[House Hearing, 117 Congress]
[From the U.S. Government Publishing Office]
EXAMINING THE POLICIES AND PRIORITIES
OF THE OFFICE OF FEDERAL STUDENT AID
=======================================================================
HEARING
before the
SUBCOMMITTEE ON
HIGHER EDUCATION AND
WORKFORCE INVESTMENT
of the
COMMITTEE ON EDUCATION AND LABOR
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTEENTH CONGRESS
FIRST SESSION
__________
HEARING HELD IN WASHINGTON, DC, OCTOBER 27, 2021
__________
Serial No. 117-32
__________
Printed for the use of the Committee on Education and Labor
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Available via: edlabor.house.gov or www.govinfo.gov
__________
U.S. GOVERNMENT PUBLISHING OFFICE
46-028 PDF WASHINGTON : 2022
COMMITTEE ON EDUCATION AND LABOR
ROBERT C. ``BOBBY'' SCOTT, Virginia, Chairman
RAUL M. GRIJALVA, Arizona VIRGINIA FOXX, North Carolina,
JOE COURTNEY, Connecticut Ranking Member
GREGORIO KILILI CAMACHO SABLAN, JOE WILSON, South Carolina
Northern Mariana Islands GLENN THOMPSON, Pennsylvania
FREDERICA S. WILSON, Florida TIM WALBERG, Michigan
SUZANNE BONAMICI, Oregon GLENN GROTHMAN, Wisconsin
MARK TAKANO, California ELISE M. STEFANIK, New York
ALMA S. ADAMS, North Carolina RICK W. ALLEN, Georgia
MARK DeSAULNIER, California JIM BANKS, Indiana
DONALD NORCROSS, New Jersey JAMES COMER, Kentucky
PRAMILA JAYAPAL, Washington RUSS FULCHER, Idaho
JOSEPH D. MORELLE, New York FRED KELLER, Pennsylvania
SUSAN WILD, Pennsylvania GREGORY F. MURPHY, North Carolina
LUCY McBATH, Georgia MARIANNETTE MILLER-MEEKS, Iowa
JAHANA HAYES, Connecticut BURGESS OWENS, Utah
ANDY LEVIN, Michigan BOB GOOD, Virginia
ILHAN OMAR, Minnesota LISA C. McCLAIN, Michigan
HALEY M. STEVENS, Michigan DIANA HARSHBARGER, Tennessee
TERESA LEGER FERNANDEZ, New Mexico MARY E. MILLER, Illinois
MONDAIRE JONES, New York VICTORIA SPARTZ, Indiana
KATHY E. MANNING, North Carolina SCOTT FITZGERALD, Wisconsin
FRANK J. MRVAN, Indiana MADISON CAWTHORN, North Carolina
JAMAAL BOWMAN, New York, Vice-Chair MICHELLE STEEL, California
MARK POCAN, Wisconsin JULIA LETLOW, Louisiana
JOAQUIN CASTRO, Texas Vacancy
MIKIE SHERRILL, New Jersey
JOHN A. YARMUTH, Kentucky
ADRIANO ESPAILLAT, New York
KWEISI MFUME, Maryland
Veronique Pluviose, Staff Director
Cyrus Artz, Minority Staff Director
------
SUBCOMMITTEE ON HIGHER EDUCATION AND WORKFORCE INVESTMENT
FREDERICA S. WILSON, Florida, Chairwoman
MARK TAKANO, California GREGORY F. MURPHY, North Carolina
PRAMILA JAYAPAL, Washington Ranking Member
ILHAN OMAR, Minnesota GLENN GROTHMAN, Wisconsin
TERESA LEGER FERNANDEZ, New Mexico ELISE M. STEFANIK, New York
MONDAIRE JONES, New York JIM BANKS, Indiana
KATHY E. MANNING, North Carolina JAMES COMER, Kentucky
JAMAAL BOWMAN, New York RUSS FULCHER, Idaho
MARK POCAN, Wisconsin MARIANNETTE MILLER-MEEKS, Iowa
JOAQUIN CASTRO, Texas BOB GOOD, Virginia
MIKIE SHERRILL, New Jersey LISA C. McCLAIN, Michigan
ARIANO ESPAILLAT, New York DIANA HARSHBARGER, Tennessee
RAUL M. GRIJALVA, Arizona VICTORIA SPARTZ, Indiana
JOE COURTNEY, Connecticut JULIA LETLOW, Louisiana
SUZANNE BONAMICI, Oregon VIRGINIA FOXX, North Carolina
ROBERT C. ``BOBBY'' SCOTT, Virginia (ex officio)
(ex officio)
C O N T E N T S
----------
Page
Hearing held on October 27, 2021................................. 1
Statement of Members:
Wilson, Hon. Frederica S., Chairwoman, Subcommittee on Higher
Education and Workforce Investment......................... 1
Prepared statement of.................................... 4
Murphy, Hon. Gregory F., Ranking Member, Subcommittee on
Higher
Education and Workforce Investment......................... 5
Prepared statement of.................................... 7
Statement of Witnesses:
Cordray, Hon. Richard, Chief Operating Officer, U.S.
Department of Education Office of Federal Student Aid...... 8
Prepared statement of.................................... 11
Additional Submissions:
Questions submitted for the record by:
Chairman Scott........................................... 60
Chairwoman Wilson........................................ 60
Castro, Hon. Joaquin, a Representative in Congress from
the State of Texas..................................... 61
Ranking Member Foxx...................................... 61
Banks, Hon. Jim, a Representative in Congress from the
State of Indiana....................................... 62
Miller-Meeks, Hon. Mariannette, a Representative in
Congress from the State of Iowa........................ 63
McClain, Hon. Lisa C., a Representative in Congress from
the State of Michigan.................................. 63
Letlow, Hon. Juia, a Representative in Congress from the
State of Louisiana..................................... 63
Response to question submitted for the record by:
Mr. Cordray.............................................. 65
EXAMINING THE POLICIES AND PRIORITIES
OF THE OFFICE OF FEDERAL STUDENT AID
----------
Wednesday, October 27, 2021
House of Representatives,
Subcommittee on Education and
Workforce Investment,
Committee on Education and Labor,
Washington, DC.
The Subcommittee met, pursuant to notice, at 10:16 p.m.,
via Zoom, Hon. Frederica S. Wilson (Chairwoman of the
Subcommittee) presiding.
Present: Representatives Wilson, Jayapal, Leger Fernandez,
Manning, Bowman, Pocan, Castro, Sherrill, Espaillat, Courtney,
Bonamici, Scott (ex officio), Murphy, Grothman, Banks, Comer,
Miller-Meeks, Good, McClain, Harshbarger, Letlow, and Foxx (ex
officio).
Staff present: Katie Berger, Professional Staff; Jessica
Bowen, Professional Staff; Rashage Green, Director of Education
Policy; Christian Haines, General Counsel; Rasheedah Hasan,
Chief Clerk; Sheila Havenner, Director of Information
Technology; Eli Hovland, Policy Associate; Ariel Jona, Policy
Associate; Andre Lindsay, Policy Associate; Max Moore, Staff
Assistant; Mariah Mowbray, Clerk/Special Assistant to the Staff
Director; Kayla Pennebecker, Staff Assistant; Veronique
Pluviose, Staff Director; Manasi Raveendran, Director of
Education Oversight and Counsel; Banyon Vassar, Deputy Director
of Information Technology; Claire Viall, Professional Staff;
Cyrus Artz, Minority Staff Director; Caitlin Burke, Minority
Professional Staff Member; Michael Davis, Minority Operations
Assistant; Amy Raaf Jones, Minority Director of Education and
Human Resources Policy; David Maestas, Minority Fellow; Hannah
Matesic, Minority Director of Member Services and Coalitions;
Eli Mitchell, Minority Legislative Assistant; Chance Russell,
Minority Professional Staff Member; Mandy Schaumburg, Minority
Chief Counsel and Deputy Director of Education Policy; and Brad
Thomas, Minority Senior Education Policy Advisor.
Chairwoman Wilson. Good morning. We are ready to begin. I
will count down from five and then we will start. Five, four,
three, two, one. The Subcommittee on Higher Education and
Workforce Investment will come to order. Welcome everyone.
I note that a quorum is present. I note for the
Subcommittee that Mr. Keller of Pennsylvania and Mr. Fitzgerald
of Wisconsin are permitted to participate in today's hearing
with the understanding that their questions will come only
after all Members of the Subcommittee on both sides of the
aisle who are present have had an opportunity to question the
witnesses.
The Subcommittee is meeting today to hear testimony on
policies and priorities of the Office of Federal Student Aid.
This is an entirely remote hearing. All microphones will be
kept muted as a general rule to avoid unnecessary background
noise.
Members and witnesses will be responsible for unmuting
themselves when they are recognized to speak, or when they wish
to seek recognition. I also ask that Members please identify
themselves before they speak. Members should keep their cameras
on in the proceeding. Members be present in the proceeding when
they are visible on camera, and they should be considered not
present when they are not visible on camera.
The only exception to this if they are experiencing
technical difficulty and inform Committee staff of such
difficulty. If any Member experiences technical difficulties
during the hearing you should stay connected on the platform,
make sure you are muted, and use your phone to immediately call
the Committee's IT director whose number was provided in
advance.
Should the Chair experience technical difficulties or need
to step away to vote on the floor Representative Bonamici or
another majority Member is hereby authorized to assume the
gavel in the Chair's absence. This is an entirely remote
hearing and as such the Committee's hearing room is officially
closed. Members who choose to sit with their individual devices
in the hearing room must wear headphones to avoid feedback,
echoes, and distortion resulting from more than one person on
the same software platform sitting in the same room.
Members are also expected to adhere to social distancing
and safe healthcare guidelines, including the use of masks,
hand sanitizer, and wiping down their areas both before and
after their presence in the hearing room.
In order to ensure that the Committee's five-minute rule is
adhered to staff will be keeping track of time using the
Committee's field timer. The field timer will appear in its own
thumbnail picture, and it will be named 001_timer. There will
be no one minute remaining warning. The field timer will show a
blinking light when time is up.
Members and witnesses are asked to wrap up promptly when
their time has expired. Pursuant to Committee Rule 8(c) opening
statements are limited to the Chair and the Ranking Member.
This allows us to hear from our witnesses--in this case, our
witness sooner, and provides all Members with adequate time to
ask questions.
I recognize myself now for the purpose of making an opening
statement. Today we meet to discuss the Office of Federal
Student Aid work to protect and support student borrowers. Mr.
Cordray welcome to the Committee on Education and Labor and
your first hearing before Congress in your role as FSA's Chief
Operating Officer. We are honored to have you here this
morning.
Under your leadership FSA manages Federal financial aid
programs including Pell grants, campus-based aid, and Federal
student loans. This is a tremendous responsibility as there are
43 million Federal student loan borrowers who owe more than 1.5
trillion dollars.
Alarmingly, under Secretary Devos and President Trump, the
Department abandoned his responsibility to America's students
and taxpayers, including by withholding debt relief from
hundreds of thousands of students who were defrauded by low-
quality institutions, allowing predatory institutions to
collect millions of dollars from taxpayers, shielding student
loan servicing companies from regulatory agencies and State law
enforcement, and failing to ensure borrowers receive accurate
information about critical programs, such as the public student
loan forgiveness program, that are designed to support student
borrowers and their families.
So, I am grateful that we now have an education department
that is listening to student borrowers and working diligently
to better support them. I recently heard from a constituent who
was a teacher with nearly $100,000.00 in outstanding student
loan debt. His loan balance has ballooned because the monthly
payment that he can afford to make have failed to keep pace
with interest on his loan.
This experience is not unique, which is why I applaud the
transformative actions that the Department of Education has
taken under your leadership and the leadership of Secretary
Cardona to provide hundreds of thousands of student borrowers
with the loan relief they were legally entitled to receive.
And I look forward to the outcome of the Department's
ongoing negotiated rulemaking process, which will hopefully
provide further relief to low-income borrowers and others and
streamline the loan repayment process.
In August the administration took action to discharge the
loans of 364,000 borrowers who had a total and permanent
disability. The Department also made important changes to
streamline and automate relief for eligible borrowers in the
future and ensure that their loans are not mistakenly
reinstated.
The Biden administration has also approved student loan
relief for 92,000 student borrowers who were defrauded by their
institutions and secured relief for an additional 115,000
Federal student borrowers who were left stranded by the sudden
collapse of ITT Technical Institute.
And most recently the administration announced major
changes to the public service loan forgiveness program both
through a time limited waiver and the rulemaking process to
keep our promise to nurses, teachers, first responders, and
other public service workers.
Many public servants across the country have already been
notified that help is on the way. In total, the Biden/Harris
administration has erased 9.5 billion dollars in loans for
563,000 borrowers. In many cases the relief provided has helped
give borrowers and their families a second chance to a better
life.
I also applaud the steps the Department has taken to
protect students and taxpayers from low-quality institutions,
including reinstating the FSA's enforcement unit which was
dormant under Secretary DeVos. While the Department's progress
has been encouraging, FSA is facing a series of major hurdles
that are on the horizon. The upcoming return of loan repayment
presents a monumental task for FSA and student loan services.
We must ensure that students receive the education and
support they need to begin repaying. They're going to need a
lot of support to transition. Many borrowers may be unsure of
their rights and responsibilities and are experiencing
continued financial hardship caused by this looming pandemic
that may entitle them to change their repayment plans.
We have to monitor this very carefully. Loan serving
companies need a robust and well-trained workforce to support
an increased volume of borrower requests as repayment begins.
And finally, while the shift to Next Gen is a major
opportunity to make long needed reforms to student loan
servicing, the continuous delays under the Trump administration
have left FSA with no margin for error. This hearing is a
chance to learn about FSA's plans to address these critical
issues, how they are balancing various priorities and what is
being done to ensure that low-income borrowers and other risk
groups, receive the appropriate attention from their loan
services and FSA. Black students are the most impacted by
student loans. I look forward to our discussion and the work
you have ahead to ensure that all students--all students in
this country can access high-quality, higher education without
taking on debt they cannot repay, or falling victim to
predatory institutions.
Thank you again Mr. Cordray for being with us today and for
your work to secure relief for student borrowers. We applaud
you. I now recognize the distinguished Ranking Member for the
response of making an opening statement. Welcome Dr. Murphy.
[The prepared statement of Chairwoman Wilson follows:]
Statement of Hon. Frederica S. Wilson, Chairwoman, Subcommittee on
Higher Education and Workforce Investment
Today, we meet to discuss the Office of Federal Student Aid's work
to support and protect student borrowers. Mr. Cordray, welcome to the
Committee on Education and Labor and to your first hearing before
Congress in your role as FSA's chief operating officer. We are honored
to have you here this morning.
Under your leadership, FSA manages Federal financial aid programs
including Pell Grants, campus-based aid, and Federal student loans.
This is a tremendous responsibility as there are 43 million Federal
student loan borrowers who owe more than 1.5 trillion dollars.
Alarmingly, under Secretary DeVos and President Trump, the
department abandoned its responsibility to America's students and
taxpayers, including by:
Withholding debt relief from hundreds of thousands of
students who were defrauded by low-quality institutions;
Allowing predatory institutions to collect millions of
dollars from taxpayers;
Shielding student loan servicing companies from regulatory
agencies and State law enforcement; and
Failing to ensure borrowers received accurate information
about critical programs, such as the Public Service Loan
Forgiveness Program, that are designed to support student
borrowers and their families.
I am grateful that we now have an Education Department that is
listening to student loan borrowers and working diligently to better
support them.
I recently heard from a constituent who is a teacher with nearly a
hundred thousand dollars in outstanding student loan debt. His loan
balance has ballooned because the monthly payments that he can afford
to make have failed to keep pace with the interest on his loan.
This experience is not unique, which is why I applaud the
transformative actions that the Department of Education has taken under
your leadership and the leadership of Secretary Cardona to provide
hundreds of thousands of student borrowers with the loan relief they
were legally entitled to receive.
And I look forward to the outcome of the Department's ongoing
negotiated rulemaking process, which will hopefully provide further
relief to low-income borrowers and others and streamline the loan
repayment process.
In August, the administration took action to discharge the loans of
364,000 borrowers who have a total and permanent disability. The
department also made important changes to streamline and automate
relief for eligible borrowers in the future and ensure that their loans
are not mistakenly reinstated.
The Biden administration has also approved student loan relief for
92,000 student borrowers who were defrauded by their institutions, and
secured relief for an additional 115,000 Federal student borrowers who
were left stranded by the sudden collapse of ITT Technical Institute.
And most recently, the administration announced major changes to
the Public Service Loan Forgiveness program, both through a time-
limited waiver and the rulemaking process, to keep our promise to
nurses, teachers, first responders, and other public service workers.
Many public servants across the country have already been notified that
help is on the way.
In total, the Biden-Harris administration has erased $9.5 billion
in loans for 563,000 borrowers. In many cases, the relief provided has
helped give borrowers and their families a second chance to a better
life.
I also applaud the steps that the Department has taken to protect
students and taxpayers from low-quality institutions, including
reinstating the FSA's Enforcement Unit, which was dormant under
Secretary DeVos.
While the department's progress has been encouraging, FSA is facing
a series of major hurdles that are on the horizon.
The upcoming return to loan repayment presents a monumental task
for FSA and student loan servicers. We must ensure that students
receive the education and support they need to begin repaying. They're
going to need a lot of support to help transition. Many borrowers may
be unsure of their rights and responsibilities or are experiencing
continued financial hardship caused by this looming pandemic, that may
entitle them to change their repayment plan. We have to monitor this
very carefully.
Loan-serving companies need a robust and well-trained workforce to
support an increased volume of borrower requests as repayment begins.
And finally, while the shift to NextGen is a major opportunity to
make long-needed reforms to student loan servicing, the continuous
delays under the Trump administration have left FSA with no margin for
error.
This hearing is a chance to learn about FSA's plans to address
these critical issues, how they are balancing various priorities, and
what is being done to ensure that low-income borrowers and other at-
risk groups receive the appropriate attention from their loan servicers
and FSA. Black students are the most impacted by student loans.
I look forward to our discussion and the work we have ahead to
ensure that all students--all students--in this country can access
high-quality higher education without taking on debt they cannot repay
or falling victim to predatory institutions.
Thank you, again, Mr. Cordray, for being with us today and for your
work to secure relief for student borrowers. We applaud you. I now
recognize the distinguished Ranking Member for the purpose of making an
opening statement. Welcome Dr. Murphy.
______
Mr. Murphy. Thank you, Madam Chairman. Thank you very much
for those opening comments. Before I get to my statement, I
appreciate the complexity of this issue. We have so many people
that don't understand that signing on a dotted line means that
they have to pay money back.
Also we have understanding unfortunately, that so many of
our institutions of higher education have not been bastions of
financial prudence, and therefore those financial burdens are
laid upon those students. So it's really a multifactorial
problem. We need to get on our institutions to cut back costs
so that students do not have their futures forsaken, so I
appreciate the comments.
So you know the Office of Federal Student Aid is an
important agency that is responsible for overseeing the
disbursement of over 100 billion in grants, loans, and student
aid dollars each year. Through such aid millions of students
are able to pursue postsecondary education who would otherwise
not have the means to do so, and that's a very, very, just
cause.
In addition to this vital function FSA plays in higher
education, FSA is also tasked with overseeing one of the
greatest challenges that the Department of Education has faced
since its inception, returning nearly 45 million borrowers into
repayment status after nearly 2-year hiatus in response to the
COVID-19 pandemic.
The stakes could not be higher as the consequence of a
failed transition would be catastrophic as millions of
borrowers, those who signed on the dotted line, could
needlessly default on their loans, thus ruining their own
financial future. This should be the full focus of FSA, but
unfortunately this office has bowed somewhat to partisan
politics and put the wishes of a democratic party progressive
face over the immediate needs of those students who they serve.
Instead of working with its partners to ensure the
transition to repayment runs smoothly, FSA has taken to an us
versus them approach, treating these contractors more like
adversaries than the critical partners that they really are.
It's not a stretch to assume that such rhetoric from the
highest levels of FSA contributed to the exit of several
Federal student loan services over the last year who have
collectively served 16.5 million borrowers.
Further, FSA is currently carrying out the implementation
of the FAFSA simplification and the Future Act. Instead of
focusing on their implementation, which is critical to the
disbursement of Federal student aid dollars, FSA has decided to
spend its energy harping on for-profit colleges through the
revival of an Obama era enforcement unit, while turning a blind
eye to the misdeeds of institutions that serve a vast majority
of students.
To make matters worse, the Biden administration is using a
permanent pandemic narrative to expand its takeover of higher
education, recently announcing an executive action to overhaul
the public service loan forgiveness program in direct conflict
with the law that democrats unilaterally wrote.
This will undoubtedly take away necessary resources that
should be allocated to the soon to be disaster in the Federal
student loan program. In addition to the massive overreach of
executive authority, this policy is fundamentally unjust. It
puts taxpayers--the majority of whom do not own a college
degree on the hook for billions of dollars in student loans
borrowed by individuals making more than those taxpayers.
This is on top of 100 billion dollars taxpayers are already
responsible for due to continuation of the student loan
repayment pause. Given FSA has decided to spend its given, on
pleasing progressive advocates, it's usurping Cordray's team to
pushing others to do FSA's job, including telling states to
regulate Federal student loan services.
FSA's lack of leadership will ultimately hurt the very
students it claims to care about. For these reasons I'm glad
Chairwoman has called this hearing today. Committee republicans
have requested information regarding all of these critical
issues, but unfortunately, we received little or no response
with the exception of an 11th hour letter that sadly did not
address our questions.
As I would expect should be and should be the case.
Unfortunately rather, we have Chief Operating Officer Cordray
here today to provide these answers for us, and I look forward
to hearing more details on all of these issues. Thank you,
Madam Chairman. With that I will yield back.
[The prepared statement of Mr. Murphy follows:]
Statement of Hon. Gregory F. Murphy, Ranking Member, Subcommittee on
Higher Education and Workforce Investment
The Office of Federal Student Aid (FSA) is an important agency that
is responsible for overseeing the disbursement of over $100 billion in
grants, loans, and other student aid dollars each year.
Through such aid, millions of students are able to pursue
postsecondary education who otherwise would not have the means to do so
and that's a very just cause.
In addition to this vital function FSA plays in higher education,
FSA is also tasked with overseeing one of the greatest challenges the
Department of Education has faced since its inception--returning nearly
45 million borrowers into repayment status after a near 2-year pause in
response to the COVID-19 pandemic.
The stakes could not be higher as the consequences of a failed
transition would be catastrophic--as millions of borrowers, those who
signed on the dotted line, could needlessly default on their loans,
thus ruining their financial future.
This should be the sole focus of FSA, but unfortunately, this
office has bowed somewhat to partisan politics and put the wishes of
the Democrat party's progressive base over the immediate needs of
student borrowers.
Instead of working with its partners to ensure the transition to
repayment runs smoothly, FSA has taken an 'us versus them approach,'
treating these contractors more like adversaries than the critical
partners that they really are. It's not a stretch to assume that such
rhetoric from the highest levels of FSA contributed to the exit of
several Federal student loan servicers over the last year who
collectively serve 16.5 million borrowers.
Further, FSA is also currently carrying out the implementation of
the FAFSA Simplification Act and the FUTURE Act. Instead of focusing on
their implementation which is critical to the disbursement of Federal
student aid dollars, FSA has decided to spend its energy harping on
for-profit colleges through the revival of an Obama-era enforcement
unit while turning a blind eye to the misdeeds of institutions that
serve the vast majority of students.
To make matters worse, the Biden administration is using the
permanent pandemic narrative to expand its takeover of higher
education, recently announcing an executive action overhaul of the
Public Service Loan Forgiveness program in direct conflict with the law
Democrats unilaterally wrote. This will undoubtedly take away necessary
resources that should be allocated to the soon to be disaster in the
Federal student loan program.
In addition to being a massive overreach of executive authority,
this policy is fundamentally unjust. It puts taxpayers--the majority of
which do not hold a college degree--on the hook for billions in student
loans borrowed by individuals making more than those taxpayers.
This is on top of the $100 billion taxpayers are already
responsible for due to the continuation of the student loan repayment
pause. We have received little to no response, with the exception of a
few 11th hour letters that sadly did not address our questions and I
expect you all knew would be the case.
Given FSA has decided to spend its energy on pleasing progressive
advocates, its unsurprising Cordray's team are pushing others to do
FSA's job, including telling states to regulate Federal student loan
servicers. FSA's lack of leadership will ultimately hurt the very
students it claims to care about.
For these reasons, I am glad the Chairwoman has called for this
hearing today. Committee Republicans have requested information
regarding all these critical issues. But unfortunately, we have
received little to no response, with the exception of a few 11th hour
letters that sadly did not address our questions as I expect you all
knew would be the case.
But fortunately, we have Chief Operating Officer Richard Cordray
today and I look forward to hearing more details on all of these
issues.
______
Chairwoman Wilson. Our witness, Mr. Richard Corday is the
Chief Operating Officer, COO, of Federal Student Aid, FSA.
Prior to his role, Mr. Cordray served for 6 years as the
Director of the Consumer Financial Protection Bureau, CFPB.
Before joining CFPB, Mr. Cordray served as Ohio's Attorney
General and also served as Ohio Treasurer and Ohio State
Representative and Ohio's Solicitor General. Welcome. We
appreciate--we will now hear from our witness today.
Mr. Cordray. All right, thank you, Chair Wilson, Ranking
Member Murphy, and Members of the Subcommittee.
Chairwoman Wilson. We appreciate you for participating
today and look forward to your testimony. Let me remind you
that we have read your written statement, and it will appear in
full in the hearing record. Pursuant to Committee Rule 8(d) and
Committee practice, you are asked to limit your oral
presentation to a 5-minute summary of your written statement.
Before you begin your testimony please remember to unmute
your microphone and start your testimony. Staff will be keeping
track of time and a light will blink when time is up. Please be
attentive to the time, wrap up when your time is over, and
remute your microphone.
If you experience technical difficulty during your
testimony, or later in the hearing, you should stay connected
on the platform, make sure you are muted, and use your phone to
immediately call the Committee's IT director whose number was
provided to you in advance.
After your presentation we will move to Member questions.
When answering the questions please remember to unmute your
microphone. The witness is aware of his responsibility to
provide accurate information to the Subcommittee, and therefore
we will proceed with this testimony. And now, welcome Mr.
Cordray.
STATEMENT OF HON. RICHARD CORDRAY, CHIEF OPERATING OFFICER,
U.S. DEPARTMENT OF EDUCATION OFFICE OF FEDERAL STUDENT AID
Mr. Cordray. Thank you, Chair Wilson. I think I jumped the
gun there a moment, Ranking Member Murphy, Members of the
Subcommittee, thank you for allowing me to testify today about
the Federal student aid's priorities. And though I'm no
stranger to testifying before Congress, this is my first
occasion in my new position.
Right now at FSA we face great challenges as we seek to
provide the quality service that students, borrowers, and
families deserve. Everyone has felt the effects of COVID-19
which has produced a notable downturn in both FAFSA completion
enrollment rates. This should be of grave concern to all of us
who want to see our country achieve its full potential for
generations to come.
Our top priority every year is to ensure that students and
their families have reliable, uninterrupted access to the
financial help they need. The FAFSA form itself is facing huge
changes as we implement two new laws you passed to improve the
student aid process. The changes you legislated will make it
easier to complete the FAFSA form, unlocking aid for many more
Americans.
The operational challenges are extensive, and we're being
deliberate and strategic in planning to implement them. We're
also working to reform the FAFSA verification process to reduce
the burden on eligible students and their families helping them
secure financial aid while protecting taxpayers. FSA is also
charged with serving students across the full lifecycle of
student aid. As you know many millions of borrowers already are
in repayment, and we're making changes to better serve them.
For example, the Department of Education recently announced
dramatic changes to the public service loan forgiveness program
that FAFSA will now carry out. We intend finally to fulfill the
program's promise to secure loan relief for service Members,
teachers, nurses, police, firefighters, and others who have
chosen to put community over self.
We're also reviewing and improving other special
forgiveness programs such as total and permanent disability.
The Department is considering ways to improve these programs
through the ongoing negotiated rulemaking process, and we're
collaborating with other Federal agencies by leveraging data
matching to streamline or automate loan forgiveness.
In addition to better meet the needs of everyone who owes
money on their student loans, we just successfully secured
contract extensions for the loan services who will continue to
work with us over the next 2 years. This is a milestone because
for the first time we've secured new performance and
accountability metrics that require servicers to put borrowers
ahead of their own bottom lines, including penalties to make
sure they do so.
We look forward to working with those servicers that
stepped up and grasped the shared vision of our
responsibilities here. We will also include transparency by
expanding required data reporting but let me say here that it
was not I, but our negotiating team that did great work to
secure these teachings that benefit borrowers with no per
account price increase for taxpayers.
To ensure accountability, FSA has created an office of
enforcement to boost oversight of schools and reduce risks for
students and taxpayers. To do this we will work closely with
our colleagues in the Department, with Federal partners such as
the FTC, CFBP, Justice Department, and Treasury, and with our
State partners as well.
We will also listen and learn from the community groups who
advocate for students and borrowers. These relationships will
help us achieve the goals that you and the Congress have set
for us. Above and beyond all this work however looms an
overriding challenge unique to the coming year--the
unprecedented task of returning tens of millions of student
loan borrowers back into repayment after a pause that was
extended multiple times over almost 2 years.
During this time borrowers generally have not been required
to make regular payments, have been subject to zero percent
interest, and if in default had collections stopped on their
outstanding loan balances. In August the Department announced a
final extension of these pandemic relief measures until January
31, 2022.
We know this will not be an easy transition for borrowers
or loan servicing partners, or any of the other stakeholders
involved in the repayment process. This is a defining moment
for FSA, and it's crucially important for millions of Americans
that we succeed. We're working to execute a comprehensive plan
to combine elements of borrower outreach; servicer hiring,
training, and preparation; policy enhancements and oversight to
help borrowers effectively manage the process of returning the
repayment.
The core of our plan is clear communication, quality
customer service, and targeted support for those having trouble
making their payments. We and our servicers are engaged in
informing borrowers about this deadline of what is expected of
them. We ask you to help us spread the word so nobody is
surprised or unprepared. We want to be sure borrowers know
their options, such as applying for an income driven repayment
plan to make their monthly payments more affordable.
We also encourage borrowers to sign up for our auto debit
program which is the easiest way to make their current monthly
payments. There's nothing abstract about the challenges we
face. If we're to succeed as a nation we must answer the call
for millions of Americans who depend on Federal student aid as
a path forward to better their lives.
As each borrower succeeds, we all succeed. This idea is
engrained in the mission of FSA which at its core is to enable
the American dream. We appreciate your help and support as we
move forward together to this end. Thank you, and I look
forward to answering your questions.
[The prepared statement of Mr. Cordray follows:]
Prepared Statement of Richard Cordray
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Ms. Bonamici. Madam Chair, you are muted.
Chairwoman Wilson. Thank you, Mr. Cordray, thank you for
your testimony. Under Committee Rule 9(a) we will now question
witnesses under the five-minute rule. I will be recognizing
Subcommittee Members in seniority order. Again, to ensure that
the Members five-minute rule is adhered to, staff will be
keeping track of time, and the timer will show a blinking light
when time has expired.
Please, please be attentive to the time. Wrap up when your
time is over, and remute your microphone. As Chair I now
recognize myself for five minutes.
Mr. Cordray, I applaud the actions taken to restore faith
in the public service loan, however for many borrowers 10 years
is too long and they can't wait that long for relief. What
would be the impact of providing forgiveness on a tiered basis,
for example, by allowing borrowers to have a portion of that
debt erased for every year of qualifying service?
Mr. Cordray. Thank you, Madam Chair. I appreciate the
question. And let me start by saying that of course Congress
passed the law that provides for a 10-year timeframe, and
Congress could change that timeframe if Congress sees fit. It
wouldn't be for me to change that timeframe, although we'd be
happy to provide technical assistance and input into what the
operational effects of that might be.
We are working to implement the changes that are being made
in the program currently, important, dramatic changes that are
going to benefit, as we say, all the people who deserve public
service loan forgiveness but haven't had it in the past. Those
are service Members, police officers, firefighters, you know
people who have really stepped up during the pandemic and put
themselves at risk for the benefit of the rest of us.
And so whatever changes you might want to make in that
program we'll be happy to work with you to understand what they
are and give you whatever input we can to be of help to you.
Chairwoman Wilson. Thank you. I drafted a bill to address
that, so you should--we'll enlist your help in finishing that
product. Also, can you explain to us what is Operation Fresh
Start?
Mr. Cordray. So, I don't know that there's a specific
Operation Fresh Start. There are policy matters under
consideration at the Department as to what the effect of the
repayment, restart that's happening after January 31, 2022,
will be on defaulted borrowers.
It is understood that delinquent borrowers will be returned
to current status and will move forward to try to put them in
the right position to succeed in returning to repayment. As for
defaulted borrowers, those are matters that are under
consideration right now, and I don't have more for you on that
at this point.
Chairwoman Wilson. Thank you. Studies have shown that
disparities in student loan debt are deeply rooted in racial
wealth disparities. What is FSA's plan for addressing racial
and social economic disparities and student loan default and
negative amortization?
Mr. Cordray. So in general you know we're looking and
looking carefully at how we can improve the repayment programs
here. As you mentioned at the outset there's more than 40
million Americans who owe money on student loans. And when you
think about 40 million Americans and their families, we're
getting to half the population of this country, so it's a
major, major issue.
As you say correctly, the number of people who are in
default on their loans, or people who have having trouble
repaying their loans, there is some racial inequity in those
numbers we believe. However, what we want to do here is to
administer this program fairly to make the process as easy as
possible for borrowers to succeed, which ultimately will
benefit taxpayers because what could be repaid will be repaid.
And what is more difficult, there are programs for that,
such as income driven repayment, and other programs that
borrowers should get signed up for, and we're working hard with
our servicers to make sure that borrowers know those options,
and then servicers make it as easy as possible for people to
access those options, and we've made some changes at the
Department to accomplish that as well.
But we're keenly aware of what you say about the
differential effectiveness on American people, and we want to
make sure that the program works as well as it can, and we
think there's lots of room for improvement here.
Chairwoman Wilson. OK. Reportedly President Biden has asked
to prepare a memo on the President's legal authority to forgive
student loan debt. What is the status of that memo, and when
it's finalized, will it be made public?
Mr. Cordray. So I think it's widely known that there have
been legal memos prepared across the government, and that the
White House has been taking them under consideration, and
that's a matter for the White House to determine, obviously not
for me. Whatever is determined, we will implement it. I do
think that student loan forgiveness helps many worthy
borrowers, help get back on their feet.
But we will see what happens, and whatever it is we will
implement it as best we can, and as smoothly as possible for
borrowers and taxpayers.
Chairwoman Wilson. Do you know when that will be made
public? And do you have any timelines from the White House?
Mr. Cordray. I do not.
Chairwoman Wilson. OK.
Mr. Cordray. Madam Chair.
Chairwoman Wilson. Thank you, so much. Thank you. And now I
will yield to our Ranking Member for his questions. Dr. Murphy
of North Carolina.
Mr. Murphy. Thank you, Madam Chairman, I'll just turn up my
volume here. Thank you for the insightful questions that you
had. Let me Mr. Cordray appreciate your coming on today. Let me
just run a couple things by you. As you are aware through the
CARES Act, an executive action, student loan buyers--borrowers
rather, received significant relief since March 2020, and it
was significant relief in a very bipartisan act of Congress.
But, in addition to the payment pause, borrowers seeking
forgiveness under PSLF have moved nearly 2 years closer to
forgiveness because such payments have been counted toward
their requirement. This was a significant benefit for these
borrowers, would you agree?
Mr. Cordray. Yes, I believe it is.
Mr. Murphy. Great. I mean I do, too. I think it's a major
benefit for those borrowers. Is it reasonable then to argue
that particularly with respect to those who did not suffer
joblessness, such borrowers are in a better position
financially in relation to their Federal student loans than
they were prior to the pandemic? Would you agree with that?
Mr. Cordray. I think it's very hard to say on that question
just because the pandemic has affected many public service
employees. There are a lot of jobs that have been cut, or
people have had their hours cut back because of the budget
problems that we all experienced early in the days of the
pandemic. Congress provided significant relief that I think
helped State and local governments, and the Federal Government
in various respects, and that has staunched some of the damage.
In terms of whether borrowers are in a better position
today than they were before the pandemic, that's going to vary
dramatically from one community to another, and one household
to another.
Mr. Murphy. Sure. I would not disagree. I would just submit
however that the vast majority of individuals who have still
stayed employed did not have their hours cut back, and they're
in a better position. So the reason I ask these questions is
because the Department has recently announced a major overall
of the PSLF program using authority provided through the
Secretary under the HEROES Act of 2003.
And so under this authority the Secretary may waive or
modify any statutory or regulatory provision applicable to the
student financial assistance programs under Title IV of the HEA
to ensure that recipients of student financial assistance under
Title IV of the Act who are affected individuals, which are
those who suffered direct economic hardship as a result of a
military operation or national emergency, but are not placed in
a worse position financially in relation to that financial
assistance because of their status.
Is that correct is your understanding of what that
statement says?
Mr. Cordray. It's my understanding that the HEROES Act
which was passed of course by Congress, does give the Secretary
substantial authority here, and that was exercised, as well as
other authorities that are granted to effectuate this relief on
the public service loan forgiveness program. Yes.
Mr. Murphy. So we agree that there's heterogeneity in what
all of our programs, and all that our borrowers are facing, and
that a one size fits all approach is probably not the actual
correct approach. Would you agree?
Mr. Cordray. You know, I think that's a broad statement. I
would like to know specific instances. I think sometimes a
broad approach is simplest to implement, but sometimes a
nuanced approach is much more congruent to the situations of
individual families and households and communities, so it
depends.
Mr. Murphy. Yes, I would agree. Madam Chairman I'll just
take a point of order here. My clock seems to have frozen, and
I don't want to take off my time, we're all frozen in time
here, so.
Chairwoman Wilson. You're frozen. We gave you a lot of
time.
Mr. Murphy. Well I don't want to, I mean I don't want to
talk for the sake of talking, I just want to abide by the
rules. So let me go on just to another question. Mr. Cordray,
President Biden has made it clear that forgiving student debt
is a top priority for his administration and stated on multiple
occasions he would sign a bill forgiving $10,000.00 in student
debt for all borrowers if Congress wants it sent to his desk.
Do you support this policy? Has anyone in the Department of
Education asked you or your team to process to forgive
$10,000.00, or some amount for all borrowers, or are there
other forgiveness plans that you have undertaken as part of the
process?
Mr. Cordray. So just to reset my position here, that's a
policy decision. I have an operational job. My job is to take
whatever policies are adopted, whether by Congress, of course
in the first instance through statute, or the Department
through regulatory authority, or authority given by Congress,
and make sure that's carried out effectively.
We have our hands full to do that job, with all the various
things falling on us right now including return to repayment as
you noted at the outset is a major, major challenge.
Mr. Murphy. Sure.
Mr. Cordray. So I would just defer on the question of what
my personal preference is here.
Mr. Murphy. All right. So you don't have a personal
preference, and so if the President said everybody gets
$10,000.00 off, you just do your job and implement it, correct?
Mr. Cordray. I think if that were the decision, it would
benefit many, many borrowers who are otherwise in trouble, some
of whom never finished college, so never got the benefit of the
bargain there, and so I can understand why that would be
considered important, and we will see what happens, but it is
not my decision to make. I just want to be caution on that.
Mr. Murphy. Yes, and I say to those individuals who didn't
finish college is that was a risk that they took, and they're
still just because they didn't finish college doesn't mean they
didn't have their risk. This blanket forgiveness stuff,
especially being paid by people who never even went to college,
I think is exceedingly unfair.
So let me just ask you a quick question. Do you have an
estimate by any chance if we did implement this $10,000.00 per
borrower forgiveness, what it would cost the taxpayers of the
country?
Mr. Cordray. I do not. I'm sure people are preparing
various estimates of that, but my job is to implement the law
and the policy as it's established. That is not yet a policy
that's been established.
Mr. Murphy. Yes.
Mr. Cordray. And so I'll wait and see on that.
Mr. Murphy. Yes, so from my understanding the estimates are
about $373 billion dollars, you know the Nation goes further
and further in debt these days, and so just problematic. I want
people to get out to work and not be overrun by debt, but
there's also a part about personal responsibility that when you
sign on the dotted line you know what you're putting forth.
There's also responsibility from our institutions to not
ruin our citizens. So I'm over my time, thank you Madam
Chairman and I will yield back.
Chairwoman Wilson. Thank you, thank you, thank you, Mr.
Ranking Member, Dr. Murphy. Ms. Jayapal, our progressive
champion, welcome.
Ms. Jayapal. Thank you, Madam Chair. Appreciate it and
thank you so much Mr. Cordray for everything you've been doing,
and everything I know that you are going to do. Federal student
aid is intended to enrich underserved students, but sadly for-
profit colleges have been more interested in using these funds
to pad their pockets in exchange for student loan debt and
unusable degrees.
63 percent of low-income graduates from these institutions
will never earn enough in their lifetime to be better off than
a high school graduate; however, by simply enforcing existing
laws to hold for-profits accountable, and make them ineligible
for Federal student aid, students and taxpayers won't have to
endure these enormous costs.
The proliferation of predatory for-profits can be traced
back to their ease of access to Federal student aid. I'm going
to be reintroducing my bill, the Students Not Profits Act, to
stop for-profits from abusing these funds. But the Department
of Education already has brought authority to act on its own,
provisional program participation agreements are temporary
certifications, as you know, that FSA gives to schools to work
toward meeting Federal student aid standards.
Predatory colleges are not entitled to student aid
therefore these agreements should be limited. Will you ensure
that provisional agreements are not treated as entitlements by
giving very clear guidance on what factors make a school
eligible for one?
Mr. Cordray. Thank you for that question, and it touches as
you know on a range of areas. So I'll try to give you a
response that is not simple, but if it goes on too long feel
free to cut me off at some point, OK? Look everybody probably
knows the history. When I was the Director of the CFPB, we saw
two major chains of for-profit colleges, the Corinthian
Colleges set of schools and ITT, that we could see.
We had the data. They were failing students. They were not
keeping their promises to students. They were abusing the
Federal student aid programs. We took action against them, and
both of them were shut down. And there were many, many
students, many thousands of students who were affected by that
and have gotten student loan relief as a result under the
closed school discharge provisions, and so forth.
At FSA we have just created an Office of Enforcement. It's
actually reinstituting something that was done 5 years ago that
was rolled back under the previous administration. I think it
is better for taxpayers, better for the public, and it will be
better for borrowers if we have strong oversight over these
programs around the country.
Now let me just say it doesn't target a particular category
of schools, as between for-profits, non-profits, public
schools, but we will go where the risk is greatest and where we
see people failing borrowers, where there are high cohort
default rates, whatever school that is.
We will look at that and go after that. If there are high
delinquency rates, if there are other ways in which these
schools are failing borrowers, it may be--and a lot of data
would suggest that will be a more frequent problem for-profit
schools. If so, those are the ones we will target, not because
of their status, but because of what their performance is for
borrowers and taxpayers.
And I think that's the right approach, but we'd be happy to
have the input from you all as we develop that office and we
set its priorities about what the right way is to handle this.
Ms. Jayapal. We'll followup for sure with you on that
because we have some thoughts on that. I guess you know just
following-up on that let me just say one of the things that's
really important to us is that schools face repercussions if
they violate their provisional agreements because as you know
the Department never in its history has actually revoked
provisional agreements when they've been violated.
And so that is going to be very, very important for us, and
I think you know the other thing that I want to just ask you
about. I have limited time. One of the requirements for
institutions to receive direct loans includes the timely
submission of financial reports, but many fail to do so. And
the law clearly requires those audits before an institution can
originate loans, and yet to date the Department has never
denied their eligibility for direct loans. So will the
enforcement unit that you're setting up increase that
accountability for participation in the direct loans, and other
types of Federal student aid?
Mr. Cordray. It's an excellent question. It's part of the
answer that I was starting to give that I didn't get to, which
is this. You know schools need to be--they need to have
agreements that direct their performance, and they need to be
held accountable for that performance. And there need to be
protections for taxpayers here, whether it's posting of letters
of credit, which is appropriate in certain instances, whether
it's signature requirements.
These are all things we're looking at; these are all things
that probably should be used more substantially than they have
in the past. We will look at those things. Again, we'll be glad
to take input from you all on that, but we do think the schools
can't just walk away from their obligations, leave taxpayers
holding the bag, and anybody could think that's a fair and
appropriate system.
Ms. Jayapal. Great. And I hope you'll make these things
transparent as well, you know in terms of warning letters and
advisory opinions, so that students can be aware of their
school's standings. Thank you so much. Madam Chair I yield
back.
Chairwoman Wilson. Thank you. Thank you so much. Mr.
Grothman from Wisconsin you're live.
Mr. Grothman. Good thanks. Can you hear me?
Chairwoman Wilson. Yes, we can hear you.
Mr. Grothman. Good. OK. Thank you, Mr. Cordray, for coming
on over. First of all, the Office of Financial Student Aid is
in charge of producing reports to Congress on the Department's
experimental sites.
One of the sites that I'm interested in is called 'Direct
Loan Program Limiting Unsubsidized Loan Amounts.? That site was
created in 2011, and the Department has yet to submit a report
to Congress on its results, despite a clear statutory mandate
to do so. Earlier this month Ranking Member Foxx and I sent you
a letter to the Department requesting the overdue report, and
we haven't even received an answer yet.
Will you commit that you will fulfill your statutory
mandate and submit a report on this experimental site by next
week?
Mr. Cordray. So let me say that to the extent that is the
commitment that you think was made and not fulfilled going back
to 2011, that's 10 years of the Department not doing that, and
I've been here now for a few months, and I have not heard of
that before. What I will be happy to do is take that back
within the Department, talk that through, and get you an answer
to your question which it seems to be you deserve.
If in fact what you're correctly stating is a statutory
requirement that hasn't been met over the past 10 years we will
understand why that has been so, and we will look to make sure
that we're fulfilling all statutory requirements that we're
expected to fulfill. So I take that seriously, and we will take
that back and we will get you an answer. Whether we will get
you a report within a week, depending on how difficult and how
comprehensive the report would be, I can't guarantee that.
That's the kind of thing that we will work through with
your office as we followup on your question if that's OK.
Mr. Grothman. Thank you. Second thing on a staff call you
said that the Office of Federal Student Aid works with the
Consumer Financial Protection Bureau to monitor Federal student
loan servicers. During the conversation you noted that you were
unaware if there was a formal agreement in place such as a memo
of understanding, or something more informal, and that you
would check on that.
Do you know is there a memo of understanding between FSA
and CFPB, and if so, what information does the FSA share with
the CFPB and vice-versa?
Mr. Cordray. So my understanding is that the proper
approach here is one Federal Government, and that different
agencies in the Federal Government that have overlapping
responsibilities should help one another in service of
fulfilling what ultimately are objectives that were set by
Congress in the law.
All right. So we want to carry out the law as you gave us
most effectively. Sometimes that's done through memorandums of
understanding when there's formality that is needed. For
example, when I was head of the CFPB we were required by law to
have a memorandum of understanding with the Federal Trade
Commission. We will be looking at those situations.
Other times the agencies just collaborate and cooperate on
a more informal basis. We will look at those situations and
determine what's appropriate, and if your office wants to give
input into that we will be happy to hear that from you.
Mr. Grothman. OK. Is there a memorandum of understanding
there, do you know?
Mr. Cordray. Again it's complicated because there are
different issues. There might be complaint intake and
resolution. There might enforcement and oversight, there are
different aspects, but we can get you a very specific answer on
that if you would like.
Mr. Grothman. OK. Finally, where is the statutory authority
for FSA--where in the statutory authority for FSA does it allow
you to cede your responsibility and give authority to another
agency? OK?
Mr. Cordray. I'm sorry go ahead.
Mr. Grothman. Where in HEA, does it authority CFPB to
exercise authority over Federal loan services, or take action
against them? And I don't think it does. So you and Secretary
Cardona are responsible for running FSA and overseeing the
Federal contractors.
Despite partisan policy wishes, the statutory language is
clear, and your performance-based metrics are based on your
work in FSA, and not handing your work to another agency. Do
you believe that's so?
Mr. Cordray. Yes. I'd frame it a little differently OK. I
don't think that we should hand our work to another agency.
That wouldn't be appropriate. We have statutory authority to do
certain work, and we need to carry it out, and we will. The
CFPB also has its own statutory authority, and they have work
that they need to carry out, and they will.
Sometimes those areas of work will overlap, and when they
do overlap the right way for us to handle it so it's not to
duplicate efforts for taxpayers, or waste effort, is to
coordinate and to consult closely together so that we get the
best bang for our buck collectively where there is overlap. So
that would be how I would frame it I believe.
Mr. Grothman. OK. It's not like a relationship say with FTC
because that relationship is authorized under Higher Ed. Is
there any reference to CFPB?
Mr. Cordray. So again, I wouldn't only look at the higher
education statutes, I'd look at the CFPB's own statutes. They
do have authority. I recall it well. I was the director of that
agency. They have authority over student loans to a
considerable degree. We worked cooperatively with the
Department of Education during that period, and vice versa, we
will work cooperatively with the CFPB where there are areas of
overlap.
And again, I'd be happy to followup with you further on
that as you wish.
Mr. Grothman. And we'll give you a followup question thank
you.
Chairwoman Wilson. Thank you, thank you. Ms. Leger
Fernandez, welcome.
Ms. Leger Fernandez. Thank you, so much, Chairman Wilson
and Ranking Member Murphy. Also, thank you, Mr. Cordray for the
excellent work you're doing on student loans. It's very
difficult, it's a very difficult issue, and I think that the
path you are leading is so helpful to so many of our students,
and what we need to have happen with regards to the you know,
FAFSA, which I still am filling out for my students, my
children.
I wanted to get your perspective on the importance of
financial fitness for students. You know, understanding
important financial concepts like saving for retirement,
managing student loan repayments, investing is really
fundamental to closing the wealth gap in our country.
Tomorrow I'll be introducing the bipartisan Financial
Fitness Act with my colleague, Congresswoman Spartz, and I will
require the Secretary of Education to create a public financial
resources online portal to help students build these financial
competencies. Could you speak briefly about whether the ability
and the lack of--or the lack of knowledge of important
financial concepts makes it difficult for students to stay on
track with loan repayments, and increase their wealth in the
long run?
Mr. Cordray. Yes, and if I could let me just make a quick
comment on the beginning of your question and then let me turn
to your question which I consider quite important. It's very
dear to my heart. The comment I would make as you said at the
beginning that I'm doing excellent work. I've been here 6
months. I work as hard as I can every day to do as much as I
can.
But I do very little myself. The people at FSA, the 1,400
colleagues I have here I have found to be high performers.
They're making a huge difference. They're taking on very
significant challenges that the other questioners have touched
on, and I'm sure will touch on further, and they're doing a
terrific job, and I appreciate that, and I'm grateful for it.
As to your question about financial fitness, this is
something that's been near to my heart. I will tell you for 20
years, actually 30 years. It goes back to in the legislature I
pushed for a financial fitness provision in the State of Ohio.
Later at CFPB I was the Vice Chair of the Financial Literacy
Education Commission, which is the Federal Government set of
agencies that brings together all the Federal Government
departments and agencies that deal with financial fitness, and
we work on a number of initiatives.
I've now testified in front of that group for the first
time in 4 years, now that I'm back here, last month. I'm
looking forward to working with them. There is much we can do
as we say to help families understand what their obligations
are, what their risks are, and making good choices, with eyes
wide open, before they get into a problem. And the College
Scorecard, which is something we pioneered when I was the
Director of CFPB, and by the why Rohit Chopra was our student
ombudsman, now the new Director of the CFPB.
He got that accomplished with the Department of Education,
and something we've built on over the years, which again gives
his family the right information when they need it to make good
choices, and that will make families better off in this
country. But these are hard matters as you say, they're
complicated issues. People's understanding of money is not
always as we would like.
Ms. Leger Fernandez. Yes.
Mr. Cordray. And it's something we need to work at every
day to make this country stronger.
Ms. Leger Fernandez. Thank you. And you know we use the
term financial fitness in a housing organization I help lead
for 20 years, so that we talk about it not as illiteracy, but
it's what makes us strong.
Quickly, if FSA under your tenure has prioritized improving
the public service loan forgiveness program, I know you've
talked to borrowers across the country and started a negotiated
rulemaking to make permanent changes. You also recently
announced a limited time waiver, or some of the eligibility
criteria. Can you talk to us about what steps FSA is taking to
communicate with borrowers about this, and why it's so
important to make sure that student borrowers know about this
benefit and can apply?
Mr. Cordray. I appreciate that question. It's something
we're working hard on right now. I go back to the old saying,
if a tree falls in the forest and no one is there to hear it,
does it make a sound? You know we have some great advances here
on the public service loan forgiveness program. If people don't
know about them, or don't know to take advantage of them, many
of them will be wasted and there will be missed opportunities
for people.
We don't want that to happen. We have already begun
communicating to I believe to more than 500,000 current
borrowers, and we will be reaching out to all borrowers who may
or may ever have applied before for public service loan
forgiveness or may in the past have applied and be told it
doesn't apply to you, but now there's new, broader criteria.
We will be working to get that message out. But by the way
you all can help us get that message out. Your constituents
listen to you. They respect you. They know you know things. And
if you tell them this is a new day, take a new crack at it, see
what you can find out for yourself, direct them to us and we
will do our best to serve them. We would appreciate that help.
Ms. Leger Fernandez. Well, thank you very much. My time has
expired, and I yield back.
Chairwoman Wilson. Thank you. Thank you so much. We do
want, Mr. Cordray, I do want him to know that we totally
support the 10,000.00-loan forgiveness from the President of
the United States, so that's the Chairman of the Higher
Education Workforce, Labor and Workforce Committee, Education
and Labor Committee.
Mr. Cordray. I'll communicate that back to the Secretary
and the people at the Department with your blessing, Madam
Chair.
Chairwoman Wilson. I thank you. And we look forward to his
memo, and when it is being published to the public. And now Ms.
Banks of Indiana. Ms. McClain?
Mrs. McClain. Thank you, Madam Chair. And as always, you're
looking nice today. I appreciate you being here, and I
appreciate the opportunity to ask some questions. Mr. Cordray
as you spoke earlier is you know you want to protect the
taxpayers, and you want there to be some accountability, and I
think we're all in agreement on protection for the taxpayers
because, at the end of the day, the government cannot give one
dollar of which it does not take from someone else.
So with that said, can you help me understand it looks like
in January roughly 45 million student loan borrowers, excuse
me, will return to the loan payment process. After almost 2
years of not doing so because of the pandemic and whatnot.
But recently under the Biden administration we also have
three of those nine loan servicers exit the industry. So I'm
curious of the--I have a couple of questions first. Of those
three that have exited the industry, what is the dollar amount
of the loans that they service?
Mr. Cordray. Well I'll give it to you the way I'm most
familiar which is the number of accounts that we're talking
about is a little more than 15 million, so it's a very
significant part of the portfolio I would agree on that.
Mrs. McClain. Thank you. Who will service those accounts
now? Will they go into a new company? Will they go into the
other six remaining? How is that going to work?
Mr. Cordray. So I can give you a long and detailed answer,
and I will if you like. The short answer is there are other
servicers who are quite eager to be participating in this
program and to have more accounts, and they are stepping up
here. So for example, the Granite State portfolio is moving to
Ed Financial. The Navient portfolio is moving to Maximus.
The PHEAA portfolio is the largest, and therefore it's
having to move to several servicers, but there is great
interest in that. Some of those accounts will move to
(inaudible), et cetera. I can get that to you.
Mrs. McClain. Thank you, sir. Thank you. If you could
provide a written list of who's servicing those debts that
would be helpful. And have those already been determined?
Mr. Cordray. So I will say that much of it is determined,
some of it is a further work in progress, and the reason some
of it is a further work in progress is with the PHEAA
portfolio. As we transfer accounts to certain other servicers,
we want to kind of keep an eye on the performance.
Mrs. McClain. Sure.
Mr. Cordray. And we want to direct more accounts to those
that are performing better so that I can't give you all the
determinations yet, because we're at a snapshot in time.
Mrs. McClain. When do you think you'll be able to give us
those determinations because in 3 months, or 4 months,
depending on how we count, the people who have the loans will
have to begin to write checks to these people.
Mr. Cordray. Yes. What I've just stated gives you the
answer to that for more than half of the borrowers we're
talking about.
Mrs. McClain. Which is wonderful, but.
Mr. Cordray. Yes. I'll find out. We will give you; we will
be happy to give you what information we have currently, and
what information is not yet known, and keep you updated on that
over time since that's an interest of yours if I'm hearing you
correctly.
Mrs. McClain. Well, I think it's an interest of mine, and I
think it's an interest for the taxpayers wanting to make sure
that we hold you know government accountable to making sure
that government is really good at spending money.
Mr. Cordray. That's fair enough. We agree on that. We agree
on that.
Mrs. McClain. We're really--eh, we're working to have a lot
of stuff when it comes to loan repayments and getting our
taxpayer moneys back. So one of the things I think we should be
cognizant of, and I would say I know this from the 30 plus
years that I've actually spent in business, having to sign the
front of checks, not just the back of checks is before we go
out and give a bunch of money, let's make sure that we have the
other end of the stick, which is let's also make sure we have a
really good solid program to recoup the money of which the
taxpayers actually deserve.
Mr. Cordray. I think that's where you and I agree, and
maybe all of us can agree to the extent we're spending money,
we should be making sure we're getting value for that money. If
we're not getting value for that money, we should not be
spending it. If we are getting value for that money, we can
then you know, perhaps debate about it in the next.
Mrs. McClain. I get a little bit--I like the political
speak, and I appreciate that, but I'm not talking about value
for money. What I'm talking about is if I have a home loan, if
I have a mortgage, and I say to the bank give me $200,000.00,
the bank also has a really clear, precise contract of which I
need to repay that loan. I can't go back to the loan company
and say hey, but I'm getting a lot of value from living in the
house.
That doesn't really pay the bills, right? So as much as you
and I appreciate the value for money, I'm going to take it a
step further to protect the taxpayers. It is definitely
honorably to give this money. We've got to make sure we have a
solid plan to recapture the loan repayment, so I look forward
to it and thank you Madam Chair.
Mr. Cordray. I appreciate your point, and I understand it
thank you.
Chairwoman Wilson. Times up.
Mrs. McClain. Thank you.
Chairman Wilson. He can followup in writing to you.
Mrs. McClain. Thank you.
Chairman Wilson. OK. Thank you so much. And now
Representing Manning, you're live from North Carolina.
Ms. Manning. Thank you, Madam Chair, and thank you, Mr.
Cordray for being with us today. During the Obama
administration the Department worked cooperatively with State
law enforcement agencies like the states Attorneys General, to
investigate and hold unscrupulous for-profit colleges
accountable.
This priority, like many other policies designed to protect
students and taxpayers, was reversed under Secretary DeVos. And
I want to applaud the FSA for announcing the reinstatement of
its enforcement unit on October 8 to strengthen oversight of
predatory institutions.
I am working on a proposal to codify the enforcement unit
so that it cannot lay dormant under another administration. I
also want to comment the FSA for working with the Federal Trade
Commission to increase interagency collaboration and
coordination of enforcement actions against predatory for-
profit colleges.
So could you talk to us about the multi-level strategy that
needs to be used to hold predatory for-profit institutions
accountable, and perhaps talk about additional partnerships
that you believe would be helpful in this work.
Mr. Cordray. Sure. And again, this is as you say, a very
important development, and it was an important policy change,
you know, the previous administration had basically blocked
states from having any effective role here in overseeing
companies that have a significant impact on many, many
thousands of people within their states.
And it seemed to me that we should be working together.
None of us has enough people to do all the oversight of these
programs that we would like to do, and that taxpayers should
demand. And if we work together and we pool our efforts and our
resources, we're going to do a better job. That's what we
intend to do here.
So, it's not that we're trying to get other people to do
our work for us. They've got work they want to do. We've got
work that we need to do, and some of that work overlaps, and if
we can do it together, that's effective. For example, I will
say right now that we have accounts, and the previous question
had asked about this, that are transferring from one servicer
to another. We want to make sure that is going smoothly.
There are a lot of State officials who want to make sure
that's going smoothly as well. The CFPB wants that to be going
smoothly as well. Some of this overlaps with their area. Right
now we have FSA people overseeing those transfers together with
working with CFPB officials, working with State officials from
17 states I believe, to make sure that goes as well as
possible.
With that group of people working together we'll do better
than any of us could alone, and that's a good principle for us
to follow across the Federal and Federalist government of the
United States it seems to me.
Mrs. Manning. Thank you. I have a particular interest in
the conversion of for-profits to non-profits by purchasing or
collaborating with non-profit institutions because we have a
situation involving that in my State of North Carolina. And the
GAO recently investigated the process through which for-profit
institutions convert to non-profit status.
We found serious shortcomings, including the possibility of
insiders taking advantage of non-profit institutions at student
and taxpayer expense through a variety of different creative
methods. The GAO also found a disparity between the Internal
Revenue Service's approval of non-profit status and the
Department's approval.
So what steps has the Department taken to address the risk
of insiders taking advantage of the converted institution in
for-profit conversions as part of the change in ownership
reviews? And can you talk a little bit also about what
information, practices, and expertise could be shared by the
Department with the IRS in their reviews of such conversions?
Mr. Cordray. Sure. And by the way information sharing
between FSA and IRS has really moved forward in a very positive
way. They are working closely with us. That makes our work more
effective, and we appreciate those efforts. To the point you
made--and it's an insightful question about conversion status
of these institutions.
Let me just put it simply. If you or I had financial
obligations, and we went to Court to try to change our name,
and the Court let us change our name, that wouldn't let us get
out of our financial obligations. And similarly, if you have a
for-profit school that thinks that they're going to be treated
more lightly if they convert the not-for-profit status, that's
inappropriate.
It is not consistent with the demands we should make on
these schools, and we will scrutinize those conversions
carefully, and we have the ability to deny them if they're not
justified, and we have the ability to put conditions on them,
again to make sure taxpayers are protected, to make sure
students are protected, and we will do that.
Mrs. McClain. Thank you. My time has expired. I yield back.
Chairwoman Wilson. Dr. Foxx, our Ranking Member of the
Committee, welcome.
Ms. Foxx. Thank you, Madam Chair. Mr. Cordray the Committee
has written several letters requesting information regarding
the return to repayment and have yet to receive responses.
Further, the Committee has received just a few briefings from
our staff regarding this important issue, and we're left with
either vague statements about incoming plans that have yet to
be announced or false statements regarding when the repayment
pause would expire.
When Congress learns more about the Department's plans for
this unprecedented operation from Politco, than it does from
the COO of FSA, my question whether such lack of transparency
is intentional or just incompetence. So I'd like to give you an
opportunity to clarify this for me on the record, and I need
quick answers please.
Mr. Cordray on what date did the administrative forbearance
go into effect--first go into effect?
Mr. Cordray. You mean the payment pause? Is that what I
would call the payment pause? You mean in March 2020 when the
previous administration recognized the pandemic?
Ms. Foxx. Just give me the date please. What date did the
administrative forbearance first go into effect?
Mr. Cordray. OK. So if you're taking about the payment
pause, I'm not sure how you're defining administrative
forbearance, that took effect in March 2020 when the
declarations were made, and it was followed up quickly by the
CARES Act.
Ms. Foxx. What day was this clause first extended?
Mr. Cordray. I believe it was extended multiple times under
the Trump administration. I don't recall exactly because I
wasn't in this position, but I believe it was again in
November, maybe again in January, then it was extended under
the new administration right away in January, and then once
more, and we now have a final deadline of people will return to
repayment after January 31, 2022.
Ms. Foxx. So, what did the press release accompanying that
announcement say about when the payments would restart?
Mr. Cordray. Well, I assume, and recall that it correctly
stated that this is a final deadline on the return to
repayment, and that payments will start sometime after January
31, 2022. Not before January 31, but anytime after. What
happens with these payments just again, I don't mean to give
you too much detail, but is that people don't all pay on the
same day of the month.
They're staggered throughout the month depending on you
know a variety of things that allows us to process payments in
a smoother fashion. So it's not the case that everybody will
start paying on February 1, but everybody will start repaying
after January 31, and they will all get notice of their
specific date ahead of time so that they will know that.
Ms. Foxx. Mr. Cordray, on April 3, 2021, we sent a letter
regarding a report that was commissioned by FSA analyzing the
true value of student loan portfolio to which your staff
responded with a heavily redacted copy of the request document.
I know you sent the response yesterday because Dr. Murphy
said in his opening statement you know that response didn't
answer our question. I'm asking again for the unredacted copy.
Just saying the previous administration redacted it is not an
acceptable answer.
You have the report. You can share an unredacted copy. The
Secretary testified before the Committee on June 24 and said
he'd work with the Committee and shared what the Department
has. Why is the Department hiding this report?
Mr. Cordray. So again, that's a report that predates my
time at FSA and the answer----
Ms. Foxx. But you have the report, just release it. You
have it. Release it.
Mr. Cordray. Do you want me to answer your question? I'll
be happy to answer it shall I?
Ms. Foxx. Yes.
Mr. Cordray. OK. So the response to you, which was not from
me, but from others at the Department was that this report was
released previously, and it was redacted by the previous
administration, and we have now released the report again with
the same redacted material that the prior administration
provided, and that's our understanding of the appropriate
response.
If you want to have more followup on that, sounds like you
do, I think the Department will be happy to have that
discussion with you. By the way I'm also told--may I just, I'm
also told that if you would like to have a briefing on the
issues in that report, and on the financial underpinnings of
it, people would be happy to do that with you and make that
possible.
Ms. Foxx. Let me ask my next question. Do you believe
taxpayers should be aware about the true value of the student
loan portfolio? After all, they are the ones who are ultimately
on the hook for any unrecovered funds used to finance this
program.
Mr. Cordray. Again, I think we should all be aware of the
accurate numbers about these things. There's some question
whether the methodology used in that particular report, and
there have been many other reports over the years, is the most
accurate, and again people would be happy to brief you from the
Department on the details of that, and we would offer that to
you, and hopefully that would help cut through this a bit for
you.
Ms. Foxx. OK, now, Mr. Cordray we want the public to know
what this is, not just to be briefed on it, and not be allowed
then to share that information. You have the report. We should
have it, if you don't like the methodology then you explain why
the methodology is bad. Thank you, Madam Chair, I yield back.
Chairwoman Wilson. Thank you, thank you, Dr. Fox. I'm sure
there will be some followup on that subject. And now Chairman
of the Committee, the distinguished Chairman, Dr. Scott.
Mr. Scott. Thank you, thank you, Madam Chair, and thank
you, Mr. Cordray for your hard work in Ohio and Consumer
Finance, and now at Student Loans. The first question is the
FAFSA form was redesigned and simplified a couple of years--
several months ago to I guess about over a year ago.
And I understand that there are some problems in
implementing those changes. It seems to me that we should
implement as much of that reform as possible without delay
because otherwise the students will miss out on benefits,
particularly enhanced Pell grant awards.
Can you work with our staff to make sure that as much of
that gets implemented as possible without having to extend the
whole program?
Mr. Cordray. Yes. Can I say a couple things about that, and
first of all we very much appreciate that both the Future Act
and the FAFSA Simplification Act many of you worked hard in the
Congress to get those enacted, and they represent you know
leaps forward in the FAFSA form process.
It simplifies the form, should make it easier for people to
fill it out, should get more access to Federal student aid, a
clear picture for families of what they're getting into, and
information sharing with the IRS helps us be much more
efficient and effective about this.
In terms of the current situation, where there's
discussions in Congress about how to implement that, and when,
and which pieces, we're happy to take our guidance from you all
in the Congress on that. We have made it plain that you know
this is a matter of cost for taxpayers and cost for borrowers
about getting this implemented properly, and we want to make
sure that we do that.
And we also have said very frankly that we need more time
because we have to replace a 47-year-old main frame system
that----
Mr. Scott. That's fine. You can either work with us to make
sure we can get as much implemented as possible, so students
don't miss out on the benefits.
Mr. Cordray. Again, we want to make this effective for
families and borrowers as quickly as possible. We will do as
much as we can, as quickly as possible.
Mr. Scott. I have other questions, so I assume you'll be
working with our staff to make sure that we do that as quickly
as possible. The Congress has given Department of Education
broad authority to fine institutions that have refused to make
systems to place limitations on their participation of Title IV
and to seek recovery of financial losses against owners and
executives of such institutions, but the Department of
Education has been failing to do that, leaving the taxpayers
and students to pay the price when institutions engage in
fraudulent activities that leave them stuck with the bill.
And in our hearing, we had in March a witness said we
should use that authority. Let me just say that when I say use
that authority against the owners and executives, I'm not
talking about strict liability. I'm talking about triggering
that authority when the executives have personal involvement in
the fraud with document consideration, the seriousness of the
fraud, and the amount of money the executives made off the
fraud, taking that into consideration, how much they profited.
And obviously if we did that it would deter future fraud.
Is that something the Committee, the Department is looking at?
Mr. Cordray. So I will say we have that letter from you. I
heard you loud and clear on that, we see eye to eye on this. We
absolutely agree. More needs to be done to prevent people from
abusing these student aid programs from cheating taxpayers,
from cheating students, that's part of why we're setting up the
Office of Enforcement.
We will look forward to keeping you apprised of our
progress and dealing with the issues you raised in that letter.
I think they are important issues, and we agree on the
direction here, and I thought it was a good bit of a kick in
the behind for us to make sure that we're moving down the road
on this, and we will.
Mr. Scott. Thank you. Mr. Cordray the next generation of
financial services environment known as Next Gen would simplify
the direct student loan borrowers access to information through
a website. It was devised by the Obama administration and kind
of left and not much happened. Could you explain the status of
that? And I hope you have more to explain than you can in the
little time we have left. I want to get in another question.
So if you could provide in writing the status of that while
I get to another question.
Mr. Cordray. That's fine. We will provide you in writing.
We have a lot of things we're doing, and they are going to make
that much better for borrowers, and I'm exciting about what our
team is coming up with. They're doing a great job on this, and
we will be happy to give you all the details.
Mr. Scott. And my final question is what authority does the
Department have in things like reducing interest rates,
allowing refinancing, and fixing the public service loan
forgiveness. You've done a lot of work on that, and we want to
thank you on it. But if you could give us--my time has expired,
so you're going to have to do that as a followup and bring us
up to date on how that's working.
Another question I'd like would be the $10,000.00
discharge. How much of that is non-performing loans, so the
discharge here wouldn't really cost anything other than
relieving us of the cost of servicing those loans, and whether
or not what you are doing with the loan services to make sure
they're doing their jobs, as students sign up in January, to
make sure that they're signing up appropriately for student
forgiveness, borrower defense, interest-based repayment and all
of those, what kind of guidance you're giving.
If you could do that in writing because I'm obviously over
time, and I appreciate the Chairwoman's forbearance.
Mr. Cordray. OK. Those are good questions, and we'll be
glad to give you some good answers, and then you tell us if you
need more all right.
Chairwoman Wilson. Thank you.
Mr. Scott. Thank you. Thank you, Madam Chair.
Chairwoman Wilson. Yes. It would be helpful if you
presented those questions in writing to Mr. Cordray's office so
that he could followup with you in writing, those are questions
that all of us would like to have answers to, so if the
Committee would be so kind as to distribute that to all of the
Members of the Subcommittee on Higher Education and Workforce
Investment, we would certainly appreciate it.
Mr. Scott. Will do, thank you.
Chairwoman Wilson. Thank you. And now we want to welcome
Mr. Bowman, you're the Vice President of this Committee, Vice-
Chair.
Mr. Bowman. Vice President sounds good, thank you, Madam
Chair, really, I appreciate the time. Mr. Cordray, I have a
little more airtime for you if you don't mind. Thank you so
much for joining us today.
As you know I'm a strong advocate for canceling student
debt. And I recently joined several of my colleagues on the
Committee in a letter led by Representative Omar calling to
both President Biden and Secretary Cardona to release the
student debt cancellation memo, we were told would be made
available more than 6 months ago.
The student debt crisis a racial justice issue. A recent
report by the Education Trust described how student debt is
steeped in systemic racism and exacerbated by racial inequities
in wages, wealth, access to education, and more.
Black borrowers often feel trapped in the vicious cycle of
lifelong debt they cannot escape from, and many of them,
especially black women, actually face more student debt today
than they did when they graduated. The report called this issue
Jim Crow debt, and highlighted the voices, experiences and
perspectives of black borrowers which are far too often
overlooked in our conversations about the student debt crisis.
Researchers concluded that centering these perspectives and
addressing the racial inequities in student debt requires that
the Federal Government cancel all student debt. Mr. Cordray,
how is the Office of Federal Student Aid actively centering and
prioritizing the voices and experiences of black borrowers in
your work, and how do you respond to the finding that
eliminating debt cancellation would harm black borrowers the
most?
Mr. Cordray. So, I appreciate Representative Bowman the
perspective you laid out in your question. And I agree with
much of it, and by the way there's a lot of statistical data
that I think supports various pieces of what you've said. One
of the ways FSA can be most helpful here is we are an
operational shop that has access to a great deal of data on
Federal student aid, you know, all the data, and we use it to
effectively manage the program.
And to the extent we can provide that information to you,
or to the Department, or to the White House if they're asking
for it, we certainly do so. We want to inform the decisions
that are made on this as much as possible.
Again, decisions about general loan forgiveness are not my
decisions to make. They will be made elsewhere. We will do our
best to implement whatever is done. I do think that loan
forgiveness for Americans where it's appropriate and justified
makes a huge difference in their lives, gives them a chance to
get sound footing and move forward and better their lives,
rather than be stuck with this millstone around their necks,
and where that's appropriate to do so, and there's authority to
do so, you know we will enthusiastically implement that.
And I hear you having that same perspective as well.
Mr. Bowman. I appreciate that, and I would love for my
office to be in touch with you so we can get access to some of
that data that you've mentioned, so we can get a holistic, and
a much better and more comprehensive understanding of the
issue. So we will definitely love to work with you on that.
And I had another question about Parent Plus loans. I've
heard from many of my constituents that depending on how their
Parent Plus loan was structured, they may not have benefited
from the pause in payments during the pandemic and have been
struggling to stay out of default all this time. Specifically,
if a parent took out a Parent Plus loan before 2010, they could
have come out of the Federal Family Education Loan Program,
most of which were held by private lenders.
Parent Plus loans also faced absurdly high interest rates,
and exclusion from some income driven repayment plans. These
parents, many of whom have faced extraordinary financial
hardship and suffering during the pandemic don't get much
attention when we talk about the student debt crisis, but they
need our help.
They should not have to push off retirement or face
financial devastation just because they want to help their kids
get an education. Is your office considering improvements to
Parent Plus loans, and if so, can you describe your vision for
these improvements?
Mr. Cordray. Yes, again I'll just say that the issue of
what to do about different types of loans. As you know there's
a blizzard of different categories of loans under the program
that have been developed over many years, and some of it gets
to be quite complex.
And actually in preparing for this hearing, we went over
the issue of Parent Plus loans where I understand there's some
dissatisfaction from some that didn't get all the relief that
other loans got. And their reasons for that--I don't have time
to necessarily get into in detail, but we are open to hearing
more from you all about whether Parent Plus loans should be
covered under this program or that program, and having a dialog
back and forth, and we would welcome that certainly.
Mr. Bowman. So would you say that your office is just
beginning the process of sort of engaging around Parent Plus
loans, and the strengths or weaknesses of them, and all of
that? You are not yet considering improvements. You're just
trying to get a better understanding of the complex nature of
the Parent Plus loans as well as other loans?
Mr. Cordray. I'd say that's mostly right, but not entirely.
Certainly, people thought about Parent Plus loans when the
payment pause was put in place, and then other forgiveness for
public service loan forgiveness and the like. And it's always
been a bit of a difficult edge of this in terms of what is
included, what is not included.
But I think there's an openness to further discussions
about this and trying to think it through. So I don't want to
say we're at the beginning of thinking about it, it's something
that has come up you know, at various times. But I think
there's still an openness to hearing more about it, nothing is
closed at this point is my understanding.
Mr. Bowman. Thank you, so much, Madam Chair, I yield back.
Chairwoman Wilson. Yes. We would appreciate an answer to
that question also in writing for the benefit of the Committee
because all of us are interested in the Parent Plus, and
unfortunately this hearing only gives you five minutes to
answer such an important question.
Mr. Cordray. I understand Madam Chair, you're piling up the
homework for us, but we'll be glad to take it on, and we'll get
it back to you as quickly as we reasonably can.
Chairwoman Wilson. That lets you know how important your
work is, and how important this particular issue impacts so
many people. And we appreciate your cooperation. And now
Representative Pocan.
Mr. Pocan. Thank you, Madam Chair, I appreciate it. And
thank you Mr. Cordray, and I just want to say thank you for
your long commitment to public service as well. I appreciate
that. I have a bill that I introduced back in 2013 that came
out of the grass roots of my constituents, on refinancing of
student loans.
As you know we're kind of historically low interest rates,
yet we've got a lot of people paying 6 percent plus interest
rates on old loans, and we had introduced a bill to allow
people to be able to refinance their student loans at the
lowest available current rate. The idea being that would happen
in the free market, but somehow it doesn't happen with student
loans.
And as you know it's not necessarily easy to do this
process. Can you think of any reason why that shouldn't be the
law of the land allowing people to be able to refinance at the
lowest available rate?
Mr. Cordray. So I've heard over the years various proposals
along these lines from leaders like yourself in the House and
the Senate that the interest rates are higher, that maybe
they're higher than businesses and developers pay, et cetera.
You know those interest rates are typically set by statute, as
you know, and if they're going to be modified, they need to be
modified by statute.
We would be open to providing the kind of I think they call
it technical assistance, or other data that we can provide that
would be helpful to you in trying to determine what the impact
is, but you know I would just say in general I've dealt with
financial issues in Federal and State government for years and
years. It's obvious that higher interest rates make it harder
for people to climb out of debt.
Lower interest rates make it easier. What's fair and what's
appropriate, and what the right match is to some sort of
Federal funds rate or something, is for you to determine, but
if we can help you giving you data so that you can see the
consequences are one way or another, we would be happy to try
to provide that.
Mr. Pocan. Sure. And I don't want to put words in your
mouth, but you don't think there's any reason why that would be
a problem to do that at this point?
Mr. Cordray. No. Look any time you're talking about numbers
and dollars, there is a problem. There's either too much, or
too little, and it's for Congress to decide what's the
Goldilocks right amount, not for me to decide per se. I may
have thoughts about it, but that's not my role here.
Mr. Pocan. Actually I'm asking you that very question as
what are your thoughts around this. You are allowed to have
thoughts, and I would love to hear them.
Mr. Cordray. Yes. I'm allowed to have thoughts, but I don't
want to get in front of you know the Secretary, or the White
House, or others who have this decision to make. But frankly in
this case it's you, the Congress, that has the decision to
make.
Look, higher interest rates put borrowers in a more
difficult position. And lower interest rates would make it more
plausible and feasible for them to pay off their loans. Again,
that's a very obvious point. I'm not telling you anything that
anybody doesn't know, but in terms of what the right level is,
or whether it should be the fed funds rate or something else,
again that's a policy decision for you.
And if I were in the Congress, I'd be asking the question
and trying to figure out myself, but I don't want to pretend
that's my role.
Mr. Pocan. No, I appreciate that. Thank you. So let me ask
you another question about tuition creep. Has the
administration discussed ways to try to address that? I know
that's one of the issues that you know people seem to have is
that the cost of higher education is going up at a faster rate
than you know the consumer price index, or anything else, and
because of that's putting an undue burden on folks. Have you
guys discussed that issue at all?
Mr. Cordray. You know that's been true for years. We saw
that trajectory when I was at the CFPB. It was at that point
for the first time that again Rohit Chopra our Student Loan
Ombudsman, was able to point out that the total aggregate
student loan debt had just exceeded one trillion dollars for
the first time.
And by the way it's already now at somewhere between 1.5
and 1.6 trillion. In terms of why that is so, whether schools
are charging too much, you know those are policy issues that
you know people wrestle with. If we could keep a lid on the
higher education costs that would make it easier to finance
this program and make it easier on borrowers and their
families.
All the mechanics that go into that, including State
government laws, Federal Government laws, and what oversight of
institutions are. It's not really in my purview to tell
institutions how much they can charge students, although
obviously we get the back end of that which is people repaying
the loans to pay those amounts.
But I would say it's definitely a concern. Higher education
costs have outpaced inflation. They have risen to very high
levels. Are we pricing families out of the market? Are we doing
that by imposing significant debt at the Federal level? These
are serious issues, and worthy of serious consideration, and I
urge you to keep pressing on them.
Mr. Pocan. Thank you, Madam Chair. I yield back.
Chairwoman Wilson. Thank you, thank you, Mr. Pocan. And now
Mr. Good of Virginia.
Mr. Good. Thank you, Chairman Wilson, and Ranking Murphy
for holding this hearing. I am concerned by the recent
announcement of the Biden administration that they're going to
continue to freeze the student loan payments through January 31
of 2022.
Continuing the student loan payment freeze will saddle
students with an albatross of debt even further down the road,
rather than having them start, or continue to pay down their
balances. While heavy handed government shutdowns have forced
unemployment on many Americans, we all know there's no longer a
labor shortage--or there is now a labor shortage with 10
million job openings, so there's no justified reason to
continue the student loan freeze.
Mr. Cordray in your past role in the Consumer Financial
Protection Bureau you talked a lot about predatory lending.
Today the Federal Government itself projects that more than a
quarter of all Stafford loans will default. I served 17 years
in the lending industry, and I could tell you that no business
could survive a 25 percent default rate, it's only the
government that would operate with that kind of a default rate.
And any business would have to quickly close its doors. It
certainly wouldn't continue the practice of business as usual.
However, the government still proceeds with granting loans to
millions of borrowers with few restrictions. Knowingly making
loans where one in four will default seems the very definition
of predatory to me. Making loans to unqualified, and perhaps
unsuspecting borrowers who have no demonstrated ability to
repay, and the can so easily find themselves caught on the
treadmill of automatic annual renewal.
It appears that the Federal Government's policy is let's
put our students in as much debt as we can, and just have the
taxpayers fund the massively overpriced and ever-expanding
budgets of these woke, leftist liberal institutions of so-
called higher learning.
The taxpayer is losing in this. The student is losing in
this, and it's only that these progressive institutions with
these massively increasing, exorbitant prices that are laughing
all the way to the bank on the back of the taxpayers and the
students.
Mr. Cordray, given your documented flip-flopping both
opposing, and now supporting, predatory lending practices, why
do you think it's OK to cavalierly lend out taxpayer funds and
saddle these students with so much additional debt?
Mr. Cordray. Thank you for the question. And what I would
say is this. The cost of higher education is high, people need
assistance to be able to access that and better their lives,
and improve their employment prospects for the future, and some
do that, and do that successfully, and some do not.
And it's a major public policy issue. It's an issue really
more for Congress to decide, you know, what are the tenants of
how we lend to students and their families, and what kind of
requirements to be imposed. It's not for me to say, it's for
you all to say, and my job is to run the program.
By the way, I don't believe that I've changed position on
this at all. I think that the issue of Federal student loans is
important in terms of accessing the ability to improve people's
lives, but the ability to repay those loans and on the back end
of those there's a high number of defaults, and we need to keep
working at how we can improve these programs.
So in any event, I mean we can have a debate about the
different economic philosophies here that maybe you and I have,
and maybe they're not in full agreement, but beyond that I'm
going to run this program as best I can. I'm going to do it to
protect borrowers and students, and I'm going to do it to
protect taxpayers as much as possible, and I'm happy to have
your input as we do it, to make sure we do it as effectively as
possible.
Mr. Good. Well we're certainly not protecting taxpayers and
thank you for your answer. We're certainly not protecting
taxpayers. The American people are not getting a good
investment on their dollar with a 25 percent default rate. And
again, students are not coming out ahead if they don't have the
ability to repay, and again we are facilitating the rapid
inflation on college campuses for frankly non-academic
expenses, and there's no end in sight to that.
Mr. Cordray, you've leveled a lot of public criticism at
your servicing partners, which seems to me to be quite frankly
a bit of blame shifting, especially on public service loan
forgiveness and other programs. You know while that can make
for some crash to beat up on them, this habit makes for bad
partnerships, and you're certainly running a Federal program
that needs partners.
And this year alone you've had four key servicers to my
understanding, have walked out on you, or ceased the
relationship there. Given your history of supporting what I
would call again this predatory lending practice here, and the
refusal of some service partners now to work with you, I don't
know how the administration of the American people can expect
you to put the students first here.
What are you going to do to stop the hemorrhaging of these
service partners?
Mr. Cordray. So I appreciate the question, and in fact as I
said, we have servicers--servicing partners if you will who
have stepped up and are eager to take more of our portfolio,
and we have ample capacity to serve the students and borrowers
and we will.
And those who are exiting, look we're putting more
performance and accountability into these contracts, and that's
not comfortable for everyone, or people just might over time
they were in the program, they decided to go different
directions. They're free to make those choices, and they have.
But we have good servicers that we're working with here,
that we're going to hold accountable. They're going to have to
perform. They understand that. The borrowers and taxpayers
should demand that they perform at a high level, and we're
going to work with them to do that, but if they fail, they're
going to be penalized, and that's the way this relationship
should be, and that's the way it will be.
Chairwoman Wilson. Your time has expired. Thank you so
much.
Mr. Good. Thank you Chair.
Chairman Wilson. And now Mr. Espaillat from New York
welcome.
Mr. Espaillat. Thank you, Madam Chair. My question is
regarding discharging students? loans, which is almost
impossible under bankruptcy procedures. Students must bring a
separate lawsuit within the bankruptcy matter to seek a
discharge of their student loans, and the burden of proof in
these cases is very, very high, with students required to show
that continuing to pay the debt would impose an undue hardship.
While there are statutory limitations that can and should
be changed, the Department can also take steps to reduce the
burden on borrowers who are already struggling financially to
make it easier for them to secure relief under bankruptcy
proceedings.
My question is the Federal student--the FSA considering
changing how it approaches bankruptcy procedures by changing
how it determines which bankruptcies to contest, or by better
defining undue hardship standards to reflect the realities
faced by student loan borrowers?
Mr. Cordray. Excellent question. I appreciate it very much.
The way you described the bankruptcy process, and how it
applies to Federal student loans is very much the way I
understand that process. And I think that it doesn't work well,
and we think that it needs to be reformed and re-evaluated, and
we are committed to doing that.
I will tell you that there have been discussions already
with the Justice Department. They too are willing to have us
review and revise our approach here. We think that would be
better fitted to the realities of life for many people who
struggle in bankruptcy, and are forced to go into Court, if you
can imagine such a thing, and recount how miserable their lives
are in order to beg for some kind of bankruptcy relief and
rarely get it.
We don't think that's the right place, that this is the
right outcome. We are going to review that aggressively, and we
will have more to say. We're in the process on that, and we'll
have more to say about that hopefully fairly soon. It is a
somewhat complex issue as bankruptcy always is, and there's
different competing considerations here, but we think that
there's more that we can do to reform that process, and we are
committed to doing it just as you say, for the reasons that you
say.
Mr. Espaillat. My next question is we all know that to help
borrowers the Biden administration extended the pause in
repayments, interest accrual, and collections through January
2022, for ED-held loans. The administration also extended these
protections to all defaulted loans in the Federal Family
Education Loan program. However, there are still millions of
borrowers who have not received similar protections, including
those with private loans.
In what ways, if any, has the Direct Loan Program proven
effective in providing protection for these borrowers?
Mr. Cordray. So are we talking about what the Secretary
just announced recently about public service loan forgiveness?
Mr. Espaillat. That's correct.
Mr. Cordray. OK. It was an important announcement, really a
dramatic announcement that reflected a lot of hard work that
people did to try to figure out what the flaws had been in the
public service loan forgiveness program. Sometimes flaws that
were made worse because services in the past may have given
people wrong information, or people had been confused about
whether they had the right to do this or that, and it
frustrated a lot of people, and it caused a lot of people to be
denied or discouraged from pursuing relief.
The measures that the Secretary announced earlier this
month are game changing for a lot of those people. And it's
going to make a huge difference. There's an awful lot of work
to do to make that announcement into reality. We are going to
work to do that, and I believe it will bring relief to hundreds
of thousands of people who deserve this.
Again, who are we talking about? We're talking about people
who served this country in uniform, we're talking about police
officers and firefighters, people very much affected by the
pandemic who need to get what they deserve under the law, and
under the program, and we're going to make sure that happens,
but it's an awful lot of work that are team is going to have to
do at FSA.
I'm confident that they will do it. They are high
performers they haven't complained about the new burdens that
this puts on them because we all understand it's an opportunity
to bring important relief and progress to the American people.
And what the Secretary said is what we're going to do, and we
think that it's a very, very good direction to go, and we're
going to do the hard work of making it happen.
Mr. Espaillat. Thank you, Madam Chair, I yield back.
Chairwoman Wilson. Thank you so much. And now we'll hear
from Mrs. Miller-Meeks of Iowa. Welcome. I see you walking.
Mrs. Miller-Meeks. Some technical difficulty with Mrs. Miller-
Meeks, she has frozen. She is frozen. We'll go on to Mrs.
Harshbarger.
Mrs. Harshbarger. Thank you, Madam Chair. Mr. Cordray, I do
have a question for you. On March 30 the FSA announced a
program to somehow undefault some borrowers who defaulted
during the pandemic. Now that's pretty clear that probably
isn't the law but setting that aside.
You know I'm also concerned that it's 7 months later and
that still hasn't happened which clearly shows there wasn't
even a plan in place in order to achieve that initially. So did
somebody just hit the send on the press release before they had
a plan in place, I guess is my question?
And I suppose I'm concerned that not only has the
Department demonstrated its willingness to ignore the law, but
it also doesn't even appear to have a plan on how it's going to
ignore the law. So does FSA now just write press releases and
then hopes and prays it's all going to work out in the end is
my question, and that begs to say that borrowers are just going
to sit in limbo for months, so what's the process for this sir?
Mr. Cordray. So if the question is does FSA write press
releases without thinking about the actual mechanics of
carrying out these programs, the answer is no. We don't do
that. Having said that, I'd be happy to have you frame your
question again as to what exactly you would like me to address
here in terms of where you're dissatisfied with what is being
done.
Mrs. Harshbarger. Well do they have a program? Do they have
the mechanics of a program where people who have defaulted on
their loans can somehow undefault on those loans I guess is my
question.
Mr. Cordray. OK. So I'm not quite sure. It could be a
variety of things you're referring to. There were people who
had FFEL loans at the beginning of the payment clause, they
were at that time not covered by the payment clause, and later
the payment clause was extended to them. And therefore we had
to go to the guarantee agencies, and the lenders, and many of
them who had defaulted in the meantime needed to be put back in
the position they would have been had the pause applied to
them.
If interest had been collected and it was supposed to now
be zero percent, that needed to be changed, and there's been a
lot of work to do to make that happen. So I'm not sure beyond
that what you're getting at, but I'd be happy to hear more and
try to be more responsive.
Mrs. Harshbarger. Well I'll try to rephrase the question
and I'll submit that to you sir, and what I would like to do
with the balance of my time is just yield back to the Ranking
Member, Dr. Foxx.
Mr. Cordray. OK.
Ms. Foxx. Thank you, Congresswoman Harshbarger. I'm going
to talk a little bit about borrower defense. Mr. Cordray
exactly how many borrower defense applications are still
pending adjudications? If you don't know the exact number,
we'll expect to get an answer tomorrow.
Mr. Cordray. That's fine. We'll be happy to give you exact
numbers. What I know is coming into when I came into this
position, there was a very, very high number of borrower
defense claims that had not been adjudicated, and they had held
up frankly over the past 2 years.
Ms. Foxx. OK. Well you can give us that information in the
response that you give us.
Mr. Cordray. Yes, but I'd be happy do you want me to give
you a little more answer here, or do you want me to just go on
to something else?
Ms. Foxx. Well let me tell you what questions I'd like to
have answered.
Mr. Cordray. OK.
Ms. Foxx. How many claims have been adjudicated since the
beginning of the Biden administration? How many claims have
been filed since the beginning of the Biden administration?
Have you set a timeline or goals for how quickly you'll clear
the backlog? That's one you might be able to answer.
Mr. Cordray. That's fine. And by the way we'll be happy to
give you detailed responses that give you more exact numbers,
but I will say there have been hundreds of thousands of claims
piled up, and we are working down the backlog, however every
time we make a new announcement about some kind of school
that's closed, or some kind of loan forgiveness, it tends to
make more people apply, and so this goes up and down with a
variety of circumstances, but happy to give you exact numbers
in response to exact questions from you.
And then we won't be jousting about fuzzy particulars here.
Ms. Foxx. OK. Well, we'd like to know why it's taking so
long for you all to get through it. You just indicated that's
part of the problem. I haven't heard much about schools closing
recently, so that's news to me.
Mr. Cordray. Well we had several close just recently, CD
schools and Vista Schools, that really failed you, me and the
borrowers and taxpayers all over the country, didn't do what
they were supposed to do, and they've now closed and left
everybody high and dry. That's bad performance, but that does
happen.
Ms. Foxx. OK. Well, we know from Secretary Cardona's
statement when he spoke to us that people have waited a long
time, and they want to work swiftly, but shouldn't your
announcement from August 24, stating you'd grant 100 percent
relief make this process go more quickly?
And why did you stop updating the data center with
information on borrower defense claims? Something the previous
administration did monthly.
Mr. Cordray. So we haven't stopped the data center,
although I will say these hearings have a salutary action
forcing effect. And we updated the data center yesterday for
the most recent quarter. We expect and plan, I think my
understanding is that the data center is to be updated
quarterly, and it will be updated quarterly on my watch.
I can tell you that. When I came in, we were about 6 months
behind, and we're catching up now, and we will keep you posted
on that.
Mrs. Foxx. Thank you.
Mr. Cordray. In terms of borrower defense claims, you know
sometimes it's difficult, sometimes they're one by one type
claims, and those are hard to administer in an effective way,
but that's something we're thinking through. As you say 100
percent relief will simplify the process somewhat, it's still
not a simple process, it's complex in various ways, but we're
continuing to work on it, and we'll be glad to give you
progress reports on how that's going.
Ms. Foxx. Frankly, I'm glad to hear you say that they're
very complicated, because that's what the previous
administration said, and it was condemned when it said that.
Thank you very much Madam Chair, I apologize for going over.
Chairwoman Wilson. Thank you so much. And I don't know
whether Mr. Cordray has another homework assignment, or if he
cleared that up in the amount of time that you had.
Mr. Cordray. I think I do have another homework assignment.
I did want to say to Representative Foxx I missed my chance
earlier, congratulations. I saw that your old school had a big
win on the football field last week, so I'm sure that your
South Carolina colleagues are feeling your overlordship of them
for the time being, so.
Chairwoman Wilson. Thank you. Thank you so much.
Representative Sherill New Jersey. Still with us? How are you?
Ms. Sherill. Thank you.
Chairwoman Wilson. Welcome.
Ms. Sherill. Thank you, Madam Chairwoman. Mr. Cordray this
Committee has examined the harm that unscrupulous for-profit
colleges have inflicted on students, many of whom are students
of color, first generation students, and student veterans.
About 2 weeks ago I met with the American Legion
representatives in my District, including the County Commander
of Morris County.
They specifically brought up how concerned they were about
predatory lending. They're concerned about how for-profit
schools are targeting veterans because of their GI benefits.
And we know that one way the VA has attempted to combat bad
actors from taking advantage of our veterans is through the GI
Bill comparison tool, which tracks complaints, and FTC
settlements against bad actor for-profit institutions.
But this is only one tool designed to help one targeted
group. Can you please explain how the Federal Government and
states can better work together to effectively monitor and
oversee these institutions?
Mr. Cordray. Thank you. It's a great question, and by the
way the example you gave which I know is near to your heart of
service Members in particular, is a very important
constituency, and if there one that we were going to pick out
as a priority that certainly would have one of the best cases
to make.
And I'm glad to see that some of that has gotten itself in
place. And we are doing data matches with DOD now. That's
something that we can do. And we're getting much more relief to
more people, and we want to get relief to everyone frankly who
deserves it.
In general, though to your question, we can work together
with State officials. We want to work together with State
officials. Under prior policy, the prior administration, they
blocked the Department and the FSA from working with State
officials, and frankly it led to--what did it lead to? State
officials suing the Federal Government just to get information
they thought they needed to oversee these programs.
That's not the way we should be working together, and we
have stopped that. Going forward where we have complaints--by
the way, states will hear from people, we will hear from
people. The FTC will hear from people, we need to bring all
this together, CFPB as well, and talk together and think
together about how to solve these problems. That's what we will
do, and I think we'll be more effective as a result.
And in terms of how we will address these issues it will be
a variety of different means, sometimes it will be data
matching, sometimes it will be going after high-risk operators
that we think are letting people down. Sometimes it will be
other things, but we will work closely with our State partners
on this rather than pushing them away and I think that's the
right answer.
Ms. Sherrill. Thank you. And we went over some of what
you're going to do with the State actors. Are there other
actions that FSA is taking, or planning to take to improve the
oversight of the for-profit sector?
Mr. Cordray. Yes. And again you know some people would say
we're targeting the for-profit sector. We're not. We are
targeting any schools that are not performing as they should,
that are violating the law, that are abusing and mistreating
students and borrowers and their families. Whoever those are,
that's who we're going to go after, and we will, and we need
to.
And people need to see that we're doing that so that the
other schools get the message and shape up. That's the way law
enforcement works. It has a deterrent effect, and that
deterrent effect is important because it brings more people
into line. We're going to be working with the Federal Trade
Commission. They've signed up to work with us, and they will be
a very effective partner.
They have 100 years of history. They know what they're
doing. They're eager to take on schools that are violating the
law. We will work with them in a strategic way. We will work
with states where that's appropriate. We will work with the
CFPB where that's appropriate, and the Justice Department.
So that's how we plan to proceed here. I don't know if I
quite answered your question. If I didn't feel free to renew
it.
Ms. Sherrill. No I appreciate that, and I think that is a
good flag. We're thinking of my specific concerns were those
bad actors that have been really taking advantage of some of
our students. You know finally, I just wanted to ask the
American Rescue Plan included a historic provision to close the
90/10 loophole.
Mr. Cordray. Yes. I was actually going to go there in
response to your last question but forgot.
Ms. Sherrill. And I'll go there.
Mr. Cordray. And that's where you went. Sorry, yes.
Ms. Sherrill. I'll go there, I'll go there. And so as a
result of the closure of the loophole for-profit institutions
will be required to derive not less than 10 percent of revenue
from funds other than Federal education systems funds, and now
including the GI Bill, which I think is important.
So this will protect the integrity of the 120 billion
dollars spent on Federal financial aid every year, and guard
against a waste of taxpayer dollars. The 90/10 rule also helps
ensure that Federal resources are not funneled to institutions
that are fully reliant on taxpayer funded programs for
financial viability.
So now that the Department's beginning the negotiations to
close the loophole, the 90/10 rule will protect veterans and
service Members, who until recently, as I mentioned we were
just discussing, have been targets of predatory recruiting
practices by low quality providers.
So since the closure of the loophole will start applying to
institutions, to fiscal years beginning on or after January 1,
2023, what steps can FSA take in the interim to better enforce
that rule?
So for example, are you considering additional consequences
for institutions that fail the 90/10 rule in the first year as
part of a provisional program participation agreement?
Mr. Cordray. Yes. We will do whatever we can to help bridge
the gap between now and when that law takes effect. I will just
say I wrote a book about my time at CFPB, the 90/10 loophole
was one of the frustrations that we experienced, and I talked
about it in my book.
And in the end, you all have now fixed that. Thank
goodness. Good work by the Congress there. In the meantime, if
there's things we can do--and I don't know what they all may be
to try to enforce that, even though it's not yet law, we'll try
to protect taxpayers on that, but it was a terrible loophole
that people were driving the truck through and it was hurting
us, and I appreciate the Congress stepping up and fixing that,
that was good work.
Ms. Sherrill. Well, thank you. I'm not sure Congress gets
too many atta boy's, so thank you so much, and with that I will
yield back Madam Chairwoman.
Chairwoman Wilson. Thank you so much. Mrs. Miller-Meeks
you're now ready? Good welcome.
Mrs. Miller-Meeks. Yes ma'am, I'm ready. Thank you all.
I'll try not to go over my time. So Mr. Cordray as of April
2020, nearly 1.3 million borrowers had their employment
certified by the Department and were on track to receive public
service loan forgiveness.
My democrat colleagues would like to say that this program
is a way to reward first responders, and frontline workers for
their dedication to public service, but according to FSA data,
the average balance forgiven as of April 2020, was
approximately $83,000.00.
And let me say that I am a 24-year military veteran, so I
have no issues and have used the GI Bill, and I have also
instructed people about joining the military when they are in
the healthcare fields, utilizing loan forgiveness. But these
statistics suggest that graduate degree holders are the vast
majority of beneficiaries under this program.
Now we certainly want American workers to be educated and
to be competitive in the workforce, but this highlights a real
concern where the statute is drafted so broadly that public
service employees currently account for 25 percent of the U.S.
workforce. Do you have any indication as to what share of the
PSLF population work in an authentic actual public service like
teaching, or being a first responder, or doctors at a tribal
healthcare setting, or a free medical clinic rather than their
own clinic, or a not-for profit that still is highly
successful?
Mr. Cordray. Yes. And if I may let me say several things.
First of all, I appreciate the point you made early on, which
is as you say you made use of the GI Bill. You know the
transformational effect that can have on your life in your own
life, and the same is true for many of your colleagues around
the country. So we want to make sure that people who are
entitled to public service loan forgiveness actually get that,
and we follow through on that promise that was made to them in
the law.
At the same time as you note, we don't want anybody to be
taking advantage of that program who doesn't really deserve
public service loan forgiveness, and so one of the things we do
at FSA is we have to determine employer eligibility and any
kind of doubtful close call, and we will make those calls, and
we will make them you know, faithfully to the intent of the
law.
Anybody who's working for the government is entitled to
public service loan relief, and if you----
Mrs. Miller-Meeks. OK sir, thank you for that. I'd ask what
share of the population. Let me go to my next question. Do you
believe that a researcher at the Brookings Institution is doing
public service?
Mr. Cordray. It may depend on exactly what the nature of
the job is. I would say generally, I would think no, but----
Mrs. Miller-Meeks. What about a researcher at the Heritage
Foundation?
Mr. Cordray. Again, generally I would say no, but maybe
they could make a particular case. I'd have to see the case to
be persuaded by it, but in general----
Mrs. Miller-Meeks. Do you believe that Turning Point USA, a
501 C-3 performs a public service?
Mr. Cordray. Look, I'm not familiar with that organization,
so I can't really speak to it.
Mrs. Miller-Meeks. What about Planned Parenthood. It's a
501 C-3. Do you believe that taxpayers should be shouldering
the cost to forgive the loans of a Planned Parenthood employee?
Mr. Cordray. Again, and you know as to all the groups you
stated, not specifically to any one of them, there are certain
jobs that depending on what people actually do, it may be that
the bulk of their time is devoted to actual public service, but
if it's not, then they should not get the relief, and that's
generally how we would approach these issues.
Mrs. Miller-Meeks. So having left home at 16 as the fourth
of eight children, I served as a nurse and a physician in the
United States Army. The former director of the Iowa Department
of Public Health, a State Senator, and now a U.S.
Congresswoman. I am not against public service, obviously, and
I am not against the PSLF, but I am concerned that the
eligibility for the program is so vast and so broad, that we
are using a program intended to incentivize public service on
industries and jobs that ultimately do not fit that definition.
Can your office commit to providing this Committee a
breakdown of the PSLF borrowers by occupation, and by
undergraduate and graduate degree?
Mr. Cordray. We would be glad to if you followup with a
specific data request and I guess you just made one, and we'll
try to take it down, but if you want to convey it in writing so
we have the exact particulars, we'll make sure we get the
answer right. We'll provide you with whatever information we
have.
And by the way it's a fair point you raised. Public service
loan forgiveness should go to people doing public service. It
should not go to people pretending to do public service who are
really doing something else. And we'll be glad to ferret out
anybody who is trying to take advantage of the program.
At the same time these are very situational instances that
we have to deal with case by case sometimes, although as I say,
everything you've described in your background, every bit of
that would qualify for public service loan forgiveness, and I
hope that you fared reasonably well through the GI Bill and
others because you deserve it.
Mrs. Miller-Meeks. Well thank you for that, and I certainly
have, as I said, made a request. I hope that you'll fulfill the
request. And I hope that the information will get to us as soon
as possible, hopefully no later than Thanksgiving. Thank you so
much. I yield back my time, Madam Chair.
Chairwoman Wilson. Thank you, so much Ms. Miller-Meeks, and
we look forward to the response because all of us are
interested in your question. In fact, I have a bill that I'm
crafting on public service to look at that also, so thank you.
Now Representative Castro has joined us, welcome.
Mr. Castro. Thank you, Chairwoman. And thank you Mr.
Cordray for coming before this Committee to discuss these
issues relating to Federal student aid. Under the public
service loan forgiveness, borrowers who have made 10 years of
payments while working for certain public service jobs, would
have their Federal student loan balances forgiven in full as
you know. But in 2019, the U.S. Government Accountability
Office, the GAO, reported that the Department of Education had
denied 99 percent of public service loan forgiveness
applications.
And many public servants were rejected because they
received misinformation from their servicer, or were enrolled
in the wrong payment plan, among other issues. The Department
of Education recently shared new data about Federal student aid
programs, including a new report on the PSLF program
demonstrating that most borrowers are not yet eligible for
forgiveness because they have not been in repayment for 10
years.
However, for many of those borrowers, this is due to the
fact that they had the wrong type of loan, and as a result, had
to consolidate into the direct loan program which caused their
repayment clock to reset and increase their time to reach
forgiveness.
The Federal student aid has recently announced a limited
waiver to help borrowers access forgiveness through the PSLF
program. So I wanted to ask you, moving forward, how will the
FSA ensure that loan servicers are equipped to help borrowers
access PSLF, both during the time limited waiver, and into the
future, especially given the upcoming return to payment?
Mr. Cordray. Thank you. It's a good question, and I don't
mean to refer to my book again, but again at CFPB the book I
wrote, Watchdog is about some of the failures that I saw that I
wished we could have corrected that we didn't, the 90/10 rule
was one, the PSLF program was another as you described. Very,
very few people over the years have gotten any relief under
that program.
I think it was just a few thousand at the beginning of this
year. The changes that are being made here that the Secretary
announced, and due to a lot of hard work by people at the
Department and at FSA are going to result in the numbers of
people receiving public service loan forgiveness before the end
of this year will be into the tens of thousands and a multiple
of four or five over what was done before.
And we're on the road to hundreds of thousands of others
getting their monthly count of how many qualifying months
boosted forward and the relief being made easier for them.
Those are all things that we're going to do.
Now, having said that, that was an announcement. There's a
lot of hard work that follows on an announcement that has to be
done to make it effective. You know that. You know government
very well. It's our job to do that. We have to work with our
servicer. In this case it's PHEAA, they're our loan
forgiveness--public service loan forgiveness servicer, and that
will be transitioning at some point, but they work on this
program.
They do hard work every day to try to deliver this relief.
We're going to be overseeing that to make sure that's
happening, and we're going to be working closely together. I
want to see this succeed. The Secretary wants to see it
succeed. I think all of us want to see this succeed.
That people who deserve forgiveness based on many years of
public service are getting their payment accounts proper,
they're getting their relief after 10 years, and this program
will finally deliver what it was supposed to deliver. That's
our job here, and we're going to do it.
Mr. Castro. And can I ask you what were the consequences if
any, to the servicers or others involved in administering this
program, and the fact that 99 percent of applicants were
rejected, and the program was not working as it was intended?
Mr. Cordray. So I can't speak to what may have happened
before I came here. But what I will say is there are some who
are rejected outright, there are many who are not rejected, but
they're told that they're on their path to it. They may not be
nearly as far along that path as they thought they were, and
there's been a lot of frustration about that, too.
The changes the Secretary announced which are significant,
put people much farther forward toward 10 years, pushed at
least 20,000 and actually close to 50,000 with a few further
changes past 10 years, and deserving now and entitled to full
relief and they'll get it.
And there are hundreds of thousands who have had their
payment account advanced many, many months in some cases, and
if they consolidate their loans, which is the step they need to
take if they're FFEL borrowers, they may actually go all the
way from nothing to full forgiveness. So we're encouraging
everyone to do that, we would like you to help us encourage
everyone to do that.
Mr. Castro. Let me just make one more point.
Mr. Cordray. Sorry.
Mr. Caster. Well I just want to be sure that there wasn't
some malfeasance there, that somebody wasn't trying to make
money off of a scheme.
Mr. Cordray. Yes, actually I'll say two more things if I
may. No. 1, we are concerned about that, and that's why one of
the pieces that the Secretary announced is a redetermination
program for people who might have applied before and been
rejected, that they can reapply, and that they should seek
reconsideration.
So we want to correct those errors where possible. The
other is there are scams and frauds that develop around these
programs. It's true of everything in government. If there's
something we're doing that's good for people, there are
scammers and fraudsters who will try to get into it, use it as
a way to get people's personal information and so forth.
We try to fight that as much as we can, but in terms of the
actual program we will give people a chance to have reconsider
here.
Mr. Castro. I have to yield back, the Chairwoman is cutting
me off here, I yield back Chairwoman.
Chairwoman Wilson. This is a very, very interesting
meeting, so you could see why we keep going over time because
so many questions, and so many concerns. I told you before the
meeting started how impactful this was going to be, but we
appreciate your cooperation.
Mr. Cordray. You warned me very clearly, yes.
Chairwoman Wilson. I don't know if Mr. Castro wants
anything in writing. You're fine with your responses?
Mr. Castro. Yes. If there's anything else in writing,
anything else left to answer on those questions if you could
put it in writing. Thank you, Chairwoman.
Chairwoman Wilson. Thank you. And next Representative Comer
Kentucky.
Mr. Comer. Thank you, Madam Chair. Mr. Cordray I'm sure
you're very aware that Ranking Member Foxx and I, along with
several of our colleagues on the House Oversight Committee sent
a letter to Secretary Cardona in July requesting the release of
a report commissioned by former Secretary Devos detailing
budget projections and information related to the value of the
Federal Government's entire student loan portfolio.
This letter followed several requests. So we invoked the
statutory seven-Member rule requiring executive branch entities
to produce documents when seven Members from the Oversight
Committee make the request. Now this seven-Member rule has just
started this year. This was the result of a lawsuit by Elijah
Cummings and the minority at that time, the minority democrats
of the Oversight Committee, because they were having difficulty
getting information from the Trump administration.
So now there's a process for the minority to get
documentation from the executive branch if they refuse to
comply with our request, and it's called the seven-Member rule.
We invoked the seven-Member rule. We've only done that a couple
of times this Congress.
Yet the Department of Education refused to respond with
appropriate documents. So we went and we sent another followup
letter 2 weeks ago. Again, I have received no response from the
Department. Now Mr. Cordray this information would be very
useful in determining the scope of the student loan debt we're
discussing in this hearing today, and the debt American
students are living with every day.
I encourage you to work with your colleagues to provide
this information to the Oversight Committee as soon as
possible, and I might remind you that Ranking Member Foxx is
also a very active Member on the House Oversight Committee. So
is that a reasonable request?
Mr. Cordray. So, and again Ranking Member Foxx asked me
about that same report I believe earlier in the hearing, and
I'll simply give you the same answer I gave her, which is what
I know on the subject, which is--and by the way, if you haven't
received a response on that, I believe one is forthcoming. You
should get it immediately, and again these hearings do have a
way of kind of pushing forward the work for us, it's just the
nature of life, I guess.
But let me just say what I understand is that the report
had been provided in a redacted form. The redactions were
imposed by the previous administration. It's been looked at,
and it's thought that was again the appropriate response, and I
think it's again being provided in the same redacted form, and
there's some concern about some of the metrics in that report
that we think are not accurate, and we're offering--the
Department is offering to provide a briefing to everybody who's
interest in the subject of that report to go through it in some
detail.
And if that's helpful to you, it might be worth doing that,
and then see if you're satisfied, and if you're not you could
followup at that point. But I think that's what would be
responsive to your request.
Mr. Comer. When you ask any Member of Congress whether
they're republican or democrat, there's a big difference
between the republicans and democrats from an ideologic
standpoint up here, and every American sees that. If you say
name the 20-25 biggest issues that affect people in your
District, student loan debt is going to be in just about every
Member's list of 25 issues.
And it shouldn't be this hard-to-get information to help us
determine the extent of this student loan debt, and it's been a
frustrating process. I hope that from this point on the
Department of Education will comply with the House Oversight
Committee's simple request for information. Let me switch
gears.
Mr. Cordray. Sure.
Mr. Comer. Recently Department of Education gave the
negotiated rulemaking process to make changes once again to the
borrower defense regulations. In the highly irregular move, the
Department announced that it planned to retroactively change
the borrower defense rules for all Federal student loans, thus
applying the new regulation to borrowers whose claims have
already been adjudicated.
Retroactively in law, is highly disfavored,--the Supreme
Court precedent is quite clear that rules should not be
retroactive, unless authorized exclusively by Congress. The
Biden administration's proposal runs counter to this settled
area of the law on retroactivity without an authorization
evident in the Higher Education Act, permitting the Department
to establish retroactive rules.
Even the Obama administration's borrowers defense rule did
not attempt to make such an extraordinary change. Mr. Cordray
HEA does not authorize such actions. What authority does the
Department have to make retroactive changes to the borrower
defense regulations?
Mr. Cordray. Boy, I got about 5 seconds, and that's about a
10 minute answer I need to give you. So I don't know if you're
going to need that one in writing, or just what. But what I'll
say is I know the borrower defense program is very complicated.
There have been three or four changes of direction by different
either rulemakings or policy differences under the prior
administrations.
One of the things I know is that's one of the issues that's
going to be taken up in negotiated rulemaking process, which
will be a very public process the Department's undertaking. I'm
not running that process, but we have input into it. Everybody
will have input into it.
We're happy to have your input into it, and get that rule
into the right position, and we'll work to do that. In general
though, in terms of the zig and zag in this that there has been
in the past, you're absolutely right about that. We could give
you chapter and verse on that, but it would probably be better
to do that in writing if you will.
Mr. Comer. I'll look forward to receiving that.
Chairwoman Wilson. Thank you. Thank you so much.
Representative Courtney, how are you? Connecticut.
Mr. Courtney. I'm good. Thank you, Madam Chair, and thank
you Mr. Cordray for being here today. I agree with your earlier
testimony that Secretary Cardona's decision on October 6 to
untangle the public service loan program is very significant
and powerful decision that will help hundreds of thousands of
student loan borrowers.
I think probably every Member who got frustrated with
constituents calling them over the last 3 years, about the fact
that the Department of Education and the loan servicers were
just you know really arbitrarily denying their 10 years of hard
work in terms of complying with the program. I was here back in
2007 when the College Cost Reduction Act was passed that
created the public service loan forgiveness program.
I think it's important to remember it had strong bipartisan
support and was signed into law by George W. Bush. So you know
again, I think if there's a consensus area in terms of student
loan relief, certainly people who you know either wear the
uniform of this country, or step up as cops, or teachers,
nurses, etc. in public service jobs who are earning their
discharge, is something we should all pull together and work
hard to implement.
Particularly, I want to again note that you know we're
already hearing from constituents that have gotten the good
news in terms of emails from the Department, so it's happening
in real time, you know, where people are getting the good news
that payments are being recognized and moving up their
discharge date.
The fact that again, people who are in the military are
also going to have their time overseas counted under you know
the deferred payments that occurred when they were overseas are
going to be counted as qualifying payments.
Again, I just want to confirm that's something that's going
to be implemented by the Department of Education in conjunction
with DOD, so it's really going to be done internally in terms
of an administrative function is that correct?
Mr. Cordray. Yes. We have worked hard to get automated data
matching with DOD, and by the way we're trying to get it across
the Federal Government through Office of Personnel Management,
we think we will. It takes a little bit of time to do some of
these things, but yes, we're going to make it as easy as
possible.
And we also would like to work with states, and local
governments as well, and maybe you and your staff could help us
with that on some outreach on that and so forth. We want
everybody who is entitled to the benefits of this under the law
to get the benefits of this.
And by the way every day I work with people here at FSA and
the Department. They're all public servants too as you know.
I'm really proud of the work they're doing. Some days you're
especially proud because really good work has gotten done, and
the day of that announcement about public service loan
forgiveness was a day I was especially proud of the people at
FSA.
Mr. Courtney. Sure. So you know and again just on that
point. You know this Committee reported out as part of the
Build Back Better Act, a provision to clean up the problem with
the military service Members. Again, the Secretary's order kind
of obviated the need to include that into the BBB when we do
final passage.
I want to again thank your staff who helped work with
Committee staff, in terms of fashioning the language, and again
clearly the commitment was there within your agency. The other
part of the Secretary's order, just I have a question, I just
really want to get through this is that you know some people as
Congressman Castro eluded, are going to actually have to file a
waiver request to get the consolidation relief, which the
Secretary's order included.
And you know we're already hearing from constituents that
servicers who are getting calls, because I mean this is
something that people are watching like a hawk, you know back
home. Are already being told they don't have the guidance to
implement the PSLF changes.
And again, we want to make sure because there's a deadline
here of October of next year for people to file these requests,
what steps FSA is going to take. We want to be partners with
you to get the word out to people in terms of making sure that
you know, they don't get caught in another sort of bureaucratic
gymnastics that would affect their eligibility for discharge.
Mr. Cordray. Yes. It's a very fair question, and by the way
we're operating in real time here. It's been a matter of days
since the Secretary's announcement, and we want to make sure
that people have the right guidance here, and you know
sometimes quick is the enemy of the good, but we're working on
that.
And we will work with the servicer, which is PHEAA, to make
sure that they have the guidance to provide it to people. We've
heard some of the same things you've heard, and we want to get
these things sorted out as quickly as possible, but we do
intend, and we will deliver, on the announcement that was made,
and get relief to people, and we will communicate closely with
them going forward.
And by the way to the extent you hear things, pass them on
to us because we're probably hearing the same things, but if we
aren't, we want to hear from you, too. OK?
Mr. Courtney. So when you have a form developed for the
waiver application, I mean please share that with Member
offices because that's obviously that's the tangible document
that is going to trigger relief for folks, and again we
definitely want to work with you.
One last point, Mr. Pocan talked about the refinance issue.
Again I've introduced a bill to actually track the Federal
reserve benchmark, and allow people to refinance down, so there
already is something actively in the hopper. You know with this
Congress, the 117th Congress to go that route and look forward
to hopefully working with the Secretary and your office to you
know provide something that is screamingly obvious, which is
that people should be able to refinance their debt with student
loans just like you do with a home mortgage or other forms of
consumer debt.
Mr. Cordray. I understand your point on that, and whatever
you do we will be glad to implement.
Mr. Courtney. Thank you, sir. I yield back.
Chairwoman Wilson. Thank you so much. Representative
Letlow?
Ms. Letlow. Thank you, and Mr. Cordray thank you for taking
the time to testify before the Committee today. As you know the
pandemic brought on many challenges, especially for students
and borrowers. So Congress provided a temporary pause on
Federal student loan repayments.
The CARES Act provided the Secretary of Education authority
to suspend all interest accumulation and monthly payments on
federally held loans through September 30, 2020. Additional
executive action extended the repayment pause by the previous
and current administrations.
However, most recently the Biden administration has
extended repayment one final time until January 31, 2022.
Unfortunately, to date neither the Department, nor FSA has made
public a comprehensive plan for returning borrowers into
repayment status.
The repayment date is just around the corner, and this lack
of clarity is unhelpful to the 45 million borrowers. These
individuals need to have an explicit understanding on all
requirements and expectations when the payment suspensions end.
In fact, law requires borrowers to receive no less than six
notices when normal payment obligations are about to resume.
Additionally, this uncertainty has made it difficult for
loan collection agencies to have adequate time to plan and hire
employees. As many businesses, these agencies had to let people
go during the pandemic. Now loan collection agencies will be
expected to resume their business as usual and meet the same
collection requirements for the Department as soon as repayment
begins again.
These agencies need time to ensure they have employees
hired and trained so they can deliver on the Department's and
borrower's expectations. Mr. Cordray loan rehabilitation has
been a key tool to assist borrowers. In fact, Congress
recognized the value of this tool, and it was included as a
provision in the CARES Act.
Why did FSA decide that private collection agencies should
not proactively explain the benefits of loan rehab to
borrowers?
Mr. Cordray. So I think you have accurately and admirably
described the challenges here of the multiple extensions of the
repayment pause, and now the moving to a final deadline. And
what I'll say in terms of a communications plan, we have
extensive communication plans that we're already activating and
operating under.
We have been for the last couple of months now that we know
this is the final deadline. We will be reaching out to tens of
millions of borrowers here, and they will get the required, as
you noted correctly, at least six communications from us on
this subject, and that's what Congress said we should do, and
it will be more than six in many cases.
Some of those communications are coming directly from us,
some of them will be coming from their servicers. We will have
input into what those communications are, just to make sure the
message isn't getting mixed here. We're also working, and we'll
be awfully glad to work with you and your offices to make sure
the message gets out that way as well.
That's another way we can reach people. Some of them will
listen to FSA. Some of them may listen to their servicer. Some
of them will listen to neither of those, but they will listen
to you. You know your voice is respected in your community, and
other community groups, and others whether it's alumni
associations, or student associations, or teacher's
associations, or anybody can help us get this message out.
We don't want anybody to mistake this, fall into
delinquency default because they just didn't understand this
was happening. They just didn't hear about it. Our job is to
get this a blanket communication across the country, but all of
you can help us do that and we would appreciate it.
Now I can go into more detail and more plans.
Ms. Letlow. I have one followup to that. I appreciate that.
Mr. Cordray. Sure.
Ms. Letlow. I'd like to followup. There are 11 private
public collection agencies, PCAs on contract with the
department, and it's my understanding that PCAs are at the
ready to assist borrowers with rehabilitation when return to
loan repayment begins. Will FSA allow PCAs to begin calls to
defaulted borrowers on February 1, 2022?
Mr. Cordray. So in terms of what's going to happen with
defaulted borrowers, there are active consideration being given
to that. There is various schools of thought as to what the
pandemic pause has meant for defaulted borrowers. As you know
the PCAs that you're talking about have not been able to engage
in collection activity for the most part during the payment
pause because there's been no debt to collect because it's all
been paused right?
So that's been a difficult situation for them we
understand, and coming out of this, depending on decisions that
are made about after January 31, you know, it's a difficult
situation. We will communicate with people as we can, that is
the PCAs, and we want to make sure we have plenty of capacity
for reaching borrowers to make sure that they get this message,
and that they don't misunderstand it, or fail to hear it.
So I agree with you that's a prime consideration for us,
and we're working hard to do that.
Ms. Letlow. Thank you, Mr. Cordray. I yield back.
Chairwoman Wilson. Thank you so much. And now Ms. Bonamici,
thank you Ms. Bonamici for being here.
Ms. Bonamici. Thank you so much Madam Chair and thank you
Mr. Cordray. I agree with my colleagues who have noted the
importance of this issue. A recent estimate from the Federal
Reserve found that Americans owe more than 1.7 trillion in
student loan debt, and in my home State of Oregon the average
graduate has more than $27,000.00 in debt. So it's clear we
need to work together to find the best policies to support
student borrowers.
So Mr. Cordray, we know of the three loan servicers that
have announced that they do not plan to renew their contracts.
We've talked about that. Navient Real EState Management, Fed
Loan, these three companies serve about 16 million borrowers,
so I want to ask about how the non-renewal of these contracts
is going to affect borrowers and their families.
So how will the developer let borrowers know if it's
changing, and how can Congress help you make this transition as
easy and cost effective as possible for borrowers, their
families, and for taxpayers?
Mr. Cordray. Yes. Thank you for the question and the
numbers you have cited I believe are pretty much accurate. You
know in fact are accurate. What I will say is there have been
times in the past as I understand it, and it's history for me,
I'm new to the job, that FSA hasn't always handled transfer of
accounts well, and the servicers haven't transferred the
accounts well, and there have been problems for borrowers.
More recently and most of the most recent examples have
been smaller universes of borrowers, but those have been
handled better, and the communication plans are sounder, and
the hand off is better, and by the way here the hand offs are
being overseen very closely, and the servicers know that, by a
coalition of overseers including FSA, CFPB, and 17 states.
So that gives me more confidence. But at the same time you
know we need to make this work. The way we do it is we start by
transferring a small cohort of borrowers, and make sure that we
work the kinks out in that, then we gradually move the larger
cohorts of borrowers. That is well in process right now for the
Granite State portfolio, the Navient portfolio is going to be
handled we think more easily because it's a move directly from
one servicer to another of the entire account all on the same
platform, but we'll see.
And we'll make sure that's done well. The PHEAA transfers
are a little bit more complex because they're so big they have
to go to multiple recipient servers. Not everybody on the same
platform, so we will be bulldogging that to make sure that goes
as well as we can.
Ms. Bonamici. Thank you. And I want to get to another
issue, but I know we'll be following up on that to see how it's
going throughout the process.
Mr. Cordray. Sure.
Ms. Bonamici. So the Department of Education recently moved
to provide targeted forms of loan relief, including people with
permanent disabilities, those discharges to borrowers without
requiring them to go through a process. And I've been a long-
time supporter of helping borrowers with permanent disability,
and perhaps I included some protections in my Simple Act, which
will work to get more borrowers into driven repayment plans by
automating the annual process of recertifying borrowers?
income.
Similar provisions to this Simple Act included in the
Future Act, which as you know was signed into law last
Congress, and even though income driven repayment is not a one
size fits all solution, but it's a very effective tool.
So how can automatic processes remove major barriers for
borrowers, and get them the benefits they're entitled to under
the law, and are there additional programs, including
automatically updating income for borrowers on IDR plans that
you would like to see automated in a similar way that would
help streamline the process?
Mr. Cordray. So excellent question, and I would say
significant work in progress on all of the fronts you
mentioned. No. 1, the total permanent disability announcement
recently, that is vastly being automated, and the relief is
being delivered to people, and it's significant numbers of
people as you've said, several hundred thousand people.
So that's an example of how we're starting to do this work
better. The IRS relationship with FSA has really made progress
over the last year or so, and there are ways that they can help
us automate some of this, including as you say, income driven
repayment.
We want that to be as easy as possible for borrowers.
Frankly, every borrower of student loans, who is now repaying
student loans, we want them as much as possibly, in one of two
plans. Either on an auto debit, if they're able to stay current
and able to make those payments so they don't forget, they
don't screw up, it's just regular, routine, you know the way
you automatically debit an account for an expected amount, no
surprises.
That's what we want, and we're pushing people to make sure
that they get into that as much as possible. If they're having
trouble making their payments, or if they're going to struggle
to make their payments, we want them to be on an income driven
repayment. That's the right answer.
It allows them to lower their monthly payment to an
appropriate amount, and then going forward we can continue to
adjust it to their circumstances year in, year out. That's a
big deal for us. We're trying to make that simpler for people,
and we want everybody out there, and help us spread the word
among your constituents.
If you're able to make your payment easily, get on auto
debit. If you're having trouble making your payments, get on
income driven repayment, and the process should be easier now
than it was before, and don't take no for an answer on that.
Ms. Bonamici. I appreciate that, and when we were working
on the Simple Act, and this is over the last several years we
found that there were many students who just did not meet that
strict deadline on updating their income. And then they'd be in
default, and then it was harder to get them out. So
streamlining that process of automating I think has been a
tremendous help. As I yield back Madam Chair, I do want to
align myself to ask about the jobs that the loan forgiveness
program, on that Mr. Cordray. Thank you, Madam Chair, I yield
back.
Chairwoman Wilson. Thank you. Mr. Keller welcome to our
Committee.
Mr. Keller. Thank you, Madam Chair. Mr. Cordray several FSA
contractors have exited the Federal student loan servicing
industry since the beginning of this year. As a result, over 16
million borrowers will be placed with a new servicer at the
same time they return to repayment status after nearly a 2-year
pause. As you've noted, the return to repayment was challenging
and was not only tasked without--excuse me, but it was also a
challenging task even without losing any service.
Among the servicers that have announced their exit was
Pennsylvania Higher Education Assistance Agency, or PHEAA. This
is an entity that does tremendous work in Pennsylvania, and has
received some unfair criticism from congressional democrats,
progressive advocates, and sometimes quite frankly your
Department.
You've repeated noted and eluded to it in your testimony
that the reason some services made the decision not to renew or
extend their contracts was that they were either unable, or
unwilling to meet, or increased ability or performance metrics.
For example, speaking at a conference in September attended
by several FSA stakeholders, you noted that note everybody was
thrilled with the new standards, but FSA stuck to its guns, and
some of the servicers decided to exit the program rather than
contend with these new realities.
Does that statement, or does that include PHEAA?
Mr. Cordray. So I'm not trying to----
Mr. Keller. Does it include PHEAA or doesn't it, I've only
got five minutes, yes or no?
Mr. Cordray. PHEAA is exiting our program. They had reasons
of their own for exiting. They have freedom of choice here.
They've decided to exit.
Mr. Keller. OK.
Mr. Cordray. However, they are a big servicer. It's going
to take time to move their portfolio. They're going to have to
continue to work with us.
Mr. Keller. OK. You've answered my question, I've got to
keep moving. I can't have a filibuster I have to keep moving
here.
Mr. Cordray. OK. I was trying to answer your question.
Mr. Keller. So you've talked to PHEAA about why they
decided to exit? Again that's a yes or a no.
Mr. Cordray. I have had conversations with PHEAA's
leadership since I became head of FSA yes.
Mr. Keller. OK. Now the contract extension for the
remaining servicers, these new guidelines, were they made aware
that--were the servicers made aware of these new guidelines on
September 24 of this year?
Mr. Cordray. Actually they were made aware of those
guidelines sooner because we had to negotiate the contracts,
and it took more than 2 months of hard work.
Mr. Keller. OK. So when were they made aware of them. What
date were they made aware of them?
Mr. Cordray. It would have varied with different ones with
them, but I think my very first conversation with loan servicer
leaders, including PHEAA, I would have made a claim that this
is what we intended, however can I say something?
Mr. Keller. No. I'd just like to know what date that was.
Mr. Cordray. Can I? Well I don't know what date that was,
but it----
Mr. Keller. Can you get us the date?
Mr. Cordray. It was early. Let me say in context here, loan
servicing is a hard job. I know it's a hard job. And I'll say
this to you, and I'll say it to PHEAA, and I'll say it to all
the loan servicers. I have seen mortgage loan servicing as head
of CFPB. It's a very hard job. Having said that, we need to do
a good job, and we have to have performance and accountability
metrics in these contracts, and people have to meet them.
Mr. Keller. I'm not going to disagree with that. I'm going
to take my time back. I'm not going to disagree with that. We
need to have transparency, and we need to make sure everybody
understands what they're doing, and they have to provide a good
job. And I know PHEAA does in Pennsylvania because they service
all of Pennsylvania.
But for people to make accusations that PHEAA is doing this
because they don't want accountability is not fair. I'd like to
know, and I'd like to know when you can provide me with the
date you talked to PHEAA. When can I expect to have the
information on when PHEAA was made aware of this?
Mr. Cordray. Well look I don't know exactly what the
situation here is on a request like this, but if you're asking
for a specific question about a factual date.
Mr. Keller. Yes.
Mr. Cordray. We can provide it.
Mr. Keller. OK.
Mr. Cordray. If it would help.
Mr. Keller. OK. I would expect--sir, it's my time. I would
expect that by Friday of this week you can provide my staff, or
the Committee with the date on which you made PHEAA aware of
what the guidelines would be. I'd just like to know that. OK,
because that goes to the timeline of when they decided or did
not decide to continue the contract here.
Again, it's all about accountability. And I've heard a lot
of discussions today regarding student loans and educational
institutions. In fact, the Secretary, Secretary Cardona said a
couple months ago that everybody should be treated the same as
far as educational institutions regardless of their tax debts.
I'm still waiting for his plan on holding everybody to the same
metrics. It's been going on forever.
Mr. Cordray. Let me add something that may complicate your
question. You asked when I told PHEAA something. When I first
came in as head of FSA on May 4 and started speaking publicly
about my job, I started talking about accountability and
performance. And so that was in the air, whether I had said it
directly to PHEAA say on the phone, or whether I said it
generally and they heard it, everybody began hearing that after
I became the head of FSA.
That was not a message that was hidden or somehow sugar
coated, that was part of what we expected.
Mr. Keller. Well sir, here's a little bit of accountability
that you and the Department can provide OK. I want to know the
date when they were made aware, and I also want to see the
Secretary's plan. When he agreed that everybody should be
treated the same, here's accountability for you guys. OK? I
want to see the plan. I want to see the plan to treat everybody
the same from the Department of Education.
Mr. Cordray. OK. Whatever you're expecting or requiring, or
demanding, just put it in writing to us and we'll try to
respond to you in writing. We would be happy to do that.
Mr. Keller. You either do something or you don't. I will
submit you my request in writing.
Mr. Cordray. OK. But again, as to when PHEAA would have
learned something, I had been talking about this from the first
day on the job. They probably would have----
Mr. Keller. No sir. That's--let's not dodge the question.
There was a date when they were given the expectations OK?
Mr. Cordray. OK I guess we'll leave it at that.
Chairwoman Wilson. Time. Mr. Fitzgerald of Wisconsin,
welcome to our Committee.
Mr. Fitzgerald. Thank you, Madam Chair, and thank you Mr.
Cordray for being here. This is somebody kicked the hornet's
nest here, and that's I think obvious based on the question and
the back and forth that's going on today. I think what's been
exposed by the pause is that we have a system that is flawed.
And whether it's the 60 Minutes story, or certainly
secondary stories about parent plus loans, you know I think
we're kind of in a territory where this is not going away, and
I think it's something that's going to grow as we try and
tackle the very complex issues of bringing people back online
after they have been not making these payments obviously for
some time.
And it's only going to get worse I think with the extension
of that. So my question is, and you know we have another
freshman class that's attending college throughout this Nation.
So are there things that are being changed beyond just the
order that's already been offered when it comes to the entire
student loan system?
And I want to go back to the parent plus loans a little bit
because that has been one of I think the most frustrating parts
of this entire program in that what you have is and you know
just a specific story, it was just counted in the Wall Street
Journal where a woman had two children, they went through
Baylor University, and she ends up with over $200,000.00 in
student loans under her name, under a parent plus loan, and no
ability to pay it back.
And you just scratch your head. How could this possibly
happen? I think part of it is that the universities continue to
increase tuition, not really concerned about whether or not
there is a collateral involved, or whether or not it can be
paid back, and it just becomes more and more complex.
Although the thing that will not go away in our
constituents--it doesn't matter which side of the aisle you're
on, are now completely engulfed in how do I do this, how do I
get my loan forgiveness in place?
I mean is the Department looking at you know moving forward
where are we now? And how can we deal with the issues before us
when it comes to new students as well as the repayment plans?
Mr. Cordray. So there was a lot there. In general, I agree
with you. Look it's an unusual form of lending that we do with
student loans in this country where it is not risk-based, as
most private sector lending is. And that does lead to some
difficulties down the road.
Having said that, you know the student loan programs as I
understand it, and again Congress has designed these programs
and put them in place. It's meant to strengthen this country by
giving more access on a more even-handed basis to higher
education, and what that means for improving people's prospects
in life, their economic prospects and the like.
However, you know there are challenges in this program. No
doubt about it. There's challenges in ensuring that loans are
repaid and making sure that's done on an even handed basis.
There's challenges in making sure that schools are providing
value for the money, and I think we have an obligation to have
protective oversight there, and I don't know if I'm answering
your specific question or not, but if I'm not, feel free to
reframe it, but that's just my reaction to your--to what you
had to say.
Mr. Fitzgerald. Yes, I think Representative Castro kind of
touched on it. You know it borders on malfeasance, and I'm
really worried about that part of this. That if there's
predatory loaning, and loans being made, if there are sequences
within the program where you know there absolutely is some
other type of motive involved, I'm really concerned about that.
Because I think that's what the pause exposed. It exposed a
system that quite honestly, I think many people are standing
back and saying, listen, this is not just about loan
forgiveness, this is about holding people accountable, and it's
very shady. I mean this is starting to feel like you know
something that quite honestly deserves a lot more scrutiny than
it has been receiving in the past.
Mr. Cordray. Well, we will do our best to hold people
accountable, you know, maybe schools in some instances, maybe
services in some instances, maybe borrowers in some instance.
And would be happy to have more input from you as to how we can
best do that as we go. It's not an easy job, no question, but
it's an important job and we'll try to do it.
Mr. Fitzgerald. Thank you, Madam Chair I yield back, thank
you.
Chairwoman Wilson. Thank you. Thank you so much. I remind
my colleagues that pursuant to Committee practice, materials
for the submission for the hearing record must be submitted to
the Committee Clerk within 14 days following the last day of
the hearing, so by close of business on November 10, 2021,
preferably in Microsoft Word format.
The materials submitted must address the subject matter of
the hearing. Only a Member of the Subcommittee, or an invited
witness may submit materials for inclusion in the hearing
record. Documents are limited to 50 pages each.
Documents longer than 50 pages will be incorporated into
the record by way of an internet link that you must provide to
the Committee Clerk within the required timeframe, but please
recognize that in the future the link may no longer work.
Pursuant to House rules and regulations, items for the
record should be submitted to the clerk electronically by
emailing submissions to edandlabor.hearing@mail.house.gov.
Witness, again I want to thank our witness for his dedication
today, for his participation.
We learned so much, and we look forward to working with
you. I told you this was an issue that was impacting America,
and I guess you found out from testifying here today.
Mr. Cordray. I guess I did. Yes.
Chairwoman Wilson. Members of the Subcommittee may have
additional questions for you, and they will submit those in
writing to you. We ask the witness to please respond to those
questions in writing. The hearing record will be held open for
14 days in order to receive those responses.
I remind my colleagues that pursuant to Committee practice,
witness questions for the hearing record must be submitted to
the Majority Committee Staff or Committee Clerk within 7 days.
The questions submitted must address the subject matter of the
hearing.
I now recognize the distinguished Ranking Member, Dr.
Murphy, for a closing statement. Dr. Murphy.
Mr. Murphy. Thank you, Madam Chairman, and thank you for
holding this meeting, and thank you Mr. Cordray for
participating today. I just want to make a few points as we
close out. I appreciate all the effort put into this today, but
to be very honest with you I'm a little disappointed in some of
the responses made by the witness.
There was a lot of deflection saying that was for
``Congress to decide.'' You know many issues, like PSLF where
Congress already has decided, we had kind of a giant truck
driven through the statute using authority that everyone knows
was never intended for the purpose.
And as I said in my opening statement, the Department of
Education, and quite frankly, yourself, have been less than
transparent, and to put it bluntly. And I mean that's just the
fact. We hoped you would be more prepared to answer the
questions that this Committee proposed, because largely they're
the same questions we sent in our letters months ago and didn't
get very valid responses.
And so it appears your lack of answers unfortunately, so
it's par for the course for this administration. There seems to
not be consistent measures of moving forward and answering
specific questions for accountability.
I want to reiterate as the Chairwoman just said, that we
want and we expect answers to the questions given to you, ones
that you said you were going to provide. Thank you, but
regardless to your testimony, we look forward to the answers
that this Committee has asked you to put back in writing to the
Members who submitted them. Thank you, Madam Chairman, I will
yield back.
Chairwoman Wilson. Thank you. I now recognize myself for
the purpose of making my closing statement. Thank you, Mr.
Cordray, for your time and your work to support students and
protect borrowers. Today we discussed the major steps the
Biden-Harris administration has taken to support Federal
student loan borrowers.
In just 9 months the administration has provided 563,000
borrowers with 9.5 billion in relief they were legally entitled
to receive under the Higher Education Act. And as Mr. Cordray
shared the Education Department continues to develop stronger,
consumer protections for students and for taxpayers. While the
Department's progress has been encouraging, the approaching
restart of student loan requirements, and the longer-term shift
to next gen poses major challenges for FSA.
Student borrowers and servicers need clear guidance to
ensure the transition back to the repayment goes smoothly, and
that next gen fulfills the promise of a simpler, more consumer
friendly student loan system.
I look forward to our work ahead to ensure all student
borrowers receive the support they need. Thank you again Mr.
Cordray for your leadership and commitment to supporting
students and their families. If there's no further business,
without objection, the Subcommittee stands adjourned. Thank
you.
[Questions submitted for the record and the responses by
Mr. Cordray follow:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[Whereupon, at 1:06 p.m., the Subcommittee hearing
adjourned.]
[all]