[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]


                    AN EXAMINATION OF STATE EFFORTS
                      TO OVERSEE THE $1.5 TRILLION
                     STUDENT LOAN SERVICING MARKET

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

                                HEARING

                               BEFORE THE

                       SUBCOMMITTEE ON OVERSIGHT
                           AND INVESTIGATIONS

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                     ONE HUNDRED SIXTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             JUNE 11, 2019

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 116-30
                           
 
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

                                __________
                               

                    U.S. GOVERNMENT PUBLISHING OFFICE                    
39-450 PDF                  WASHINGTON : 2020                     
          
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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                 MAXINE WATERS, California, Chairwoman

CAROLYN B. MALONEY, New York         PATRICK McHENRY, North Carolina, 
NYDIA M. VELAZQUEZ, New York             Ranking Member
BRAD SHERMAN, California             PETER T. KING, New York
GREGORY W. MEEKS, New York           FRANK D. LUCAS, Oklahoma
WM. LACY CLAY, Missouri              BILL POSEY, Florida
DAVID SCOTT, Georgia                 BLAINE LUETKEMEYER, Missouri
AL GREEN, Texas                      BILL HUIZENGA, Michigan
EMANUEL CLEAVER, Missouri            SEAN P. DUFFY, Wisconsin
ED PERLMUTTER, Colorado              STEVE STIVERS, Ohio
JIM A. HIMES, Connecticut            ANN WAGNER, Missouri
BILL FOSTER, Illinois                ANDY BARR, Kentucky
JOYCE BEATTY, Ohio                   SCOTT TIPTON, Colorado
DENNY HECK, Washington               ROGER WILLIAMS, Texas
JUAN VARGAS, California              FRENCH HILL, Arkansas
JOSH GOTTHEIMER, New Jersey          TOM EMMER, Minnesota
VICENTE GONZALEZ, Texas              LEE M. ZELDIN, New York
AL LAWSON, Florida                   BARRY LOUDERMILK, Georgia
MICHAEL SAN NICOLAS, Guam            ALEXANDER X. MOONEY, West Virginia
RASHIDA TLAIB, Michigan              WARREN DAVIDSON, Ohio
KATIE PORTER, California             TED BUDD, North Carolina
CINDY AXNE, Iowa                     DAVID KUSTOFF, Tennessee
SEAN CASTEN, Illinois                TREY HOLLINGSWORTH, Indiana
AYANNA PRESSLEY, Massachusetts       ANTHONY GONZALEZ, Ohio
BEN McADAMS, Utah                    JOHN ROSE, Tennessee
ALEXANDRIA OCASIO-CORTEZ, New York   BRYAN STEIL, Wisconsin
JENNIFER WEXTON, Virginia            LANCE GOODEN, Texas
STEPHEN F. LYNCH, Massachusetts      DENVER RIGGLEMAN, Virginia
TULSI GABBARD, Hawaii
ALMA ADAMS, North Carolina
MADELEINE DEAN, Pennsylvania
JESUS ``CHUY'' GARCIA, Illinois
SYLVIA GARCIA, Texas
DEAN PHILLIPS, Minnesota

                   Charla Ouertatani, Staff Director
              Subcommittee on Oversight and Investigations

                        AL GREEN, Texas Chairman

JOYCE BEATTY, Ohio                   ANDY BARR, Kentucky, Ranking 
STEPHEN F. LYNCH, Massachusetts          Member
NYDIA M. VELAZQUEZ, New York         BILL POSEY, Florida
ED PERLMUTTER, Colorado              LEE M. ZELDIN, New York, Vice 
RASHIDA TLAIB, Michigan                  Ranking Member
SEAN CASTEN, Illinois                BARRY LOUDERMILK, Georgia
MADELEINE DEAN, Pennsylvania         WARREN DAVIDSON, Ohio
SYLVIA GARCIA, Texas                 JOHN ROSE, Tennessee
DEAN PHILLIPS, Minnesota             BRYAN STEIL, Wisconsin
                            
                            
                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    June 11, 2019................................................     1
Appendix:
    June 11, 2019................................................    41

                               WITNESSES
                         Tuesday, June 11, 2019

Buchanan, Scott, Executive Director, Student Loan Servicing 
  Alliance.......................................................    11
Darcus, Joanna K., Staff Attorney, National Consumer Law Center 
  (NCLC).........................................................     4
Sanders, Joseph, Student Loan Ombudsman and Supervising Assistant 
  Attorney General, Consumer Fraud Bureau, Illinois Attorney 
  General's Office...............................................     6
Smyth, Nicholas, Assistant Director for Consumer Financial 
  Protection and Senior Deputy Attorney General, Pennsylvania 
  Office of Attorney General.....................................     7
Thoman, Arwen, Director, Student Loan Assistance Unit, 
  Massachusetts Attorney General's Office........................     9

                                APPENDIX

Prepared statements:
    Cleaver, Hon. Emanuel........................................    42
    Buchanan, Scott..............................................    43
    Darcus, Joanna...............................................    51
    Sanders, Joe.................................................    64
    Smyth, Nicholas..............................................    69
    Thoman, Arwen................................................    74

              Additional Material Submitted for the Record

Barr, Hon. Andy:
    Written statement of the Consumer Bankers Association........    82
    Written statement of the Credit Union National Association...    84
    National Review article entitled, ``The Consumer Financial 
      Protection Bureau's Student-Loan Shakedown,'' dated 
      February 27, 2019..........................................    85
    Article from The Wall Street Journal entitled, ``The CFPB 
      assault on Navient crumbles under discovery.'', dated May 
      2, 2018....................................................    89

 
                    AN EXAMINATION OF STATE EFFORTS
                      TO OVERSEE THE $1.5 TRILLION
                     STUDENT LOAN SERVICING MARKET

                              ----------                              


                         Tuesday, June 11, 2019

             U.S. House of Representatives,
                          Subcommittee on Oversight
                                and Investigations,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 10:02 a.m., in 
room 2128, Rayburn House Office Building, Hon. Al Green, 
[chairman of the subcommittee] presiding.
    Members present: Representatives Green, Beatty, Lynch, 
Velazquez, Perlmutter, Tlaib, Casten, Dean, Garcia of Texas, 
Phillips; Barr, Posey, Zeldin, Loudermilk, Davidson, Rose, and 
Steil.
    Ex officio present: Representatives Waters and McHenry.
    Also present: Representatives Porter and Pressley.
    Chairman Green. Good morning, everyone. The Oversight and 
Investigations Subcommittee will come to order.
    The title of today's hearing is, ``An Examination of State 
Efforts to Oversee the $1.5 Trillion Student Loan Servicing 
Market.'' I would like to make a brief comment on behalf, I 
believe, of the ranking member and myself. A good many persons 
make inquiries about attendance at hearings, and I would like 
to let those who are listening know that Members may not be 
here because they may be in other hearings, but the Members do 
pay attention to these hearings, and they have a good sense of 
timing such that they can be here to ask questions when 
appropriate.
    Without objection, the Chair is authorized to declare a 
recess of the subcommittee at any time. Also, without 
objection, members of the full Financial Services Committee who 
are not members of this subcommittee may participate in today's 
hearing for the purposes of making an opening statement and 
questioning witnesses.
    The Chair now recognizes himself for 4 minutes for an 
opening statement.
    Section 1035 of the Consumer Financial Protection Act of 
2010 established a student loan ombudsman with the Consumer 
Financial Protection Bureau (CFPB) to provide timely assistance 
to borrowers, compile and analyze data on borrower complaints, 
and prepare an annual report. Despite this statutory mandate, 
the CFPB has not issued an annual report on student loan 
complaints since October 2017. The position of Student Loan 
Ombudsman has been vacant since Seth Frotman resigned in August 
of 2018, asserting in his letter of resignation that the CFPB 
has abandoned the very consumers it is tasked with protecting.
    According to the Federal Reserve, Americans owe over $1.5 
trillion in student loan debt, an increase of over $100 billion 
since 2017. Students graduating from a 4-year college in 2016 
owed on average $29,650 each in student loans. Those pursuing 
professional degrees or graduate studies can expect to amass 
student loans in the hundreds of thousands of dollars. The 
macroeconomic impacts of such a massive debt burden are 
quantifiable and ought to be a resounding wakeup call to 
everyone within the sound of my voice.
    Federal data shows that rising student loan debt is to 
blame for a decline in homeownership among individuals ages 24 
to 32. In addition to often becoming a roadblock to the 
American Dream, student loan debt creates significant financial 
hardships, and the costs only multiply once a borrower falls 
behind on payments, resulting in lower credit scores, higher 
cost of credit, and a loss of access to numerous Federal 
benefits.
    To facilitate borrower repayment, the U.S. Government 
relies on student loan servicers. These servicers are for-
profit financial service providers hired at taxpayers' expense. 
Servicers are charged with processing payments, keeping 
records, communicating with borrowers, and providing counseling 
on report options. But the research shows that borrowers face 
dramatically different financial outcomes solely due to which 
servicer the government assigns to them. It seems to be that 
the luck of the draw can make a difference in one's life.
    What's worse, recent investigations by the U.S. Government 
Accountability Office (GAO), the Inspector General of the 
Department of Education, the Consumer Financial Protection 
Bureau, and numerous State law enforcement agencies reveal a 
disturbing picture of an industry that is rife with misconduct, 
errors, and negligence that become a monetary cost to the 
borrowers. Far beyond the occasional improperly-imposed late 
fee, too often these upstream servicing failures are the 
precursor to preventable defaults. As a result, the data show 
that borrowers of color experience worse financial outcomes, 
including default rates, than other student loan borrowers. 
Black and Latino borrowers also have higher rates of late 
repayment of student loans than white borrowers: 49 percent; 41 
percent; and 32 percent, respectively.
    Through the voices of today's witnesses, we will learn more 
about this powerful unaccountable industry that is financed by 
lucrative government contracts and gain insights into the 
lasting financial injuries that misleading and dishonest loan 
servicing practices cause to borrowers.
    At this time, I will now yield 4 minutes to the ranking 
member of the subcommittee, Mr. Barr.
    Mr. Barr. Good morning. And first, I want to thank Chairman 
Green for holding a hearing on such an important topic. The 
growth of student loan debt is indeed a crisis in our country. 
According to the Institute for College Access and Success, the 
Class of 2018 averaged almost $30,000 in debt per student. And 
many students have taken on debt that far exceeds that figure, 
sometimes reaching as high as several hundred thousand dollars.
    Recently, a constituent came to my office who was a medical 
resident. She had borrowed through college, through medical 
school, and through residency. And along with her new husband, 
together in the aggregate their student loans were reaching a 
million dollars. And I am sure we have all heard from 
constituents who are dealing with student debt by postponing 
things like marriage and buying a home, so this is a complex 
problem, and we cannot address the higher education crisis 
without an honest conversation about the causes.
    Since 2010, when President Obama nationalized the student 
lending industry, the Department of Education has become the 
largest consumer lender in our country. New loans are disbursed 
faster than outstanding loans are being repaid, and student 
loan debt has reached an all-time high of $1.5 trillion. The 
number of Federal borrowers since the government's takeover is 
up 51 percent. A significant portion of that debt is at risk of 
default, and because Democrats nationalized student lending 
back in 2010, taxpayers are left holding the bag. Now as a 
result of the government takeover of student loans, the 
government owns or guarantees 93 percent of all outstanding 
student loans.
    So we must address major issues facing the current system. 
There are currently no underwriting standards to measure the 
level of risk for student loans. The Federal Government must 
become a more responsible lender, and schools must be honest 
about the costs and the value of their degrees so that students 
can make decisions that will set them up for long-term success. 
Schools that help students graduate with high-quality career 
prospects and low debt should be rewarded, and students must 
have access to data and advice that will help them to be 
responsible consumers of education.
    We are here today to address a small aspect of the student 
loan servicing companies. I think these companies would be the 
first to admit that they should always strive to do better with 
respect to advising student borrowers of all their options. But 
for the most part, these companies are simply abiding by the 
terms of their contracts with the Department of Education. The 
servicers do not set the terms of the loan. The servicers do 
not set interest rates for the loan. The servicers do not even 
choose which loans they service. All of those decisions are 
made by the Federal Government.
    The servicers are simply contractors. They perform 
functions that are specifically enumerated in their contracts 
with the Department of Education. So if we want them to behave 
differently, then we need to focus our energy on adjusting the 
companies' relationship with the Federal Government by 
reconsidering the terms of their contracts. Once again, the 
loan servicers do not set interest rates nor loan terms. They 
don't advise students on how much to borrow or where to go to 
school. They don't set the cost of tuition. They don't help 
students choose their majors or decide whether to go to 
graduate school.
    If we are going to talk about the growth of student debt in 
this country, then those are the issues we need to discuss. We 
need to look at the student debt crisis holistically, and that 
means working with the committees of jurisdiction in Congress 
and the Administration to identify meaningful reform. This is 
not an issue that can be addressed solely at the Federal level. 
Steps must also be taken by the schools and the States to 
combat rising tuition costs. It should be no surprise to 
anybody that when the Federal Government intervenes with mass 
subsidization, costs run out of control. What you subsidize is 
what you get, and we are getting a lot more debt because the 
government is subsidizing it.
    I welcome our witnesses, and I thank them for appearing 
today and for all their work in this area. I yield back.
    Chairman Green. Thank you. I will now extend a warm welcome 
to each of our witnesses. And I am pleased to introduce to the 
subcommittee at this time Joanna Darcus, Massachusetts Legal 
Assistance Corporation Racial fellow at the National Consumer 
Law Center; Joe Sanders, student loan ombudsman and supervising 
assistant attorney general in the Consumer Fraud Bureau of the 
Illinois Attorney General's Office; Nicholas Smyth, assistant 
director for consumer financial protection, and senior deputy 
attorney general in the Office of the Attorney General of 
Pennsylvania; Arwen Thoman, the director of the student loan 
assistance unit in the Massachusetts Attorney General's Office; 
and Scott Buchanan, the executive director of the Student Loan 
Servicing Alliance.
    I would like to welcome all of you, and thank you for being 
here. You will each be recognized for 5 minutes to give an oral 
presentation of your testimony. And without objection, your 
written statements will be made a part of the record. Once the 
witnesses finish their testimony, each member of the 
subcommittee will have 5 minutes within which to ask questions.
    On your table are three lights. Green means go, yellow is 
the 1-minute marker, which means that you are running out of 
time, and red means you are out of time. The microphones are 
quite sensitive, so please make sure you speak directly into 
them. The witnesses' opening statements will begin now, and we 
will start with Ms. Darcus. You are now recognized for 5 
minutes to present your opening statement.

    STATEMENT OF JOANNA K. DARCUS, STAFF ATTORNEY, NATIONAL 
                   CONSUMER LAW CENTER (NCLC)

    Ms. Darcus. Chairman Green, Ranking Member Barr, and 
members of the subcommittee, the National Consumer Law Center 
thanks you for giving us this opportunity to testify today. 
Through our Student Loan Borrowers Assistance Project, my 
colleagues and I represent individual clients and also train 
and support attorneys who represent student loan borrowers 
nationwide. We offer this testimony on behalf of NCLC's low-
income clients because there has never been a more important 
time to focus on student loan servicing.
    In this country, student loan debt affects people at every 
stage of life. More education is supposed to translate into 
more opportunities, but students who take on debt to afford 
that education may struggle to realize that promise. These 
borrowers need the help of a competent and efficient servicer. 
Too often, however, borrowers languish in distress, struggle to 
make ends meet, and wait to pursue life goals while paying 
unaffordable student loan bills. Many unnecessarily experience 
the perils of otherwise preventable defaults because they do 
not receive the high-quality, timely assistance that could have 
made a difference.
    This is a well-documented problem. The largest servicers of 
Federal student loans have a history of widespread servicing 
failures that create obstacles to repayment, raise costs, cause 
distress, and drive borrowers to default. Despite clear 
benefits to the financial health of borrowers and their 
families, many eligible borrowers are not enrolled in income-
driven repayment (IDR) plans. On these plans, borrowers may 
make small or even zero-dollar monthly payments. IDR is a 
sustainable option that provides a path to forgiveness of any 
remaining balance after 20 or 25 years.
    Instead of IDR, however, servicers steer many borrowers 
into forbearances and deferments. These options are profitable 
for servicers and costly for borrowers. An NCLC client had this 
experience as she struggled to make her student loan payment 
after completing a medical assistant program at a for-profit 
school in Massachusetts. For 5 years, she dutifully contacted 
her servicer and submitted documentation of her finances. 
Despite clear eligibility for a zero-dollar IDR payment, she 
was never enrolled in an IDR plan. Instead, each year her 
servicer directed her into some kind of forbearance.
    When this borrower came to NCLC, she had never even heard 
of IDR options. Though she was still in good standing on her 
loans during that time, she would have been better off on IDR. 
She would have earned credit toward eventual loan forgiveness 
and been spared the additional interest capitalization that 
resulted from each forbearance. The worst part of this story is 
that our client's experience is far from unique. State 
enforcement actions targeted at this type of misbehavior derive 
from similar stories. Several State attorneys general, 
including those represented here today, have sued servicers for 
these and other failures related to IDR.
    Student loan servicing oversight is imperative because the 
stakes are so high for all borrowers, and racial disparities in 
student loan outcomes reveal particular harms to borrowers of 
color. With less wealth than their white peers, black students 
are more likely than other racial groups to borrow and to 
borrow more for their education. Research shows that black and 
Latinx borrowers experience higher rates of default than black 
borrowers. Upon default, borrowers can face devastatingly 
powerful debt collection activity.
    Effective servicing is supposed to be a bulwark against 
default and its consequences. Fairness and justice require that 
borrowers have the ability to enforce their rights when 
breached by servicers, yet few borrowers have the ability to 
seek redress when servicers violate their rights. Robust public 
enforcement at the State and Federal levels is necessary to 
provide relief to borrowers harmed by systemic servicer 
misconduct and to prevent future harms. The States have stepped 
up to protect their residents. Now, borrowers need and deserve 
to have the Federal Government provide stronger oversight and 
for servicers to provide better assistance.
    Thank you for the opportunity to testify today. I look 
forward to your questions.
    [The prepared statement of Ms. Darcus can be found on page 
51 of the appendix.]
    Chairman Green. Thank you, Ms. Darcus. Mr. Sanders, you are 
now recognized for 5 minutes for your oral statement.

    STATEMENT OF JOSEPH SANDERS, STUDENT LOAN OMBUDSMAN AND 
SUPERVISING ASSISTANT ATTORNEY GENERAL, CONSUMER FRAUD BUREAU, 
               ILLINOIS ATTORNEY GENERAL'S OFFICE

    Mr. Sanders. Chairman Green and Ranking Member Barr, thank 
you for the subcommittee's interest in the important topic of 
student loan servicing, and thank you for inviting me to 
testify.
    As we heard from Joanna, student loan debt has increased 
exponentially over the last 10 years, and many students are 
struggling with repayment. Student loan servicers are among the 
companies tasked with assisting students in identifying 
appropriate repayment options, among other functions. In recent 
years, State attorneys general have investigated and brought 
enforcement actions against multiple student loan servicers.
    My office conducted an investigation of Navient 
Corporation, one of the largest student loan servicers. The 
investigation revealed a plethora of student loan servicing 
abuses, including a deceptive practice referred to as 
forbearance steering. Our office reviewed hundreds of phone 
calls between Navient representatives and students. That review 
revealed that when students who were behind on their payments 
contacted Navient for assistance, the company steered them into 
successive forbearances to increase the overall cost of their 
loans instead of telling students about other repayment options 
that may have been more appropriate, such as income-driven 
repayment. We found that Navient used an incentive compensation 
plan to pay employees more for shorter call times, thereby 
reducing the company's costs. For borrowers, though, short 
calls often mean that they are put into the wrong repayment 
plan.
    Forbearances are a temporary pause in payments that can be 
set up in minutes over the phone. They are not beneficial for 
borrowers if continued over the long term, though, because 
interest continues to accrue and can be added to the principal 
balance of the loan. Income-driven repayment plans, by 
contrast, are relatively complex, and it takes time to analyze 
whether borrowers qualify. These plans, however, offer 
affordable monthly payments and ultimately lead to loan 
forgiveness.
    A former Navient employee gave us a view of forbearance 
steering from inside the company. He described feeling 
pressured to reduce call time, often getting pulled aside and 
talked to because his calls were too long when he took the time 
to see if borrowers' payments could be reduced. Our office sued 
Navient in January of 2017, alleging that these issues, among 
others, constituted unfair and deceptive practices pursuant to 
the Illinois Consumer Fraud Act. Navient moved to dismiss our 
lawsuit. Navient's primary argument in its motion to dismiss 
our case and other State law enforcement actions is that State 
laws outlining consumer fraud are preempted by the Higher 
Education Act.
    Many courts have rejected this argument. Indeed, in every 
State law enforcement action where a court has ruled on a 
motion to dismiss filed by Navient, the State has prevailed. 
There have been some Federal court decisions, however, finding 
that these types of consumer fraud claims are preempted by the 
Higher Education Act.
    The Department of Education developed a set of servicing 
standards to protect students from these types of abuses. In 
April 2017, however, the Department withdrew those protections. 
Illinois thankfully also took action to protect our student 
loan borrowers. Our State passed the Student Loan Servicing 
Rights Act, which went into effect this year. The Act provides 
an array of protections for students. It restricts forbearance 
steering, requires that student loan servicers first offer 
income-driven repayment options to struggling borrowers, and 
requires servicers to create repayment specialists who are 
specifically trained to assess financial circumstances in order 
to effectively counsel students. The Act also creates a student 
loan ombudsman tasked with developing outreach efforts and 
responding to complaints.
    I was appointed to serve as ombudsman this year, and, 
through May, I have received over 300 complaints and over 200 
calls related to student loans. What I have seen is that 
borrowers lack basic information about their loans and options. 
Many are unaware whether their loans are Federal or private, 
and many are unaware of the existence of income-driven 
repayment plans. Borrowers continue to struggle with servicing 
abuses and need increased protections.
    Servicing failures like these create more problems for 
student loan borrowers as predatory companies seek to fill this 
information void. For example, servicers' failure to provide 
accurate information on repayment options has contributed to 
some schools engaging consultants to push students into 
forbearance in order to keep the school's cohort default rate 
down. If too many students default on their Federal loans 
within the first 3 years of repayment, schools may lose their 
ability to participate in Federal student aid. To keep defaults 
down, some schools hire companies that encourage students with 
delinquent loans to enter forbearance. As the GAO recently 
reported, these companies often push students into forbearance 
instead of other more beneficial plans, like income-driven 
repayment.
    In conclusion, if student loan servicers were providing 
proper repayment information to student loan borrowers in need, 
these scams would not have victims to take advantage of. Thank 
you for your attention to this topic. I look forward to 
answering any questions you may have.
    [The prepared statement of Mr. Sanders can be found on page 
64 of the appendix.]
    Chairman Green. Thank you, Mr. Sanders. Mr. Smyth, you are 
now recognized for 5 minutes for your oral statement.

 STATEMENT OF NICHOLAS SMYTH, ASSISTANT DIRECTOR FOR CONSUMER 
   FINANCIAL PROTECTION AND SENIOR DEPUTY ATTORNEY GENERAL, 
            PENNSYLVANIA OFFICE OF ATTORNEY GENERAL

    Mr. Smyth. Chairman Green, Ranking Member Barr, and members 
of the subcommittee, thank you for inviting me to testify 
today. My name is Nicholas Smyth, and I am a senior deputy 
attorney general from Pennsylvania.
    In July 2017, Attorney General Josh Shapiro established the 
office's first-ever Consumer Financial Protection Unit and 
hired me to lead it. General Shapiro tasked us with focusing 
special attention on for-profit college and student loan 
servicers because the student loan debt crisis touches nearly 
every resident of our Commonwealth. The average student loan 
for new graduates in Pennsylvania is nearly $37,000, the second 
highest in the country. About 2 million Pennsylvanians, almost 
1 in 5 adults, have student debt.
    This subcommittee is right to focus its attention on the 
crisis in student loan servicing because the government 
contractors that service Federal loans have caused needless 
financial harm to millions of families across the country. They 
have failed to carry out the programs Congress created to give 
borrowers more affordable payment plans for their loans.
    My testimony will focus on one particular servicer of 
Federal loans, Navient, which has 1,000 employees in 
Pennsylvania. Our office sued Navient in 2017. The consumer 
bureaus in 4 other States have other sued Navient. Our 9-count 
complaint is linked in my written testimony.
    Among other things, we allege that Navient's deceptive 
practices and predatory conduct harms student borrowers and 
puts their own profits ahead of the interests of millions of 
families across Pennsylvania and the country who are struggling 
to repay student loans. Navient's conduct cost borrowers an 
additional $4 billion in unaffordable interest that Navient 
added to their loan principal as a result of multiple 
forbearances.
    As you heard from Mr. Sanders and Ms. Darcus, income-driven 
repayment plans are a generally much better option than 
forbearance. Borrowers who enroll in forbearance face 
significant costs, including accumulation of unpaid interest, 
which is added to the loan's principal balance at the end of 
the forbearance, missing out on low or zero-dollar payments 
that could count towards loan forgiveness, and the borrower's 
monthly payment can dramatically increase after the forbearance 
period ends.
    We alleged in our complaint that during the 5 years from 
January 2010 to March 2015, Navient enrolled over 1\1/2\ 
million borrowers into 2 or more consecutive forbearances. 
Navient's own numbers show that these consecutive and 
unnecessary forbearances added nearly $4 billion in interest, 
which works out to an average of $2,700 per borrower from 
forbearances. As alleged in our complaint, Navient and its 
agents were incentivized to push forbearances instead of IDR 
because it was faster and more profitable for Navient, even 
though it unfairly penalized borrowers. Forbearances get the 
borrower off the phone quickly without any paperwork and allow 
the Navient agent to move on to the next call.
    In short, an entire generation is being held back by the 
shackles of student loan debt, and these debts are growing 
instead of shrinking in part because Navient is not helping 
borrowers enroll in the payment plans that are best for them, 
despite representing that it is the expert in the area and 
would assist borrowers. For borrowers facing financial 
hardship, IDR plans are generally much better. It is Navient's 
job to help borrowers figure out which repayment plan is best 
for them, but despite publicly assuring borrowers that it will 
help them identify and enroll in an affordable, appropriate 
repayment plan, Navient has routinely steered borrowers 
experiencing long-term financial hardship into forbearance.
    I will illustrate how IDR works with an example. Imagine a 
family with a Federal loan balance of $40,000 with an income of 
$63,000 a year. This family would pay $403 per month on their 
Federal loans for 10 years under the standard repayment plan. 
Under an IDR plan, that family would pay half of that, only 
$203 a month, and would qualify for forgiveness of any 
remaining loan balance after 20 years of payments. And if the 
family works in public service, such as teachers or police, 
they could earn forgiveness after just 10 years of those $203-
a-month payments. Now, imagine the household income drops to 
$39,000. All of a sudden this family is eligible for zero-
dollar monthly payments under IDR. These zero-dollar payments 
still count towards forgiveness in 10 or 20 years.
    Now, imagine if the family had called Navient following the 
income drop, and instead of IDR, as our complaint alleges, 
Navient steered them into a 6-month forbearance. Instead of 
qualifying for zero-dollar payments and eventual forgiveness, 
the family will still pay nothing, but they will not receive 
credit toward forgiveness. Many Pennsylvanians have suffered 
from this steering, and we tell some of their stories in the 
complaint. One told us she had worked in the public sector 
since 2006, qualifying her for the 10-year loan forgiveness 
under the Public Service Loan Forgiveness (PSLF) Program. 
However, when she asked Navient about PSLF in 2007, their 
employees gave her misinformation that deterred her from 
enrolling. She didn't find out until 7 years later that they 
had given her the wrong information, and had Navient been 
truthful in 2007, she may have qualified for forgiveness as 
soon as 2017.
    I thank you for the opportunity to testify today, and I 
would be happy to answer any questions.
    [The prepared statement of Mr. Smyth can be found on page 
69 of the appendix,]
    Chairman Green. Thank you, Mr. Smyth. Ms. Thoman, you are 
now recognized for 5 minutes to present your oral statement.

 STATEMENT OF ARWEN THOMAN, DIRECTOR, STUDENT LOAN ASSISTANCE 
         UNIT, MASSACHUSETTS ATTORNEY GENERAL'S OFFICE

    Ms. Thoman. Chairman Green, Ranking Member Barr, and 
members of the subcommittee, thank you for inviting me to 
testify on State efforts to protect student loan borrowers. My 
name is Arwen Thoman. I am director of the Massachusetts 
Attorney General's Student Loan Assistance Unit. On behalf of 
Attorney General Maura Healey and borrowers from Massachusetts, 
I appreciate the opportunity to speak on the critical issue of 
Federal student loan servicing.
    Attorney General Healey established our Student Loan 
Assistance Unit in 2015. In the last fiscal year, the unit 
received over 3,000 hotline calls, nearly 1,000 written help 
requests, and generated savings and refunds of $1.5 million for 
student loan borrowers. Each day, we are on the front lines of 
the student crisis, helping borrowers to find more affordable 
repayment plans and working to move loans out of default in 
order to end involuntary collection activities that cause 
serious harm to our residents.
    If I can offer the subcommittee one takeaway, it is that 
student loan borrowers and their families deserve much better 
from the Federal Government and the private companies hired to 
service Federal student loans. Every day we speak with 
borrowers who have found their way to our office in despair. We 
routinely hear that borrowers are worried about their ability 
to start a family, to buy a home, or achieve even a very basic 
minimal standard of living. Many have been struggling with 
student loan debt for years and, in some cases, for decades. 
Each borrower's story is unique, but the patterns and their 
distress and their mistreatment are painfully clear. Given the 
social and economic vulnerabilities of many student loan 
borrowers, the inordinate complexity of the Federal loan 
system, and the mounting scale of student loan debt across the 
nation, the role of student loan servicers is more important 
than ever.
    Although we have worked hard at the State level to improve 
servicer treatment of borrowers through direct advocacy and 
enforcement of our State's consumer laws, we believe that more 
Federal oversight and action is necessary to protect borrowers 
and address the harm caused by inappropriate servicing 
practices. This Federal oversight must not be concentrated 
solely in the hands of the U.S. Department of Education, which 
also serves as the lender, and has historically turned a blind 
eye to many of the problems associated with student loan 
servicing.
    Effective servicing is essential to avoiding the 
consequences of Federal loan default. Default occurs when a 
borrower is 270 days past due. Default carries severe penalties 
and can lead to many years of crushing student loan debt. When 
borrowers default, collection fees exceeding 20 percent of the 
loan balance are assessed. Moreover, borrowers face 
administrative wage garnishments, tax refund interceptions, and 
offsets to their Social Security and veterans' benefits. Unlike 
nearly every other category of unsecured debt, Federal student 
loans are generally non-dischargeable in bankruptcy, and there 
is no statute of limitations on collection. They can remain 
with the borrower for life.
    Here is just one example of a complaint that we received 
concerning a defaulted Federal student loan: ``My wages are 
being garnished, but myself and my husband are living in a 
motel, and they are taking out too much. I am not going to be 
able to afford where we are staying right now. I explained that 
I am going to be homeless, but they said there was nothing they 
could do about it.''
    The consequences of default and the long horizon on Federal 
student loan collection create a heightened responsibility for 
us all to ensure that servicers are helping borrowers to 
successfully and affordably manage repayment. Unfortunately, we 
consistently see servicers that fail to provide the help that 
borrowers need.
    As detailed in my written testimony, servicing problems 
that we frequently encounter include failures to enroll 
borrowers in income-driven repayment payment plans that reduce 
payments and lessen the likelihood of spiraling debt and 
default; failures to help borrowers maintain the benefits of 
those plans through annual recertification of income; failures 
to provide adequate guidance so that borrowers can effectively 
pay down loan principal; and failures that obstruct the Public 
Service Loan Forgiveness Program.
    We have also observed the rise of predatory student loan 
debt relief companies that take advantage of distressed 
borrowers who turn to them when student loan servicers have 
failed to help. Congress has taken significant steps to help 
borrowers avoid ruinous student loan debt by creating 
affordable repayment plans and forgiveness programs. However, 
all of these programs rely on servicers. They are the 
gatekeepers. They are the companies contracted by the 
government to connect student loan borrowers with the help 
those borrowers need. And when servicers fail to act in 
borrowers' best interests, communicate effectively, or respond 
to questions accurately, our students and their families suffer 
serious consequences.
    We hope that you will continue in your efforts to hold 
student loan servicers accountable and improve servicing 
standards. I appreciate the opportunity to share these thoughts 
with you today.
    [The prepared statement of Ms. Thoman can be found on page 
74 of the appendix.]
    Chairman Green. Thank you, Ms. Thoman, for your testimony. 
Mr. Buchanan, you are now recognized for 5 minutes for your 
testimony.

 STATEMENT OF SCOTT BUCHANAN, EXECUTIVE DIRECTOR, STUDENT LOAN 
                       SERVICING ALLIANCE

    Mr. Buchanan. Thank you, Chairman Green, Ranking Member 
Barr, and members of the subcommittee for allowing me to 
provide testimony today to help inform this discussion about 
student loan servicing. I am Scott Buchanan, the executive 
director of the Student Loan Servicing Alliance, which 
represents the companies, State agencies, and nonprofits which 
are responsible for servicing over 95 percent of all student 
loans.
    It is first critical to understand what a servicer does and 
what a servicer does not do. Servicers are on the front lines 
every day, talking to and working with borrowers. We send 
recent graduate statements and disclosure letters. We provide 
online interactive Web experiences, videos, and calculators. We 
hold Facebook chats and even Twitter parties about good 
repayment strategies. We provide mobile apps, and we handle 
tens of millions of phone calls each year.
    But it is also important to remember what we don't do. The 
Federal servicers do not set the parameters for student 
eligibility. We do not set the interest rate. We do not set the 
repayment option requirements. We do not do debt collection and 
we do not own the loans. Those are matters set forth by Federal 
statute and regulations governing the program. Also, our role 
begins long after a student has chosen to take loans and exited 
school or graduated.
    While no single repayment plan or strategy is better, both 
financially and in desirability for all borrowers, we have 
delivered some pretty impressive results. We have increased 
enrollment rates in IDR plans by 400 percent since 2013. Half 
of the direct loan portfolio is now an income-driven plan. 
While they were always low, complaints about student loan 
servicing declined by nearly 50 percent last year according to 
the CFPB, and represented just .6 percent of all consumer 
financial complaints. And we have done all this while the 
number of borrowers has grown by 40 percent in the last decade 
alone.
    It is probably also useful to address some other assertions 
or rhetoric that has been part of this dialogue. There has been 
much mischaracterization of the recent OIG report on student 
loan servicing, yet there are important facts that are clear in 
that report. The OIG report validated that every Federal loan 
servicer exceeded the service level agreement standard set by 
the Department of Energy. The report shows also that Federal 
loan servicers had an average real error rate of 00.49 percent. 
And the report shows that the Department of Education conducts 
extensive onsite visits, monitors service levels, and samples 
call recordings to validate the quality of service.
    And while I am not party or privy to the ongoing State 
legal matters that have may have been discussed, there are some 
key points that should be considered relevant to this topic. 
The Federal Student Loan Program is just that, a clearly 
Federal program that is preempted from State efforts which 
would create conflicting requirements. Setting aside those 
discreetly legal matters, this means servicers are now stuck in 
the middle between a government disagreement between the 
States, multiple Federal agencies, and Congress. That conflict 
between others means that the resources we otherwise devote to 
helping borrowers access their options are being misdirected to 
try and get clarity.
    Most importantly, though, what can we do to improve 
servicing? First, education. We have supported partnerships 
with the States that help us educate borrowers, and that may 
mean expanding their existing higher education authorities or 
creating a student loan ombudsman office who can take 
complaints and offer independent third-party counsel.
    Second, simplification. Many borrowers face the challenge 
of an antiquated process to handle applications from many 
repayment plans, especially for IDR. We would like to work with 
Congress to allow data-sharing between the Department of 
Education and the IRS to reduce borrower paperwork. Further, we 
welcome support to help us get permission to implement simple 
modernizations to let us use pre-filled recertification forms 
electronically for IDR, which has proven to nearly triple the 
response rate for renewals.
    Third, standardization. We continue to advocate for a 
common servicing manual that could be developed in partnership 
with the Department of Education and other regulators. 
Additionally, we have been actively helping to support an 
effort to standardize and modernize credit bureau reporting to 
help borrowers.
    And finally, protection. We have also actively been 
supporting efforts to pass legislation to crack down on debt 
relief firms that scam borrowers. We would love to partner with 
the States and others on this fight.
    Thank you, and I look forward to your questions and also 
working with you and others on these important issues.
    [The prepared statement of Mr. Buchanan can be found on 
page 43 of the appendix.]
    Chairman Green. Thank you, Mr. Buchanan. The Chair will now 
recognize the gentlewoman from Ohio, Mrs. Beatty, who is also 
the Chair of our Subcommittee on Diversity and Inclusion. Mrs. 
Beatty, you are recognized for 5 minutes.
    Mrs. Beatty. First of all, thank you, Mr. Chairman, for 
hosting this subcommittee hearing this morning. And let me just 
say to not only the witnesses, thank you for being here, but, 
Mr. Chairman, I couldn't help but notice the audience behind 
our witnesses. Since I have been on this committee, this is 
without a doubt the youngest-looking--I don't want to make any 
assumptions--average age that we have had to fill this hearing 
room, so I think that speaks volumes to the importance of this. 
And I want to thank all of those millennials who are here 
because I am making the assumption that you either have student 
loans--and you are nodding. So let the record show that they 
are here because they are part of this wonderful America, and 
they, too, applaud you and are interested in this topic.
    Let me just very briefly say this is very important to me. 
And I am really pleased that we are talking about something 
that is so important to not only you as young folks, not only 
to educators, but it is important as we look at housing, as we 
look at debt, as we look at financial credit scores, because 
debt, regardless of where you get it from, affects everything.
    And when we talk about education, the numbers that are on 
the board in this room are very alarming to me, so I am going 
to be very critical of this Administration. I am going to be 
very critical of this Secretary of Education. And while I may 
not be an expert-expert, I want the record to know that I have 
served as an academic adviser. I have served as a college 
administrator, and at one time as an adviser to young college 
students. I developed the curriculum at that time for the 
largest 2-year college in the State of Ohio, which is the State 
I am from, on college survival skills. And even then, one of 
the things that we frequently heard was, how do we pay back our 
student loan? Here we are now some 3 decades later still 
dealing with this issue.
    And I say, shame on this Administration. Shame on this 
Secretary of Education. I was critical when the appointment 
came. I think when you are talking about our future, you need 
to make sure that you have someone who has worked in education, 
who understands all of the principles of it. So with that, let 
me pose my first question to the panel.
    It is my belief that most Americans who have to take out 
student loans to fund their education, first of all, want to 
pay those loans back, and many want to do it as quickly and as 
efficiently as possible, but have not been able to do that. So 
who are the borrowers relying on to get information regarding 
their loans, and is this Government under this Administration 
setting them up for failure? There is a lack of information on 
the Education Department's website. The Department of the 
Treasury has even criticized the Department of Education's lack 
of oversight.
    So to the panelists, are they being set up for failure, or 
where do they go to for information? We will start with you, 
Mr. Smyth, and Ms. Darcus.
    Mr. Smyth. Borrowers are utterly dependent on the 
contractors, on the student loan servicers. The servicers make 
representations that they will help borrowers identify their 
options, and the servicers are failing in widespread ways at 
this--
    Mrs. Beatty. Okay. Ms. Darcus, failing, succeeding? Whose 
fault is this?
    Ms. Darcus. That is correct. We pay servicers billions of 
dollars to do the job right. They compete for these lucrative 
contracts. They say that they are the experts. They claim that 
they can accomplish the task. But student borrower outcomes 
belie those claims.
    Mrs. Beatty. Okay. Mr. Buchanan, Ms. Thoman, quickly 
because I only have about 25 seconds?
    Mr. Buchanan. Sure.
    Mrs. Beatty. Failing or not?
    Mr. Buchanan. I think if you look at the actual metrics 
that I talked about, we are improving dramatically.
    Mrs. Beatty. I am going to rush you. Failing or not?
    Mr. Buchanan. Not. We are working better every day.
    Mrs. Beatty. Ms. Thoman?
    Ms. Thoman. Failing.
    Mrs. Beatty. Okay. Mr. Sanders, you highlighted something 
great in the State of Illinois. Should we use that same thing 
here in the Federal Government? Would it be helpful?
    Mr. Sanders. Absolutely. I think that the protections that 
we have instituted in Illinois would be helpful for borrowers 
nationwide. And I know that there is legislation that has been 
introduced in the Senate that would institute some of those 
protections on the Federal level.
    Mrs. Beatty. Okay. Thank you, and I yield back.
    Chairman Green. The gentlelady's time has expired. The 
Chair will now recognize the gentleman from Kentucky, Mr. Barr, 
the ranking member of the subcommittee, for 5 minutes.
    Mr. Barr. Thank you, Mr. Chairman, and, again, thanks for 
holding this important hearing. And thank you to my friend from 
Ohio for recognizing so many young faces out there. I do think 
it is unconscionable the level of debt that so many young 
people today have to deal with. It is deferring homeownership. 
It is deferring marriage. It is deferring retirement savings. 
It is producing a savings crisis in this country. And it is 
unfortunate that Federal policy is enticing so many students to 
take on too much debt, especially with the degrees and the 
income that can be produced for repayment. I think that is 
something that we all have to really assess as policymakers.
    Mr. Buchanan, since 2010 when President Obama nationalized 
the student loan system, the Department of Education has become 
the largest consumer lender in the country. Your association is 
made up of student loan servicers who are contracted by the 
Department of Education to ensure that borrowers repay those 
loans. There seems to be some confusion as to the role of 
servicing companies in the $1.5 trillion student debt crisis, 
and I am hoping you can help me clear up the confusion. Do 
student loan servicers advise students as to which school to 
attend or which degree to pursue?
    Mr. Buchanan. We do not.
    Mr. Barr. Do student loan servicers set tuition rates?
    Mr. Buchanan. We do not.
    Mr. Barr. Do student loan servicers advise a student as to 
how much money to borrow?
    Mr. Buchanan. We do not.
    Mr. Barr. Do student loan servicers set the terms of the 
loan?
    Mr. Buchanan. We do not.
    Mr. Barr. Do student loan servicers set the interest rate 
for the loan?
    Mr. Buchanan. We do not.
    Mr. Barr. Do student loan servicers create the forbearance 
or deferment option that is available to students?
    Mr. Buchanan. We do not.
    Mr. Barr. And who did create the forbearance option?
    Mr. Buchanan. Congress did.
    Mr. Barr. Thank you. So it sounds like all the factors that 
are driving the growth and total student debt in this country, 
things like lack of information available to students who are 
in college, high tuition rates, low graduation rates, not to 
mention the interest rate in terms of the loan, those are all 
set long before the borrower even makes contact with a loan 
servicing company.
    Mr. Buchanan. That is correct.
    Mr. Barr. Now, Ms. Darcus made, I think, an important 
point. She talked about this forbearance, and all of the 
witnesses are talking about this forbearance or deferment 
option. As I recall, Ms. Darcus' testimony was that forbearance 
and deferment is a profitable option for the servicers. I want 
to explore that a little bit with you, Mr. Buchanan. Do student 
loan servicers make more money, are they more profitable by 
placing students into forbearance status?
    Mr. Buchanan. We are paid far less for any borrower who is 
in a forbearance status. In fact, the numbers are clear. We are 
paid, on a monthly basis, $1.05 to service a borrower who is in 
forbearance. We are paid $2.85 for a borrower who is in 
repayment.
    Mr. Barr. So you are paid less if the student goes into 
forbearance?
    Mr. Buchanan. That is correct.
    Mr. Barr. So if student loan servicers have no financial 
incentive to move students into forbearance status, why are so 
many students moving into forbearance status?
    Mr. Buchanan. Well, the rates of forbearance utilization 
have declined over the last few years. Right now, approximately 
10 or 11 percent of borrowers utilize forbearance, but it is 
important to understand what forbearance is used for many 
times. When someone applies, for example, for an income-based 
repayment plan and that borrower is already delinquent on their 
accounts, many servicers apply a forbearance in order to bring 
that borrower current, which is useful to that borrower because 
if we do not use the forbearance, they will become delinquent 
and get reported to the credit bureaus.
    Mr. Barr. And, again, Congress created the option.
    Mr. Buchanan. That is correct.
    Mr. Barr. The servicing industry did not. Mr. Smyth, I 
appreciated your testimony that for borrowers facing financial 
hardship, often, income-driven repayment plans are generally 
much better than multiple forbearances. I couldn't agree with 
you more. Repaying the loan instead of forbearance makes a 
whole lot of sense to me, especially if you can. Obviously, a 
lot of these students are facing financial hardship. My 
question to you is, since your office sued because of this 
issue, this problem, should Congress reform the Federal Student 
Loan Program to repeal the forbearance option?
    Mr. Smyth. That is an interesting question. We haven't 
given it any thought, and I think it would be impractical for 
the reason that Mr. Buchanan explained, that forbearance is 
sometimes used to help people when they are delinquent in 
getting into IDR.
    Mr. Barr. Right, so it is helpful. So, you are saying 
Congress shouldn't mandate IDR?
    Mr. Smyth. I think that it would be helpful if IDR were the 
default option; in other words, if there were easier steps to 
getting people into IDR. And I think Congress should explore 
prohibiting multiple consecutive forbearances, which is the 
significant harm that we found and that we talk about in our--
    Mr. Barr. My time has expired, but I appreciate the 
recognition that IDR is better, but that Congress is really the 
responsible party here. I yield back.
    Chairman Green. The gentleman's time has expired. The 
gentleman from Massachusetts, Mr. Lynch, is recognized for 5 
minutes.
    Mr. Lynch. Thank you, Mr. Chairman, and Mr. Ranking Member. 
I want to thank the witnesses for your testimony this morning. 
It's very helpful. Mr. Chairman, I ask unanimous consent that I 
might enter into the record the complaint in the case of 
Commonwealth of Massachusetts v. Pennsylvania Higher Education 
Assistance Agency, d/b/a Federal Loan Servicing.
    Chairman Green. Without objection, it is so ordered.
    Mr. Lynch. Mr. Chairman, the complaint here lists a litany 
of abuses by this particular servicer that have been recounted 
in the testimony of our witnesses this morning, varying from 
not informing students that there was an income-related 
repayment option to, in some cases, students were not made 
aware that their public service entitled them to a more 
favorable loan repayment schedule.
    Ms. Darcus, we are dealing with this whole situation, and 
it is so varied and so widespread, as Ms. Thoman has laid out 
as well. Would it be a cleaner solution for Congress just to 
impose a fiduciary duty on the part of the servicers so that 
they have to act in the best interest of the student who takes 
out the loan? That would seem to get at all of this rather than 
trying to do it piecemeal, trying to create incentives for the 
servicers to treat people more fairly.
    Ms. Darcus. That would be a powerful accountability tool. 
Many borrowers are unable to speak up for themselves because 
their relationship with the servicer is indirect. They don't 
choose their servicer, they don't choose the terms of their 
servicing, and they don't have a contract with their servicer 
that they can then try to enforce when the servicer violates 
their rights. Creating a duty that requires the servicer to 
affirmatively act on behalf and be responsible for borrower 
outcomes could be very powerful.
    Mr. Lynch. Thank you. Ms. Thoman, I know that you are 
involved in, and I thank you for your good work, and also 
Attorney General Healey in my State of Massachusetts, is doing 
terrific work on this. You have seen, at least in the 
complaint, it talks about the shifting irresponsibility on the 
part of some of these servicers. When you nail them on one 
aspect of it, they seem to create a new and different type of 
abuse that they employ. Would creating this fiduciary duty that 
requires the servicer to act in the best interest of the 
student who takes the loan out be helpful in relation to the 
cases that you continue to see in Massachusetts?
    Ms. Thoman. Yes, I absolutely believe that creating a 
fiduciary duty for student loan servicers would be helpful. It 
would also need to come with a means for borrowers to enforce 
that obligation.
    Mr. Lynch. Right. Well, there is plenty of case law that 
articulates what a responsible fiduciary must do so they would 
be measured by that standard. Are there any other 
recommendations that you would like to see in terms of 
protecting some of these students? I have nieces and nephews 
who are up to their eyeballs in student debt, and it is 
unbelievable the amount of debt that some of these kids are 
carrying. We have to figure out a better way because borrowers 
have to put their lives on hold. They can't start a family. In 
many cases, they are still living at home with their parents. 
It is just very depressing and a heavy burden on these kids. Is 
there something else we could be doing here that might lift 
that burden?
    Ms. Thoman. I think that part of what we are all saying 
here is that Congress has done a lot to try to lift that burden 
by creating these income-driven repayment plans and public 
service loan forgiveness programs. I do think that those 
programs could in many cases be more generous towards 
borrowers. We could raise the amount of income that is 
protected so that we are not looking at 150 percent of the 
Federal poverty line, which I think for a single borrower in 
Massachusetts is less than $20,000.
    Mr. Lynch. Right.
    Ms. Thoman. The student loan servicers are also not wrong 
that the system is very complicated. And so to the extent we 
can do things to streamline, to make recertification simpler. 
But I do think that in large part, a framework has been created 
to address many of these problems, and that implementation of 
that framework has been very challenging for the servicers.
    Mr. Lynch. Okay. Mr. Chairman, my time has expired. I yield 
back. Thank you.
    Chairman Green. The gentleman's time has expired. The 
gentleman from Florida, Mr. Posey, is recognized for 5 minutes.
    Mr. Posey. Thank you, Mr. Chairman, for holding this 
hearing. Mr. Buchanan, how many Federal loan repayment plans 
are there today?
    Mr. Buchanan. Well, that is a complicated question, because 
for every borrower, the amount of repayment plans that they 
have eligibility for varies based upon when they took out those 
loans, what year they graduated, and when Congress gives and 
takes away repayment plans. But all in all, including 
forbearances, deferments, and 5 different flavors of income-
based repayment, there are more than 55 repayment options that 
are available to any given borrower at a particular time. And, 
as I said, some borrowers may not have access to all of them, 
and that is the complexity of the Federal Student Loan Program.
    If you ask what particular borrower has access to what loan 
repayment options, there is a whole laundry list of questions 
that have to be asked and assessed before you can even 
determine which of those 55 are on the short list of things 
they could turn to.
    Mr. Posey. Do any of the applications for the loans ask the 
student how they plan to repay them?
    Mr. Buchanan. In a master promissory note, I am not 
familiar. I would have to look at that on the front end, which 
is the Department of Education originates these loans and is 
the lender, so they handle all of the loan disclosure up-front 
for originating the loans. But to my knowledge, I don't know 
that that is specifically called out, but I could be wrong.
    Mr. Posey. If a student wanted to pursue a Ph.D. in 
primitive basket weaving, where along the process would 
somebody tell them that it is highly unlikely they would be 
able to repay the loan?
    Mr. Buchanan. Well, one would hope that that communication 
came before choosing to take that degree and moving forward. 
That is really an opportunity for, and, again, this not an area 
that we are involved in because this all happens long before 
the borrower comes to us. They have already made those choices 
and decisions and have gotten and hopefully graduated into the 
job marketplace.
    But that is probably where, from a front-end perspective as 
the lender, the government should look at what is its level of 
disclosure and communication to borrowers. Schools should 
probably be playing a role in that conversation. And I think 
that is also a great opportunity for States and others to 
participate with individuals in their jurisdictions and be part 
of that education process.
    At the end of the day, I think what we are all trying to do 
is help people make informed and better decisions, right? And 
we would love them to make informed, better decisions before 
they come to the servicing side where we have to, in essence, 
deal with those choices that have been made and try to put them 
on the best path that is available under the Federal law.
    But I think working together, whether it is Congress, 
schools, the Department of Education, and States, and families 
on being informed about making good decisions before they take 
on debt, I think that would be very helpful.
    Mr. Posey. Does anyone know where it is mandated that the 
various parties that Mr. Buchanan represents are actually 
obligated to help students make intelligent decisions about how 
much they are going to borrow and be able to repay?
    Ms. Darcus. I don't believe that servicers are expected to 
advise borrowers about how much to borrow when they are in 
school. I think a lot of what we are speaking to from the 
borrower experience is that the cost of attending college 
increases in repayment due to servicer error and misconduct. I 
have seen borrowers who borrowed $6,000 to go to school, wind 
up with 6 figures of debt because of servicing errors. 
Forbearances, default, and issues with getting into income-
driven repayment after years of struggling can make a balanced 
balloon even after the initial borrowing--
    Mr. Posey. So, it sounds like we need to require a 
financial literacy test or at least a course before somebody is 
allowed to apply for a student loan. Mr. Chairman, I would like 
to yield the remaining of my time to the ranking member.
    Mr. Barr. Thank you for yielding. Mr. Buchanan, does the 
student loan servicing industry have any data about the risk of 
default when a borrower responds to servicer outreach versus 
when a borrower does not interface with a servicer?
    Mr. Buchanan. Yes, I think the data exists, and that is one 
of the more troubling things in this conversation. As 
servicers, we make mistakes from time to time. You look at the 
statistics, and those are not at a high level at all. But when 
the conversation is saying, avoid talking to your servicer, who 
is the expert, who is supposed to working with you, that is a 
real problem because if we can talk to someone who is on the 
cusp of default, which is the worst thing that can happen to a 
borrower at the end of the day in terms of consequences, 9 out 
of 10 times we can get them into a repayment program or a 
repayment option that is going to help divert that default and 
get them back current.
    Chairman Green. The gentleman's time has expired. We will 
now move to the gentlewoman from New York, Ms. Velazquez, for 5 
minutes.
    Ms. Velazquez. Thank you, Mr. Chairman. Ms. Darcus, Federal 
student aid began accepting and reviewing applications from 
borrowers seeking loan forgiveness under the Public Service 
Loan Forgiveness Program in the fall of 2017. As of March 31, 
2019, the Department of Education has only approved 518 of the 
more than 73,000 borrowers who have applied under the program, 
and discharged only approximately $30 million in student loans. 
Why are these numbers so low? Why has the Department of 
Education not approved more borrowers for forgiveness under the 
Public Service Program?
    Ms. Darcus. We know that borrowers who are seeking Public 
Service Loan Forgiveness have a lot of hurdles in order to get 
there, and their servicer is supposed to walk them through that 
process. As the lawsuits that you have heard about and these 
witnesses can tell you more about exposing, there are many ways 
in which servicers can thwart the efforts, the very determined 
efforts of public servants to fulfill their responsibilities to 
their community, repay their loans, and get the forgiveness 
they deserve.
    That happens when they believe that they are track on to 
get forgiveness because their servicer assures them they are in 
the right repayment plan, and that they are doing everything 
they need to do to comply. As you have heard today, there are 
affirmative misrepresentations made by servicers. They are not 
just forgetting to tell people information or saving time and 
highlighting some of the options. They are telling people they 
are on track when they are not. And they are--
    Ms. Velazquez. Thank you. Mr. Buchanan, State attorneys 
general have initiated enforcement actions to protect student 
loan borrowers from unlawful servicing practices. Do you think 
those cases are without merit?
    Mr. Buchanan. Listen, again, I am not privy to the details 
of those cases. Those are between the attorneys general and 
those entities. I think so far it is clear that there have been 
no rulings on the facts in those cases and on the merits of 
those arguments. They are assertions, but there has been no 
determination that they are true, and I--
    Ms. Velazquez. Okay, thank you. Reclaiming my time, Ms. 
Darcus, student loan borrowers with direct loans do not choose 
their loan servicer. Rather, the Department of Education 
assigns the loan to a servicer after disbursement. Can you 
explain why this is the case and how this came to be?
    Ms. Darcus. I think it is certainly problematic that 
borrowers don't have the option to vote with their feet and 
choose their servicers in most contexts. Yes, they are assigned 
a servicer, they are stuck with that servicer, and that is a 
problem for borrowers who are not getting the kind of service 
that they need. And it is also a problem because the same 
servicers that systematically fail those borrowers continue to 
get more borrowers assigned to them.
    Ms. Velazquez. Do you think student loan borrowers would 
have better experiences with their servicer if they were able 
to choose their servicer, and servicers were forced to compete 
for borrower business?
    Ms. Darcus. That is a very good idea. We are sorely lacking 
competition in the servicing market, and that harms borrowers.
    Ms. Velazquez. Would you support that, Mr. Buchanan?
    Mr. Buchanan. Well, that is a policy choice. Congress 
previously did allow competition among servicing and let 
borrowers make those choices. But that was eliminated when 
Congress passed the Affordable Care Act and took over direct 
administration of the Student Loan Program, and choice was 
taken away. But I think that is a conversation for Congress to 
determine about what is the appropriate way to give people 
options here.
    Ms. Velazquez. Okay.
    Mr. Buchanan. We support options and making sure that 
borrowers have good access to quality service, absolutely.
    Ms. Velazquez. Mr. Buchanan, in November 2017, the Illinois 
Student Loan Bill of Rights became law. Would you be supportive 
of or do you think this is something we should be developing on 
the Federal level?
    Mr. Buchanan. As I talked about, I do agree that we need to 
have some common servicing standards. And we have long endorsed 
a common servicing manual that would be developed in 
cooperation between all the interested parties so we could get 
some agreement about what those standards are. The real 
challenge is when you have those conflicts at the State and 
Federal Government level, and when agencies at the Federal 
Government fight with each other about what the rules are, we 
sit in the middle of trying to find out what is the right way 
to service the loan, and we follow the guidance by the 
government. And so, any effort to create some common standards, 
I think, we would think is a valuable contribution to the 
dialogue.
    Chairman Green. The gentlewoman's time has expired.
    Ms. Velazquez. Not a common standard, a bill of rights. 
Thank you. I yield back.
    Chairman Green. The gentlewoman's time has expired. The 
gentleman from Ohio, Mr. Davidson, is recognized for 5 minutes.
    Mr. Davidson. Thank you, Mr. Chairman. And thank you to our 
witnesses. I appreciate your expertise and commentary in 
writing and in person. There is no doubt that the student debt 
crisis is indeed a crisis. It is complex, and I look forward to 
your input into how we might go about improving the problem and 
mitigating the downsides for taxpayers, but also providing the 
service that could be provided.
    As we have had the dialogue, and Mr. Posey addressed 
earlier that no one could answer, how do we do the 
underwriting? That is because the people who actually do the 
underwriting aren't in the room, so we are holding up the 
servicers as if they have a fiduciary duty when they don't 
actually do any of the underwriting. We don't price in the risk 
of default based on major, based on college or university 
selected, or based on aptitude. We don't base the loan on 
creditworthiness unless we happen to do it on a co-signed loan 
where the family's creditworthiness is really there. And so, we 
keep loaning money to students regardless of these decisions.
    Last Congress, it became controversial for a minor reform 
to the Higher Education Act to advise people about the risk of 
default, and then to have some consequence for the universities 
that do have higher default risk. It was a deal-killer because 
the politics were so bad. As a history major, I don't know that 
I favor the idea that the government picks what your major is, 
but certainly we shouldn't be indifferent to the default risk, 
particularly if we are going to hold someone to a fiduciary 
responsibility for the performance of the borrower in repaying 
that loan.
    Lastly, I would say in my commentary portion here that as 
we talk about what to do for the students, the idea that we 
would take out these loans with no real intent to repay them is 
called fraud. So we shouldn't allow or support fraud, and we 
shouldn't go down a path that makes it so unbearable for them 
to pay the debt. I just want to highlight that it begins up-
front by knowing how much debt to take on.
    We are here only focusing on the back end, so I don't know 
that we are looking at the problem in a way that will 
holistically help us solve it. But with that, Mr. Buchanan, 
what can be done about the components of an interest risk, the 
time value of money and the default risk? What can servicers do 
about that?
    Mr. Buchanan. Well, no, I appreciate this, and I appreciate 
all of the comments. And you get into the complexities and I 
know everyone has acknowledged that we are not fiduciaries. But 
at the end of the day, I think we are trying to look out for, 
what is the best option for borrowers. And what our real job is 
to say, all right, let's take your situation. Let's meet you 
where you are. You have made choice, decisions. Things have 
happened in your life, and those are complications that can 
impact your ability to repay, and our job is to say, let's 
regularly communicate. Let's stay in touch and talk about that 
as it changes.
    So I think anything we can do to increase the amount of 
contact that we have with the borrower. And keep in mind, one 
of the challenges when you are managing north of 50 repayment 
plans is that when a borrower calls up and wants to talk to us, 
very seldom do they want to stay on the phone to talk through 
55 repayment options. So part of our job is to do all this 
other disclosure along the way. That is why we have these 
websites and other things and calculators.
    Mr. Davidson. Thank you for that. Reclaiming my time, the 
point is that these decisions have already been made. You can 
try to ameliorate the consequences of decisions that have 
already been made. And as a system, the higher education regime 
in the country has highly incentivized 4-year degrees, and the 
concern I have is that this isn't always the best fit. 
Sometimes, people don't find that that is the case until they 
are far along and far in debt, and now they are looking at 
other degrees, many of which have a better path for ability to 
service debt, that have better demand for employability.
    And I just want to commend some of the trade schools, 
particularly Butler Tech, our community college, that are 
there, that are innovative in the 8th District of Ohio, 
offering students a path to a career and a vocation that has 
high employability and a great, great chance. And I just wonder 
lastly, Mr. Buchanan, how could we go about providing that up-
front advice? Does the government need to do it, do the 
universities need to do it, or, as you alluded to, could we 
return to the private sector making sound underwriting 
decisions?
    Mr. Buchanan. I think all of those are options, and I think 
this is a complicated problem and there are no simple answers 
to this. And I think we have to have everyone engaged, whether 
it is institutions that are being creative and innovative, 
talking about the value of what they are offering, whether it 
is about bringing families in, in high schools and counseling 
before people make decisions or look at financial aid packages, 
colleges and universities, the financial aid offices continuing 
to do better jobs on disclosures, making them transparent. 
Those are all things we should all be doing.
    Mr. Davidson. Thank you. My time has expired. Thank you.
    Chairman Green. The gentleman's time has expired. The Chair 
now recognizes the gentlewoman from Michigan, Ms. Tlaib, for 5 
minutes.
    Ms. Tlaib. Thank you, Mr. Chairman. You are right, Mr. 
Buchanan, there is not really a simple answer to all of it. 
However, I think what needs to be at the forefront and is 
simple to me is that this is people who are buying an 
education, not a Lamborghini, not some sort of luxurious 
something. This is a responsible decision, I think, that they 
are making, which may be informed or not informed. And as a 
person that when you enter, you look at the tuition for a 
minute, but the point is you want your bachelor's degree. You 
want your degree at the end, and that is really what the focus 
is when young people get in there. And then afterwards, they 
expect the government and the quasi-governmental relationship 
they might have with private companies to do what is in the 
best interest of their future.
    Michigan borrowers have some of the highest student loan 
debt in this country. Many residents are pulled into courts--I 
have talked to residents directly about this--and later having 
to pay double what they owe due to student fees and interest 
rates and even attorney fees. In 2017, the CFPB sued Navient 
for incentivizing employees to encourage borrowers to postpone 
forbearances, an option where the interest rate accrued and 
collected. They collected over $4 billion in interest.
    The Department of Education often encourages the debtor to 
talk to their loan servicers for advice and help. I am a person 
who called and they said, call your servicer. However, in 
response to the lawsuit filed, Navient, the servicer, stated in 
their response to the complaint that they ``don't have to 
provide good advice to borrowers,'' and that they have ``no 
affirmative duty to do so.''
    A question for you, Mr. Buchanan, the Federal Government 
spent about $700 million in 2017 on debt collections for a 
little fewer than 7 million borrowers in default. Navient is a 
member of your organization. Do you agree that servicers have 
no responsibility to the borrower to give good advice, even 
when more than half of its accounts come from the Department of 
Education?
    Mr. Buchanan. First of all, servicers don't do debt 
collection, so the litigation and all that about borrowers, 
that is not something that we have any involvement with. We 
serve borrowers up until the time in which they default, so I 
couldn't speak to the debt collection component, but--
    Ms. Tlaib. But do you believe that many of the members of 
your alliance have a duty, a responsibility to give good 
advice?
    Mr. Buchanan. As I think folks on both sides of the aisle 
and the panel today talked about, there is not a legal 
fiduciary responsibility. But I absolutely believe--
    Ms. Tlaib. Well, it is interesting, Mr. Buchanan, because I 
have only been here for 5 months, and it seems like any 
corporation, it is like they wait for us to force them to do 
what is right. It is almost common, like, okay, you have to 
give good advice. You have this contract with the Department of 
Education. Your responsibility is to help these folks who have 
loans and guide them through the process. I almost feel like if 
we don't spell out, ``Do what is right, this is your 
responsibility'', for me, it is like a ``duh'' moment. Like, 
``Duh, you have to give advice to those who are calling you. I 
don't care how long it takes. At the end, that person on the 
other end of the line wants to be able to pay as close to what 
they borrowed as possible, and they want that kind of advice.''
    The question I have is for many of the attorneys general 
here, folks from the attorneys general offices as well as Ms. 
Darcus. Thank you all for being here. One of the things I am 
wondering is what other things are you doing on the State level 
and the local level to push back against abusive and profit-
driven practices? And what are some of the predatory practices 
of loan servicers and debt collectors you have seen in your 
State that hasn't been discussed in this hearing right now?
    Ms. Thoman. Speaking for Massachusetts, we have seen an 
inordinate number of student loan borrowers who have been 
victimized by for-profit schools that made false promises of 
employment, 90 percent employment rates. We talk about 
underwriting standards here, but in many instances, some of the 
Federal student loan servicers in sort of a prior incarnation 
of their existence made loans to many of these students, in 
part because they were interested in Federal student loan 
volume. And so, the abuse of these for-profit school borrowers 
and the role of these companies in creating that system is very 
significant and should not be overlooked.
    Mr. Smyth. Speaking for Pennsylvania, we have sued the U.S. 
Department of Education twice for the gainful employment rule 
and the borrower defense rule, two important rules that they 
are attempting to roll back. Gainful employment would have made 
important disclosures to borrowers up-front and would have 
actually shut down programs where default rates were very high. 
So, it would have gotten at some of the underwriting problems 
that people have been talking about. But the DeVos Department 
of Education is attempting to repeal those rules.
    Ms. Tlaib. We had a committee hearing--
    Chairman Green. The gentlelady's time has expired.
    Ms. Tlaib. Thank you, Mr. Chairman.
    Chairman Green. The gentleman from Tennessee, Mr. Rose, is 
recognized for 5 minutes.
    Mr. Rose. Thank you, Mr. Chairman. I think an important 
fact that we need to keep in mind as we have this discussion 
today, and it is an important discussion, is that in 2011 when 
the Federal Government took over the Student Loan Program, we 
did so under the false premise that over 10 years, we were 
going to create $61 billion that we were going to take from the 
Student Loan Program and use it to pay for a flawed national 
healthcare plan that many of us call Obamacare. In fact, as we 
know, that hasn't worked out. In fact, most recent reports show 
that we are nearing the point where the program is actually 
going to cost, and clearly we have created a burgeoning student 
loan problem in our country.
    And as a small businessman and first-time elected 
officeholder in Tennessee, this is just the sort of shenanigan 
that the voters in the 6th District of Tennessee are upset 
about when they see the performance of Congress, and how when 
we attempt to federalize programs like this and remove the 
private sector incentives to make responsible lending 
decisions, and we create just these sorts of crises.
    Shifting now, several of you have testified that your 
agencies have brought lawsuits against Federal student loan 
servicers for various reasons. Mr. Smyth, you mentioned in your 
opening statement ongoing litigation. I want to make sure that 
I understand where we are in the process of this litigation. 
You are an attorney, I believe, and I am trained as an attorney 
as well, and I just have a question. Have things changed in 
this country or are individuals and corporations presumed 
innocent until proven guilty in a lawsuit?
    Mr. Smyth. Well, in the criminal context, they are presumed 
innocent, yes. This is not a criminal lawsuit, but there has 
not been a judgment yet, sir.
    Mr. Rose. But even in civil cases, it is the responsibility 
of the plaintiff to prove the case and prove the facts of the 
case, isn't that right?
    Mr. Smyth. That is correct.
    Mr. Rose. Isn't it true that in the case you made reference 
to, the defendant has not had their day in court to defend 
themselves yet?
    Mr. Smyth. That is right. That is why I referred to 
allegations in my testimony.
    Mr. Rose. So your office has made allegations against a 
servicer, the servicer has disputed those allegations, and the 
court, to date, has not made any decision based on the facts in 
that case.
    Mr. Smyth. That is correct, but many of the things that I 
said were based on the facts that we know from documents that 
Navient has provided to us. So, for example, the $4 billion in 
interest, I have the document right here that Navient provided 
that supports that allegation.
    Mr. Rose. So your statements today remain unproven 
allegations and no court has determined whether or not they are 
true?
    Mr. Smyth. That is correct.
    Mr. Rose. It seems to me that this is yet another example 
of Director Cordray's regulation by enforcement ideology where 
once again the CFPB, under Director Cordray, demonstrated a 
proclivity for self-promotion instead of consumer protection. 
Mr. Smyth, if the CFPB is so focused on student borrower 
protection, why was there no rule proposed in dealing with 
private student lending?
    Mr. Smyth. I can't speak for the CFPB.
    Mr. Rose. Mr. Buchanan, given the lawsuits that are 
currently in process, as they have not actually made any 
rulings on the facts at present, what solutions are servicers 
proposing, from your experience, that will make a difference 
today for some of these struggling student loan borrowers?
    Mr. Buchanan. Yes. As I talked about sort of in my opening 
statement, my written statement goes into some more detail, and 
I would love to work with the committee on those things. But if 
you look at it, there is a lot of opportunity to take the 
process that we have to deal with today. So the process, for 
example, on income-based repayment or public service loan 
forgiveness is dictated by the Department of Education, and we 
want to work with them, and we have been providing feedback 
pretty regularly. And that is how a lot of things actually have 
changed and improved. You see the IBR uptake that has increased 
pretty dramatically. We have worked through improving the 
recertification process with the Department.
    And some simple things like allowing sort of data-sharing 
between the IRS and the Department of Education. Today, if 
someone wants to stay in income-driven repayment, they have to 
go to a separate website at the U.S. Department of Education. 
They have to re-fill out that form. They have to resubmit 
documentation to the IRS to ask for the same thing they asked 
for last year and redo all that, and that is a hurdle for us in 
keeping people current. So those kinds of process 
simplifications are things that I think we all at this table 
hopefully could agree upon, are things that we ought to be 
working on.
    It is also making sure that we have consistent credit 
reporting so that when someone has an issue, that they are 
treated properly.
    Mr. Rose. Thank you, and I yield back.
    Chairman Green. The gentleman's time has expired. The 
gentleman from Illinois, Mr. Casten, is recognized for 5 
minutes.
    Mr. Casten. Thank you, Mr. Chairman. Thank you to all the 
members. Mr. Buchanan, what is the typical servicing fee paid 
to your members on a given loan?
    Mr. Buchanan. For a loan that is in repayment, it is about 
$2.85 a month per borrower.
    Mr. Casten. Is that calculated per loan volume? Is there, 
like, a percent of loan volume, or is it just per loan?
    Mr. Buchanan. It is per borrower. Not per loan, but at the 
per-borrower level.
    Mr. Casten. Okay. And is it my understanding that as loans 
go into default, that rate falls?
    Mr. Buchanan. That is correct. It declines. We are 
incentivized to keep a borrower in current repayment in one of 
these income-based repayment plans or standard repayment. And 
our compensation declines as that loan gets more and more 
distressed, encouraging us to keep the loan active. And, in 
fact, we talked earlier about forbearance utilization. That is 
paid the least of all of these things relative to a loan that 
is right at the end--
    Mr. Casten. Okay. But when they go into forbearance, you 
would ensure that they do not go into default. I think a lot of 
the people here have mentioned that putting in forbearance 
keeps the default rates low.
    Mr. Buchanan. It can help, yes.
    Mr. Casten. Okay. So, therefore, you make more money by 
putting people into forbearance and keeping them out of the 
default rate because you earn more money on your overall 
portfolio.
    Mr. Buchanan. I don't think that would be the calculus that 
is involved in this. I think what we are trying to do is to 
make sure, so when they are in delinquency and getting ready to 
default--
    Mr. Casten. Sir, just if I may, I spent 16 years as a CEO.
    Mr. Buchanan. Yes.
    Mr. Casten. You provide incentive compensation to employees 
that makes you more profitable. The fact that there are 
incentives that are driving people to do this, and, look, I 
have no problem with profits. Profits are a beautiful thing. 
They drive human behavior. The idea that there are incentives 
to employees to push people into forbearance, and that you have 
no profit incentive to do that strains a little bit of 
credibility. I am not saying there is not a problem there, but 
I am saying we have to acknowledge if you are making more money 
by keeping people out of default, and if forbearance is the way 
to keep people out of default, let's acknowledge that. That is 
all I am asking.
    Mr. Buchanan. The rate of forbearance is relatively low 
here, and it is used, in general, for pretty short periods of 
time. And I am unaware of any servicer who provides 
compensation to put someone into forbearance. We try to make 
these calls efficient and effective so we can get people as 
quickly as possible to the best outcomes for them.
    Mr. Casten. Well, let me pivot, if I could, to some of the 
other witnesses. The challenge I have is that there is--as I 
said before, the pursuit of profits is a wonderful motivator of 
human behavior. It is neither moral nor amoral. It is just 
pursuit of profits. The challenge we have as regulators is to 
try to make sure that profit incentive is tied to the public 
interest. And the challenge that we have on this committee is 
that so often people deny that there is any conflict. That 
makes our job as regulators tougher. It is particularly 
difficult in this moment when the Secretary of Education is 
actively defanging it.
    And I am extremely proud to come from Illinois where the 
efforts that you have led, Mr. Sanders, through your ombudsman 
and through the Student Loan Bill of Rights, one of the best 
programs in the countries. Can you just talk a little bit about 
what challenges you have in this moment with the Trump 
Administration and Secretary DeVos culling back on obligations 
that are not being done federally that you have to step up and 
fill?
    Mr. Sanders. Absolutely. So, the Office of the Attorney 
General in Illinois has been active in the student lending 
space for many years. We will continue to be active going 
forward. I think that the big change that we have seen is that 
we don't have a partner on the Federal level in protecting 
students. In many ways, we have an opponent. So instead of 
sharing information with State attorneys general to determine 
ways to help borrowers, we have the Department of Education 
issuing a notice of interpretation saying that States can't 
enforce their own laws, that they can't access the information 
that law enforcement needs to determine if they are in 
violation of our laws.
    And we have to spend our time fighting against the Federal 
Government. So, for example, that notice of interpretation has 
been discredited by several courts, but it takes our time and 
effort away from helping student borrowers when we have to 
fight roadblocks that are thrown up like that.
    Mr. Casten. Would any of the rest of you from the States 
care to comment on what that hassle means for the burdens borne 
by students who are in default, or former students?
    Mr. Smyth. It certainly delays our lawsuit. We also faced 
delays in getting borrower data from Navient in the context of 
our discovery and our lawsuit. And we had to go to our judge 
and ask him to force Navient to turn over the borrower data. 
The excuse that Navient gave was that the Federal Privacy Act 
prevented them from turning over the data, but that was not 
correct legally. And they only made that excuse because of the 
Department of Education telling them that they could do that.
    Mr. Casten. Thank you.
    Chairman Green. The gentleman's time has expired. The Chair 
will now recognize the gentleman from Georgia, Mr. Loudermilk.
    Mr. Loudermilk. Thank you, Mr. Chairman. Thank you all for 
being here. This is an interesting panel that we have here, and 
it is an interesting subject. However, I would like to get to 
the root of the problem, and the root of the problem I see is 
the astronomical costs of education these days. It is 
unbelievably high, and I don't know that we are really 
addressing that situation here. We saw this in Georgia years 
ago.
    It used to be that in the university system of Georgia, 
they had to keep their tuition rates competitive enough that a 
working-class family could afford to send their children to 
college with minimal outside support. What changed in Georgia 
was a public funding program to ensure every child gets a 
chance to go to college, and when that went through the 
legislature, the cost of education skyrocketed, and it is has 
remained high ever since.
    I recently was speaking to a group about the need that we 
have for students to go into technical fields and the jobs that 
are available there. And after I got done speaking, a young 
lady came to me and she said, ``Let me tell you what happened 
to me and my sister. We both graduated about the same time. She 
went to college. I decided to go into a technical field, went 
to technical college, and graduated. Now, 4 years later, about 
the same amount of money I have made, she now has in student 
debt because of the cost of actually going to college.'' And I 
think our government involvement is part of the problem why we 
are seeing this. It is a natural effect. You have this free 
public money out there, so now we are going to get that and we 
can raise our rates. I don't think we are going to get a handle 
on this until we can actually do something about the 
astronomical cost of going to college.
    But with that aside, Mr. Buchanan, I know that we are 
talking about servicing these loans here today. And from what I 
know about any major loan that you are taking out, when you 
look at the costs these students are accruing this early in 
their life is unbelievable. But with any other significant loan 
that we take on, I mean, car loans, the amount you are 
borrowing is much less than most of these students are 
borrowing. There are rigorous truth-in-lending disclosure 
statements for those. There are rigorous truth-in-lending 
disclosure statements for buying a home, or for commercial 
loans. Are there such requirements for student loans, or do 
these students really know what they are getting into?
    Mr. Buchanan. Well, again, I can provide some context 
having been in the higher education space for 20 years or so on 
what is going on. That is not a servicer role or function, but 
I think it is important for borrowers to be well-educated 
upfront about what the consequences are of the choices that 
they are going to make, for good and for bad. College is an 
investment, and the idea is that we let people borrow money so 
they can increase their earning power over time. And when that 
works well, it works very well.
    And I think by having people understand the repayment plans 
that they are going to select, the interest rate, all that is 
being set up, up-front, and fixed by statute, and then 
understanding that if you do take advantage, and we talk a lot 
about income-driven repayment plans, and those could be very 
beneficial for some borrowers. For some borrowers, they can 
increase the total cost of borrowing pretty materially over the 
life of that loan, and that is based upon the borrower's 
individual situation. And so having a borrower be disclosed of 
what those situations could look like--listen, having an 
informed borrower before they make choices is always the best 
kind of borrower.
    Mr. Loudermilk Do we need to do anything to ensure better 
disclosures for these loans?
    Mr. Buchanan. I think that is a policy question for the 
front-end of lending. But I think having disclosures, and if 
you look to the private sector there is a lot of disclosure 
that goes on there. Is there an opportunity? Again, we have 
talked a lot about harmonization and simplification. Is there 
an opportunity to harmonize with what is done on the private 
student loan marketplace? I think that is something that ought 
to be looked at and considered.
    Mr. Loudermilk. Are there any requirements to assess the 
student's ability to repay the loans?
    Mr. Buchanan. I'm sorry?
    Mr. Loudermilk. Is there any requirement we have to assess 
the ability of the borrower, the student, their ability to 
repay the loan?
    Mr. Buchanan. No, currently the Federal Government, when it 
makes loans, does not assess an ability to repay.
    Mr. Loudermilk. And I can understand part of that because 
it is a student, and they are usually not employed. But I also 
look at this, if the student is academically inclined and they 
are going to get a nuclear engineering degree, their 
likelihood, the ability to pay it back is much higher than 
someone who may just be getting a literary arts degree or 
something that may not pay as well. But we don't take any of 
that into consideration?
    Mr. Buchanan. That is correct. The government does not.
    Mr. Loudermilk. All right. I yield back.
    Chairman Green. The gentleman's time has expired. The Chair 
now recognizes the gentlewoman from Texas, Ms. Garcia, for 5 
minutes.
    Ms. Garcia of Texas. Thank you, Mr. Chairman, and thank you 
so much for bringing attention to this critical crisis. And I, 
too, like my colleague, Mrs. Beatty, want to acknowledge the 
different look that we are getting behind the panel table. And 
I might add that not only is it younger, it is also absolutely 
more diverse, and it is good to see so many young women there 
watching.
    And I wanted to start with a little focus on that because, 
Ms. Darcus, you mentioned the impact of some of these practices 
and the default rate on African-American students. And it is 
strikes me that no mention was made of Latino students and, 
more importantly, too, young women because, by and large, not 
only are we not included, but at the end of the tunnel when we 
graduate, we may get hired and not get equal pay for equal 
work, which means our ability to repay is also diminished 
somewhat because of inequities in salary and training and 
promotion. So do you have any data with regard to other people 
of color and also women?
    Ms. Darcus. Yes, the data are still developing. We need 
more information that is disaggregated by these 
characteristics, like race and gender. But I can tell you that 
like black borrowers, Latino borrowers also report higher rates 
of late payment. They struggle to repay in part because of 
that, the racial wealth gap. And my research also shows that 
Latino borrowers, like black borrowers, experience higher rates 
of default.
    We also know that women carry about two-thirds of 
outstanding student loan debt. So when we are thinking about 
who is bearing the burden, who might be struggling in 
repayment, we are thinking about people of color. We are 
thinking about women. And that is in part because of the legacy 
of discrimination on the basis of race and on the basis of sex 
in this country, and the ongoing gaps in earnings and in 
wealth. And we are actually seeing that student loan debt 
widens those gaps into chasms. So we have to be very--
    Ms. Garcia of Texas. So you would say there is a 
disproportionate impact on people of color and women?
    Ms. Darcus. Yes.
    Ms. Garcia of Texas. There is? And that would be true all 
across America, not particular to any region or State?
    Ms. Darcus. Yes.
    Ms. Garcia of Texas. Okay, thank you. Now, I want to go on 
to Mr. Sanders, and thank you to all the representatives here 
from attorneys general offices. It is great that they are doing 
some good work. I just wish that my attorney general was at the 
table with you, but regrettably I can't say Texas is doing what 
some other States are doing. Mr. Sanders, you pointed out that 
the colleges sometimes engage in their cohorts management 
services companies that will steer the student to forbearance 
because they are concerned about the default rate in their 
colleges. I find it so troubling that a college or any public 
institution would actually try to find a group that would do 
that more to decrease their default rating. Could you just 
explain that a little bit further? I am running out of time, 
but also why they would do it? Is it that they are being 
reviewed on the basis of that, because obviously this may be 
another scandal in the making.
    Mr. Sanders. I am happy to answer the question. It is a 
good one. So under Federal law, if schools have too many 
borrowers default within the first 3 years of repayment, they 
could lose access to Federal student aid.
    Ms. Garcia of Texas. Only that particular aid where the 
student default rate is high or all student aid?
    Mr. Sanders. Depending on how long the violation goes on, 
it could be all student aid. So with the existence of income-
driven repayment plans, defaults should approach zero. There 
will be some borrowers that we can never reach, but with 
income-driven repayment, if you are not making any money, you 
can make a zero-dollar payment, so everybody has the ability to 
qualify for these. If servicers were providing better 
information, schools wouldn't have to engage these low-rent 
consultants that only have one goal, which is to push people 
into forbearances.
    Ms. Garcia of Texas. Well, I find it very troubling. And, 
Mr. Chairman, I am sorry I ran out of my time because I really 
think that this whole idea that colleges are maybe doing this 
just to protect their own interests is very, very troubling.
    Chairman Green. The gentlelady's time has expired. The 
Chair now recognizes the gentleman from Wisconsin, Mr. Steil, 
for 5 minutes.
    Mr. Steil. Thank you very much, and thank you for holding 
today's hearing. I am very concerned about where we are at with 
student debt, but I think what we are missing sometimes is what 
the underlying cause is, which is the cost of the underlying 
product of the education. And so, Mr. Sanders, you mentioned at 
the beginning of your testimony that students are often unaware 
of the basics of the loans that they are taking out. And, Mr. 
Smyth, you noted that Pennsylvania has the second-highest 
student debt in the nation. I think that is very telling. Do 
you know what the cost is for an in-State student in 
Pennsylvania to attend Penn State?
    Mr. Smyth. It is extremely high. The average 4-year tuition 
for a public university in Pennsylvania is the third-highest in 
the country after only Vermont and New Hampshire. So you are 
absolutely right, the cost is far too high. I think it is about 
$30,000 or $27,000.
    Mr. Steil. So, just tuition and fees, before we get even 
into living expenses, tuition and fees on the website: $18,454. 
Mr. Sanders, do you know the cost of in-State tuition for a 
student at the University of Illinois at Urbana?
    Mr. Sanders. I don't know the answer off the top of my 
head.
    Mr. Steil. Tuition and fees is roughly, they estimate it at 
$16,000 to $21,000, depending on exactly what school you are 
in. If you look at what is going on in Massachusetts, Ms. 
Darcus or Ms. Thoman, do you know the cost for an in-State 
student to attend UMass Amherst, for an in-State student?
    Ms. Thoman. I believe it is around $20,000.
    Mr. Steil. On the website, for an in-State student, tuition 
and fees, before we get into housing and living expenses, 
$15,887. Before I came to Congress, I served on the University 
of Wisconsin Board of Regents. To attend the University of 
Wisconsin-Madison, a flagship in the State, tuition and fees, 
$10,555, significantly less than your 3 States. What did we see 
last year in the State of Wisconsin for overall debt? It 
decreased. Why? Because we are controlling the underlying cost 
of the product. That is absolutely critical.
    And when States are able to control the underlying cost of 
their tuition, and, in particular, for in-State students, you 
legislate that ability to control the costs, and you have a 
real impact on students' borrowing rates. But when you can't 
legislate, you litigate. And what we are seeing is States with 
high costs of in-State tuition where they are having high costs 
of student debt then trying to go out and litigate their way 
politically out of the problem rather than addressing the 
underlying cost structure that we are placing on students.
    So in the University of Wisconsin system where I was a 
regent, what we did is we held the line on tuition. So dollar 
for dollar for the last 6 years in the State of Wisconsin, the 
cost of tuition to attend the University of Wisconsin-Madison, 
the University of Wisconsin-Whitewater, the University of 
Wisconsin-Parkside, or any of the campuses in the entire State 
of Wisconsin in the UW system was flat dollar for dollar. What 
does that do? That actually drives down the cost of tuition 
against inflation, and makes college more affordable, and 
actually reduces the total debt burden that students are taking 
out.
    But when you can't legislate that in, we take this 
litigation path to go after it and to try to find out where are 
there these disruptions in the market. And I am very open-
minded to trying to find opportunities to improve the process. 
One of the things I think would be interesting is, do you any 
of you, by a show of hands, answer calls that come to your cell 
phone from an unknown number?
    [No response.]
    Mr. Steil. May the record reflect that no one raised their 
hand. Including myself, I don't answer the phone from an 
unknown number. If it is a known number, I am happy to pick up. 
If it is an unknown number, I usually let it go. If we look at 
our Federal law the student loan servicers are obligated to 
operate under, they can't text you. They can't do all these 
modern mechanisms to let people know that they might be late. 
There are real opportunities for us to explore real solutions 
to the problem to, God forbid, legislate rather than litigate 
the problem.
    I know Mr. Buchanan has had a number of items where you 
have identified ways to improve the process to legislate an 
improvement rather than to drive forward a litigation approach 
where, one, the States are unable or unwilling to control the 
underlying cost of the product, and then, two, we are holding 
hearings on the litigation side rather than sitting down and 
looking for significant improvements on ways that we can 
actually be productive in collecting the student debt, and 
then, on a go-forward basis, how we actually control the 
underlying cost of the product, which will have a real impact 
on students who don't need to take out the debt in the first 
place.
    I appreciate the time. Thank you very much. I yield back.
    Mr. Perlmutter [presiding]. The gentleman yields back. I 
will now recognize myself for 5 minutes. Mr. Steil made some 
very good points about the costs going in. In Colorado, our 
tuition is $12,000, so not much more than yours, and managed 
fairly well. But he started at the beginning of the process. I 
am going to the end of the process.
    Ms. Thoman, in your opening, you talked about non-
dischargeability of the debt. And I practiced bankruptcy for a 
long time before I got here, generally representing the 
creditor side. In fact, I represented one of the lenders who 
was mentioned by Mr. Lynch, the Pennsylvania Higher Education 
Assistance Authority (PHEAA), on these kinds of things. One of 
the things that happened that dramatically changed, I think, 
the landscape was to make these student loans almost impossible 
to discharge. And if I am not mistaken, we have seen a balloon 
in the student debt since that time in 2005.
    Can you talk to me, and, Mr. Buchanan, I want to you to 
jump in on this, too. What would be the effect generally on the 
system if we allowed these debts to be discharged?
    Ms. Thoman. I think it would be positive for many 
participants in the system. There are many borrowers who have 
been victimized by schools, who are simply in no position to 
repay these debts, and are often in no position to navigate 
these more complicated income-driven repayment plans and the 
associated processes.
    Mr. Perlmutter. Mr. Steil talked about, we immediately go 
to litigation, but sometimes you can't. There is no way to get 
out of this, and you take a drastic remedy of bankruptcy. 
People don't do this lightly. So, Mr. Buchanan, if we in the 
Congress, because we changed the law in 2005, if we were to 
reinstate what it was pre-2005, what effect do you think that 
would have on the market generally, because the comments I have 
heard is that it would cause the rates to go up. How does the 
association look at it?
    Mr. Buchanan. Again, we are on the servicing side, so we 
are not on the lending side.
    Mr. Perlmutter. Right.
    Mr. Buchanan. And the Federal Government owns the asset, so 
the cost of bankruptcy dischargeability is borne by the Federal 
Government under a Federal loan. So I think that is a question 
of, does the Federal Government, from a cost perspective, think 
that is an appropriate subsidy or benefit to provide to the 
loan?
    Mr. Perlmutter. And the reason I even bring this back up is 
because we have tried a number of different paths: forbearance; 
reducing interest rates; and providing credits for service 
rendered by public employees. We have come up with a dozen 
different things to try to reduce what seems to be just this 
dramatic increase in student debt in America. So as servicers, 
I assume that you have thought about what would happen if 
Congress changed it back. What has been your view of it?
    Mr. Buchanan. Yes, I think that would be something that, 
listen, I think there are a lot of borrowers who get into 
distress. And at the end of the day, we are trying to say if 
someone has an option, what is the best option for them. And I 
think, looking at an appropriate sort of assessment of 
bankruptcy reform is always something that should be on the 
table. And, highlight, though, the evolution over time, and 
that is sort of, I think, where Congress is sort of, you know, 
prior to 2002, forbearance was a process that had to have 
written documentation. And then negotiated rulemaking with 
servicers, the National Consumer Law Center all agreed, let's 
make it far easier to do verbal forbearance.
    So those things need to evolve over time as we identify 
pockets of individuals who are not being best served by the 
current system. But that is also a function of time because the 
amount of people, the people who are going into higher 
education. The great success of putting more and more 
individuals who historically were prevented from getting higher 
education means we need to change the process constantly, and 
that is where we are always looking to share that information 
with our regulators, the Department of Education, and I am sure 
they will share it with you about things we can do to improve.
    Mr. Perlmutter. Mr. Smyth, so staying on the same theme, 
and I have about 30 seconds. the law says to discharge requires 
undue hardship, and I remember PHEAA was pretty tough on what 
``undue hardship'' meant as we would proceed through the 
bankruptcy court. Has that changed? You don't represent PHEAA, 
you are with the attorney general's office, but how do you guys 
look at that?
    Mr. Smyth. I definitely can't speak for PHEAA, but I think 
``undue hardship'' is far too high a line, and we should 
certainly consider allowing student loans, both private and 
Federal, to be dischargeable in bankruptcy.
    Mr. Perlmutter. Thank you, and my time has expired. I now 
recognize Ms. Dean for 5 minutes.
    Ms. Dean. Thank you, Mr. Chairman. I am pleased to be here 
to hear all of your testimony on this important issue. And I 
want to just say at the outset that I look through a couple of 
lenses, and one is as a mom, a parent, and a grandparent to 
college-educated kids, and hopefully college-educated 
grandchildren. I am also a former university professor for 10 
years in Philadelphia, as well as a former State legislator who 
dealt with the issue of higher education funding.
    And I just want to say in response to some of the testimony 
or questioning or statements from the other side, this is not 
an either/or situation. We can agree that the cost of education 
is extraordinarily high in this country, and we can agree that 
we should do something about that, regardless of where we find 
that funding. But it is not either/or, so I am puzzled by the 
lack of curiosity by those on the other side of the aisle who 
only want to speak about that as though there is no possibility 
of harm to consumers on the other side. So that is where I want 
to start.
    First of all, Mr. Smyth, I come from Pennsylvania, as you 
know. I really appreciate the work of our Attorney General Josh 
Shapiro and what he is doing to protect borrowers and consumers 
at many levels. Would you help me with the scope of the 
problem? In your testimony, you identified that Navient, 
between 2010 and 2015, enrolled over 1.5 million borrowers in 2 
or more consecutive forbearances. Their own numbers show that 
these forbearances added nearly $4 billion in interest to those 
consumers. Is that Pennsylvania borrowers only?
    Mr. Smyth. That is nationwide.
    Ms. Dean. Nationwide, $4 billion. Can you specifically show 
how that direct harm happens? What was the practice that led to 
that massive harm to consumers, direct dollar-for-dollar harm 
to consumers, not to mention credit ratings and other anxiety 
and everything else that goes along with that?
    Mr. Smyth. Sure. That $4 billion in extra interest comes 
from multiple consecutive forbearances. We have been talking a 
lot about forbearances and how they can be harmful. There are 
occasions when somebody may truly have a short-term need. Say 
they lose a job, but they know they are starting another job in 
2 months and they will be making enough money then to go back 
to their standard repayment plan. In that case, perhaps a 
forbearance makes sense for a couple of months.
    Ms. Dean. Sure.
    Mr. Smyth. But we are talking about multiple consecutive 
forbearances where people are in forbearance for 12 months, 18 
months. We have even seen people in forbearance for 3 or 4 
years. And at that point, there is no way that the servicer can 
argue that this borrower is in short-term financial distress. 
They are in long-term distress, and they should have been put 
into an income-driven repayment plan much earlier in the 
process, if not at the very beginning. So that 1\1/2\ million 
borrowers who are in 2 or more consecutive forbearances, had $4 
billion in extra interest added to their loan principal as a 
result of those forbearances.
    Ms. Dean. Were they given clear notice that by doing this 
over and over again, they were just adding to their interest? I 
mean, clear notice, plain-English notice.
    Mr. Smyth. I can't speak to every single one of them, but 
as I said, I think certainly at the end of the first 
forbearance, they would have had to talk to Navient again, and 
Navient would have said, okay, let's put you into another 
forbearance, is that okay? And we have found through reviewing 
caller recordings and in our investigation that Navient often 
did not mention income-driven repayment plans at all.
    Ms. Dean. Right.
    Mr. Smyth. And sometimes they would mention it in a very 
cursory way without properly explaining it to the borrower.
    Ms. Dean. In your complaint, in the Pennsylvania complaint, 
it is alleged that Navient and its agents were incentivized to 
push forbearances instead of IDR. Can you explain that?
    Mr. Smyth. Sure. So Navient mentioned average call time for 
their agents at their call centers, and they rewarded people 
with bonuses for keeping their average call time low, among 
other metrics.
    Ms. Dean. What kind of bonuses?
    Mr. Smyth. A couple hundred dollars, gift certificates, 
that sort of thing.
    Ms. Dean. And if I interrupted you, was there more to that 
practice?
    Mr. Smyth. There is actually a really good podcast. Michael 
Lewis did a podcast about this where he interviewed a woman who 
worked at the call center in Wilkes-Barre, Pennsylvania. And 
she described the 7-minute rule where basically you were 
expected to get off the phone with a borrower in 7 minutes, and 
if you did a forbearance, you could achieve that goal. But if 
you started talking to the borrower about IDR, there was no way 
you were going to meet that metric, and Navient would 
eventually fire you if your average call times were too high. 
So the people serving the borrowers well were being pushed out 
the door, and the agents who were doing a bad job and hanging 
up on borrowers and not telling them about IDR were promoted 
and rewarded.
    Ms. Dean. Again, I just am puzzled that the other side 
isn't curious or upset about $2,700 per borrower added to the 
top.
    Chairman Green. The gentlelady's time has expired.
    Ms. Dean. Thank you, Mr. Chairman.
    Chairman Green. The Chair now recognizes the ranking member 
of the subcommittee for a unanimous consent request.
    Mr. Barr. Thank you, Mr. Chairman. I would ask unanimous 
consent that we enter into the record four articles: one from 
the Consumer Bankers Association that reports 98 percent of 
private student loan borrowers are successfully repaying loans, 
whereas 1 in 5 Federal student loan borrowers are seriously 
delinquent or in default; a letter from the Credit Union 
National Association urging attention to the benefits to 
borrowers through more private loans; a Wall Street Journal 
article reporting that despite the CFPB's allegation that 
Navient had a profit motive to place borrowers into 
forbearance, in fact, the Department of Education pays loan 
servicers 63 percent less for accounts in forbearance than 
those in income-based plans; and finally, an article that 
reports that despite the CFPB lawsuit, Navient, in fact, 
informed borrowers about income-based repayments, but borrowers 
opted for forbearance regardless.
    Chairman Green. Without objection, it is so ordered.
    The Chair now recognizes the gentlewoman from California, 
Ms. Porter, for 5 minutes.
    Ms. Porter. Thank you. Mr. Buchanan, do servicers act in 
the best interest of consumers?
    Mr. Buchanan. We absolutely work every day to provide them 
all the options that are available to them. And those options, 
what is best for them, is really a choice among consumers 
because at the end of the day, each of those options is going 
to have a different consequence depending upon what job they 
take, what life choices they make.
    Ms. Porter. Just one second. So servicers act in the best 
interest of consumers? Navient, your former employer, a member 
of the organization that you are here to represent today, is 
arguing in court that there is no expectation that the servicer 
will act in the best interest of the consumer. Did I mishear 
you?
    Mr. Buchanan. Are you asking a question about the legal 
definition of ``fiduciary duty?''
    Ms. Porter. No, I asked you a question. I asked you if 
servicers act in the best interest of consumers, and you said, 
and I quote from 10 seconds ago, ``yes.'' I am now reading to 
you from arguments that Navient is making in court. ``There is 
no expectation that the servicer will act in the interest of 
the consumer.'' And further, servicers ``do not owe borrowers 
any specific fiduciary duties based upon their servicer-
borrower relationship.'' Would you like to revise your prior 
answer to the question I started with? Do servicers act in the 
best interest of the consumer?
    Mr. Buchanan. Servicers work for the government to provide 
the options that are available, and we disclose them clearly.
    Ms. Porter. I am asking you, do you--
    Mr. Buchanan. We don't make the choice of what the--
    Ms. Porter. I am reclaiming my time, please. I am going to 
ask the question again. Do servicers act in the best interest 
of consumers?
    Mr. Buchanan. I believe by executing what we are asked to 
do by the Federal Government, if that is what is in the best 
interest of students, then that is what we do is we--
    Ms. Porter. So you act in the best interest of the 
government, which you believe to be in the best interest of 
consumers.
    Mr. Buchanan. We work for the government. That is correct.
    Ms. Porter. Okay. So, Mr. Buchanan, I read your testimony, 
and in it I understood you to say you are ``proud of your 
work.'' You are ``proud to talk about the success and making a 
difference for consumers.'' So I wanted to try to summarize and 
get a handle on some other statements and make sure I 
understand your testimony. Would you agree or disagree that 
recent media reports about servicing are inaccurate, and that 
those claims are counter to the commitment of servicers to help 
borrowers?
    Mr. Buchanan. I believe there is a lot of rhetoric that has 
mischaracterized, pretty meaningfully, what we do in the 
performance of what we have achieved, yes. I would talk about 
sort of the success rates of improving IDR and other things 
that have been--
    Ms. Porter. Reclaiming my time, would you agree that you 
expect your lawyers to follow all laws, regulations, and 
individual rules and policies, and you expect your lawyers to 
follow the laws?
    Mr. Buchanan. I don't have any lawyers myself, but if you 
mean sort of the legal departments of servicers, I think that 
is the expectation.
    Ms. Porter. Okay.
    Mr. Buchanan. And we do comply with the Federal law that is 
applicable here.
    Ms. Porter. Okay. Would you agree that servicers have been 
accused, including by some of the other witnesses, of 
intentionally assessing inappropriate fees and costs to 
borrowers?
    Mr. Buchanan. I believe there have been assertions.
    Ms. Porter. Okay.
    Mr. Buchanan. I don't think they have asserted fees because 
we don't charge fees--
    Ms. Porter. Would you agree that those allegations are not 
true?
    Mr. Buchanan. I'm sorry. Repeat the question?
    Ms. Porter. Would you agree that those allegations are 
simply not true?
    Mr. Buchanan. I don't believe the facts are consistent with 
those allegations as best as I have seen. But, again, I am not 
privy to the litigation here, so there may be facts I am 
unaware of. But all evidence and all performance metrics from 
the servicer perspective to--
    Ms. Porter. Mr. Buchanan, I am running out of time. With 
apologies to Brandi Carlile, my favorite artist, I have been to 
this movie and I have seen how it ends, and the joke is on 
them, the American people. The statements that I just read to 
you are all from the testimony of Countrywide during the 
mortgage crisis when I sat where these folks sit as a witness 
and listened to the witness from Countrywide say that the media 
reports are inaccurate, that they expect their lawyers to 
follow the law, that there has not been an intentional 
assessment of inappropriate fees and costs.
    I already have Netflix, so I don't need another crappy 
reboot. These are the exact same arguments that we have heard 
before. You sound just like Mr. Mozilo, and you are doing the 
same exact kind of harm to our economy. Thank you.
    Chairman Green. The gentlelady's time has expired. The 
Chair now recognizes the gentlewoman from Massachusetts, Ms. 
Pressley, for 5 minutes.
    Ms. Pressley. Thank you, Mr. Chairman, and thank you for 
this critically important conversation this morning. And I want 
to thank our witnesses for joining us today and recognize Ms. 
Thoman and Ms. Darcus for your work on behalf of struggling 
student loan borrowers throughout the Commonwealth. The 
testimony shared today underscores the severity of the student 
debt crisis taking place in our country. This crisis has placed 
an unprecedented financial burden and caused a tsunami of hurt 
on an entire generation of young people, hindering their 
ability to purchase a home, start a family, and even to save 
for retirement.
    Across the Commonwealth of Massachusetts, more than 855,000 
borrowers owe $33 billion in student debt. Last year alone, 
student loan debt in Massachusetts increased by $1 billion. 
Despite the fact that this crisis has reached record 
proportions, this Administration has either failed to act or 
has intentionally worked to undermine State efforts to protect 
borrowers. Back in March, I asked CFPB Director Kraninger if 
she believed that there was a student debt crisis in our 
country. She refused to answer my question, a shocking, but not 
surprising, response from the person running the sole agency 
charged with protecting student loan borrowers in the financial 
marketplace. So I am glad to be at this hearing to talk about 
the steps that State policymakers and State attorneys general 
have made to protect borrowers.
    The student debt crisis is a racial and economic justice 
issue as well. Ms. Darcus, tackling student debt is both a 
racial and economic justice issue, so how is student debt 
exacerbating the racial and gender wealth gap?
    Ms. Darcus. We see that in order to afford a college 
education these days, people of color disproportionately rely 
on debt to make it through. So when we look at what is 
happening in repayment, it is disheartening to see that the 
very same people who are trying to take advantage of the 
promise of education to achieve better economic outcomes for 
their families to experience the economic mobility that 
education is supposed to promise, end up getting bogged down. 
The cost of that education increases through servicer 
misconduct and error, and they disproportionately experience 
default. And since women bear so much student loan debt, we are 
also cognizant that they carry a special burden that we should 
be looking at for our outcomes based on gender and repayment as 
well.
    Ms. Pressley. Okay. Picking up on that, so Federal student 
loan borrowers have a right--all of them--to an affordable 
monthly payment, regardless of their loan balance through 
income-driven repayment, or IDR, correct?
    Ms. Darcus. Yes.
    Ms. Pressley. Okay. And research is showing that when a 
borrower is able to get into and stay in an IDR plan, she is 
significantly less likely to default on her student loan, 
correct?
    Ms. Darcus. Yes.
    Ms. Pressley. Okay. So despite the fact that Federal 
student loan borrowers have a right to an affordable payment, 
research has shown that black and Latinx borrowers face 
significantly more challenges as they try to access these 
repayment plans. So this reflects many of the disparate impact 
terms we see in mortgage redlining abuses. Ms. Darcus, can you 
share some of the real-world consequences when a low-income 
borrower falls into default?
    Ms. Darcus. Unfortunately, the default triggers a world of 
hurt for clients like mine, many of whom are people of color 
and women. They can have their wages garnished. They can have 
their tax refunds, including the earned income tax credit, 
seized. And what we end up seeing is that the limited income 
and wealth that exists in communities of color get siphoned off 
through these government debt collection activities, and that 
means that the racial wealth gap is growing due to student 
loans.
    Ms. Pressley. So, do you believe this is evidence of 
potential discriminatory behavior or misconduct in the student 
loan market?
    Ms. Darcus. We definitely have to look at the disparate 
impact in student loan outcomes based on race and gender. And 
so we have to look at is discrimination happening in servicing 
because the outcomes are stark. People of color fare worse.
    Ms. Pressley. All right. Thank you. Ms. Thoman, the 
Massachusetts AG's Office under the leadership of Attorney 
General Maura Healey has worked diligently to increase 
oversight over these servicers. In 2017, your office brought a 
suit against the Pennsylvania Higher Education Assistance 
Agency (PHEAA) for their egregious servicing failures that 
ultimately caused many borrowers to lose eligibility for the 
Public Service Loan Forgiveness Program. Can you briefly 
explain the major findings of your case?
    Ms. Thoman. Our allegations include that PHEAA has denied 
borrowers the opportunity to make qualifying payments for 
public service loan forgiveness and income-driven repayment 
forgiveness by failing to properly and timely process 
applications for income-driven repayment plans. We have also 
alleged that the company failed to properly count borrowers' 
public service loan forgiveness qualifying payments. Further, 
we have alleged that they have failed to properly process TEACH 
grant certification forms, leading grants that were given to 
teachers to be converted to loans. Finally, we have alleged 
that PHEAA has collected amounts not legitimately due and 
owing, and failing to refund them to borrowers.
    Chairman Green. The gentlelady's time has expired.
    Ms. Pressley. Thank you, Mr. Chairman. Thank you.
    Chairman Green. The Chair now recognizes himself for 5 
minutes. Ms. Darcus, is it true that the Department of 
Education is withholding information and encouraging others to 
withhold information that is relevant and is, in fact, being 
done to the detriment of the borrowers?
    Ms. Darcus. Those are the reports that I have heard, and 
you have heard testimony today from Mr. Smyth, for instance, 
who explained that their work in the Navient case has been held 
up by the Department's efforts to prevent the servicer from 
disclosing important information.
    Chairman Green. Thank you. Mr. Smyth, would you care to 
comment, please?
    Mr. Smyth. Yes. The Department of Education is telling 
servicers not to turn over information regarding Federal loans, 
and that is hampering our efforts and the efforts of other 
States.
    Chairman Green. I regret to see this happening, but it does 
not surprise me given that the Trump Administration by and 
through the President himself refuses to honor subpoenas, 
refuses to encourage witnesses to testify, and, in fact, 
encourages witnesses not to testify. It seems that the Trump 
cover-up mentality is permeating other areas of the government 
to the extent that consumers are going to be harmed. 
Regrettably, this mentality is something that we will have 
great difficulty dealing with unless we decide that we are 
going to deal with the chief executive officer who is the chief 
sponsor of the cover-up mentality.
    Let's move on. There have been those today who seem to 
think that poor people, many of whom happen to be people of 
color, make bad decisions when they acquire loans. Is it true 
that most poor people need the loans to get the education so as 
to extricate themselves from the adversities of poverty? Mr. 
Smyth, would you care to comment?
    Mr. Smyth. It is true that poor people, if they wish to 
attend college, must take out loans because generally their 
families have very little savings to help with college. And 
State legislatures have reduced the amount of money that they 
have put into the public university systems over the past 
decade, so families are having to borrow more now than they 
ever have before.
    Chairman Green. Thank you. Ms. Darcus, is it true that if 
you are poor and the loan is the only option for you, and the 
amount is what is necessary for you to get an education, that 
you really don't have any option other than to take out the 
loan? What other options do people with little wealth have?
    Ms. Darcus. You are right to point out that these aren't 
really good choices, debt or education. You have to get both in 
order to get either at this point. So while they were financing 
higher education through debt, it is not surprising that the 
people who have the least means rely on that debt more. We need 
a system where we are not relying on people who have very 
little to take on the most in order to get the education that 
they seek.
    Chairman Green. I heard a colleague across the aisle 
indicate that we should get to the root of the problem. Well, 
the root of the problem doesn't start with the birth of a poor 
person today. It doesn't start with the adversities that they 
encounter today. It starts with a system of systemic 
discrimination, invidious discrimination, that has been in 
place in this country from its inception. If you differ with 
me, kindly raise your right hand?
    [No response.]
    Let the record reflect that we have no hands raised, and 
the Chair concludes that the comment made is correct. If we 
want to truly get to the root of the problem, is it fair to say 
that we have to deal with systemic, invidious discrimination? 
If you agree, kindly extend a hand into the air.
    [Hands raised.]
    Let the record reflect that all have extended hands into 
the air. And let the record further reflect that my time has 
expired, but my desire to end invidious discrimination will 
only expire when I expire.
    I want to thank the witnesses for their testimony and for 
devoting the time and resources to travel here and share their 
expertise with this subcommittee. Your testimony today has 
helped to advance the important work of providing meaningful 
oversight of the CFPB and the student loan servicing industry.
    The Chair notes that some Members may have additional 
questions for this panel, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 5 legislative days for Members to submit written questions 
to these witnesses and to place their responses in the record. 
Also, without objection, Members will have 5 legislative days 
to submit extraneous materials to the Chair for inclusion in 
the record.
    Without objection, the hearing is now adjourned.
    [Whereupon, at 12:12 p.m., the hearing was adjourned.]

                            A P P E N D I X



                             June 11, 2019
                             

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