the Guard or Reserve.\5\ Of these 
components, it is very clear that the GI Bill does not cover all 
education expenses.
---------------------------------------------------------------------------
    \5\ Approximately 848,000 of 1.39 million members of the armed 
forces in 2012 were cited as reservists; Department of Defense, 2012, 
Demographics Profile of the Military Community, http://
www.militaryonesource.mil/12038/MOS/Reports/
2012_Demographics_Report.pdf, pg. vi.
---------------------------------------------------------------------------
    While many veterans may not have a clear understanding of how their 
education benefits will impact their overall cost of attendance, others 
face abusive and misleading practices across sectors of education which 
results in undue and unnecessary debt burdens.
    We remain concerned that some technical and career colleges claim 
that their programs will lead to credentials and certifications, when 
in reality these promises are hollow. Due to a lack of proper 
accreditation, some students in these schools realize that they wasted 
years of valuable benefits and have nothing to show for it. We applaud 
the bipartisan efforts of the dozens of State Attorneys General working 
to curb this practice among the worst offenders, and would like to work 
with this Committee and the Congress to improve the laws preventing 
this despicable practice.
The Case Study of Sallie Mae
    In one of the most egregious cases, Sallie Mae was exposed for a 
laundry list of abusive practices. The company violated the protections 
of the SCRA in numerous ways, and the FDIC noted that, ``Sallie Mae 
violated Federal law prohibiting unfair and deceptive practices in 
regards to student loan borrowers.''\6\ Among the many infractions, 
they were cited for, ``misrepresenting and inadequately disclosing in 
its billing statements how borrowers could avoid late fees,'' and 
``failing to provide complete SCRA relief to servicemembers after 
having been put on notice of these borrowers' active duty status.''\7\ 
These actions are inexcusable and the settlement was a clear signal 
that they will not be tolerated. While Sallie Mae's startling 
infractions have been brought to light, it is clear that similar 
tactics continue to be implemented throughout the industry.
---------------------------------------------------------------------------
    \6\ FDIC, 2014, ``FDIC Announces Settlement with Sallie Mae for 
Unfair and Deceptive Practices and Violations of the Servicemembers 
Civil Relief Act,'' http://www.fdic.gov/news/news/press/2014/
pr14033.html.
    \7\ Ibid.
---------------------------------------------------------------------------
    To illustrate the challenges faced by servicemembers and veterans, 
it is worth digging deeper into Sallie Mae's $60 million settlement 
with the Department of Justice--the result of mistreating a reported 
60,000 servicemembers.\8\ In the CFPB's Consumer Complaint Database (as 
of June 2nd), Sallie Mae was the top offender, with 3,664 formal 
complaints being filed, representing nearly 50 percent of the total 
complaints. The next closest was AES/PHEAA with a total of 795 
complaints. Given the volume of complaints reported about the company's 
practices, it should have come as no surprise that they were taking 
advantage of the military and veteran community systematically.
---------------------------------------------------------------------------
    \8\ Department of Justice, 2014, ``Justice Department Reaches $60 
Million Settlement with Sallie Mae to Resolve Allegations of Charging 
Military Servicemembers Excessive Rates on Student Loans,'' http://
www.justice.gov/opa/pr/2014/May/14-ag-502.html.
---------------------------------------------------------------------------
    Ultimately, it was a member of the military community who filed a 
complaint about these harmful practices that brought the offenses to 
light. The critical factor here was that a servicemember understood his 
rights. Though the case of Sallie Mae highlighted explicit misconduct, 
there are also situations involving practices that are less obvious.
The Need for Loan Data Aggregation
    To catch situations that may violate a servicemember or veterans' 
rights, we believe that institutions need access to a full range of 
financial data. This step is necessary for institutions to be able to 
effectively counsel their students about their financial future. 
Individuals should also have access to this data to achieve the highest 
level of consumer awareness.
    Currently, there is no widely used system that would allow any 
individual with education debt to see all of their loans in a 
centralized place. However, METEOR, run by the National Student 
Clearinghouse (NSC), could be such a tool. METEOR provides student 
borrowers with real-time access to all higher education loan data for 
free through a single portal without compromising the security of the 
data. METEOR is an open source platform that also has the capacity to 
include VA benefits and all loans, private and Federal, in one screen 
presentation.
    METEOR's capability to provide instant access to real-time loan 
balances can improve a veteran's ability to manage their loans, which 
are often sold multiple times to various servicers. This product opens 
the door for veterans and active duty personnel to manage and follow 
their debt no matter where they are. This function also allows schools 
to proactively provide loan counseling to students before the burden of 
debt becomes insurmountable. This system is currently ready to launch, 
but requires the release of Direct Loan data from the Department of 
Education (ED). The METEOR program has the unique function of providing 
all private lender data and would simply require approval from ED to 
access the Direct Loan data, which has yet to happen.
    The issues identified in this testimony continue to be widespread 
and lend to the growing mass of $1.2 trillion in education debt for 
U.S. students. Without addressing the need for greater transparency and 
accuracy of information, there will be no reasonable solution to curb 
this challenge.
Detrimental Impacts
    While we might not know the full affect of student debt on this 
generation of veterans, we are beginning to see the first and second 
order of affects now. Servicemembers and veterans with student debt are 
significantly less likely to build their own business, buy a home, or 
save for their retirement. The second and third order effects of these 
issues will impact the economy for years to come and continue to 
distort economic behavior if not controlled.
    In a recent article in the Chronicle of higher education, it was 
noted that, ``Respondents with any kind of debt reported lower well-
being financially, psychologically, physically, and in terms of life 
satisfaction. Within categories of employment--full-time, part-time, 
and unemployed--respondents with debt reported lower well-being than 
did their unindebted peers.''\9\ \10\ This new research determined that 
those with any level of debt experience significant decreases in their 
well-being.
---------------------------------------------------------------------------
    \9\ Chronicle of Higher Education, 2014, ``2 Years On, Two-Thirds 
of This Graduating Class Aren't Financially Self-Sufficient'', http://
chronicle.com/article/2-Years-On-Two-Thirds-of-This/146813/
?key=GmgmIgVtZCIWYn82YzoRaG5WP3Y/Yh96NndGYiojbllQEw%3D%3D.
    \10\ University of Arizona, 2014, ``Life After College: Drivers for 
Young Adult Success,'' http://aplus.arizona.edu/wave-3-report.pdf.
---------------------------------------------------------------------------
Future Solutions
    In light of the issues we have identified, SVA supports the 
following policy solutions:

  1.  Automatic Service Status Confirmation: Some servicers require 
        individual servicemembers to certify their military status on 
        an annual basis or more frequently, despite having access to 
        DoD databases that could allow them to easily accomplish the 
        required task. SVA encourages Congress to compel loan servicers 
        to automate this status confirmation process via DoD's 
        database, thus lifting the burden off of individual 
        servicemembers who may not be able to certify their status due 
        to deployments or other duties. This would increase the 
        timeliness of these confirmations as well as increase the 
        accuracy of the determinations, while reducing the requirement 
        to complete frivolous paperwork.

  2.  SCRA Durability--Consolidations:\11\ Servicemembers may be forced 
        to choose between the protections afforded through SCRA and the 
        option to pursue loan consolidation. SVA would like to see 
        SCRA's protections maintained regardless of how loans are 
        consolidated. We would also like to see rigorous consumer 
        education included when this financial option is pursued. 
        Aggregating loans into one payment allows those loans to keep 
        protections that are recognized by the law. This aggregation 
        will preserve the intent of the protections afforded under 
        SCRA.
---------------------------------------------------------------------------
    \11\ Additional alternatives to loan consolidation are also worth 
considering for those with lower levels of debt. GAO, 2003, ``As 
Federal Costs of Loan Consolidation Rise, Other Options Should Be 
Examined'', http://www.gao.gov/assets/250/240559.pdf.

  3.  SCRA Durability--Refinancing: Similar to consolidations, SCRA 
        protections are often lost when individuals pursue refinancing 
        options for their loans. SVA would like to see SCRA protections 
        extended throughout the life of the loan, including if a 
---------------------------------------------------------------------------
        servicemember chooses to refinance.

  4.  Disability Carryover: If a servicemember or veteran has a 100 
        percent disability rating by the Department of Veterans 
        Affairs, that status should automatically carryover to their 
        profile within the ED. To require recertification of an 
        individual's disability rating is shameful, causes unnecessary 
        paperwork and may also result in inaccuracies.

  5.  Aggregated Loan Data: Presently loan data is difficult to manage 
        and is rarely available in a single view unless consolidated. 
        The NSC's METEOR Program would enable this aggregated view of 
        loans for free, but is being held up in the Department of 
        Education. SVA recommends that this body compel ED to authorize 
        the program to access Direct Loan data to enable all students 
        to be able to benefit from METEOR.

  6.  Program Coordination: Many programs exist to support loan 
        repayment of student loans, though very few of these programs 
        have coordinated inter-program relationships. A major 
        opportunity exists if current programs were coordinated and 
        streamlined to function seamlessly. An example of this would be 
        to better coordinate the DoD State Loan Repayment Programs 
        (SLRP) and the Public Service Loan Forgiveness (PLSF). If 
        servicemembers and veterans could apply the PLSF as qualifying 
        payments, loans would be significantly more manageable. Putting 
        the pieces of this puzzle together would be an important step 
        forward.

    These recommendations are humbly submitted to the Members of this 
Subcommittee and represent obvious gaps in current law that have 
common-sense solutions. SVA looks forward to working with the Members 
of this body to develop and enact such necessary measures.
Our Final Thoughts
    With the right tools and resources in place, SVA sees no limit to 
what our servicemembers and veterans can achieve in higher education 
and beyond. When empowered with environmental factors for success, the 
investment America has made in the GI Bill and its veterans becomes an 
even clearer asset to our economy. By reducing the debt burden on 
servicemembers and veterans, we can set our veterans up for long-term 
success.
    We thank the Chairman, Ranking Member, and the Subcommittee Members 
for your time, attention, and devotion to the cause of veterans in 
higher education. As always, we welcome your feedback and questions, 
and we look forward to continuing to work with this Subcommittee, the 
Senate Committee on Banking, Housing, and Urban Affairs, and the 
Congress to ensure the success of all generations of veterans through 
education.
                                 ______
                                 
                  PREPARED STATEMENT OF ROBERT GEREMIA
 Social Studies Teacher, Wilson High School, on behalf of the American 
   Federation of Teachers (AFT) and Washington Teachers' Union (WTU)
                              June 4, 2014
    Mr. Chairman and the distinguished Members of this Committee:

    Good morning. My name is Robert Geremia, and I am a social studies 
teacher at Woodrow Wilson High School in the District of Columbia. I am 
also a member of the American Federation of Teachers (AFT) and the 
Washington Teachers' Union (WTU). On behalf of the Wilson community and 
the members of the AFT/WTU, I want to thank Chairman Brown for the 
opportunity to testify on my experiences with student loan debt and 
repayment. I hope that sharing my experiences will lead to changes in 
the financial aid process that will make it easier for students and 
their families to pay for higher education, whether at the 
undergraduate or graduate level.
    I have always known I wanted to become a teacher, probably going 
back to kindergarten. Growing up in Rhode Island in a family of 
teachers, I always felt I could make the world a better place by 
helping kids. I graduated from Rhode Island College with a bachelor's 
degree, having double-majored in secondary education and history. While 
I was fortunate that my parents were able to cover my college tuition, 
I still had to work to cover books and expenses during my undergraduate 
years, so I started my teaching career, like so many of my colleagues, 
with some credit card debt.
    Upon graduation, one of my professors urged me to spend at least 2 
years in an urban area and that is how I ended up in Washington, D.C., 
in 2003. I was hired by the District of Columbia Public Schools to fill 
one of 200 vacancies. I have to say I was not fully prepared for the 
high cost of living in Washington, D.C., on a starting teacher's 
salary. My first position in 2003 was at H.D. Woodson Senior High 
School; I then moved to Alice Deal Middle School, where I taught for 6 
years, and have been teaching in my current position at Wilson High 
School for the past 3 years.
    After several years, I knew I needed to further develop my teaching 
skills. But I didn't want to take time off from teaching, and I knew 
that going to school for my master's degree at night would take my 
energy and focus away from my students. In 2009, I was accepted into 
one of the best and most respected teaching programs in the country, 
and elected to attend the Intensive Summer Teacher Education Program 
(InSTEP) at Teachers College, Columbia University. Through this 
program, I was able to earn my master's degree in Social Studies 
Education over three consecutive summers. The program was the right 
professional choice for me.
    In order to attend this highly regarded program, I had to take out 
several loans, despite my full-time salary. On top of tuition and fees, 
I had to account for two apartments--I could not contractually sublet 
my apartment in D.C., and it was cheaper for me to find a place in New 
York on Craigslist than stay in campus housing. In addition, I had to 
pay for travel to New York, books and the other typical living 
expenses. I would like to point out that while the focus of college 
affordability is often on tuition, it was really these other expenses 
that drove up my borrowing. After three summers, I graduated with my 
master's degree and approximately $37,000 of debt. While I received 
some grant money during my program of study and subsidized loans of 
$25,500 for 3 years, I had to take an additional $11,500 in 
unsubsidized loans.
    As I am working to paying off these loans, I have been puzzled by 
many things. First, my loans have switched providers twice. Originally, 
my loans were processed through Direct Loan Servicing with the U.S. 
Department of Education. They were transferred to EDGEucation Loans on 
April 15, 2013, and transferred again on Aug. 5, 2013, to MOHELA. While 
it has never been quite clear to me why the transfers were made, my 
personal account information has evidently been transferred as well, as 
the automatic withdrawal for payment continues without me having given 
any consent. As a matter of fact, an additional amount was debited from 
my checking account when the loans were transferred the last time. 
Second, when I recently had time to set up an online account for my 
loans, I found that information about my loan, including payoff dates 
and interest rates, was available. That information was never provided 
to me on my paper statements. These issues of transparency make me 
wonder how individuals who do not have ready access to a computer, or 
do not know that they should check their credit reports, keep track of 
their accounts.
    I have been teaching for 12 consecutive years and earned a rating 
of ``Highly Effective'' teacher. Yet my financial life, in many ways, 
has been put on hold because of the loans I have taken to stay in the 
classroom with the level of training my students--and our community--
deserve. My loans have a current interest rate of 6.55 percent, meaning 
that I will pay a total of $11,000 in interest on top of the $37,000 
principal. It is hard to see how I can save to buy a home with this 
debt burden, though I could secure a mortgage with an interest rate at 
about 4 percent. My car loan has an interest rate of 1.9 percent. Yet 
there is nothing I can do to lower my 6.55 percent student loan 
interest rate. In fact, while we can all acknowledge that my interest 
rate of 6.55 percent is high, the average interest rate for student 
loans is expected to increase in a few short years, based on the new 
formula to calculate interest rates passed by Congress last year. If I 
thought the interest rate on my car or home was too high, with my good 
payment history in today's market I would be able to refinance to a 
lower rate. Yet I do not have this option for my student loans.
    Unfortunately, I am not even close to alone in facing these 
difficulties. According to a report recently released by researchers at 
the Center for Culture, Organizations, and Politics at the University 
of California, Berkeley, ``Borrowing Against the Future: The Hidden 
Costs of Financing U.S. Higher Education,'' America's entire higher 
education system is costly and largely inequitable. In 2012, the United 
States spent nearly $525 billion on higher education, which amounts to 
about twice as much per student as comparable industrialized countries. 
In that same year, $45 billion--that is, nearly 1 of every 10 dollars 
spent on higher education in the United States--was pure profit that 
commercial banks made from servicing the institutional debts of 
colleges and universities, from student loan interest payments, and 
from profits made by for-profit educational institutions. It was not 
spent on instruction or student support services.
    Student loan interest payments were a major cause of this cost 
increase. The mean total debt of new graduates with 4-year degrees 
increased dramatically from 2001 to 2009. For graduates of public 
institutions, it increased from $9,437 to $21,100; for graduates of 
private nonprofit schools, it increased from $13,650 to $21,113; and 
for graduates of for-profit schools, it climbed from $19,220 to 
$36,536. More debt, higher interest rates, and more profit for the 
commercial sector--all at the cost of our future economic producers, 
our students.
    With more and more students being forced to take on debt, I believe 
we must make it easier for them, whether they are pursuing their 
undergraduate degrees or returning to school for graduate studies, not 
only to have access to grants and loans, but also to be guaranteed that 
the conditions of the loans will be transparent, secure and locked in 
at a fair rate, certainly one comparable to or lower than that for a 
car or home loan. Ideally, students should leave college with little or 
no debt and be able to invest in upgrading their skills at a low cost.
    I want to note that I took these loans as an adult who already had 
a bachelor's degree and had been in the workforce for several years. I 
made a decision to get an advanced degree to be able to further my 
career and benefit the students I am committed to serving. In Finland, 
for example, where students outperform ours on international 
assessments, master's degrees are required for all teachers but are 
fully subsidized by the government. I recently learned that I am likely 
eligible for two programs that could help lower my monthly payments and 
shorten the life of my loan: income-based repayment (IBR) and Public 
Service Loan Forgiveness. And I know there is another Teacher Loan 
Forgiveness program and a Perkins loan forgiveness program I do not 
qualify for. These confusing and sometimes contradictory programs are 
no way to build a high-quality teaching force. I think many college 
students would be more likely to pursue teaching, and many of my 
colleagues would be more inclined to pursue advanced degrees, if these 
programs were streamlined and better understood. I suggest Congress 
find a way to reach out proactively to teachers about these options.
    Because the process was so convoluted for me, I worry about what 
will happen to my students, many of whom, as I testify today, are about 
to graduate and take on loans. Many will be the first generation in 
their families to attend college. Others have worked hard and been 
admitted to the Nation's top colleges and universities, but will be 
unable to attend because of costs. I'm afraid some of my students don't 
understand the ways high interest rates and basic living expenses will 
multiply their debt, and I hope they do not have to learn the way I 
did. Why should the terms of the loans and the complications of the 
loan process dictate where they decide to go to school or what careers 
they will pursue? When they graduate, I don't want them to be faced 
with the same lack of transparency and confusion I have faced in 
financing postsecondary education. I hope that Congress can find a way 
to ease the burden on students and families, and make attending college 
and continuing education more affordable. I fear if we do not, the 
economy will fail to fully recover, as a generation of workers, like 
myself and my peers, will be too saddled with debt to invest in housing 
or businesses, or to make career choices based on anything other than 
earning potential.
    Thank you, Mr. Chairman. I look forward to responding to your 
questions.
                                 ______
                                 
                 PREPARED STATEMENT OF LINDSEY M. BURKE
                Will Skillman Fellow in Education Policy
                        The Heritage Foundation
                              June 4, 2014
    My name is Lindsey M. Burke. I am the Will Skillman Fellow in 
Education Policy at The Heritage Foundation. The views I express in 
this testimony are my own, and should not be construed as representing 
any official position of The Heritage Foundation.
    For many, earning a college degree is the way to climb the ladder 
of economic mobility. Higher educational attainment is associated with 
greater earnings. Median earnings for individuals whose highest degree 
was a high school diploma totaled $30,000 in 2011, compared to $45,000 
for those earning a bachelor's degree.\1\ College graduates, on 
average, earn $650,000 more than those with a high school diploma over 
the course of a 40-year career.\2\ While a college degree isn't the 
only route to upward mobility, for many, it represents the most 
promising path for achieving their full earnings potential.
---------------------------------------------------------------------------
    \1\ U.S. Department of Education, National Center for Education 
Statistics. (2013). The Condition of Education 2013 (NCES 2013-037), 
Annual Earnings of Young Adults, at http://nces.ed.gov/fastfacts/
display.asp?id=77.
    \2\ ``The Monetary Value of a College Education,'' Pew Research 
Center, March 7, 2012, at http://www.pewresearch.org/daily number/the-
monetary-value-of-a-college-education/.
---------------------------------------------------------------------------
    The value of earning a college degree is demonstrable. The cost of 
earning that degree, however, has become prohibitively expensive for 
many as college costs have risen. Average tuition at 4-year public 
institutions for out-of-State students reached $22,200 this academic 
year, and at private universities, average tuition now exceeds $30,000 
annually.\3\ Many students leave with a bachelor's degree in hand, but 
burdened with tens of thousands of dollars in student loan debt. Worse 
still, many students leave college without graduating, burdened with 
debt and lacking the paper credential they had hoped would put them on 
a path toward middle-class stability or better.
---------------------------------------------------------------------------
    \3\ ``Average Published Undergraduate Charges by Sector, 2013-14,'' 
The College Board, Annual Survey of Colleges, 2014, at http://
trends.collegeboard.org/college-pricing/figures-tables/average-
published-undergraduate-charges-sector-2013-14.
---------------------------------------------------------------------------
    Well-intentioned Federal policies have failed to drive down college 
costs. An easy flow of Federal student aid has enabled students to take 
out sizable student loans, with little if any credit check or 
consideration of their future earnings potential. Some have even argued 
that such policies have enabled universities to raise tuition,\4\ 
creating a vicious lending and spending cycle.
---------------------------------------------------------------------------
    \4\ Former Education Secretary William J. Bennett posited, ``If 
anything, increases in financial aid in recent years have enabled 
colleges and universities blithely to raise their tuitions, confident 
that Federal loan subsidies would help cushion the increase.'' See: 
William J. Bennett, ``Our Greedy Colleges,'' The New York Times, 
February 18, 1987.
---------------------------------------------------------------------------
Increases in Federal Higher Education Subsidies
    Federal higher education subsidies have increased substantially 
over the past decade, and now represent 71 percent of all student 
aid.\5\
---------------------------------------------------------------------------
    \5\ Trends in Student Aid 2013, College Board, 2013, at http://
trends.collegeboard.org/sites/default/files/student-aid-2013-full-
report.pdf.
---------------------------------------------------------------------------
    Federal student loans. According to the College Board, during the 
2012-13 academic year, 43 percent of all student aid was in the form of 
Federal student loans.\6\ Thirty-four percent of undergraduate students 
took out Federal student loans that year, up from 24 percent during the 
2002-03 academic year. The College Board notes that, over the past 10 
years, the number of students borrowing through Federal student loans 
increased by 69 percent, from 5.9 million students during the 2002-03 
academic year to 10 million in 2012-13.\7\
---------------------------------------------------------------------------
    \6\ Ibid.
    \7\ Ibid.
---------------------------------------------------------------------------
    Federal grant aid. Since 2008, grant aid per full-time enrolled 
student has increased over 30 percent. Between the 2007-08 academic 
year and the 2012-13 academic year, Federal grant aid doubled in real 
terms, and State grant aid increased 11 percent.\8\ Pell Grant funding, 
which is available to income-eligible students and does not have to be 
repaid, has more than doubled in real terms since the 2002-03 academic 
year, increasing from $14.8 billion to $32.3 billion.\9\ Increases in 
total Pell expenditures are due in large part to increases in the 
number of grant recipients, which has grown from 4 million during the 
1992-93 academic year to 8.8 million during the 2012-13 academic 
year,\10\ nearly doubling in the past decade.
---------------------------------------------------------------------------
    \8\ Ibid.
    \9\ Ibid.
    \10\ Ibid.
---------------------------------------------------------------------------
    Student debt. Approximately 60 percent of students who earned a 
bachelor's degree during the 2011-12 academic year left school more 
than $26,000 in debt.\11\ Total cumulative student loan debt now 
exceeds $1 trillion, which, as is often noted, is more than cumulative 
credit card debt.
---------------------------------------------------------------------------
    \11\ Ibid.
---------------------------------------------------------------------------
Increases in College Costs
    Increases in debt have been driven by increases in college costs. 
In the last 30 years, inflation-adjusted tuition and fees at private 
colleges increased by 153 percent; tuition and fees at public 
universities for in-State students increased 231 percent.\12\ College 
costs have risen more than health care costs--by some estimates, twice 
as much \13\--and faster than increases in the price of food.
---------------------------------------------------------------------------
    \12\ ``Published Tuition and Fees Relative to 1983-84 by Sector,'' 
Trends in Higher Education 2013, The College Board, at https://
trends.collegeboard.org/college-pricing/figures-tables/published-
tuition-and-fees-relative-1983-84-sector.
    \13\ Chase Peterson-Withorn, ``Rising Prices: College Tuition vs. 
the CPI,'' The Center for College Affordability and Productivity, March 
19, 2013, at http://centerforcollegeaffordability.org/archives/9623.
---------------------------------------------------------------------------
    Increases in tuition and fees over the past 30 years suggest that 
growth in Federal subsidies such as loans and grants has done little to 
mitigate the college cost problem.
A Better Path Forward
    In order to make college more affordable, Federal policy should do 
three things:

  1.  Stop the higher education spending spree;

  2.  Employ fair-value accounting to understand the cost of Federal 
        student loans; and

  3.  Decouple Federal financing from accreditation.
Stop the Higher Education Spending Spree
    If history is any guide, continuing to increase Federal subsidies 
will fail to drive down college costs. Some experts and economists even 
argue that such subsidies enable universities to raise tuition, 
confident that students will be able to access a virtually open spigot 
of Federal funds.
    In 2014, the $33 billion Pell Grant program provided grants to 9 
million college students, making it the largest share of the Federal 
education budget.\14\ Congress grew the Pell Grant program in 2007 by 
expanding eligibility and funding, resulting in a doubling of the 
number of Pell recipients since 2008. In order to control higher 
education spending, Pell Grant funding should be targeted to the low-
income students the grants were originally intended to help.
---------------------------------------------------------------------------
    \14\ ``Federal Pell Grant Program,'' Project on the Budget, New 
America Foundation, at http://febp.newamerica.net/background-analysis/
federal-pell-grant-program.
---------------------------------------------------------------------------
    In addition, as long as the Federal Government finances Federal 
student loans, it should use fair-value accounting practices to get an 
accurate measure of what these programs are costing taxpayers, to 
ensure the loans use a nonsubsidizing interest rate.
Fair-Value Accounting
    In a report released last month, the Congressional Budget Office 
(CBO) calculated that the four largest Federal student loan programs--
Subsidized Stafford Loans, Unsubsidized Stafford Loans, PLUS Loans, and 
Parent PLUS Loans--will cost taxpayers money, not result in a net gain 
(a negative subsidy) for the Federal Government as is often claimed. 
While the report states that the four loan programs will yield a 
savings of about $135 billion from 2015-24, CBO calculates in the same 
report that using fair-value accounting measures, the four loans would 
actually have a net cost of $88 billion over the next 10 years, not 
including administrative costs. In other words, the four largest 
student loan programs represent an $88 billion taxpayer-financed 
subsidy.\15\
---------------------------------------------------------------------------
    \15\ ``Fair-Value Estimates of the Cost of Selected Federal Credit 
Programs for 2015 to 2024,'' Congressional Budget Office, May 22, 2014, 
at http://www.cbo.gov/publication/45383.
---------------------------------------------------------------------------
    CBO explains the utility of using a fair-value accounting model to 
fully understand the cost of Federal lending, noting that ``The 
Government is exposed to market risk when the economy is weak because 
borrowers default on their debt obligations more frequently and 
recoveries from borrowers are lower.''\16\ Fair-value estimates take 
this market risk into account, and as a result, are a more accurate 
reflection of the cost of Federal student loans.
---------------------------------------------------------------------------
    \16\ Ibid.
---------------------------------------------------------------------------
    Congress should not expand Federal student loans without requiring 
that fair-value accounting be used to calculate the cost of those 
loans. Any loan program should use a nonsubsidizing interest rate, 
e.g., the rate at which the program breaks even; absent fair-value 
accounting, it is impossible to tell the extent to which the student 
loan programs are providing a subsidy to borrowers. Specifically, the 
Department of Education should be required to use fair-value accounting 
estimates calculated by CBO and adjust loan rates accordingly going 
forward, on an annual basis. This would help determine whether the loan 
programs are costing money for taxpayers, and where to set interest 
rates to ensure the programs break even.
Decouple Federal Financing from Accreditation
    If Federal policymakers want to drive down college costs and 
increase access to higher education for those historically underserved 
by the traditional 4-year system, the single most important reform to 
consider is decoupling Federal financing from accreditation. College 
costs are at an all-time high at a time when access to knowledge is 
cheaper than at any other point in human history. Online learning and 
competency-based options that favor knowledge and skill acquisition 
over seat time have laid the groundwork to significantly lower college 
costs and increase access for students. In order to harness the 
potential of new learning modes, policymakers must free higher 
education from the ossified accreditation system.
    Accreditation as it currently exists creates barriers to entry for 
innovative new startups to enter the higher education market, and it is 
a poor gauge of course quality and the skills students gain (or fail to 
gain) while attending college. What began as a voluntary system of 
accreditation in the 19th century became a de facto requirement in 1952 
when Federal financing and aid, which constitutes so much of colleges' 
budgets, became tied to accreditation.\17\ Now it is a near requirement 
for colleges to operate, and as a result, being accredited has lost any 
real value.
---------------------------------------------------------------------------
    \17\ American Council of Trustees and Alumni, ``Why Accreditation 
Doesn't Work and What Policymakers Can Do About It,'' July 2007, 
https://www.goacta.org/publications/downloads/
Accreditation2007Final.pdf.
---------------------------------------------------------------------------
    Requirements for an institution to be accredited in order for 
students to access Federal student loans and grants has put roadblocks 
in the way of models that hold the prospect of fundamentally 
restructuring higher education to bring down college costs. Unless 
accreditation is delinked from Federal financing, that revolution could 
be postponed longer than it need be, while students continue to incur 
untenable levels of debt to pursue bachelor's degrees that may not be 
preparing them for the workforce.
    In addition to favoring existing business models, accreditation 
rates entire institutions--not specific courses--and as a result, is a 
poor gauge of course quality and the skills acquired by students. State 
policies should be crafted to place a greater emphasis on credentialing 
skills and specific courses--not institutions--if higher education is 
to keep pace with the demands of future economies.\18\
---------------------------------------------------------------------------
    \18\ Lindsey M. Burke and Stuart M. Butler, ``Accreditation: 
Removing the Barrier to Higher Education Reform,'' Heritage Foundation, 
Backgrounder No. 2728, September 21, 2012, at http://www.heritage.org/
research/reports/2012/09/accreditation-removing-the-barrier-to-higher-
education-reform.

---------------------------------------------------------------------------
                        ******************************

    Continuing to simply increase Federal subsidies for higher 
education will fail to solve the college cost problem. Moreover, such 
subsidies shift the responsibility of paying for college from the 
student, who directly benefits from attending college, to the taxpayer. 
Transferring the burden of student loan financing from university 
graduates--who will earn significantly more over the course of a 
lifetime than someone with a high school diploma--to the three-quarters 
of taxpayers who do not hold bachelor's degrees, is inequitable.\19\
---------------------------------------------------------------------------
    \19\ Dan Lips, ``Ways to Make Higher Education More Affordable,'' 
Heritage Foundation WebMemo No. 2785, January 29, 2010, at http://
www.heritage.org/research/reports/2010/01/ways-to-make-higher-
education-more-affordable.
---------------------------------------------------------------------------
    In order to drive down college costs and increase access to higher 
education opportunities, policymakers should stop the Federal spending 
spree, employ fair-value accounting practices, and ultimately, work to 
decouple Federal financing from accreditation.

                        ******************************

    The Heritage Foundation is a public policy, research, and 
educational organization recognized as exempt under section 501(c)(3) 
of the Internal Revenue Code. It is privately supported and receives no 
funds from any government at any level, nor does it perform any 
government or other contract work.
    The Heritage Foundation is the most broadly supported think tank in 
the United States. During 2011, it had nearly 700,000 individual, 
foundation, and corporate supporters representing every state in the 
U.S. Its 2011 income came from the following sources:

 
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Individuals...............................                           78%
Foundations...............................                           17%
Corporations..............................                            5%
------------------------------------------------------------------------

    The top five corporate givers provided The Heritage Foundation with 
2 percent of its 2011 income. The Heritage Foundation's books are 
audited annually by the national accounting firm of McGladrey & Pullen. 
A list of major donors is available from The Heritage Foundation upon 
request.
    Members of The Heritage Foundation staff testify as individuals 
discussing their own independent research. The views expressed are 
their own and do not reflect an institutional position for The Heritage 
Foundation or its board of trustees.

              Additional Material Supplied for the Record


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]