[Senate Hearing 117-347]
[From the U.S. Government Publishing Office]


                                                       S. Hrg. 117-347


               THE STUDENT DEBT BURDEN AND ITS IMPACT 
                ON RACIAL JUSTICE, BORROWERS, AND THE 
                ECONOMY

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

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                            ECONOMIC POLICY

                                 OF THE

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

                    ONE HUNDRED SEVENTEENTH CONGRESS

                             FIRST SESSION

                                   ON

          EXAMINING THE IMPACT OF STUDENT LOANS ON RACIAL JUSTICE, 
                     BORROWERS, AND THE U.S. ECONOMY

                               __________

                             APRIL 13, 2021

                               __________

  Printed for the use of the Committee on Banking, Housing, and Urban 
                                Affairs
                                
 
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                Available at: https: //www.govinfo.gov /

                               __________

                    U.S. GOVERNMENT PUBLISHING OFFICE                    
48-377 PDF                 WASHINGTON : 2022                     
          
-----------------------------------------------------------------------------------  

            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                     SHERROD BROWN, Ohio, Chairman

JACK REED, Rhode Island              PATRICK J. TOOMEY, Pennsylvania
ROBERT MENENDEZ, New Jersey          RICHARD C. SHELBY, Alabama
JON TESTER, Montana                  MIKE CRAPO, Idaho
MARK R. WARNER, Virginia             TIM SCOTT, South Carolina
ELIZABETH WARREN, Massachusetts      MIKE ROUNDS, South Dakota
CHRIS VAN HOLLEN, Maryland           THOM TILLIS, North Carolina
CATHERINE CORTEZ MASTO, Nevada       JOHN KENNEDY, Louisiana
TINA SMITH, Minnesota                BILL HAGERTY, Tennessee
KYRSTEN SINEMA, Arizona              CYNTHIA LUMMIS, Wyoming
JON OSSOFF, Georgia                  JERRY MORAN, Kansas
RAPHAEL WARNOCK, Georgia             KEVIN CRAMER, North Dakota
                                     STEVE DAINES, Montana

                     Laura Swanson, Staff Director

                 Brad Grantz, Republican Staff Director

                      Cameron Ricker, Chief Clerk

                      Shelvin Simmons, IT Director

                    Charles J. Moffat, Hearing Clerk

                                 ______

                    Subcommittee on Economic Policy

                 ELIZABETH WARREN, Massachusetts, Chair

           JOHN KENNEDY, Louisiana, Ranking Republican Member

JACK REED, Rhode Island              TIM SCOTT, South Carolina
CHRIS VAN HOLLEN, Maryland           THOM TILLIS, North Carolina
TINA SMITH, Minnesota                KEVIN CRAMER, North Dakota
JON OSSOFF, Georgia                  STEVE DAINES, Montana

              Gabrielle Elul, Subcommittee Staff Director

         Natalia Riggin, Republican Subcommittee Staff Director

                                  (ii)


                            C O N T E N T S

                              ----------                              

                        TUESDAY, APRIL 13, 2021

                                                                   Page

Opening statement of Chair Warren................................     1
    Prepared statement...........................................    44

Opening statements, comments, or prepared statements of:
    Senator Kennedy..............................................     2
        Prepared statement.......................................    44

                               WITNESSES

Representative Ayanna Pressley of Massachusetts..................     4
    Prepared statement...........................................    45
Representative Byron Donalds of Florida..........................     5
    Prepared statement...........................................    46
Maura Healey, Attorney General, State of Massachusetts...........     7
    Prepared statement...........................................    48
Dominique Baker, Assistant Professor of Education Policy, 
  Southern Methodist University..................................     9
    Prepared statement...........................................    53
Darimir Perez, Student Loan Borrower.............................    10
    Prepared statement...........................................    60
John F. Remondi, President and CEO, Navient......................    12
    Prepared statement...........................................    62
    Responses to written questions of:
        Senator Kennedy..........................................   108
James H. Steeley, President and CEO, Pennsylvania Higher 
  Education Assistance Agency....................................    13
    Prepared statement...........................................    78
    Responses to written questions of:
        Senator Kennedy..........................................   112
Beth Akers, Resident Scholar, American Enterprise Institute......    15
    Prepared statement...........................................    84
    Responses to written questions of:
        Senator Kennedy..........................................   116
        Senator Daines...........................................   117
Constantine Yannelis, Assistant Professor of Finance, Booth 
  School of Business, University of Chicago......................    16
    Prepared statement...........................................    87
    Responses to written questions of:
        Senator Kennedy..........................................   117
        Senator Daines...........................................   118
Alexander Holt, Policy Analyst, Committee for a Responsible 
  Federal Budget.................................................    18
    Prepared statement...........................................    91
    Responses to written questions of:
        Senator Kennedy..........................................   118
        Senator Daines...........................................   119
Adam Looney, Executive Director, Marriner S. Eccles Institute, 
  University of Utah.............................................    20
    Prepared statement...........................................   101
    Responses to written questions of:
        Senator Kennedy..........................................   120

                                 (iii)
              Additional Material Supplied for the Record

Letter from Marion Ross Fedrick, President, Albany State 
  University.....................................................   122
Joint letter from Mary Schmidt Campbell, President, Spelman 
  College........................................................   124
Joint letter submitted by Senator Elizabeth Warren...............   126
Final Alert Memorandum from Patrick J. Howard, Assistant 
  Inspector General for Audit, Department of Education, Office of 
  Inspector General..............................................   139
Letter from Marc Egan, Director of Government Relations, National 
  Education Association..........................................   144
Letter from Justin Draeger, President and CEO, ASFAA.............   146
Letter from Sherry G. Taggart, student loan borrower.............   151

 
 THE STUDENT DEBT BURDEN AND ITS IMPACT ON RACIAL JUSTICE, BORROWERS, 
                            AND THE ECONOMY

                              ----------                              


                        TUESDAY, APRIL 13, 2021

       U.S. Senate, Subcommittee on Economic Policy
          Committee on Banking, Housing, and Urban Affairs,
                                                    Washington, DC.
    The Subcommittee met at 2:30 p.m., remotely, via WebEx, 
Hon. Elizabeth Warren, Chair of the Subcommittee, presiding.

          OPENING STATEMENT OF CHAIR ELIZABETH WARREN

    Chair Warren. This hearing will come to order. This hearing 
is in virtual format. A few reminders as we begin. Once you 
start speaking there will be a slight delay before you show up 
on the screen, and to minimize any background noise please 
click the mute button until it is your turn to speak or to ask 
questions or answer questions.
    You should all have one box on your screens labeled 
``Clock'' that will show you how much time is remaining. For 
witnesses, you will have 5 minutes for your opening statements. 
For all Senators, the 5-minute clock still applies for your 
questions. At 30 seconds remaining for your statements and for 
your questions you will hear a bell ring to remind you that 
your time has almost expired. It will ring again when your time 
has expired.
    If there is any kind of technology issue we will move to 
the next witness or the next Senator until it is resolved. And 
to simplify the speaking order process, Senator Kennedy and I 
have agreed to go by seniority for this hearing.
    So with that, let's begin.
    Good afternoon and welcome to this year's first hearing of 
the Banking Committee's Economic Policy Subcommittee. And thank 
you to Ranking Member Senator Kennedy for working with me and 
with my staff to help make this a very successful hearing.
    This Subcommittee has a mandate to examine the economy and 
how to make sure it works for all Americans. Given this 
mandate, there is no better topic for our first hearing than 
student loans and their impact on racial justice, on borrowers, 
and on the economy.
    The student loan debt burden is massive, and it affects 
millions of families. About 43 million Americans owe more than 
$1.7 trillion in student loans. That is an average of almost 
$40,000 per borrower. Student loan debt takes a real bite out 
of personal finances. It can mean that borrowers cannot afford 
a new car or cannot get a mortgage or cannot launch a business 
or cannot start a family. This hurts them individually, but it 
also hurts the whole economy.
    The burden is so heavy that when the pandemic hit, 
Republican and Democratic policymakers recognized that loan 
payments would just sink families. So first President Trump and 
then President Biden paused student loan payments and canceled 
accumulated interest. It was a smart move. But in a few months, 
those payments are scheduled to go up again.
    America is facing a student loan time bomb. That, when it 
explodes, could throw millions of families over a financial 
cliff. The average borrower will have to start paying nearly 
$400 a month to the Government instead of spending that money 
out in the economy.
    Student debt also makes racial disparities in America even 
worse, compared with White students. Black and Hispanic 
students are forced to borrow more money to go to school, 
borrow more money while they are in school, and have a harder 
time paying off their loans after graduation.
    I am just going to do one statistic around this. Twenty 
years after taking out their student loans, median White 
borrowers owe about 6 percent of their original amount. The end 
is in sight. But after 20 years, median Black borrowers still 
owe 95 percent of the original amount they borrowed. Their path 
seems to stretch on forever.
    We can help. Leader Schumer and I have urged President 
Biden to address this economic problem by using his existing 
authority to cancel $50,000 in student debt for each borrower. 
New data I obtained from the Education Department reveals the 
benefits of debt cancelation. The data show that if we cancel 
$50,000 in student loan debt, 36 million borrowers would be 
completely relieved of their debt burden. A significant number 
of these borrowers who would finally be free of student loan 
debt, 3.1 million people, have already been carrying debt 
burden for over 20 years.
    It is time to act now. Republican and Democratic Presidents 
have a long history of using their statutory authority to 
cancel student loan debt. President Obama used this authority 
to cancel old debt for tens of thousands of students, and 
President Trump used this authority to cancel some debt, 
accrued interest, for 37 million Federal borrowers.
    Canceling $50,000 in student loan debt would also help 
close the Black-White wealth gap among borrowers by 25 points. 
For Latinos, the gap would close by 27 points. This is the 
single most powerful executive action President Biden could 
take to advance racial equity and give everyone in America a 
chance to build a real future.
    So I want to thank all of our witnesses for coming today. I 
look forward to hearing your testimony. And with that I will 
turn to Ranking Member, Senator Kennedy, for your opening 
remarks.

           OPENING STATEMENT OF SENATOR JOHN KENNEDY

    Senator Kennedy. Thank you, Madam Chair. I will try to be 
brief. We have a distinguished panel of witnesses that I would 
like to hear from today. I think this is a timely subject. I 
have many questions, and I hope to get educated today.
    Why student debt? Why not credit card debt? Why not 
automobile loan debt? Why not mortgage debt, if we are going to 
forgive debt? How do we be fair to all Americans? What role, if 
any, did our universities play in the accumulation of all of 
this student debt? I am not sure that this is the right place 
to address education policy but if anybody knows the answer I 
would like to know why some college textbooks cost as much as I 
paid for my first car.
    And these are the kinds of issues that I hope that we can 
address today. What are the demographics of the people who owe 
student debt? Is there really--and I am not suggesting there is 
not; I do not know--is there a racial gap? How equitable is it 
to ask taxpayers who have not gone to college to pay for those 
who have gone to college? These are the kinds of issues that I 
hope we can address today, and as I say, my mind is open, and I 
am looking forward to hearing the answers.
    And with that I will turn it back over to our distinguished 
Chair, with whom I have worked closely setting up this hearing, 
and I enjoyed every minute of it.
    Chair Warren. Thank you very much, Senator Kennedy, and I 
have enjoyed working with you, and I appreciate it.
    Now I am going to introduce today's witnesses. We have two 
panels today, and in the first panel here I am pleased to 
introduce my friend, Congresswoman Ayanna Pressley, who 
represents Massachusetts' 7th Congressional District, and who 
has been a powerful voice for borrowers. I am also pleased to 
introduce Congressman Byron Donalds, who represents Florida's 
19th District. Welcome, Congressman Donalds. It is good to have 
you here.
    And I will go ahead and do the rest of the introductions 
for our second panel. We have Massachusetts Attorney General 
Maura Healey, who has helped thousands of borrowers escape 
unfair debt. We have Dr. Dominique Baker, an Assistant 
Professor of Education Policy at Southern Methodist University. 
We have Ms. Darimir Perez, a middle school guidance counselor 
in the New York City Public Schools.
    We also have witnesses from two of the country's largest 
student loan servicers with us today, Mr. James Steeley, who is 
President and CEO of the Pennsylvania Higher Education 
Assistance Agency, otherwise known all around the country as 
PHEAA, and we have Mr. John Remondi, who is President and CEO 
of Navient. Welcome to both of you.
    In addition, we have Dr. Beth Akers, a Senior Fellow at the 
American Enterprise Institute; Dr. Constantine Yannelis, an 
Assistant Professor of Finance at the University of Chicago 
Booth School of Business; Mr. Alex Holt, a Policy Analyst at 
the Committee for a Responsible Federal Budget; and then 
finally we have Dr. Adam Looney, the Executive Director of the 
Marriner S. Eccles Institute and Professor of Finance at the 
University of Utah.
    I want to thank all of you for being here with us today, 
and to begin our first panel, Congresswoman Pressley, you are 
recognized for 5 minutes.

  STATEMENT OF REPRESENTATIVE AYANNA PRESSLEY OF MASSACHUSETTS

    Ms. Pressley. Good Afternoon, Madam Chairwoman, Mr. Ranking 
Member, and distinguished Members of the Committee. Thank you 
for the opportunity to testify here today.
    As lawmakers, we are in a position to fundamentally change 
the lives of the people we represent with the stroke of a pen, 
and that is why we must center the people in the work we take 
on together. When the history books are written, this moment 
will be defined by the actions we took, or failed to, in the 
face of unprecedented crises and economic pain.
    I have become all too familiar with the gentle tug of my 
sleeve or the panicked expression as I meet the eyes of someone 
drowning in student debt. The grandmother, who is still paying 
off student loans. The young parent who cannot afford childcare 
or rent and her student loan payments. The teacher who fears 
losing his teaching license because he cannot come up with that 
monthly student loan payment, not even the minimum.
    The student debt crisis is not naturally occurring. This 
crisis was crafted in these hallowed halls. Policy decisions 
were made that ensnared generations in the student debt trap. 
Congress crafted, through policy and deregulation, an economy 
where college degrees are increasingly essential for economic 
survival, but their sticker price is far too out of reach for 
most families.
    Make no mistake, despite the dominant narrative, the 
student debt crisis has always been both a racial and economic 
justice issue. In the city of Boston, the city my family calls 
home, the average median wealth of a White family is $247,500, 
while the average median wealth of a Black family is $8. Eight. 
That is not the result of ingenuity, work ethic, or initiative. 
That is the result of precise and intentional policy decisions 
made in the halls of this institution and at every level of 
Government. Discriminatory policies that systematically denied 
families of color the opportunity to own a home or to build 
wealth.
    So for our students who do not have the benefit of 
intergenerational wealth--specifically our Black and Brown 
students--signing on the dotted line for those student loans 
has been the only way to pursue a degree. That was certainly 
true for me. I know what it is to lie awake at night, panicked 
over student loan in default, despite working 12-hour days. All 
people who call this Nation home deserve the freedom to build a 
full life, to pursue their unique gifts and contribute to every 
sector of our economy. We have to take bold action to address 
the inequities and disparities in our country and use every 
tool available to provide our communities with the critical 
relief they so desperately need.
    Our Nation and this Committee are facing an economic 
crisis.
    Canceling student debt by executive action is one of the 
most effective ways President Biden can provide sweeping relief 
to millions of families, while helping to reduce the racial 
wealth gap, and to lay the groundwork for an equitable and just 
long-term recovery.
    Congress gave the President the authority to do so through 
the Higher Education Act. I implore him to use this authority 
in the pursuit of economic and racial justice.
    In a matter of months, student debt payments will resume 
for millions of people across this country. Families who are 
now struggling with pandemic-related financial stress, through 
no fault of their own, will have an additional bill at their 
doorstep.
    So as we work to ensure an equitable and prompt recovery to 
the current economic crisis, let us not repeat the mistakes of 
the past. Let us be intentional and precise. Student debt 
cancelation is efficient and effective. It will provide 
millions of families across this Nation with economic relief 
and opportunity.
    Student debt cancelation is good economic policy because it 
invests in the people. That is why Senator Warren, myself, and 
Majority Leader Schumer and our colleagues have a resolution 
that lays out a pathway for President Biden to cancel $50,000 
in student loan debt. With the stroke of a pen, he can provide 
direct relief to tens of millions of families.
    I will close today where I began, centering the people, in 
their own words. A constituent of mine recently shared their 
story: ``We are a family of five with a child with 
disabilities,'' he said. ``I have over $100,000 in student 
debt. I put myself through my bachelor's and master's with 
children. I have had to file bankruptcy because of my student 
debt. Please don't forget about us in this process. Please 
think of us when talking about debt relief. Lord knows it would 
change our lives.''
    The economic anxiety and pressure caused by student loan 
debt is an experience far too familiar to too many. That father 
is one of millions calling on us to act. I implore this 
Committee and President Biden to listen to them. Thank you.
    Chair Warren. Thank you very much, Congresswoman Pressley. 
I appreciate you being here.
    Congressman Donalds, you are now recognized for 5 minutes.

      STATEMENT OF REPRESENTATIVE BYRON DONALDS OF FLORIDA

    Mr. Donalds. Chairwoman Warren, Ranking Member Kennedy, 
thank you for inviting me to testify in front of the Committee 
on the important discussion surrounding student debt.
    Let me begin with one word of absolute truth: nothing in 
this world is free. Someone is always paying.
    Even with charity, if a doctor sees a patient and decides 
not to charge them, then the doctor himself pays that debt 
through services provided without being compensated. When our 
Government doles out two trillion dollars in emergency 
spending, like we did last month, no matter how good or noble 
the cause may seem, it is either this generation or the next 
who must pay the tab.
    Money that this Government spends does not disappear. It is 
why right now we are nearly $30 trillion in debt. Each time 
Washington spends money, it adds up, and there will come a day 
when the bill comes due, and it will not be pretty and may 
ultimately be the undoing of this republic if Congress is not 
more prudent in how it spends other people's money.
    On the topic of today's hearing, Democrats in Congress and 
the President himself have made clear their desire to 
``cancel'' student loan debt. This, while clearly a political 
ploy meant to keep Democrats in power by hoodwinking the 
American people into thinking their debt will not impose a cost 
on society, will not solve the problem that all of us recognize 
needs fixing. If this policy moves forward, it will result in 
even higher tuition costs for students who plan to go to 
college in future years, with disastrous collateral damage 
elsewhere to the economy, including and especially to lower-
income families and African-American communities.
    Who should we suppose will pay the hundreds of billions of 
dollars that are currently owed? Do we force colleges and 
universities to repay money paid to them for the asset of a 
college degree? Where would universities get the funds to pay 
if the students who fund their livelihoods in exchange for a 
degree so that they can go out and get a job do not actually 
have to pay for the invaluable education they receive?
    Or perhaps the ``wealthiest among us'' should, once again, 
be called to pay more. These are the very job creators who 
newly graduated college students will need to hire them. If we 
start taking more money from the rich, this will not solve the 
problem.
    Last, do we call upon people who did not go to universities 
to pay for those who did? Ultimately, it is very likely that 
this is what this Democrat proposal will do, forcing 
individuals at the lower end of the income spectrum, which 
trends Black more than White, to pay for privileged students 
with their liberal arts degree.
    A study conducted just last year found that under a 
universal loan forgiveness policy like the one that the 
President and Democrats in Congress have proposed, individuals 
at the top of the earnings decile would receive more than five 
times the loan forgiveness as an individual in the lowest 
income bracket. Furthermore, the study determined that 
``households in the top 30 percent of the earnings distribution 
will receive almost half of all dollars forgiven.''
    I am no stranger to student loan debt myself. In fact, at 
this very moment I still have student loans, and I am paying 
back each month. I would not be here without my education from 
Florida A&M University and Florida State University, for which 
I am incredibly grateful. There is no question that my 
education was worth far more than what I am still paying back, 
and it is my responsibility to pay for it.
    But as we know, not everyone who attends college ends up 
with a degree that is worth the dollars spent attaining it. 
Time is too short to deliberate here today what types of 
degrees are worth more than others, but it is time we look to 
ensure that public dollars spent on the education of our people 
have a positive return on investment. That is not to say that 
everyone should not be able to choose whatever field of study 
they desire, but if public dollars are involved there needs to 
be a correlation to the economic good of the individual.
    That said, the priority of this Congress and this Committee 
should be on controlling the ballooning costs and expenses of 
colleges and universities in our country. A 2017 study by the 
Federal Reserve Bank of New York found that for every dollar of 
subsidized Federal loans, tuition increased 60 cents. If the 
ultimate goal is to increase the cost of going to college, the 
Democratic plan will do just that.
    This is irresponsible governing, and it is something we 
must all fight against.
    Once again, I am grateful to have been invited to 
participate in today's hearing, and I encourage all of us to 
look at the very real problem of the rising costs of tuition 
and seek to address this in a way that is not a short-term fix 
but a real long-term solution. Thank you.
    Chair Warren. Congressman Donalds, thank you very much for 
being here with us today. I appreciate both of you showing up.
    And now we are going to proceed to our second panel. 
Attorney General Healey, you are recognized for 5 minutes.

     STATEMENT OF MAURA HEALEY, ATTORNEY GENERAL, STATE OF 
                         MASSACHUSETTS

    Ms. Healey. Chair Warren, Mr. Ranking Member Kennedy, and 
Members of the Subcommittee, thank you for inviting me to 
testify today. I am Maura Healey, the Attorney General in 
Massachusetts, and I appreciate the opportunity to share some 
of my insights as to why debt cancelation is really so 
essential to aid struggling borrowers and to boost our economy 
and help close the racial wealth gap.
    The Higher Education Act was intended to keep the college 
door open to all students, regardless of socioeconomic 
background. But today millions of hard-working Americans are 
stuck in a quagmire of student loan debt, and my office has 
been on the front lines of this $1.7 trillion-and-growing 
crisis, fighting on behalf of student borrowers here in 
Massachusetts.
    And here is what we have learned. We have learned that the 
student loan system is fundamentally broken and taking a 
devastating toll on countless Americans. It is a system that 
has enabled for-profit schools to deceive and to defraud 
vulnerable students, particularly targeting students of color, 
a system that has recklessly saddled parent borrowers with 
loans that they cannot possibly afford to repay. A system that 
has failed to deliver on the promise of loan forgiveness to 
thousands of public servants. And a system that has hollowed 
out the futures of millions of young people and left them with 
broken dreams and a lifetime of insurmountable debt.
    Loan servicers, who are paid with taxpayer money, have 
failed to help borrowers access repayment and forgiveness 
programs, rendering these programs inadequate to address the 
current crisis. The Department of Education has the authority, 
has the legal authority to provide necessary debt relief, and 
should do so swiftly and aggressively.
    Today, nearly a quarter of borrowers are in default on 
their Federal student loans. We have seen borrowers forced to 
delay traditional life milestones--getting married, starting a 
family, buying homes or cars, starting businesses. They lack 
the fundamental financial stability to weather a recession, and 
are more likely to enter retirement with little or no savings.
    The burden, of course, of student debt falls 
disproportionately on people of color. Studies show that Black 
students must borrow more frequently, graduate with more debt, 
pay off their student loan debt at a slower rate, and have much 
higher rates of default. Four years after graduating with a 
bachelor's degree, Black college graduates have nearly $25,000 
more in student loan debt than the typical White graduate.
    For-profit schools have had a particularly large impact on 
students of color. While Black and Latinx students together 
make up about 36 percent of all students enrolled in 
undergraduate study, they represent more than half of 
undergraduates at for-profit colleges.
    I come here today having established a Student Loan 
Assistance Unit as soon as I was elected in 2014, and 
addressing the student loan crisis has been one of my office's 
top priorities. This unit offers an inside view into the 
problems that borrowers and their families confront every 
single day, the complexities of the systems they are forced to 
navigate.
    Many call us, of course, after reaching a dead end with 
their student loan servicer. My office receives nearly 4,000 
requests a year--hotline calls, emails, other requests for 
assistance. You know, and we work to do the best we can to 
generate refunds and savings, and help these students get into 
better plans. But it is too much. It is overwhelming.
    We have also taken action to hold student loan servicers 
accountable and protect borrowers' rights to obtain loan 
forgiveness. In 2017, we brought a case against PHEAA, formally 
known as the FedLoan Servicing entity. We alleged that it 
mismanaged the Public Service Loan Forgiveness program, and 
income-driven repayment plan applications. We spent 3\1/2\ 
years of hard-fought investigation, litigation.
    We ultimately reached a settlement that requires PHEAA to 
conduct individual loan account audits for every Massachusetts 
Federal student loan borrower who submits a claim. This could 
require over 200,000 reviews for Massachusetts alone, and 
provides borrowers with loan account corrections and monetary 
payments.
    State attorneys general and the CFPB have also filed 
lawsuits against Navient, alleging that rather than taking the 
time to counsel borrowers and to help them enroll in affordable 
IDR plans, Navient instead steered borrowers into costly, long-
term forbearances that resulted in hundreds of millions of 
dollars being added to their loan balances. We have also 
alleged that Navient made millions of dollars in high-risk 
loans to students at predatory, for-profit colleges.
    My office has brought actions against over a dozen of those 
for-profit schools, that lured students in with false promises 
and left them with worthless degrees, few job prospects, and 
insurmountable debt. As a result, the Obama administration 
granted tens of millions of dollars in borrower defense 
discharges to thousands of Massachusetts students who attended 
Corinthian or the American Career Institute. And yet today many 
more discharges are still owed to borrowers.
    Chair Warren. Attorney General Healey, I appreciate it, but 
we are going over 5 minutes here. How about if we submit the 
rest of your testimony for the record, and we will have some 
questions, if that is all right.
    Ms. Healey. I appreciate that. Thank you.
    Senator Warren. Thank you very much. And I am now going to 
go vote, so I am going to hand over the gavel to our Ranking 
Member, Senator Kennedy, who I think will be calling on Dr. 
Baker.
    Senator Kennedy [presiding]. Yes. Can you hear me, Madam 
Chair?
    Chair Warren. Yes. It is all yours.
    Senator Kennedy. Dr. Baker.

STATEMENT OF DOMINIQUE BAKER, ASSISTANT PROFESSOR OF EDUCATION 
             POLICY, SOUTHERN METHODIST UNIVERSITY

    Ms. Baker. Thank you. Can you all hear me? Good.
    Chair Warren, Ranking Member Kennedy, and Members of the 
Subcommittee, thank you for inviting me to testify. As a 
scholar of education policy, I am honored to discuss the 
evidence on student debt and its role in the larger economy, 
especially its impact on racial justice.
    If there were equitable returns to a college degree, all 
college graduates should be able to access a more economically 
prosperous life. But racial wealth gaps complicate this 
narrative. For instance, according to national data on 
bachelor's recipients, 4 percent of White graduates defaulted 
on their loans, compared to 21 percent of Black graduates. Even 
more startling, Black graduates defaulted at a higher rate than 
White students who left higher education without a degree. This 
means that Black college graduates actually struggled to repay 
their student loan debt more than White students without 
degrees.
    This example of racial disparities in student loan 
repayment is not due to some innate issue within Black people. 
Instead, the burden of student loan debt disproportionately 
falls on these students due to centuries of structural forces, 
shaped by the deliberate decisions of those in power. 
Structural racism has denied Black families the ability to 
build wealth to pay for college, while also shaping their 
residential and K-12 experiences. Together, this means that 
Black students are more likely to enroll in either 
systematically underfunded or outright predatory colleges that 
saddle them with high debt, little chance of earning a degree, 
or both.
    Then, those same students face a discriminatory labor 
market that pays them less than their peers for the same amount 
of education, equivalent in 2016 to an 8 percent pay cut for 
the median Black graduate.
    At the same time, they mut also navigate other structures 
that impede their ability to accrue wealth. This example 
underscores why it is necessary to think about the ways that 
race, racism, and student loans work together to create an 
untenable situation in the United States, particularly for 
borrowers of color.
    Canceling a portion of student loans is not a panacea for 
the issues facing college affordability or the larger repayment 
process. Additional Federal policy solutions must work to 
create a high-quality, affordable higher education system, hold 
colleges, universities, and States accountable for contributing 
their share, and overhaul the current repayment system. Yet 
student loan cancelation can be a powerful supplement to these 
other reforms. True reform necessitates that Government works 
to both overhaul the system and provide relief for past policy 
failures. For the student debt crisis, loan cancelation is part 
of that relief.
    Research shows that a reduction in an individual's student 
loan balance can increase their income. It can also decrease 
constraints on occupation choices, the amount of debt held, and 
the share of delinquent credit accounts. This evidence, 
combined with recent research showing that other forms of 
consumer debt relief can strengthen employment levels in the 
United States signals that student loan debt cancelation could 
be boon to the overall economy.
    The key benefits of debt cancelation are its simplicity and 
transparency. One reason for having an inclusive policy is that 
broad relief would reduce administrative burdens. These burdens 
include the cost for individuals to prove they deserve help, 
and disproportionately deter individuals of color from 
accessing benefits for which they qualify. Further, simulations 
of loan cancelation often fail to include racial breakdowns for 
the benefits of the policy. For example, some simulations 
assume that the risk of missing payments on student loans is 
completely random or that earnings for people of color grow at 
the same rate as White individuals, both of which are unlikely 
in practice. As a result, such simulations likely underestimate 
the benefits of loan cancelation on closing racial wealth gaps.
    For decades, the Federal Government has made students an 
implicit promise: If you borrow this money and work hard in 
college you will find a good job and be able to pay it back. 
Far too often, that promise is broken. We can and should 
acknowledge this reality by taking concrete steps to reduce the 
burden for those who simply did as they were encouraged on 
their quest for economic prosperity.
    It is an honor to be here today, and I am happy to answer 
any questions you might have. Thank you.
    Senator Kennedy. Thank you, Doctor. Next is Ms. Perez. Ms. 
Perez, the floor is yours.

       STATEMENT OF DARIMIR PEREZ, STUDENT LOAN BORROWER

    Ms. Perez. Thank you. Hello Chairwoman Warren, Ranking 
Member Kennedy, and Members of the Committee. Thank you for 
giving me the opportunity to participate in today's hearing and 
to share my story.
    My name is Darimir Perez, and I am a middle school guidance 
counselor in Washington Heights, in New York City. I immigrated 
to the United States from the Dominican Republic with my 
siblings when I was 13 years old, and unfortunately my father 
passed away soon after. As a result, my 18-year-old sister 
dropped out of college to help support the family. Her 
sacrifice enabled me to become the first member of my family to 
graduate from college. I was very aware of the cost of college, 
turning down partial scholarships to attend private 
universities. Instead, I attended the City College of New York 
and was able to graduate from undergrad with no student loan 
debt. I got married and started a family. I am the proud parent 
of twin children, who are now 18 years old.
    When my children were young, I began working as a 
paraprofessional in New York City schools. I noticed the need 
for bilingual counselors and the difficulties parents 
experienced. I was reminded of my own struggles navigating the 
school system. It inspired me to provide consistent support to 
students while holding them to high standards, an opportunity I 
had not received.
    Knowing that I wanted to work in schools, and being fully 
aware of all my responsibilities as a mother and the first 
college graduate in my family, I needed to be careful about 
student loans, so I did my research. TEACH.org is a website led 
by Microsoft and the U.S. Department of Education. I used the 
website to find a local college where I could get my graduate 
degree and that would make me eligible for student loan 
repayment assistance.
    I graduated with my master's degree in the spring of 2010, 
with about $50,000 in student loans. I found a full-time job in 
New York City schools and was promised loan repayment 
assistance from a city program. More than 10 years later, I 
still have about $35,000 worth of loans from my own education, 
and last year I took out PLUS loans to help my children attend 
college and have a ``real American'' college experience.
    How is it that more than 10 years later, having put money 
toward my loans every year, while working full time in public 
service, I still have so much debt? Every time I called my loan 
servicer and tried to explain I needed a different payment plan 
because I could not afford it, they rushed me off, offering 
forbearance to eliminate my headache. To be honest, it was like 
a magic pill I took without knowing the side effects.
    The loan pause during the last year has made a great 
difference in my life. I was finally able to fully repay one of 
my loans, early repay it. I was also able to pay off some 
medical bills, help my mom and family, put some money toward my 
kids' education and cover current medical bills due to COVID-
19.
    Having this student loan debt has affected my life in many 
ways. I had always wanted to have three kids, to buy a house in 
a peaceful area, to enroll my twins in all the extracurricular 
activities they were interested in, and to have the choice to 
not take on extra work so I could spend more time with my 
family, but those things were not an option with my loans.
    I am a college graduate, and I cannot even afford to send 
my own kids to college. My friends who never went to college, 
their kids are better off than mine. Even though I did 
everything right for my own kids--supporting them, and keeping 
them focused achieving top grades and working toward positive 
things in a neighborhood with a lot of negative distractions--I 
sadly do not feel that they are better off than I was, because 
of the cost of college and student loan debt.
    I truly believe that education can change lives. That is 
why I have stayed in my job. But having some relief from my 
student loans would make a wonderful, positive difference in my 
life.
    Please know that I am not speaking only for myself. I am 
one of hundreds of thousands of public servants who selfishly 
decided to work toward creating a positive change in our 
society and support our communities. Yet we are struggling to 
better ourselves and support our own families.
    Thank you for taking the time to listen to my story today. 
I will gladly answer your questions.
    Senator Kennedy. Thank you, Ms. Perez. Who is next?
    Mr. Remondi.

    STATEMENT OF JOHN F. REMONDI, PRESIDENT AND CEO, NAVIENT

    Mr. Remondi. Thank you, Senator. Good afternoon, everyone, 
Chairperson Warren, Ranking Member Kennedy, and Members of the 
Subcommittee. I am Jack Remondi, President and CEO of Navient, 
the leader in education loan management, providing vital 
services to students and college graduates. I am grateful you 
are holding this hearing and appreciate the opportunity to 
participate.
    Federal student loan services like Navient begin to work 
with students only after they have borrowed, after Congress has 
set the loan terms, the college has set tuition, and the loan 
proceeds have been spent. We work hard to help students realize 
the benefit of their education, but also help struggling 
borrowers navigate today's complex loan repayment options.
    The value of a higher education for individuals and society 
is without question. Decades of data show a college degree is 
still among the surest paths to prosperity. The median 
bachelor's degree recipient earns more than $2,000 more per 
month and typically experiences half the rate of unemployment 
compared to peers with a high school diploma. The value of a 
college education was particularly clear this past year, during 
the pandemic.
    We also know higher education is critical to helping 
address the racial wealth gap. Black Americans who hold degrees 
are more likely to be employed, earn more in their jobs, 1.8 
times more, own a home, and express higher levels of optimism 
about their future. For many, the system works. At Navient, 
half-a-million borrowers each year pay off their loans in full. 
Our over 45 years of experience in data insights have helped us 
design solutions to help people avoid default and pay off their 
loans. In fact, borrowers who are serviced by Navient are 34 
percent less likely to default than borrowers serviced by other 
companies.
    This success extends to African-American borrowers. For 
example, alumni of historically Black colleges and universities 
were 39 percent less likely to default when their loans were 
serviced by Navient.
    However, while many have benefited from a college degree 
made possible by student loans, the system does not work for 
all. Through my regular call listening, I hear the challenges 
some borrowers face, including people who left school with debt 
but no degree, or student borrowers who discovered too late 
that the value of their education did not match the debt they 
took on. And even for many people of color with a college 
degree, the racial gap has widened.
    There are steps that could be taken to fix the system and 
address the unfairness that pervades it, especially unfairness 
that creates barriers for people of color. Navient stands ready 
to work with policymakers, Members of Congress, and the Biden-
Harris administration to bring about important reforms.
    Today I would like to raise three proposals that would help 
current borrowers who feel trapped by their debt and that would 
ensure better outcomes for tomorrow's borrowers. First, we 
should increase assistance to those who have borrowed in the 
past but did not attain the hoped for outcomes. According to a 
2016 Obama administration report, two-thirds of all the 
defaults in the Federal program are from students who borrowed 
less than $10,000, generally an indication of leaving school 
without a degree.
    Reform should also include debt forgiveness for borrowers 
who have been in default for more than 10 years, and we should 
make Federal and private student loans dischargeable in 
bankruptcy.
    Second, we need to implement faster forgiveness programs 
for current and future borrowers. We propose replacing today's 
nine different income-driven repayment plays, which most 
experts agree are too complex and difficult to understand, into 
a new, single, forgive-as-you-go repayment plan. Unlike today's 
complex programs that defer any forgiveness for 10 to 25 years, 
and often lead to loan balances increasing materially in the 
interim, forgive-as-you-go would reduce balances each month as 
borrowers make payments they can afford.
    Third, incoming college students should receive better 
support before they borrow and while they are in school to help 
them achieve their, and our, goal of graduation. This support 
should help students and their families understand the total 
cost to earn their degree, the amount they need to borrow, and 
how their program of study, the career choices, will help them 
repay that debt.
    My written testimony details these proposals and other 
steps to help student loan borrowers.
    I thank you for this opportunity and I look forward to your 
questions.
    Chair Warren [presiding]. I am back, Senator Kennedy, and I 
want to say thank you to Mr. Remondi.
    Mr. Steeley, you are now recognized for 5 minutes.

STATEMENT OF JAMES H. STEELEY, PRESIDENT AND CEO, PENNSYLVANIA 
               HIGHER EDUCATION ASSISTANCE AGENCY

    Mr. Steeley. Thank you. Chair Warren, Ranking Member 
Kennedy, and Members of the Subcommittee, thank you for the 
opportunity to speak with you today.
    PHEAA was established by the Pennsylvania General Assembly 
with the primary mission of creating affordable access to 
higher education. With a union workforce, PHEAA offers student 
aid services throughout the commonwealth. We are a contracted 
Federal student loan servicer and an administrator of 
Pennsylvania's student aid programs.
    Unlike other servicers, PHEAA engages in loan servicing 
because it aligns with and supports our public service mission, 
most importantly, the funding of our need-based grant awards. 
Such awards play an important role in decreasing the need for 
students to borrow to pay for college. We have learned that 
Pennsylvania grant recipients who are also eligible for Pell 
awards borrow nearly $9,000 less over 4 years of education.
    PHEAA also uses its earnings to support outreach 
initiatives, much of which are focused on helping students make 
wise choices early in their planning process so they can avoid 
unnecessary debt. This outreach is more important now than 
ever, as student debt levels continue to rise, which, 
unfortunately, are higher for Black graduates than they are for 
White graduates. According to a 2016 Brookings study, Black 
students with a bachelor's degree owe an average of $7,400 more 
than their White counterparts.
    PHEAA encourages all students to avoid unnecessary loan 
debt and has been leading efforts in the commonwealth with 
FAFSA completion events, online tools, and other resources.
    PHEAA also administers several Pennsylvania programs 
specifically to assist minority students and those from 
underserved backgrounds. This includes the Higher Education of 
the Disadvantaged Program, or Act 101, which enhances both the 
education opportunities and achievements of undergraduate 
students.
    PHEAA co-administers the Cheyney Keystone Academy Program, 
which provides scholarships to gifted students enrolled at 
America's oldest HBCU, Cheyney University. Additionally, PHEAA 
co-administers the Bond-Hill Program, which provides 
scholarships to students from Cheyney University and Lincoln 
University, another of Pennsylvania's HBCUs.
    As a loan servicer, we began servicing Federal student 
loans in 2009. We are required to adhere to the laws as written 
by Congress and rules set forth by the U.S. Department of 
Education. It is not within PHEAA's purview to unilaterally 
change or override program rules. However, we regularly 
advocate on behalf of the customers we serve with policy 
changes that could improve the experiences and outcomes of 
these customers.
    The PSLF Program was established in 2007, and establishes 
an opportunity for the balance of a borrower's Federal direct 
loan to be forgiven after 10 years of qualifying payments and 
qualified employment. While the program was created in 2007, 
the first servicing contract was not awarded until 2011, at 
which time PHEAA became the primary servicer.
    Prior to this, public information was limited to what was 
written in the law. There was no guidance available from the 
Department of Education to assist borrowers to ensure that they 
were meeting the steps they needed to for forgiveness. At 
program inception, 75 percent of all Federal borrowers had 
FFELP loans, which were, by statute, ineligible for PSLF. It 
was only with the phase-out of FFELP in the 2010-2011 academic 
year that all Federal borrowers became eligible for 
forgiveness.
    Unfortunately, some of the headlines surrounding the 
program claim that because applicants have been denied 
forgiveness, the program and PHEAA's servicing of the program 
was broken. In fact, only about 5 percent of interested PSLF 
borrowers have been in repayment of a qualified Federal direct 
loan for 10 years, while working for a qualified employer.
    Approvals have recently begun to increase as more borrowers 
have met the 10-year mark, and by this time next year we expect 
to see over $1 billion in loan forgiveness in the program.
    As I conclude my remarks, I want to express PHEAA's desire, 
not just as a Federal loan servicer but as a State-based aid 
agency, to be part of the solution to reducing student debt 
levels.
    On behalf of PHEAA's workforce, including our 1,200 union-
covered employees, thank you for the opportunity to appear here 
today.
    Chair Warren. Thank you very much, Mr. Steeley. Dr. Akers, 
you are recognized for 5 minutes.

 STATEMENT OF BETH AKERS, RESIDENT SCHOLAR, AMERICAN ENTERPRISE 
                           INSTITUTE

    Ms. Akers. Thank you. Chair Warren, Ranking Member Kennedy, 
and Members of the Subcommittee, thank you for inviting me here 
to share my assessment of this important issue. The volume of 
student loan debt in the economy has now surpassed $1.6 
trillion, which is an alarming milestone. With 45 million 
Americans now holding student debt, this has rightly become a 
national concern.
    When considering the impact of student debt on individuals, 
it is important to recognize the appropriate counterfactual for 
the comparison. While borrowers would unequivocally be better 
off if they did not have to repay their debt, most are better 
off with debt and a degree than they would be if they had not 
pursued higher education. Graduates with bachelor's degree 
programs have an average of $30,000 in debt. Research suggests, 
however, that their degree will earn them an extra $2.8 million 
over the course of their lifetime, through a combination of 
higher wages and less frequent unemployment.
    For the typical borrower, access to student debt through 
the Federal Loan Program creates an opportunity for economic 
mobility that would otherwise be unavailable. Some students, 
however, are left worse off financially. These borrowers often 
fall into categories: those who start but do not complete a 
degree and those who complete a degree but find that it does 
not deliver employment opportunities that justify its cost.
    Low-income, first-generation, and minority students are 
disproportionately represented in these groups. For example, in 
2019, Black students made up 21 percent of the population at 
for-profit institutions, which have tended to produce poor 
outcomes, even though they make up just 13 percent of students 
enrolled in public colleges.
    Ideally, borrowers who find their loan payments 
unaffordable due to a lack of earnings would take advantage of 
the existing safety nets, namely the set of income-driven 
repayment programs. But evidence suggests that the safety net 
created by these programs is falling short. This is because IDR 
is administered through a complex variety of programs. The 
result is a system that is excessively difficult to navigate, 
with many borrowers not even aware of the benefits available to 
them.
    Some might argue that these facts justify a blunt 
intervention, like mass loan cancelation, which would not 
require borrowers to jump through hoops. But that is not the 
case. The complexity of the current safety net is not due to 
the income-based eligibility criteria. It is complex because of 
how it was created, through a combination of piecemeal, 
nonconforming policy changes.
    In addition to being an unnecessarily blunt fix, widespread 
student loan cancelation would create additional problems. The 
distortion of incentives would likely exacerbate the problems 
of ballooning loan balances and rampant tuition inflation. If 
mass loan cancelations were implemented, we would likely find 
ourselves having this same conversation again, but with larger 
balances to contend with.
    Not only would widespread loan cancelation create more 
hazard, but it would also deliver more benefits to well-off 
borrowers than to needy ones. Dr. Yannellis' research has 
indicated that a comprehensive loan forgiveness program would 
deliver ten times more benefits to borrowers in the top 10 
percent of the income distribution than it would provide to 
borrowers in the bottom 10 percent of earners. It would be a 
boon for rich, highly educated, and mostly White borrowers.
    Higher education is an essential mechanism for social 
mobility in this country, so it is crucial that our financing 
system protects borrowers from ruin. Aspiring students should 
not have to fear that college will leave them worse off 
financially than where they started, and at the same time, 
those who benefit generously from college and access to the 
Federal Loan Program should be expected to repay their debt to 
taxpayers.
    We can achieve this by simplifying the student loan safety 
nets that could be more readily understood and navigated. The 
current set of IDR programs should be replaced with a single, 
universal program, and the application process should be 
streamlined.
    Since investments in education, on average, provide a net 
positive return, spending on education is generally a wealth-
enhancing activity, both individually and collectively, even 
taking into account the cost of borrowing.
    I urge you all to consider that nuanced reforms might 
better serve disadvantaged students and accomplish our 
collective goal of supporting this pathway to economic 
prosperity.
    Thank you for the opportunity to give testimony in this 
important hearing. I look forward to answering your questions.
    Chair Warren. Thank you very much. And now we have Dr. 
Yannelis. You are recognized for 5 minutes.

   STATEMENT OF CONSTANTINE YANNELIS, ASSISTANT PROFESSOR OF 
    FINANCE, BOOTH SCHOOL OF BUSINESS, UNIVERSITY OF CHICAGO

    Mr. Yannelis. Dear Chair Warren, Ranking Member Kennedy, 
and distinguished Members of the Committee, thank you for 
inviting me and the opportunity to testify today.
    Education is the single highest return investment most 
Americans will make, and getting our system of higher education 
finance right is of fundamental importance to the American 
economy.
    A key point that has to be made whenever discussing student 
loans is that the outcomes of borrowers vary widely. It is 
undeniable that a significant number of borrowers are 
struggling and are sympathetic candidates for some kind of 
relief. At the same time, the majority of borrowers end up 
earning high amounts and do not have difficulties repaying 
their loans.
    The core of the problem in the student loan market lies in 
a misalignment of incentives between students, schools, and the 
Government. This misalignment comes from the fact that 
borrowers use Government loans to pay tuition to schools. If 
borrowers end up getting poor jobs and they default on their 
loans, schools are not on the hook--taxpayers end up paying the 
costs.
    How do we address this incentive problem? One common 
proposal is some form of blanket student loan cancelation. This 
is an extremely aggressive policy. It provides more assistance 
to higher-income rather than lower-income borrowers. This is 
primarily because people who go to college tend to earn more 
than those who do not go to college, and people who spend more 
on their college education, like those who attend medical or 
law schools, tend to earn more than those who spend less on 
their college education, like dropouts and associate degree 
holders.
    My own research, which is joint with Sylvain Catherine at 
Wharton, shows that most of the benefits of universal loan 
cancelation would accrue to high-income individuals. 
Individuals in the top 20 percent of the earnings distribution 
would receive six to eight times as much debt relief as 
individuals in the bottom 20 percent of the earnings 
distribution. These basic patterns are still true for policies 
that limit forgiveness up to $10,000 or $50,000.
    That student loan cancelation is regressive is the 
consensus of economists. The panel of prominent economists run 
by the Initiative on Global Markets at the University of 
Chicago asked economists whether ``having the Government issue 
additional debt to pay off current outstanding loans would be 
net regressive.'' The results of the survey were telling. Not a 
single economist disagreed with the idea that student loan 
forgiveness was regressive. This is because the facts are clear 
on this issue. To borrow a phrase commonly used, ``the science 
is settled.'' Student loan forgiveness is a regressive policy 
that mostly benefits upper and middle class individuals.
    One of the topics of this hearing is the effect of student 
loan forgiveness on racial inequality. Racial inequality is a 
very important topic. However, student loan forgiveness is not 
the way to close this important gap. The policy would cost 
about $1.7 trillion and shrink the racial wealth gap by about 3 
percent. Surely there are more effective ways to invest $1.7 
trillion if the goal of policymakers is to close the racial 
wealth gap.
    Now how can we provide relief to borrowers who need it 
while avoiding making large payments to well-off individuals? 
There are a number of policy options for legislators to 
consider. One option to provide relief is to bring back 
bankruptcy protection for student loan borrowers. Another 
option is expanding the use of income-driven repayment, or IDR. 
These are plans that link a borrower's payments to their 
incomes. Depending on the plan, after 20 or 25 years, remaining 
balances are forgiven. Put simply, higher-income people pay 
more and lower-income people pay less. IDR is thus a regressive 
policy.
    There have been problems with the implementation of IDR 
plans in the United States, but the problems are fixable, and 
some of have been fixed by recent legislation. Many countries, 
such as the U.K. and Australia, successfully operate IDR 
programs that are administered through their respective tax 
authorities. While providing relief to struggling borrowers is 
important, policymakers can fix the larger underlying problem 
by directly aligning incentives between schools and borrowers. 
For example, Brazil has had similar problems with their student 
loan program. Recently they gave schools ``skin in the game'' 
and required them to pay a fee based on dropout and default 
rates. Making revenues go directly to schools from IDR plans, 
or income-share agreements, where individuals pay an uncapped 
portion of their income, could also help align the incentives 
of schools, students, and taxpayers.
    In closing, I want to stress that Federal student loans are 
an important part of college financing and intergenerational 
mobility. The root of our student loan problem is a 
misalignment of incentives. Since the student loan problem has 
been so slow-moving and continuous, I like the analogy of a 
frog slowly boiling in a pot of water over a flame. Policies 
like student debt cancelation are not extinguishing the flame--
they are not fixing the underlying incentive problem. All you 
would be doing is moving the frog into a slightly cooler pot of 
water. And if we do not fix the core of the problem, even if 
you forgive $50,000 of debt for current borrowers, balances 
will continue to grow, and we will be having another hearing 
with a similar theme in 10 or 20 years' time.
    Thank you.
    Chair Warren. Thank you very much, Dr. Yannelis.
    And Mr. Holt, you are now recognized for 5 minutes.

 STATEMENT OF ALEXANDER HOLT, POLICY ANALYST, COMMITTEE FOR A 
                   RESPONSIBLE FEDERAL BUDGET

    Mr. Holt. Thank you. Chair Warren, Ranking Member Kennedy, 
and Members of the Subcommittee, thank you for inviting me to 
testify.
    The Federal student loan program is one of the country's 
most successful tools for expanding access to higher education 
and boosting lifetime earnings. But the program definitely 
needs improving, and in doing so we should consider a number of 
worthwhile goals already being discussed, including supporting 
the economic recovery, stemming the rise in the cost of 
college, reducing the racial wealth gap, and supporting low-
income individuals trying to get ahead by getting a college 
degree.
    Unfortunately, blanket debt forgiveness would do little to 
achieve these goals, particularly in light of its huge cost. I 
want to make three key points. First, blanket debt forgiveness 
offers a very low ``bang for your buck'' in terms of 
stimulating the economy and supporting the economic recovery. 
Second, broad debt forgiveness could create a moral hazard that 
increases borrowing and reduces incentives for schools to 
contain costs. Finally, blanket debt cancelation is very 
expensive. Given the national debt is already approaching 
record levels, we should not spend hundreds of billions or over 
$1 trillion on such a poorly targeted policy.
    So first, economic stimulus. In November, the Committee for 
a Responsible Federal Budget estimated a multiplier for 
complete debt cancelation of between 8 and 23 cents on the 
dollar, which is very low relative to other relief efforts, and 
that was before the vaccinations started and Congress enacted 
an additional $3 trillion of COVID relief. The multiplier today 
would surely be on the lower end of what we estimated, and 
perhaps lower than that. And a new analysis we are currently 
working on suggests limiting forgiveness to $10,000 or $50,000 
would not result in much improvement.
    Blanket student debt forgiveness is not an effective 
stimulus because only a fraction of the money arrives 
immediately. Since borrowers pay back in monthly installments, 
the increase in income is mostly limited to the drop in monthly 
payments. A normal amount of student loan payments that are 
paid annually is around $70 billion to $85 billion, which is 
just over 5 percent of the $1.6 trillion portfolio.
    Further, with an interest payment pause in effect through 
September, loan forgiveness would not increase monthly incomes 
at all to the 90 percent of borrowers who are already not 
paying their loans.
    In addition, blanket debt forgiveness is effective stimulus 
because it is regressive, as others have mentioned. The policy 
disproportionately favors higher-income borrowers who are 
likely to save any additional dollars, and offers little or 
nothing to those with less education who are most likely to be 
unemployed in the current crisis.
    Blanket debt forgiveness also comes with risks, namely 
moral hazard. If student debt were canceled without other 
significant changes to the student loan system, a reasonable 
person might expect the moral case for blanket debt forgiveness 
to be just as strong next year as it is now. The expectation 
that $10,000 or $50,000 or even all of their debt might be 
forgiven at some point could become an influential factor, 
driving more students to borrow more money than before.
    That expectation would lead many borrowers to be less 
sensitive to tuition increase, which would alleviate pressure 
on schools to rein in costs, especially graduate schools, where 
student loan amounts are not subject to a strict cap. This 
could create a vicious feedback loop, where students borrow 
more, incentivizing schools to raise prices, which, in turn, 
forces students to borrow even more, and could lead to another 
even costlier round of debt cancelation.
    In terms of the cost, I have already mentioned $1.6 
trillion for full cancelation. Capping forgiveness at $50,000 
per person would mean canceling $1 trillion of debt, and 
capping forgiveness at $10,000 would mean canceling $370 
billion. This conversation needs to be framed in the larger 
fiscal context. Debt could reach a record 108 percent of GDP by 
the end of this year, and is on course to be twice the size of 
the economy within three decades.
    Recent borrowing to address the pandemic was the right 
thing to do in response to an unprecedented national emergency. 
But we have already borrowed over $5 trillion for COVID relief. 
With the economy poised to take off as vaccinations increase 
and communities reopen, policymakers must return to paying for 
the fiscal priorities they wish to enact.
    And I want to be clear--we should not ignore the very real 
challenges facing those struggling to repay their student 
loans. But the solution should be targeted to those who need 
relief, should ensure those who are able to pay back their 
loans do, including reforms to control higher education costs, 
and be fully paid for. A regressive policy like blanket debt 
forgiveness is not the solution.
    Thank you, and I look forward to your questions.
    Chair Warren. Thank you, Mr. Holt. Now we come to our final 
witness for this afternoon, and that is Dr. Looney. You are 
recognized for 5 minutes.

   STATEMENT OF ADAM LOONEY, EXECUTIVE DIRECTOR, MARRINER S. 
              ECCLES INSTITUTE, UNIVERSITY OF UTAH

    Mr. Looney. Thank you. Chair Warren, Ranking Member 
Kennedy, and Members of the Subcommittee, thank you for the 
opportunity to testify today.
    Federal student loans impose a crushing burden on some 
borrowers, particularly those who enroll in programs where most 
students do not finish, where graduates are unable to find 
jobs, or where tuition costs are just too high. The borrowers 
who struggle are disproportionately from lower-income families, 
first-generation students, and students of color.
    But that is only part of the story. Most borrowers, like 
college and graduate students in general, earn more, are better 
educated, live longer, are more likely to own a home, and come 
from more affluent backgrounds than other Americans. More than 
half of student debt is owed by households with a graduate 
degree. That is because programs where students borrow large 
amounts include professional programs like MBAs, law schools, 
or medical schools.
    While we often hear stories of borrowers who owe more than 
$100,000, the reality is that only 7 percent of borrowers owe 
that much, and many of them are white-collar professionals who 
can afford to repay their loans.
    After college, the typical bachelor's degree recipient 
earns significantly more than a worker with only a high school 
diploma, about $1 million more over a career. And that helps 
explain why about 36 percent of all student debt is owed by 
individuals in the top 20 percent of the income distribution.
    There is no income or wealth test for who can get a Federal 
student loan, and affluent students are more likely to go to 
college, to go to a more expensive college, to complete a 
degree, and to go to graduate school. The typical student who 
grew up in a high-income family borrows about 27 percent more 
than a typical student from a low-income family, and that is 
among people who actually went to college. When you consider 
who goes to college in the first place, college students are 
even more privileged.
    And in contrast, borrowers who struggle with student loans 
are quite different. Almost 90 percent of borrowers who default 
have received a Pell grant because their income and wealth is 
low when they applied to college. Almost 46 percent of 
defaulted borrowers went to a for-profit school, even though 
they represent only 9 percent of students. Half of defaulters 
never complete a degree, even though only 8 percent of student 
debt is owed by households without a degree. And that means 
that widespread debt forgiveness is regressive and 
disproportionately benefits well-educated, high-income 
households, expanding inequities rather than reducing them.
    Moreover, even modest proposals to forgive debt are 
staggeringly expensive. Forgiveness of existing student debt 
would cost more than the amount spent on programs like 
unemployment insurance, the earned income tax credit, or food 
stamps, cumulatively, over the last 20 years. And in contrast 
to those targeted programs, the beneficiaries of student loan 
forgiveness would be vastly richer, Whiter, better educated, 
and of higher socioeconomic class.
    A more effective way to target loan relief is through 
income-based repayment plans, which calibrate payments based on 
a student's income, and forgive debt after a period of time.
    Today's income-based plans have flaws. Too few students 
enroll in the program because of administrative barriers, the 
benefits are heavily tilted to borrowers with expensive 
graduate degrees, even if they are high income, and relief 
takes too long for borrowers who have modest debts.
    We need to fix those problems because each year students 
borrow another $100 billion in Federal loans. Even if Congress 
enacted significant new spending to reduce or eliminate 
undergraduate tuition at public colleges, most of that 
borrowing would continue, because it would be needed to finance 
living expenses, tuition at private universities, and for 
graduate and professional degree programs.
    Finally, when borrowers experience bad outcomes, it is 
largely the result of the low quality or high cost of the 
institutions they attended rather than factors like family 
income, age, race, academic preparation, or other student 
characteristics. Congress could reduce default and delinquency 
and the outsized debt burdens of future borrowers by restoring 
a strong institutional accountability system and limiting the 
amounts that graduate and parent borrowers take out to 
reasonable amounts. There are thousands of institutions that 
provide upward economic mobility to their students. Federal aid 
could do more to enroll students at institutions that have good 
outcomes.
    The crisis in student lending cannot be fixed 
administratively with a one-size-fits-all approach to 
forgiveness. Congress must decide which students, institutions, 
and degree programs taxpayers should pay for and which should 
be paid by the students themselves. Relief for existing 
borrowers could follow that same model. Federal aid should flow 
to those who truly need it, and not all borrowers need help.
    Thank you.
    Chair Warren. Thank you very much. Thank you, Dr. Looney. 
And now let's get to the questions. I recognize myself.
    I want to start by talking about the role that loan 
servicers play in our student loan system. Borrowers take out 
loans from the Federal Government to pay for school, and when 
it is time to collect, the Government pays hundreds of millions 
of dollars to companies called loan servicers to manage the 
repayment process.
    Today we have the CEOs of two of the largest loan services, 
Navient and PHEAA. Mr. Remondi, your company, Navient, gets 
paid hundreds of millions of taxpayer dollars to service 
student loans. So I want to run through some of the highlights 
of Navient's record over the last decade.
    In 2013, the Department of Education's inspector general 
found that your company, which was then called Sallie Mae, 
violated the terms of its contract by failing to report 
borrower complaints in its debt collection business. Is that 
correct?
    Mr. Remondi. Senator, I would have to go look at the 
details of that back in that timeframe----
    Chair Warren. OK.
    Mr. Remondi. ----but our job is, obviously, to comply with 
the rules and the laws, and we work very hard to make sure that 
we help all borrowers successfully manage their loans.
    Chair Warren. OK. But this is a case where you did not 
follow the rules, and I will just enter that into the record, 
the actual report on that. In fact, in the last seven 
Department of Education surveys, Navient has been dead last in 
borrower satisfaction. So I guess it is not a surprise if you 
wanted to hide consumer complaints.
    Let me ask this question differently. Attorney General 
Healey, you are one of the Nation's leading consumer protection 
enforcers. You just heard the CEO of Navient say that they 
comply with the law. Is it your view that Navient does its best 
to follow the law and generally looks out for the interest of 
student borrowers?
    Ms. Healey. Thank you, Chair Warren. The answer to that is 
no, and I think we have spent a lot of focus on forward 
thinking in terms of what needs to happen in terms of fixes. I 
support that, as somebody who has done so many investigations 
and so many lawsuits, and heard directly from borrowers who are 
actual people, not frogs in a pot but actual people, like the 
Darimir Perezes of the world, coming to my office.
    I will tell you that we have received countless complaints 
about poor servicing practices, and, you know, you can blame 
Congress, you can blame the Department of Ed, you can blame 
for-profit schools, you can blame colleges and universities. 
The burden should not be on the borrowers, though, who 
repeated, through our investigations, both with respect to 
Navient and PHEAA, OK, were shown time and time again to have 
misled borrowers, to have made misrepresentations to borrowers, 
to have completely bungled up in catastrophic failures the way 
those loans were serviced, to the detriment of hundreds of 
thousands of borrowers. I spoke of the 200,000 borrowers in 
Massachusetts affected by PHEAA alone. That is just one small 
story.
    And finally, with respect to Navient, just to remind folks, 
you know, the CFPB investigation detailed something that 
Navient reported, and I find it astounding. Their battle cry 
was to, quote, ``Forbear them, forbear them. Make them 
relinquish the ball.'' Don't work with them on IDR, but just 
keep them going in these loans.
    And the second thing that Navient also represented in the 
past, arguing, quote, ``There is no expectation that the 
servicer,''--in this instance, Navient--``will act in the 
interest of the consumer.'' That is a problem.
    Chair Warren. Thank you, Attorney General Healey. You know, 
in fact we are not talking about a few isolated incidents. In 
fact, Mr. Remondi, in 2016, 29 States investigated Navient for 
illegally, quote, ``paying call center workers based on how 
quickly they could get struggling student loan borrowers off 
the phone, instead of actually helping them.'' You are 
currently being sued by six different States.
    In 2017, a Federal audit found that Navient steered 
borrowers to repayment options that actually made it harder for 
them to pay back their loans, so that call operators could save 
time and money. Navient even illegally overcharged the 
Government for years to administer student loans to the tune of 
$22 million, but you have refused to pay it back for 8 years.
    So, Mr. Remondi, if a person who worked at the Department 
of Education stole $22.3 million they would be fired, and if 
they were prosecuted for embezzlement they could go to jail for 
27 years. But Navient is not a person. Navient is a contractor, 
a contractor that never faces real long-term accountability.
    So can you explain why your Government contracts have not 
be canceled and why Navient has continued to reward you 
personally, with nearly $40 million in compensation since 2014, 
even as these scandals pile up?
    Mr. Remondi. Well, Senator, these are allegations that are 
not true, and it is why, as we said----
    Chair Warren. They are all on the public record.
    Mr. Remondi. No, they are accusations and not necessarily 
based on facts. But our goal is to help all borrowers, as I 
said, successfully manage their loans. And that is why my teams 
and I regularly listen to borrower calls. We are constantly 
making improvements to the way our programs work. We also 
deploy a very highly trained and caring team of professionals 
who help borrowers each and every day.
    And the results of this are that we actually lead the 
industry in helping borrowers avoid default, and as you know, 
the devastating consequences that are associated with that. We 
perform extremely well in enrolling borrowers in income-driven 
repayment plays, and we have used this insight that we gather 
from customers to be very innovative and develop new programs 
and solutions or processes that help more borrowers be 
successful.
    Recently we rolled out an electronic e-sign program for 
income-driven repayment plans, and this was because we saw, 
from our data and call listening, that customers were having 
trouble completing the complex enrollment forms that are 
associated with income-driven repayment, ten pages long, filled 
with jargon. And we took that system, developed an alternative, 
filled out the applications for them so that they would be 
accurate and complete, and sent them to them for electronic 
signature. We have more than tripled the response rate, so 
very----
    Chair Warren. Mr. Remondi, I appreciate that, and I 
understand you are here to talk about the good things that your 
company has done. But you have been sued repeatedly, and you 
have been found to owe money that you have refused to pay, and 
this has happened over and over. And as I said, in the last 
seven surveys, Navient came in dead last in satisfaction among 
student loan borrowers.
    So I am glad for you to stand here and paint a general 
picture, but Navient made more than half-a-billion dollars last 
year profiting off a broken system. The Federal Government 
should absolutely fire Navient, and because this happened under 
your leadership, Navient should fire you.
    But the problem is bigger than that. More than 40 million 
borrowers are trapped in a rigged game. They are crushed by 
debt. They are hounded by services and debt collectors. It is a 
massive drag on our economy, and we need a new approach. 
Canceling $50,000 of student loan debt would free millions of 
people from the traps that Navient and other servicers have 
laid for them.
    Thank you. Senator Kennedy.
    Senator Kennedy. Thank you, Madam Chair. Can you hear me 
now?
    Chair Warren. I can hear you.
    Senator Kennedy. Dr. Akers, can you hear me?
    Ms. Akers. Yes, I can.
    Senator Kennedy. I want to understand the context. The 
money that our students borrowed, were they defrauded?
    Ms. Akers. Well, some, in fact, were, and we, for the most 
part, have made those students whole through debt forgiveness 
that is specific to their circumstances.
    Senator Kennedy. What about the majority of them?
    Ms. Akers. The majority of them have not. I think the 
farthest you could go to say is that we have made the process 
complex so that there might be challenges for them to actually 
understand the obligation that they are taking on, but they 
were fully aware of the obligations that they were accepting.
    Senator Kennedy. OK. Mr. Remondi, can you hear me, sir?
    Mr. Remondi. Yes, I can, Senator.
    Senator Kennedy. Let me just say for the record, I hate 
virtual hearings. And it is not our Chair's fault. That is not 
her fault, but I just hate them. I think they are very 
inefficient.
    Let me try to understand the context. You do not make these 
loans--is that right, Mr. Remondi?
    Mr. Remondi. That is correct.
    Senator Kennedy. The Government makes these loans. Is that 
correct?
    Mr. Remondi. Yes.
    Senator Kennedy. And where does the Government get the 
money?
    Mr. Remondi. It borrows it from the U.S. Treasury 
Department.
    Senator Kennedy. OK. When the Government loans this money, 
are the majority of them honest loans, or have the students 
been defrauded?
    Mr. Remondi. Well, I think as Dr. Akers said, you know, I 
would agree the majority have been for the right purpose. There 
were some shady schools out there, and for the most part those 
have been closed and those loans forgiven.
    Senator Kennedy. OK. Have you ever borrowed money before?
    Mr. Remondi. Yes, I have.
    Senator Kennedy. Did you pay it back?
    Mr. Remondi. Yes, I did.
    Senator Kennedy. Why did you pay it back?
    Mr. Remondi. Well, for example, I took out student loans 
when I was in college, and that college degree afforded me an 
opportunity to get a good job. I went to a good school.
    Senator Kennedy. Right. But why did you pay the money back?
    Mr. Remondi. Because I had an obligation to pay it back, 
Senator. I had signed the promissory note and I had an 
obligation to pay it back.
    Senator Kennedy. Did you consider it a moral principal, a 
moral obligation?
    Mr. Remondi. Moral and legal, yes.
    Senator Kennedy. OK. Let me give you a chance to respond. I 
know that you have been sued in a number of instances. Is there 
anything else you wanted to say in defense of your position on 
those lawsuits?
    Mr. Remondi. Yes. Thank you. You know, the programs, as I 
think you have heard from a number of the witnesses here today, 
are extremely complex, and the rules and regulations associated 
with them are complex. It is difficult for borrowers to 
understand why one loan is eligible for a certain program and 
why another loan is not eligible for a program. And we try to 
help borrowers through that process, and we try to help explain 
it.
    Senator Kennedy. Let me stop you, Mr. Remondi. Let me stop 
you for a minute. So why don't we write simpler rules?
    Mr. Remondi. That is a great question. You know, I think 
the programs and my recommendations in my oral testimony here 
was that we do need to make them more simple. Today there are 
60 different repayment options available to borrowers, 9 
different income-driven repayment plans, all with complicated, 
as you can imagine, Government-sounding acronyms, that make it 
very difficult for borrowers to understand.
    Senator Kennedy. OK.
    Mr. Remondi. And we think----
    Senator Kennedy. Well, it would seem to me that that might 
be one thing that our Subcommittee could work on, is designing 
a student loan application process that looks like somebody 
designed the damn thing on purpose. I mean, these are supposed 
to be our best and our brightest who are borrowing the money. 
If they cannot understand it, who the hell can?
    Let me move on, though. Dr. Baker, do you think the student 
loan program and the way we administer it is systemically 
racist? Is that what I understood you to say?
    Ms. Baker. I was explaining the ways that a systemically 
racist society has made it so that people of color, especially 
Black people, rely on student loans at a higher rate than other 
people.
    Senator Kennedy. Do you think America is systemically 
racist?
    Ms. Baker. Do I think that the American society has 
systemic racism? Yes.
    Senator Kennedy. OK. What does that mean?
    Ms. Baker. What does that mean? Broadly speaking, it means 
that we have sort of set up pathways in our society where 
different people have different opportunities and options that 
are before them. So as an example, it would mean that 
potentially one person in the world has five different options. 
They can go to college, they can take an inheritance from their 
family and start a business, they can have all these sorts of 
different sets of options. But systemic racism----
    Senator Kennedy. Yes, ma'am. If you could, just give me 
your definition, because I am going to run out of time here.
    Ms. Baker. Oh, sure. Sorry about that. Professors.
    So, basically, systemic racism says that we have set up 
pathways so certain people of certain races get more 
opportunities and more benefits than other people do.
    Senator Kennedy. OK. Do you think SMU is a systemically 
racist institution?
    Ms. Baker. Do I think that SMU works within a racist 
society? Yes.
    Senator Kennedy. No, but do you think SMU is a systemically 
racist institution?
    Ms. Baker. Does it have evidence of systemic racism? All 
universities do, yes.
    Senator Kennedy. OK. You did your graduate work at 
Vanderbilt. Do you think it is a systemically racist 
institution?
    Ms. Baker. All universities work within a systemically 
racist society.
    Senator Kennedy. Yeah, but I am trying to understand.
    Ms. Baker. Mm-hmm.
    Senator Kennedy. I understand your comment about America 
being systemically racist, but we have different institutions 
in America. So let me ask it more directly. Is SMU a 
systemically racist institution?
    Ms. Baker. There is systemic racism at SMU and at all other 
institutions.
    Senator Kennedy. So you think every university is 
systemically racist?
    Ms. Baker. I think that everyone who operates within the 
United States operates within a systemically racist system.
    Senator Kennedy. OK. If we forgive all the student loan 
debt, how do you think we should pay for it?
    Ms. Baker. I think there are several options on the table 
around potential increases for different----
    Senator Kennedy. Well, I am asking you how you think we 
ought to pay for it.
    Ms. Baker. Sure. I would say that that is not my area of 
expertise.
    Senator Kennedy. You just want us to forgive it and not 
worry about paying it back?
    Ms. Baker. I would say that as an education policy expert I 
can talk to you about those areas. I think there are a number 
of plans in place and that there are people on the Committee 
who have talked about potentially raising the taxes on higher-
wealth individuals. There are options, but it is not my area of 
expertise.
    Senator Kennedy. I have gone way over. I assume that our 
Chair is going to let us have a second round.
    Chair Warren. Of course, John. There will be a second 
round.
    Senator Kennedy. No, you go ahead, Elizabeth.
    Chair Warren. All right. But there is absolutely going to 
be a second round.
    But now Senator Reed is up. Senator Reed.
    Senator Reed. Thank you, Madam Chairman, very much, and 
thank the panel for their interesting and thoughtful 
presentations this morning.
    Mr. Steeley, if I could direct a question to you please, 
sir. The CARES Act and its subsequent administrative 
interpretations applies just to Federal student loans held by 
the Department of Education, leaving out roughly six million 
borrowers with loans held by commercial and not-for-profit 
lenders. Has this been a source of confusion in your portfolio, 
and what options have you offered to these individuals that 
have not had the benefit of CARES forgiveness?
    Mr. Steeley. Thank you, Senator, for your question, and you 
really do highlight a great point and a disparity that exists 
out there in the Federal loan space. When Congress did the 
various rescue packages, the CARES Act, it focused on the 
direct loan program while leaving out the FFELP program. And as 
I mentioned in my testimony, prior to the 2010-2011 academic 
year, 75 percent of all loans were FFELP loans.
    So there are things that ourselves and other servicers and 
holders of FFELP have done. First, we have made sure that our 
customers know that they are able to consolidate into Federal 
direct lending. But it is important to note that that, you 
know, it sounds simple to say everyone should consolidate, but 
there are individuals that actually would be harmed by 
consolidating.
    There are also individuals not eligible to consolidate, and 
that is why PHEAA's board of directors, we rarely take stances 
in Federal policy matters, but our board voted and issued and 
signed a letter encouraging Congress to adopt what I would 
refer to as FFELP parity. We sent it to the Pennsylvania 
congressional delegation. I am very pleased that a number of 
members of our delegation, both R's and D's, signed on as 
cosponsors in the U.S. House.
    Senator Reed. Thank you very much. And an additional 
question. There is a current pause on repayment, interest 
accrual, and wage garnishment. That is scheduled to end in 
September. So how are you preparing for the resumption of 
repayment, and how do you support borrowers in the transition?
    Mr. Steeley. Thank you, Senator. Another great question.
    As you note, the Federal forbearance is scheduled to come 
off September 30th. We have been dialoging with the U.S. 
Department of Education on ideas that we believe might ease 
that transition. The CARES Act was very prescriptive about what 
servicers could do and could not do prior to borrowers entering 
repayment, dictating exactly the communications that could and 
could not go out. I am not sure exactly, since the CARES Act 
expired and we are now on extensions, how that ultimately will 
play out.
    But there are actions that we believe the Department should 
authorize servicers to take prior to the portfolio entering 
repayment. For instance, we know individuals that were having 
struggles prior to COVID, and it is fair to assume that if 
someone was struggling prior to COVID, there is an even higher 
likelihood they are going to be struggling after COVID.
    So one of the things that we have encouraged the Department 
of Education to allow servicers to do is to reach out to these 
individuals. You know, if we can get them on an income-based 
repayment plan prior to the resumption of payments, they will 
be in a good situation to succeed. You know, in many ways this 
forbearance and this pause on payment gave them sort of a reset 
on their loan. You know, it pulled them out of the delinquency 
ladder into current status, helped clean up their credit 
reporting. But we know who will struggle once it comes off, so 
we should do everything in our power to work with these 
individuals in advance of September 30th, and that is what we 
have been encouraging the Department to do.
    Senator Reed. Well, thank you very much, Mr. Steeley. Thank 
you to all the panelists. Madam Chairman, thank you for the 
opportunity.
    Chair Warren. Thank you, Senator Reed. I appreciate it. 
Senator Tillis. Is Senator Tillis on? That is who I had up 
next. If not, Senator Scott or Senator Cramer or Senator 
Daines.
    All right, in that case do I have Senator Van Hollen?
    [No response.]
    Chair Warren. Do I have Senator Smith? I feel like I am 
calling the roll here.
    Senator Smith. I know.
    Senator Ossoff. Senator Ossoff, Madam Chair.
    Senator Smith. Senator Warren, I defer to Senator Ossoff, 
and then I will go.
    Chair Warren. You want to defer? That is fine.
    Senator Ossoff, you are recognized.
    Senator Ossoff. Oh, thank you, Senator Smith. I did not 
realize you were here, and thank you, Madam Chair, for the 
opportunity. Thank you to the panel. And thank you, madam 
Chair, for holding this hearing.
    You and I have discussed this a number of times. There are 
so many people in this country, particularly young people, who 
struggle with the burden of student loan debt, and so many 
young families that are unable to take the next steps in their 
lives, whether that is home ownership or having kids or buying 
an automobile or starting a business or taking a risk on a job 
that may align with our passion but could undermine our ability 
to service loan debt. So I am grateful to you, Madam Chair, for 
holding this hearing to explore the path forward on this issue.
    And I would like to start, Dr. Akers, if you would be so 
kind. Do you agree that a skilled workforce is in the vital 
United States national interest?
    Ms. Akers. Yes, I do.
    Senator Ossoff. And do you agree, Dr. Akers, given your 
extensive scholarship and experience in Government and in 
academia, that having a skilled workforce, having Americans who 
can perform skilled trades, who excel in science, technology, 
engineering, aerospace, math, who can operate complex 
machinery, who can design complex systems and interact with 
advanced technology is, one, a crucial way of enhancing upward 
socioeconomic mobility, and also, two, important to our 
competitiveness, where we have economic competitors globally 
who are investing heavily in increasing the skill level and 
competence of their own workforce?
    Ms. Akers. Yes, I agree with all of that.
    Senator Ossoff. You know, one of the things, Dr. Akers, and 
I would be curious for your view on this, is that we tend to 
talk a lot about 4-year college degrees in this public policy 
debate, but sometimes do not speak with as much focus about 
skilled trades, vocational training, technical school, 
vocational training. Do you agree that investing in a highly 
skilled workforce not only benefits those people who access 
those skills, not only benefits the United States and makes us 
more competitive internationally, but also benefits America's 
private sector by supplying skilled workers who can increase 
corporate profitability and develop technologies that allow 
companies to sell newer and better products at lower prices?
    Ms. Akers. Yes, I do.
    Senator Ossoff. So, Dr. Akers, I am curious to get your 
view on the proposal to make technical school, vocational 
training, and training in skilled trades free for people across 
this country. I am not asking at this time about the question 
of forgiveness of student loan debt. I am asking whether you 
believe it would be a prudent use of public resources to make 
skilled trades, whether those are 2-year degrees or vocational 
school opportunities, available to every American at no charge, 
using a grant or scholarship system that is publicly funded, 
rather than asking some folks who are pursuing those skills to 
take out loans.
    Ms. Akers. I absolutely believe that we, as a Nation, and 
States, should continue to invest in sub baccalaureate higher 
education after high school. I tend to prefer voucher style 
subsidies so that people can take dollars and carry them to 
whatever institutions will serve them well, and that is 
dissimilar, in a way, from a system that declares that 
institutions would be free of charge, because of the central 
planning that would be required for that.
    Senator Ossoff. Dr. Looney, I would like your view on the 
proposal to make tech school and vocational training free to 
Americans.
    Mr. Looney. I think the question is how much does it cost 
and who benefits and what degree of oversight is there. You 
know, one of the problems that plagues American higher 
education is that there is just wide variation in the quality 
of institutions and the value that they provide. And so one of 
the sources of the disconnect between how much we pay and how 
much value is provided is the degree of oversight and how the 
Federal Government invests money.
    So I think that the key question is, is the money being 
spent well and how much oversight is there, or where it is 
going.
    Senator Ossoff. Well, I look forward to continuing to 
engage with you on these matters, and I will say that here is 
what I want to observe. We are talking about what I think is a 
pretty simple question--should we invest in making access to 
skills free for Americans, which we have acknowledge, in the 
course of this discussion, helps the United States compete, 
helps people achieve their dreams, helps companies become more 
profitable. We squander trillions of dollars on wars of choice. 
We squander trillions of dollars on bailout and subsidies for 
investment banks, but it difficult, it seems, at least at this 
hearing, with the two distinguished panelists I have had the 
opportunity to engage with, to get a pretty straight, 
declarative answer on what I think is a clear national interest 
in making access to skills free for Americans who want to 
develop professional qualifications that will help them get 
great jobs and earn more money.
    And with your indulgence, Madam Chair, I would just like to 
enter into the record letters that I have signed by the 
presidents of Spelman College, Morehouse College, and Fort 
Valley State University, as well as another letter from the 
president of Albany State University. These are historically 
Black colleges and universities in my home s State of Georgia, 
and their reflections on how critical it is to make college 
more affordable, to reduce the burden of student loan debt and 
tuition payments for attendees at HBCUs I think are vital for 
the record.
    Chair Warren. Without objection, so ordered.
    Senator Ossoff. Thank you, Madam Chair. Thank you to our 
panel.
    Chair Warren. Thank you, Senator Ossoff. Senator Smith.
    Senator Smith. Thank you, Madam Chair Warren and Ranking 
Member Kennedy, and I am so grateful for all of the panelists 
today.
    Canceling student debt is one of the most powerful tools 
that we have to expand the economy, to address racial 
disparities, and to help American families get back on their 
feet after the combined economic and public health crisis of 
COVID-19. So I am so glad to join the efforts of Senator Warren 
and Senator Schumer and others of my colleagues in both the 
House and the Senate to urge President Biden to cancel up to 
$50,000 in student loan debt.
    You know, here is the problem. Student loan debt is like a 
thousand-pound weight that is holding Americans and our economy 
back, and that is only the half of it, because, in fact, what 
is happening is that that weight is even heavier to carry if 
you are a person of color. So carrying that debt around means 
that you are unable to buy a house, or a car, or to take that 
job that you really want. And I think there is also a 
misconception that student loan debt primarily affects folks 
that are in the beginning of their earnings lifetime, and often 
they forget about those adults who have taken on student loan 
debt as they contemplate a career change or later in their 
life, and are literally postponing their retirement because of 
student loan debt.
    So there is no one solution to this problem, but forgiving 
$50,000 in student loan debt is going to go a long way toward 
helping us achieve our goals of getting our economy going, 
helping families get back on their feet, and address the 
systemic inequity that we also see around student loan debt.
    It seems to me that this is going to mean a lot to a lot of 
people, and I want to just take a moment to hear from Ms. 
Perez. You are in a great position to help us all understand 
the impact of student loan debt and the impact of student loan 
debt relief in real time, for real folks. I appreciated your 
testimony very much, and I am wondering, could you just tell us 
a little bit, thinking about you and your family, your children 
that you are hoping to be able to put through college 
themselves, just tell us a bit more about what this is really 
going to mean to you, if you were able to get this kind of 
student loan debt relief.
    Ms. Perez. Thank you. It will mean--sorry.
    Senator Smith. That is OK.
    Ms. Perez. It is a lot of emotional and mental stability 
that it will provide me and my children. Obviously, I have 
these conversations with them. I will be able to support them 
more in their journey. I will be able to help also my family, 
which I keep hearing a lot of concepts and theories here, and I 
cannot relate to anything or anyone that I know could relate to 
any of these that are being said here. It is just not a 
reality.
    And being able to get this help will help us help our 
little ones and help our family get on their feet. It will help 
me also, and mean a lot if I can afford my sister's college, so 
that she is finally able to finalize her dreams. It seems that 
it is a common thought that we are lazy, unintelligent. Maybe 
English being a second language we may be struggling more than 
others to read a document seems to be thought as us not being 
intelligent enough. But that is not the case.
    And having this will also help me maybe purchase a home. 
Like you said, I would love to have a house in a safe area. I 
always had to drop my kids everywhere, and now I do not have a 
modern car. I have to ask my car permission to take me 
somewhere.
    So it will definitely allow me to make sure my children do 
not get discouraged, because they are getting a little 
discouraged. And I know with everything that happened also 
added to--they did get a little depressed. They were in their 
room, still in the South Bronx, yes, attending college but 
still in the South Bronx, which sort of like hurt them a little 
bit. And if I am able to help them attend the college of, not 
their dreams because we kind of gave up on that as well, we are 
transferring them because we realized 1 year we cannot go into 
debt anymore. We cannot afford it.
    But I would be able to support them and make sure that they 
do not get discouraged. And I am really confused with the poor 
jobs, I guess poor jobs in public service.
    Senator Smith. Let me just ask you, because I so appreciate 
your perspective, and I want to just ask about one thing. So 
you are saying, basically, that if you did not have that 
student loan payment you are going to be spending that money on 
helping your kids go to school, helping your sister go to 
school, maybe even buying a house, being able to move your 
family along.
    So if I could, Senator Warren, there was a suggestion on 
the panel by some that there is this language of moral hazard, 
which seems to suggest that if you were going to get debts 
forgiven that you understood that that is going to somehow 
encourage you to take our more debt, or that it sort of almost 
an encouragement to act irresponsibly. How do you respond to 
that?
    Ms. Perez. I think of myself as someone who is very 
responsible, and like I said in my testimony, I did think that 
I was taking the right steps and avoiding taking loans, because 
I knew my responsibility was to pay that loan. But I also hear 
people here talking about income-driven. That program, I am 
part of the program, and the problem with that program is that 
if you are not making enough money your monthly fees are very 
low, but then your balance increases. So you are paying but 
your balance is increasing.
    And then I took on overtime and I work long hours, but then 
I would make more money and now my monthly payments increased, 
and I never get to feel, like making my payments on time and 
doing everything that I know it is my responsibility. And I am 
not refusing to make my payments, and I am not refusing to take 
on my responsibilities. I just want to make sure that my 
children get the opportunity to attend school. I finished my 
master's degree and I really think that if I finished my 
master's degree then I should be able to help my children to 
get their Ph.D. and receive more than what I received. And I am 
a little afraid of how things are going, that I will not be 
able to do that.
    Senator Smith. I am really grateful for your story and your 
testimony, and I am out of time, way over time. But I want to 
just thank you so much for sharing that. I appreciate it so 
much. Thank you, Senator Warren, Chair Warren.
    Chair Warren. Thank you. Thank you to our witness and thank 
you, Senator Smith.
    Senator Menendez.
    [No response.]
    Chair Warren. I tell you what. I think Senator Menendez is 
almost here, so how about if I just start another round of 
questions, and when I finish we will go to Senator Menendez, if 
he has appeared by that point.
    Let me start with you, Mr. Steeley. Taxpayers pay your 
company, PHEAA, to manage the Public Service Loan Forgiveness 
Program, which we have heard a lot about here today. The 
program is supposed to forgive student debt for public 
servants, you know, like teachers and nurses and members of the 
military, after 10 years. So far, about 225,000 people have hit 
the 10-year mark and applied for forgiveness. But a whopping 98 
percent of them have been rejected.
    No one should be let off the hook for the disaster that 
this program has turned into, but it is your job to ensure that 
people who have followed the rules get relief. The most common 
reason a borrower gets turned down is because your company says 
that they have not made enough qualifying payments. But there 
are now multiple lawsuits and investigations that have found 
that you systematically undercount payments.
    Mr. Steeley, just to take one example, the Education 
Department audits, dating back to 2016, have shown that PHEAA's 
automated system creates errors and mistakenly disqualifies 
payments. Is that correct?
    Mr. Steeley. I am sorry, Senator. I do not believe that 
that is correct. You know, any time we identify an issue, 
whether it is a regulator, like the Education Department, or 
through our own control procedures, we actively investigate it 
and we work to make it right for the borrowers.
    Chair Warren. So then I do not think I quite understand 
your answer. Are you saying the Education Department audits, 
dating back to 2016, did not show that PHEAA's automated system 
created errors and mistakenly disqualified people, or are you 
saying it did show that, but you fixed it afterwards?
    Mr. Steeley. Senator, I am not familiar with the audit that 
you are speaking. It was prior to the time that I was in my 
current role.
    Chair Warren. This is multiple audits that we are talking 
about here.
    Well, let me try another question, and let me turn this 
around again, to Attorney General Healey. Mr. Steeley says that 
he does not know about any problems at PHEAA. So let me ask 
you, Attorney General Healey, are these just isolated 
incidents, these audits that we have heard about? What has been 
your experience as you have investigated PHEAA?
    Ms. Healey. Well, 5 years of investigation of PHEAA, and 
other years spent investigating Navient. Both of these entities 
made a promise to the U.S. Government that they could handle 
this work, as complex as they want to characterize it. And they 
failed miserably, and, of course, made boatloads of money for 
themselves in the interim while borrowers are left high and 
dry.
    In our investigation specifically of PHEAA, what we found 
is that they repeatedly misinformed future teachers, 
firefighters, police officers, social workers--because these 
were people who were looking to do public service work--they 
routinely misinformed them about the requirements of the 
program, about their status in it and whether they were 
qualified. They would delay processing applications. They would 
delay processing payments, which resulted in people being 
booted off in terms of eligibility.
    A question was posed earlier about fraud. I will tell you 
all about fraud. It is why the Attorney General's Office here 
in and in other States have sued both of these entities for 
what we call ``unfair and deceptive practices to borrowers.'' 
PHEAA, for example, we found in our investigation, was 
overbilling, double billing borrowers.
    The record is replete. As I say, we did enter into a civil 
settlement agreement with them. It is my hope and expectation 
that going forward with respect to both of these loan servicers 
that the right measures be put in place. But the history 
through our investigation is loan servicing practice is replete 
with deception, to the severe detriment of borrowers.
    Chair Warren. Thank you very much, Attorney General Healey. 
You have the on-the-ground experience with PHEAA and with the 
other loan servicers.
    You know, it seems clear to me that PHEAA presides over a 
so-called Public Service Loan Forgiveness program, and has 
proven itself nearly incapable of ever actually granting public 
servants any loan forgiveness.
    Mr. Steeley, has the Department of Education terminated 
your contract or penalized your company in any way for its 
errors and mismanagement that have prevented teachers and 
firefighters, and other public servants from getting the debt 
cancelation that the law provided them?
    Mr. Steeley. Senator, I would like to answer your question 
first by saying no, they have not, but also note that the 
majority of the rejections that you note, you know, the 200-
and-some-thousand rejections, over 75 percent are simply 
because the individuals that applied for forgiveness had not 
been in the program for 10 years.
    Now I did not write that requirement. The United States 
Congress and the U.S. Senate wrote that requirement.
    Chair Warren. Let me stop you there, though, if I can, Mr. 
Steeley, because that is the fundamental question. Are you 
counting accurately? Because that is the one thing the Federal 
Government asks you to do. And as I see it, I think what the 
data show is that 59 percent of ineligible Public Service Loan 
Forgiveness applications were denied because they did not have 
enough qualifying payments.
    Borrowers are not filling out these applications for fun. 
They are filling them out because their understanding is they 
have been writing checks for 10 years or longer. This is a 
program that is now 14 year old, and you are telling me that 
you could only find the payments for 2 percent of them?
    Mr. Steeley. Senator, first, as I noted just a minute ago, 
the primary reason that these applications are rejected is 
because they have not been in repayment of a qualified direct 
loan for 10 years.
    And then, in addition, I would like to note, with all the 
errors that have been referred to, particularly with respect to 
Massachusetts, there are 25 individuals spoken to in that 
settlement agreement. Over the years of the investigation we 
serviced 250,000 individuals in the State of Massachusetts.
    You know, we strive, day in and day out, to do our best for 
the people of Pennsylvania, for the customers we service. We 
advocate on their behalf for program improvements to increase 
those forgiveness rates that you note. And ultimately, yes, The 
Massachusetts attorney general did find 25 individuals, and we 
worked to make those correct. In fact, those individuals have 
already been----
    Chair Warren. The investigations are not simply about a 
random error rate. They are about systematic undercounting. And 
when you undercount the number of payments, that means that 
people do not qualify for the programs.
    Let me just give Attorney General Healey a quick chance to 
reply. We are way over time here. Attorney General Healey, 
would you like to respond?
    Ms. Healey. You know, I am trying to be constructive here, 
because this is about a forward-going, what do we need to do to 
fix the system. But I want to be very clear. We found 
systematic failures both with respect to PHEAA and with respect 
to Navient. There is a reason, Madam Chair, that PHEAA has 
agreed to do a loan-by-loan, borrower-by-borrower audit, just 
with respect to 218,000 borrowers in Massachusetts. If that 
does not signal that they know they had a problem--that is just 
Massachusetts--I do not know what else does.
    So, you know, there is the point about accountability and 
then there is the point about what is going to happen in terms 
of why debt cancelation is imperative, but for PHEAA to suggest 
that it had the capacity to, or even now maybe has the 
capacity, to engage in that kind of borrower-by-borrower 
analysis and processing, the reason those people were 
ineligible many times was because PHEAA lost the records, was 
not keeping track, so by fault PHEAA created their 
ineligibility, and again, I think it is a shame for the 
borrowers who we are speaking of today.
    Chair Warren. And one of these investigations, I recall, 
said PHEAA left it up to the borrowers to figure out if there 
had been an error, rather than PHEAA having to get it right to 
begin with and put its own processes in place.
    Look, Mr. Steeley, I think that PHEAA has demonstrated that 
it cannot administer this program. I think the Department of 
Education should terminate your contract. But I think we have 
also established that teachers and firefighters are not going 
to be any better off with Mr. Remondi over at Navient in 
charge.
    This is an utterly broken system, and the solution is not 
more complexity and more incompetent middlemen. The best way to 
deliver relief to public servants crushed by student loan debt 
is to cancel their debt, and not after 10 years of bureaucratic 
torture and miscounted payments, but just to do it now.
    Senator Menendez, I believe you are with us now.
    Senator Menendez. Yeah. Thank you, Madam Chair. Thanks for 
holding this hearing. I appreciate it. I have been listening to 
some of the testimony and the back-and-forth.
    Let me turn to Mr. Remondi. Mr. Remondi, in 2017, when you 
were sued by the Consumer Financial Protection Bureau and the 
States of Washington, Illinois, and Pennsylvania for cheating 
borrowers out of their right to affordable loan payments, do 
you know how much money you made?
    Mr. Remondi. Yes, I do.
    Senator Menendez. What would that be?
    Mr. Remondi. In 2017, it was approximately $6 million.
    Senator Menendez. It was $6.5 million, according to your 
company's filings.
    In 2018, when you were sued by the State of California for 
cheating borrowers out of their rights, do you know how much 
money you made?
    Mr. Remondi. Approximately $7.7 million.
    Senator Menendez. And in 2020, when you were sued by my 
State of New Jersey for engaging in deceptive and misleading 
tactics when servicing New Jersey student borrowers, do you 
know how much money you made?
    Mr. Remondi. Yes. I am familiar, Senator. I am very well 
compensated, and I certainly appreciate it, and it was about $8 
million.
    Senator Menendez. Thank you. So over this period of time 
that I have referred to, you have earned over $20 million, and 
that is not even counting 2021, in that time do you know how 
much money these lawsuits have alleged your company has 
illegally added to the debts of millions of your customers?
    Mr. Remondi. They actually have not alleged that yet, 
Senator.
    Senator Menendez. Well, from what I have read it seems that 
the answer is about $4 billion.
    Mr. Remondi. That estimate was that if 100 percent of all 
borrowers were in forbearance that is how much borrowers paid. 
So clearly, that was not an estimate of how much we 
overcharged, Senator.
    Senator Menendez. Well, let's put it this way--it is a lot 
of money, isn't it?
    Mr. Remondi. Well, that is 100 percent of borrowers--
student loan forbearance is a program that has been authorized 
by Congress, and is an eligible repayment option for borrowers. 
In some cases, this is a very legitimate program. For example, 
you cannot enroll in an income-driven repayment plan if you are 
past due. So one of the tools, and, in fact, probably the only 
tool available to help a borrower enroll in that program, is to 
grant them a forbearance to bring that account current so that 
they are now eligible to enroll in an income-driven repayment 
plan.
    Senator Menendez. Well, let me just say, if I was one of 
your shareholders I would be concerned that you pocketed $20 
million in salary and compensation, but yet your company might 
be responsible for a couple of billion dollars to American 
families. If I was one of your customers, I would be calling 
Secretary Cardona to cancel my student debt immediately. But as 
U.S. Senator, the one opportunity I have is this oversight to 
drive home the review of entities such as yours, and I think 
the Chair is right to do so.
    Let me turn to Ms. Perez, and thank you for talking about 
what student loan debt does to families like yours. If 
President Biden had forgiven your $35,000 in student loan debt 
in January, do you know how much you would have been taxed on 
that forgiveness amount?
    Ms. Perez. No.
    Senator Menendez. Yeah. That is OK. Most people did not 
know that forgiveness was actually looked at by the IRS as 
income. You would have faced a surprise tax bill of $7,700, at 
a minimum, which is pretty outrageous.
    Luckily, working with Senator Warren and myself on the 
Finance Committee, we ended up with a provision of law that no 
longer has forgiveness be subject to income, so that 
individuals like yourself would not be subject to such a 
surprise tax bill, and I am glad to see that we were able to do 
that, and your story is vividly an example of it.
    Finally, Dr. Baker, the Federal Government has been aware 
of the student debt crisis for some time now, and attempted to 
alleviate through the student loan forgiveness program. 
Currently, the Government has a couple of options for student 
loan forgiveness, including through the income-driven repayment 
program and the Public Service Loan Forgiveness Program.
    Out of the 43 million borrowers who hold student loan debt, 
how many have been able to successfully obtain forgiveness 
through IDR?
    Ms. Baker. An independent analysis, I think, estimated that 
at around 32, currently, 32 borrowers.
    Senator Menendez. Out of approximately 2 million student 
loan borrowers who have been in repayment for more than 20 
years, just 32 have ever qualified for loan cancelation.
    What is the approval rate for the PSLF program?
    Ms. Baker. As Senator Warren mentioned, it is about 2 
percent currently.
    Senator Menendez. Two percent. That is an approval rate, 
not a rejection rate. So as of June 2020, approximately 98 
percent of borrowers who applied for PSLF have been rejected.
    So are IDR and PSLF providing the promised student loan 
forgiveness to broad swaths of student loan borrowers?
    Ms. Baker. So they are not currently doing that. I think as 
several of the other experts on this panel have mentioned, 
there is significant amount of reform that is necessary in the 
IDR and PSLF programs in order to create the benefits that they 
were intended to.
    Senator Menendez. All right. There are a lot of reforms 
necessary.
    Madam Chair, do I have another minute of time?
    Chair Warren. Yes. Go ahead, Senator Menendez. Take another 
minute.
    Senator Menendez. Thank you. My final set of questions. 
Today's hearing is not only important to highlight the impact 
of the crushing debt burden on America's working and middle 
class but also the importance of broad-based forgiveness.
    Professor Yannelis, your research purports to show that 
canceling student debt accrues benefits disproportionately to 
the wealthiest borrowers. In other words, it is not a 
progressive policy. Is that fair to say? Is that a fair 
characterization?
    Mr. Yannelis. Yes, that is correct, Senator.
    Senator Menendez. To reach this conclusion, you viewed the 
benefits of debt cancelation in the context of the supposed 
generosity of these existing loan forgiveness programs for low-
income borrowers, particularly IDR. Do I have that right?
    Mr. Yannelis. Yes, that is correct.
    Senator Menendez. And to be specific, to reach this 
conclusion your research assumes every single low-income 
borrower has managed to enroll and stay in IDR for 20 to 25 
years, having their debts wiped out as if they were eligible. 
Is that correct?
    Mr. Yannelis. Not quite correct. What we assume is we have 
different scenarios. In one of the scenarios we assume that 
every borrower who would benefit would successfully enroll in 
IDR. In a couple of other scenarios we assumed that, for 
example, the Senate and the House passes legislation to make 
IDR programs more generous. We actually find that that gives 
more forgiveness to low-income borrowers and borrowers of 
color.
    Senator Menendez. Well, I think what I am referring to is 
your recent op-ed, which you wrote in The Washington Post, 
which said, quote, ``We looked at what would happen if every 
borrower who would benefit from an income-driven repayment plan 
were put into one and forgave loans after 20 years.''
    So out of the 43 million borrowers who hold Federal student 
loan debt, how many have been able to successfully obtain 
forgiveness through IDR in the 25 years since it first became 
available?
    Mr. Yannelis. So that is an extremely misleading question, 
because the way that these plans work is they provide 
forgiveness after 20 or 25 years, and the most popular of these 
programs only started in 2009. So we just have not had 20 or 25 
years. So there was an earlier plan called income-contingent 
repayment. Very few borrowers took that up. So we would expect 
to----
    Senator Menendez. So the bottom line, with all due respect, 
we have had 32 borrowers that have ever qualified for loan 
cancelation. You have a better chance of being struck by 
lightning than having your 20-year-old Federal student loan 
canceled today. That does not sound very progressive to me. So 
I hope that President Biden will take advantage of this rare 
opportunity to bring relief to working families that need it 
the most.
    Thank you, Madam Chair.
    Mr. Yannelis. That is an extremely misleading statistic.
    Senator Menendez. I think your analysis is extremely 
misleading, to be honest with you. Thank you very much.
    Chair Warren. Thank you, Senator Menendez. Senator Van 
Hollen?
    Senator Van Hollen. Thank you, Madam Chairman, and thank 
you for holding this hearing and really diving into what has 
become the broken promises from the Public Service Loan 
Forgiveness Program. As a result, I think of a lot of 
complicated interpretation and a deliberate effort to mislead 
students.
    So, General Healey, I want to make sure I understand the 
settlement you reached with PHEAA as a result of your 
litigations. I understand that now if you are a student who had 
one of these loans and believes they have either been misled or 
that their accounts were mishandled, you have set up a process 
where an audit would be conducted and they will be remedied if 
it is shown that, in fact, there was mishandling of the loan. 
Is that correct?
    Ms. Healey. That is correct, Senator, and it is up to the 
borrower to apply.
    Senator Van Hollen. Got it. So, Mr. Steeley, you entered 
into this agreement. I assume you agree that that is a 
reasonable way to address these disputes. Is that correct?
    Mr. Steeley. Yes, it is, Senator. We welcome the 
opportunity, not just for the residents of Massachusetts but 
any borrower across the country to the extent that they have 
questions with what payments qualified, which payments did not 
qualify. We welcome the opportunity to review their account.
    We recently launched an updated portal that provides full 
transparency of every payment that was made and the detail as 
to whether the payment qualified toward forgiveness or did not 
qualify toward forgiveness, and if it did not qualify toward 
forgiveness, the reason why. And what this does is it gives 
consumers the information that they need to ask questions and 
submit a review case to us. And we have a process that we do as 
part of our day-in and day-out operations where we take a look 
at these review cases that come in.
    Senator Van Hollen. Well, thank you. So you anticipated my 
next question, which is if you agreed that this is a reasonable 
process for the people of Massachusetts as a result of this 
agreement, will you agree that my constituents in Maryland, 
many of whom have experienced exactly the same kind of 
problems, will be able to essentially have exactly the same 
process that you have developed in the State of Massachusetts. 
Can we have equity here with respect to Marylanders, and many 
Marylanders, as you can probably guess or you know, work in 
Federal service, given the proximity to the Nation's capital, 
can you tell me today that they will get the same set-up and 
processes as the people of Massachusetts?
    Mr. Steeley. Thank you, Senator. The set-up may be a little 
bit different, but the fundamental process gets to the same 
outcome, that the individuals in your State, Maryland, as well 
as any State, have the ability, once they are enrolled in PSLF, 
submitted an employer certification form, they will have the 
ability to see which payments counted toward forgiveness and 
which payments did not count toward forgiveness.
    If I may add, Senator, just a couple points that I would 
like to make with PSLF. As a public service agency, PHEAA 
became engaged in this program, and it was prior to my time at 
PHEAA but my understanding was we looked at PSLF and saw it 
very similar to programs we administered just to the north of 
you, in Pennsylvania. And what we discovered, very early on, is 
that the rules were very complex and the path to forgiveness 
was very narrow. And we have advocated, time and time again, 
from our very beginning of involvement, to both the U.S. 
Department of Education as well as Members of Congress, across 
multiple Administrations, to simplify the program and make 
reforms that help borrowers.
    We finally got some progress in this last year, in terms of 
having the Department of Education engage with us. We set up a 
task force, and we got them to expand the criteria so that, for 
instance, borrowers were not penalized for things like 
prepaying their loans, that they could submit one form for 
forgiveness, whether for PSLF or TE-PSLF, where before the 
Department was requiring individuals to be rejected for PSLF 
before they could even apply for TE-PSLF. And then we worked 
with the Department on this transparency.
    Senator Van Hollen. If the Chair would give me a little 
more time I would let you go on. I appreciate your answer----
    Mr. Steeley. Sorry.
    Senator Van Hollen. ----but we are limited. Madam Chair, 
could I continue my questions?
    Chair Warren. Of course you can.
    Senator Van Hollen. Well, thank you. No, look. I am glad 
you mentioned that. In fact, Senator Warren has been one of the 
people pushing really hard, along with many of us, but she has 
been just a champion in pushing to reduce the complexity of 
this program.
    But the 98 percent denial rate is not due to complexity 
alone. That is the reason we are all here. It is because 
borrowers have not gotten the guidance that we certainly 
believe, and more importantly, the borrowers themselves believe 
that they should have received from those who were 
administering and servicing these loans. So it has taken what 
has admittedly been a complicated process and made it worse.
    Mr. Remondi, I am going to submit to you this case of one 
of my Maryland constituents. He is an environmental scientist 
at the University of Maryland. He never missed a payment for 10 
years. He made sure he was on the income-driven repayment plan. 
He was led to believe that that would put him on the path to 
PSLF. We have spoken to him. He never received counseling from 
Navient about the terms for forgiveness of his loan. Navient is 
the holder of his loan. He made his 120th payment, which was 
the final payment, and only then learned that because he had a 
family Federal education loan, FFEL loan, he was not eligible 
for forgiveness because he was on the IDR, and because he was 
put in forbearance more than once when Navient failed to 
process his income certification on time, his balance 
ballooned. In fact, today he owes $29,000, which is $5,000 more 
than he owed when he started paying his loans.
    So here is a situation where somebody who paid on time, 
every time, it turns out never received any guidance from 
Navient. Don't you agree that this kind of miscommunication is 
a significant part of why we have a 98 percent denial rate and 
why people like my constituent are put in this kind of 
position?
    Mr. Remondi. Well, Senator, thank you for your question. 
There is a lot of complexity here with individual borrowers, 
and to your point, you are actually raising a really good 
point, is that public student loan forgiveness applies to only 
certain types of loans. It does not apply to FFELP loans owned 
by companies like Navient. It does not apply to FFELP loans 
owned by the Department of Education.
    There are also certain types of payments that you have to 
make. You have to make on-time payments. You cannot be late. 
You have to make full payments that are required under an 
eligible plan.
    I do not know the individual circumstances of this 
borrower's case, but I would certainly be happy to look into it 
on behalf of you and your staff and see what we can do to 
resolve any challenges here.
    One other point I would just make is that forbearance does 
not make you ineligible for qualifying for the program. It just 
does not count as a payment because it is not a payment.
    But again, all of these rules and all of these requirements 
are set by the Department of Education, based on the statute. 
So I think as Mr. Steeley was indicating, and I have said, and 
even Ms. Perez had said, it is a complicated program, and she 
has seen her loan balance increase as she is in this. That is 
why we recommended today, in this hearing, a forgive-as-you-go 
option, so some of these programs are easier to understand and 
easier to qualify for.
    Senator Van Hollen. Right. My final follow-up here is, as I 
understand it, Navient does not service the PSLF loans. 
Correct? They are serviced by PHEAA?
    Mr. Remondi. Correct.
    Senator Van Hollen. So here is the situation. If this 
individual had discovered that he was in the wrong entity with 
Navient, he would have been transferred to PHEAA, right?
    Mr. Remondi. Well, in this particular case, Senator, we 
would have advised the customer to consolidate their loan into 
a direct loan so that it would have been eligible to 
participate in the public student loan forgiveness. The loan 
type he had was not eligible, and we do not service those 
loans.
    Senator Van Hollen. And then you would have lost that loan.
    Here is the situation.
    Mr. Remondi. We would have lost that loan, but we still 
recommend that process to all of our customers.
    Senator Van Hollen. Well, that is the issue, right, because 
it is hard to believe. This guy, my constituent, is a bright 
guy. He is paying for 10 years to Navient, and only after he 
has made his final payment, after conferring with Navient, then 
he discovers he is no longer qualified for the public service 
piece, after 10 years with Navient. Nobody told him, and I can 
assure you he asked. And it clearly was not in Navient's 
interest to let him know, because you would have lost the loan.
    But look. I am going to send this to you, but I have to 
agree that it is complicated, and we are working on that, but 
98 percent denial is not only the result of a complicated 
program.
    Mr. Remondi. I would be happy to take a look at it and 
report back to you, Senator.
    Senator Van Hollen. Thank you. Thank you, Madam Chair.
    Chair Warren. Thank you, Senator Van Hollen. And thank you 
all.
    So we have got a few more questions to wrap this up. We 
have heard a lot today about canceling student debt and who 
would benefit, and I just want to do a couple more around this.
    First, I want to ask the question about who the student 
borrowers are. Borrowers and graduates are not the same. About 
40 percent of borrowers do not make it to a degree, so they are 
paying off student loans on a high school graduate's salary. 
And as Dr. Yannelis' research showed, about 20 percent of 
borrowers went to for-profit colleges, and they are much more 
likely to default on their debt.
    Dr. Baker, let me just ask you. Some of your colleagues on 
the panel have argued that forgiving student debt 
disproportionately benefits wealthier borrowers. Is that 
correct?
    Ms. Baker. Well, I would argue that that is correct, based 
on the simulations that they have done. I think that there are 
other pieces that should also be taken into consideration.
    If we think about the $50,000 plan, as a quick example, 
what you have to keep in mind is, let's think about--the 
Department of Education just released a report that says that 
if you cancel $50,000 in loans, 84 percent of the borrowers 
would have all of their debt wiped out. So you do that, then 
you have to think that that means 84 percent of those borrowers 
have less than $50,000. What do we know about those people? 
Those people are more likely to have less wealth. Those people 
are more likely to be Black and Brown.
    The simulations that my colleagues are talking about often 
do not either take into consideration race or they make 
assumptions that are not quite as in line with the way that 
loan repayment works practically, that can sometimes 
underestimate the effects for wealth, generally, but also 
particular racial wealth gaps.
    Chair Warren. OK. That is very helpful, when you make the 
point about income and wealth.
    You know, the analysis, at least that I have seen from 
others on the panel, works only with income, but if you 
consider all assets you see that people with student loan debt 
have lower total wealth, and there is a massive racial 
disparity in who has debt and how much debt they have.
    So the primary beneficiaries of debt cancelation, as 
Senator Schumer and I have proposed, are not lawyers or doctors 
with fancy degrees. They are people who are trying to break 
into the middle class and are being held back by massive debt 
burdens.
    The new data that has been released by the Department of 
Education for today's hearing shows that canceling up to 
$50,000 of student loan debt, as you right said, Dr. Baker, 
this is going to relieve the debt burden entirely for 36 
million people, and, as you have said, we have to think about 
this as a racial justice issue.
    Black and Brown students take on more debt to get their 
degree, and they have to get more education to overcome 
discrimination in the job market. Black students are nearly 20 
percentage points more likely to take out Federal student loans 
than White students, and then when they graduate college they 
end up earning about 20 percent less than White graduates. 
These are racial disparities that cannot just be wished away. 
Fixing repayment programs is not enough.
    We have heard a lot today about the problems with our 
current repayment programs such as income-based repayment, and 
I think all of us here today, however you got here, agree that 
we need to reform our repayment system to work better for 
borrowers.
    But, Dr. Baker, let me ask. In your view, would improving 
programs like income-based repayment or the Public Service Loan 
Forgiveness, is that an adequate solution to the debt crisis?
    Ms. Baker. I would say no. I would say that the amount of 
reforms that most of us are talking about, when we try to think 
about the places that we want to have these programs be similar 
to, so like Australia is a great example, the amount of reform 
that it requires will take years to implement within the United 
States. And during that time, people will still be suffering.
    That is why I talked about cancelation being tool that 
supplements reform, so that we could work both toward reforming 
the system but also trying to redress the harms that we have 
already done to current borrowers.
    Chair Warren. And as all folks were talking about, they are 
talking about a recent report that came out that said only 32 
people had ever achieved forgiveness under income-based 
repayment. That is not 32 percent. That is 32 human beings, out 
of an estimated 2 million borrowers who could be eligible right 
now. It is shocking and it really drives home how much of a 
disaster these programs have turned out to be.
    Mr. Looney, I thought put it very well when he said you 
talk to people who are burdened by these debts and they just 
feel hopeless. There is an oppression there, and I could not 
agree more.
    We have tried piling one complicated program on top of 
another to help people manage their debts. I think today we 
should just declare that has been a complete failure. It is 
time to go big and to go simple. Wipe out a big chunk of this 
debt and give people an opportunity to start over. I think this 
is crucial.
    And then one last thing I just want to see if we can tuck 
in here. Sometimes there is some confusion around the Higher 
Education Act and President's authority to forgive student 
debt. So Attorney General Healey, I just wanted to give you an 
opportunity to weigh in on this. What is the legal consensus on 
whether President Biden has the authority to cancel student 
debt through executive action?
    Ms. Healey. Thank you. It is absolutely the case, in our 
view, and there is legal consensus that the President of the 
United States has the legal authority to cancel student debt. I 
can give you chapter and verse of 20 U.S.C. Section 1082 and 
the various subprovisions, but having analyzed this, that is 
our view, and I believe it is the consensus view out there that 
the President may authorize Secretary Cardona today to 
compromise and cancel these debts.
    Chair Warren. Thank you. I appreciate that. You know, 
President Obama canceled debt for more than 70,000 students 
that had been cheated by for-profit colleges. President Trump 
and President Biden have both exercised their authority to 
modify student loans by pausing payments and canceling 100 
percent of the interest that accrues during this pandemic. As 
we speak, the Department of Education is currently canceling 
about $5 billion of debt per month in interest. President 
Biden's legal authority is absolutely clear.
    We have heard a lot of facts and figures today about 
student debt. I just want to give Ms. Perez the last word here. 
Ms. Perez, you told Senator Smith what canceling $50,000 of 
student debt would mean for your family, and it was a very 
important piece of testimony here. Can I just ask the other 
side of that? What are you most worried about with payments on 
student loan debt resuming this fall?
    Ms. Perez. Thank you. Now I have my twins in college. Now I 
am going to have more bills to pay. Last week I called my 
provider and I asked a few questions, but I am not really 
clear. I have to call again and see how my payments will be in 
September. I am just afraid that I will not be able to support 
my children and they will have to take more loans and go more 
into debt, because am going through it and I know what that 
will mean for them. My anxiety is escalating rather quickly.
    Chair Warren. I understand and I appreciate you coming here 
to talk with us about it today. I know this is hard.
    The student debt crisis is not about numbers on a page. It 
is about real people who did everything we told them to do, 
took out loans to get an education, secure a spot in the middle 
class, and who are now trapped in a cycle of debt that is about 
families, and that is the point you make, Ms. Perez. This is 
about our families.
    Management of the student debt crisis is a massive failure 
from top to bottom. Student borrowers should not be left 
holding the bag because of the failures of loan servicers and 
bureaucrats. President Biden can cancel $50,000 of student debt 
with the stroke of a pen today. He can start to close the 
racial wealth gap, and he can relieve the burden on borrowers 
and on our economy.
    So that is the end of our hearing. Thank you to all of our 
witnesses for being here today. Thank you for providing 
testimony. Before we go I want to enter into the record a 
letter signed by more than 400 organizations, calling on 
President Biden to cancel student loan debt by executive 
action.
    Senator Warren. And for any Senators who wish to submit 
questions for the record, those questions are due 1 week from 
today, on Tuesday, April 20th. For our witnesses, you have 45 
days to respond to any questions after that.
    So thank you again for being here, and with that this 
hearing is adjourned. Thank you.
    [Whereupon, at 4:54 p.m., the hearing was adjourned.]
    [Prepared statements, responses to written questions, and 
additional material supplied for the record follow:]
              PREPARED STATEMENT OF CHAIR ELIZABETH WARREN
    Good afternoon and welcome to this year's first hearing of the 
Banking Committee's Economic Policy Subcommittee. And thank you to 
Ranking Member Senator Kennedy for working with me and with my staff to 
help make this a very successful hearing.
    This Subcommittee has a mandate to examine the economy and how to 
make sure it works for all Americans. Given this mandate, there is no 
better topic for our first hearing than student loans and their impact 
on racial justice, on borrowers, and on the economy.
    The student loan debt burden is massive, and it affects millions of 
families. About 43 million Americans owe more than $1.7 trillion in 
student loans. That is an average of almost $40,000 per borrower. 
Student loan debt takes a real bite out of personal finances. It can 
mean that borrowers cannot afford a new car or cannot get a mortgage or 
cannot launch a business or cannot start a family. This hurts them 
individually, but it also hurts the whole economy.
    The burden is so heavy that when the pandemic hit, Republican and 
Democratic policymakers recognized that loan payments would just sink 
families. So first President Trump and then President Biden paused 
student loan payments and canceled accumulated interest. It was a smart 
move. But in a few months, those payments are scheduled to go up again.
    America is facing a student loan time bomb. That, when it explodes, 
could throw millions of families over a financial cliff. The average 
borrower will have to start paying nearly $400 a month to the 
Government instead of spending that money out in the economy.
    Student debt also makes racial disparities in America even worse, 
compared with White students. Black and Hispanic students are forced to 
borrow more money to go to school, borrow more money while they are in 
school, and have a harder time paying off their loans after graduation.
    I am just going to do one statistic around this. Twenty years after 
taking out their student loans, median White borrowers owe about 6 
percent of their original amount. The end is in sight. But after 20 
years, median Black borrowers still owe 95 percent of the original 
amount they borrowed. Their path seems to stretch on forever.
    We can help. Leader Schumer and I have urged President Biden to 
address this economic problem by using his existing authority to cancel 
$50,000 in student debt for each borrower. New data I obtained from the 
Education Department reveals the benefits of debt cancelation. The data 
show that if we cancel $50,000 in student loan debt, 36 million 
borrowers would be completely relieved of their debt burden. A 
significant number of these borrowers who would finally be free of 
student loan debt, 3.1 million people, have already been carrying debt 
burden for over 20 years.
    It is time to act now. Republican and Democratic Presidents have a 
long history of using their statutory authority to cancel student loan 
debt. President Obama used this authority to cancel old debt for tens 
of thousands of students, and President Trump used this authority to 
cancel some debt, accrued interest, for 37 million Federal borrowers.
    Canceling $50,000 in student loan debt would also help close the 
Black-White wealth gap among borrowers by 25 points. For Latinos, the 
gap would close by 27 points. This is the single most powerful 
executive action President Biden could take to advance racial equity 
and give everyone in America a chance to build a real future.
    So I want to thank all of our witnesses for coming today. I look 
forward to hearing your testimony. And with that I will turn to Ranking 
Member, Senator Kennedy, for your opening remarks.
                                 ______
                                 
               PREPARED STATEMENT OF SENATOR JOHN KENNEDY
    Thank you, Madam Chair. I will try to be brief. We have a 
distinguished panel of witnesses that I would like to hear from today. 
I think this is a timely subject. I have many questions, and I hope to 
get educated today.
    Why student debt? Why not credit card debt? Why not automobile loan 
debt? Why not mortgage debt, if we are going to forgive debt? How do we 
be fair to all Americans? What role, if any, did our universities play 
in the accumulation of all of this student debt? I am not sure that 
this is the right place to address education policy but if anybody 
knows the answer I would like to know why some college textbooks cost 
as much as I paid for my first car.
    And these are the kinds of issues that I hope that we can address 
today. What are the demographics of the people who owe student debt? Is 
there really--and I am not suggesting there is not; I do not know--is 
there a racial gap? How equitable is it to ask taxpayers who have not 
gone to college to pay for those who have gone to college? These are 
the kinds of issues that I hope we can address today, and as I say, my 
mind is open, and I am looking forward to hearing the answers.
    And with that I will turn it back over to our distinguished Chair, 
with whom I have worked closely setting up this hearing, and I enjoyed 
every minute of it.
                                 ______
                                 
                 PREPARED STATEMENT OF AYANNA PRESSLEY
                    Representative of Massachusetts
                             April 13, 2021
    Good Afternoon, Madam Chairwoman, Mr. Ranking Member and 
distinguished Members of the Committee. Thank you for the opportunity 
to testify here today.
    I believe that each day it is our privilege and responsibility as 
lawmakers to center the people. We are in a position to fundamentally 
change the lives of the people we represent with the stroke of a pen. 
When the history books are written, this moment will be defined by the 
actions we took in the face of unprecedented crisis and economic pain.
    I have become all too familiar with the gentle tug of my sleeve or 
the panicked expression as I meet the eyes of someone drowning in 
student debt. The grandmother, who is still paying off student loans 
for credits at an institution that shuttered its doors without a degree 
in hand. The young mom who can't afford childcare and her student loan 
payments that outpace her rent. The teacher who fears every month that 
he's putting his teaching license at risk because he can't come up with 
the minimum payment on his student loans.
    The student debt crisis is not naturally occurring. This crisis was 
crafted in these hallowed halls. Policy decisions were made that 
ensnared generations in the student debt trap. Congress crafted through 
policy and deregulation an economy where college degrees are 
increasingly essential for economic survival but their sticker price is 
far out of reach for many families.
    Make no mistake, the student debt crisis has always been both a 
racial and economic justice issue. It's past time we speak plainly 
about the fact that the student debt crisis has exacerbated deeply 
entrenched racial and economic inequities in our Nation.
    In the City of Boston, the city my family calls home, the average 
median wealth of a White family is $247,500. The average median wealth 
of a Black family is $8. Eight. That is not the result of ingenuity, 
work ethic, or initiative. That is the result of precise and 
intentional policy decisions made in the halls of this institution and 
at every level of Government all the way down. Discriminatory policies 
that systematically denied families of color the opportunity to own a 
home or build wealth.
    So for our students who don't have the benefit of intergenerational 
wealth--specifically our Black and Brown students--signing on the 
dotted line for those student loans has been the only way to pursue a 
degree. Black, Brown, and first generation students, too, deserve a 
wage They deserve the freedom to build a full life and pursue their 
unique gifts and contribute to every sector of the economy.
    We must take bold action to address the inequities and disparities 
in our country and use every tool available to provide our communities 
with the critical relief they so desperately need.
    Our Nation and this Subcommittee are facing an economic crisis.
    Canceling student debt--by executive action--is one of the most 
effective ways President Biden can provide sweeping relief to millions 
of families, help reduce the racial wealth gap, and begin to build the 
groundwork for an equitable and just long-term recovery.
    If President Biden is serious about closing the racial wealth gap, 
then he must use his executive authority to issue broad-based, across 
the board student debt cancelation.
    It is clear that Congress gave the President the authority to do so 
through the Higher Education Act. I implore him to use this authority 
in the pursuit of economic and racial justice.
    During the 2008 financial crisis, lawmakers bailed out Wall Street 
and abandoned Black and Brown communities who lost everything. Many 
have yet to recover.
    In a matter of months, student debt payments will resume for 
millions of people across this country. These same people, 
disproportionately people of color, who are now struggling with 
pandemic-related financial stress through no fault of their own, will 
have an additional bill to keep them from reaching economic stability 
and peace of mind.
    So, as we work to ensure an equitable and prompt recovery to the 
current economic crisis, we can't afford to make the same mistakes of 
the past. We must be intentional and precise. And student debt 
cancelation is an efficient and effective way to provide families 
across this Nation with economic relief and opportunity.
    In the Commonwealth of Massachusetts, over 855,000 student 
borrowers owe more than $33.3 billion in student loan debt. Their 
average student loan balance is more than $35,000.
    I represent the Massachusetts 7th Congressional District--one of 
the most vibrant and diverse districts in the country--but also one of 
the most unequal.
    In every State and every district across the country, student debt 
is trapping our constituents in an income to debt ratio that prevents 
them from securing mortgages and loans to start businesses that would 
contribute to the economy and our communities. As lawmakers, we have a 
responsibility to ensure that our long-term recovery efforts leave no 
community behind.
    We must invest in the people.
    That's why student debt cancelation is good economic policy. It is 
an investment in the people--particularly Black and Brown families.
    That's why Senator Warren and I, in partnership with Senate 
Majority Leader Schumer and our colleagues have led a resolution that 
calls on President Biden to cancel $50,000 in student loan debt and 
lays out a pathway for him to do so.
    With the stroke of a pen, President Biden can provide direct relief 
to tens of millions of families across the country, help close the 
racial wealth gap, and set our Nation on a path to a long-term, 
equitable recovery.
    I'll close today where I started, centering the people, in their 
own words. A constituent of mine recently shared their story with me: 
We are a family of 5 with a child with disabilities--I have over one-
hundred-thousand dollars in student debt. I put myself through my 
bachelors and masters with children. I've had to file bankruptcy 
because of my student debt--please don't forget about us in this 
process. Please think of us when talking about debt relief. Lord knows 
it would change our lives.
    I know what it feels like to wake up in a cold sweat over a student 
loan in default. The economic anxiety and pressure caused by student 
loan debt is an experience far too familiar for Americans. But those of 
us with a comma and a title after our name are in a position to make a 
profound impact. President Biden can cancel student debt and together 
we can build a more just economic system. Thank you.
                                 ______
                                 
                  PREPARED STATEMENT OF BYRON DONALDS
                       Representative of Florida
                             April 13, 2021
    Chairwoman Warren, Ranking Member Kennedy, thank you for inviting 
me to testify in front of the Committee on the important discussion 
surrounding student debt.
    Let me begin with one word of absolute truth before delving more 
into the specifics of the issue at hand--and that is that nothing in 
this world is free. Someone is always paying. Even with charity: if a 
doctor sees a patient and decides not to charge them, then the doctor 
himself pays that debt through services provided without being 
compensated. Whatever his compensation would have been, that is how 
much he paid so that his patient wouldn't have to. When our Government 
doles out two trillion dollars in emergency spending, like we did last 
month, no matter how good or noble the cause may seem, it is either 
this generation or the next who must pay the tab. Money that this 
Government spends does not disappear--it's why right now, we are nearly 
thirty trillion dollars in debt; that means every U.S. taxpayer is 
responsible for $225 thousand dollars of public debt. Each time 
Washington spends money, it adds up, and there will come a day when the 
bill collector comes, and it won't be pretty and may ultimately be the 
undoing of this republic if Congress is not more prudent in how it 
spends other people's money.
    On the topic of today's hearing, Democrats in Congress and the 
President himself have made clear their desire to ``cancel'' student 
loan debt. This, while clearly a political ploy meant to keep Democrats 
in power by hoodwinking the American people into thinking their debt 
won't impose a cost on society, will not solve the problem that all of 
us recognize needs fixing. I understand the convenient messaging of 
telling Americans that the money they owe can just disappear. But 
that's not the case. If this policy moves forward, it will result in 
even higher tuition costs for students who plan to go to college in 
future years, with disastrous collateral damage elsewhere to the 
economy--including and especially to lower-income families and African-
American communities.
    Who should we suppose will pay the hundreds of billions of dollars 
that is currently owed? Do we force colleges to repay money given to 
them for the asset of a college degree, meaning that the thousands of 
teachers and professors in this country cannot get paid or will lose 
their jobs? Where would universities get the funds to pay them, if the 
students who fund their livelihoods in exchange for a degree so that 
they can go out and get a job don't actually have to pay for the 
invaluable education they received from these teachers?
    Or perhaps the ``wealthiest among us'' should, once again, be 
called upon to pay more. These are the very job creators who newly 
graduated college students will need to hire them and pay them so that 
they can survive on their own and become contributing members of their 
communities. If we start taking away from their pool of funds, that is 
not a solution to the problem.
    Lastly, do we call upon those individuals who did not go to 
universities to pay for those who did? Ultimately, it is very likely 
that is what this Democrat proposal will do, forcing individuals at the 
lower end of the income spectrum (which trends Black more than White) 
to pay to have privileged students get their liberal arts degree.
    A study conducted just last year found that, under a universal loan 
forgiveness policy like the one that the President and Democrats in 
Congress have proposed, individuals at the top of the earnings decile 
would receive more than five times the loan forgiveness as an 
individual in the lowest income bracket. Furthermore, the study 
determined that ``households in the top 30 percent of the earnings 
distribution receive almost half of all dollars forgiven.'' \1\ So you 
see Chairwoman Warren and Ranking Member Kennedy, loan forgiveness 
policies like those that have been discussed will actually be a 
regressive tax policy disproportionately benefiting the rich at the 
expense of the middle class and low-income workers, which as has been 
discussed here today trend Black more than White. Let's be honest with 
the American people when we talk about the Democrat loan forgiveness 
policy.
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     \1\ https://bfi.uchicago.edu/wp-content/uploads/2020/11/BFI-WP-
2020169.pdf
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    I am no stranger to student loan debt myself--in fact, at this very 
moment I still have student loans I am paying back each month. And yet 
I wouldn't be here today without my education from Florida A&M 
University and Florida State University, for which I am incredibly 
grateful for the opportunity I had to attend and learn. There is no 
question that my education was worth far more than what I am still 
paying back--and because I received that education, and I benefited 
from that, it is my responsibility to pay for it.
    But as we know, not everyone who attends college ends up with a 
degree that is worth the dollars spent attaining it. Time is too short 
to deliberate here today what type of educations are worth more than 
others, but it is time we look to ensure that public dollars spent on 
public education have a public return on investment. If it is my 
taxpayer dollars, and the taxpayer dollars of constituents in my 
district in Naples or Fort Myers or Cape Coral or elsewhere, going 
toward funding someone else's education in California or New York or 
Minnesota, then there better be a return on our investment that is at 
least equal to what we paid into it. Maybe not directly to us in 
Florida, but for the benefit of our Nation. That's not to say that 
everyone shouldn't be able to choose whatever field of study they 
desire--but if public dollars are involved, then there needs to be a 
correlation to a public good.
    That said, the priority of this Congress and this Committee should 
be on controlling the ballooning costs and expenses of colleges and 
universities in our country. A 2017 study by the Federal Reserve Bank 
of New York found that, for every dollar of subsidized Federal loans, 
tuition increased 60 cents. \2\ If the ultimate goal is to increase the 
cost of going to college, the Democrat plan will do just that. Not only 
does ``canceling'' student debt fail to solve the problem, but it will 
also actually make the problem even worse by driving up tuition costs. 
This is irresponsible governing, and it is something we must all fight 
against.
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     \2\ https://www.newyorkfed.org/medialibrary/media/research/staff-
reports/sr733.pdf?la=en
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    Once again, I am grateful to be invited to participate in today's 
hearing, and I encourage us all to look at the very real problem of the 
rising costs of tuition and seek to address this in a way that is not a 
short-term fix, but a real long-term solution. Thank you.
                                 ______
                                 
                   PREPARED STATEMENT OF MAURA HEALEY
                Attorney General, State of Massachusetts
                             April 13, 2021
    Chair Warren, Ranking Member Kennedy, and Members of the 
Subcommittee, thank you for inviting me to testify today on the student 
debt crisis and its impact on racial justice, student borrowers and the 
economy. I am Maura Healey, the Attorney General of Massachusetts. I 
appreciate the opportunity to share my insights as to why debt 
cancelation is essential to aid struggling borrowers, boost our 
economy, and help close the racial wealth gap.
    My Office is on the frontlines of this $1.7 trillion crisis, 
fighting on behalf of student borrowers in Massachusetts. What we have 
learned from doing this work is that the student loan system is 
fundamentally broken and taking a devastating toll on countless 
Americans. It is a system that has enabled for-profit schools to 
deceive and defraud vulnerable students--particularly targeting 
students of color--who were seeking a better life. It is a system that 
has recklessly saddled parent borrowers with loans they cannot possibly 
repay. It is a system that has failed to deliver on the promise of loan 
forgiveness to thousands of public servants. And it is a system that 
has hollowed out the futures of millions of young people and left them 
with broken dreams and a lifetime of insurmountable debt.
    We have seen the catastrophic consequences of default for borrowers 
who are unable to navigate the unduly complicated and opaque loan 
repayment and forgiveness programs available to them. Nearly a quarter 
of borrowers are in default on their Federal student loans, putting 
them at risk of administrative wage garnishment, seizure of Social 
Security retirement and disability income, loss of earned income tax 
credits, and long-term credit damage. We have seen borrowers forced to 
delay starting families, getting homes, buying cars, obtaining health 
insurance, or starting businesses. And we know the burden of student 
debt is disproportionately borne by people of color.
    Loan servicers, paid with taxpayer money, have failed to do their 
jobs to help borrowers access repayment and forgiveness programs, 
rendering these programs inadequate for addressing the current crisis 
and the damage it has caused. The Department of Education (Department) 
has the authority to provide necessary debt relief, and should do so 
swiftly and aggressively.
1. Student Debt Has Serious Negative Effects on Households and the 
        Economy, and Exacerbates the Racial Wealth Gap
    Most students have no choice but to go into significant debt to 
afford higher education, and this is especially true for low-income 
students and students of color. As many as one-in-five Federal student 
loan borrowers are in default. \1\ The impact of this debt is not only 
devastating for individual borrowers, but has a ripple effect on their 
local communities and collectively on the national economy. Looking at 
this crisis in context illustrates the broad-reaching consequences of 
failing to address it.
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     \1\ The Pew Charitable Trusts, ``Student Loan Default Has Serious 
Financial Consequences'', https://www.pewtrusts.org/-/media/assets/
2020/04/studentloandefaulthasseriousfinancialconsequences.pdf (2020).
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A. There Is $1.71 Trillion in Student Loan Debt Owed by Nearly 45 
        Million Americans
    The amount of Federal student debt owed is staggering. Of the total 
outstanding $1.71 trillion student loan debt, $1.57 trillion 
constitutes Federal loans owned or guaranteed by the Department. It is 
nearly as much as the annual revenues of the top six Fortune 500 
companies, and stacked up in hundred-dollar bills, it would be more 
than 200 times the height of Mount Everest.
    Millions of students and their families are collapsing under the 
heavy weight of this financial burden. Many owe more than when they 
began repayment due to capitalized interest. Data suggest that 5 years 
into repayment, half of student loan borrowers have not paid even $1 
toward their debt's principal. \2\ Default rates are steadily 
increasing. Over one million borrowers entered default in 2019 alone. 
\3\ Trends show that cumulative default rates continue to rise between 
12 and 20 years after borrowers enter repayment, suggesting that nearly 
40 percent of borrowers may default on their student loans by 2023. \4\ 
Struggling borrowers are unable to obtain meaningful relief in 
bankruptcy because under current law, Federal student loans are not 
dischargeable except under extremely narrow circumstances. The long-
term economic and social consequences of the pandemic will exacerbate 
defaults as many Americans have experienced job loss or health 
emergencies and COVID-19 relief will expire later this year.
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     \2\ Nova, Annie. ``Trump Administration Official Resigns, Calls 
for Massive Student Debt Forgiveness''. CNBC, https://www.cnbc.com/
2019/10/24/student-loan-official-resigns-calling-for-massive-debt-
cancelation.html (last visited on April 7, 2021); The Pew Charitable 
Trusts, ``Student Loan System Presents Repayment Challenges'', https://
www.pewtrusts.org/-/media/assets/2019/11/psbs-report.pdf (2019).
     \3\ The Institute For College Access and Success, ``Student Debt 
and the Class of 2019'', https://ticas.org/wp-content/uploads/2020/10/
classof2019.pdf (2020).
     \4\ Scott-Clayton, Judith, ``The Looming Student Loan Default 
Crisis Is Worse Than We Thought'', https://www.brookings.edu/wp-
content/uploads/2018/01/scott-clayton-report.pdf (2018).
---------------------------------------------------------------------------
    Borrowers rely on their loan servicers for default prevention and 
to help them navigate the complex Federal programs enacted to enable 
them manage their payment obligations, including income-driven 
repayment (IDR) plans and Public Service Loan Forgiveness (PSLF). But, 
the existing system is broken, having long been plagued by servicing 
misconduct that has trapped many borrowers in unaffordable debt by 
denying them access to these programs.
    The explosive growth in student loan debt in the United States, the 
rising defaults, and the failure of loan servicers to help borrowers 
access debt management programs bears stark similarities to the 2008 
financial crisis. In short, we have seen the long-lasting economic 
consequences of consumer debt burdens and need to act swiftly and 
aggressively to alleviate them.
B. The Burden of Student Debt Is Not Borne Equally and It Exacerbates 
        Racial, Gender, and Wealth Disparities
    Although education is supposed to be the great equalizer, the 
burdens of student loan debt are not shared equally. Black students 
borrow more frequently, graduate with more debt, pay off their student 
loan debt at a slower rate, and have much higher rates of default. Four 
years after graduating with a bachelor's degree, Black college 
graduates have nearly $25,000 more student loan debt--an average of 
$52,726 in student debt, compared to $28,006 for the typical White 
graduate. \5\
---------------------------------------------------------------------------
     \5\ White House Initiative on Educational Excellence for African-
Americans, ``Fact Sheet: Black College Graduates and the Student Debt 
Gap''. https://sites.ed.gov/whieeaa/files/2016/11/Black-College-
Graduates-and-the-Student-Debt-Gap.pdf (Last visited on April 7, 2021).
---------------------------------------------------------------------------
    For-profit schools, which account for a disproportionate share of 
student loan defaults, have had a particularly large impact on students 
of color. While Black and Latinx students together make up 36 percent 
of all students enrolled in undergraduate study, they represent more 
than half of undergraduates at for-profit colleges. \6\ Predatory for-
profit schools routinely target Black and Latinx students in their 
recruitment efforts.
---------------------------------------------------------------------------
     \6\ The Institute For College Access and Success, ``The Evolution 
of the For-Profit College Industry'', https://ticas.org/wp-content/
uploads/2020/01/the-evolution-of-the-for-profit-college-industry.pdf 
(2019).
---------------------------------------------------------------------------
    Women are also disproportionally burdened by student loans. They 
hold nearly two-thirds of the Nation's student loan debt and graduate 
owing almost $22,000, compared to $18,880 owed by men. Black women 
graduate with even more debt than White women, owing an average of 
$37,558 upon graduation. \7\
---------------------------------------------------------------------------
     \7\ American Association of University Woman, ``Fast Facts: Women 
& Student Debt'', https://www.aauw.org/resources/article/fast-facts-
student-debt/ (last visited on April 7, 2021).
---------------------------------------------------------------------------
    Student loans increasingly burden older Americans, including those 
who went back to school as adults for retraining and parents who borrow 
using Parent PLUS loans for their children. The number of Americans 
aged 60 and older with student loan debt quadrupled between 2005 and 
2015, from 700,000 to 2.8 million. \8\ The Consumer Financial 
Protection Bureau (CFPB) identified this group as the ``fastest growing 
age-segment of the student loan market'' and estimated that they owed 
$66.7 billion in student loans in 2015. \9\
---------------------------------------------------------------------------
     \8\ Consumer Financial Protection Bureau, ``Snapshot of Older 
Consumer and Student Loan Debt'', https://files.consumerfinance.gov/f/
documents/201701-cfpb-OA-Student-Loan-Snapshot.pdf (2017).
     \9\ Id.
---------------------------------------------------------------------------
C. The Student Debt Crisis Harms Our Wider Economy
    The effects of the student loan debt crisis are not just felt by 
individuals, they are also borne by the wider community. Borrowers with 
substantial student loan debt cannot afford to become the public 
servants that our communities rely on to keep us safe, healthy, and 
educated. They are often unable to participate in full economic 
activity and may be delayed or hampered in starting new businesses, 
buying a car, renting an apartment, purchasing a home, or continuing 
with their education. They delay traditional life milestones, like 
getting married or starting a family and they lack the financial 
stability to weather a recession. Such borrowers are often unable to 
save for retirement and may enter retirement with little or no savings.
2. The Massachusetts Attorney General's Office Has Been a Leader on 
        Student Debt Issues and Has Firsthand Knowledge of the Impact 
        of This Crisis
    Addressing the student debt crisis has been a top priority since I 
took office in 2015. My Office was one of the first Attorneys General's 
Offices to establish a Student Loan Assistance Unit to help individuals 
in real time with their student loan problems, including understanding 
their repayment options, identifying errors in their accounts, and 
accessing programs to avoid and get out of default. We have led 
numerous enforcement actions against student loan servicers to protect 
borrowers' rights to obtain loan forgiveness under Federal programs 
such as PSLF and IDR plans. Over the last 4 years, we brought multiple 
actions against the Department to ensure that borrowers entitled to 
loan discharges under the Borrower Defense to Repayment regulations 
would be able to obtain such relief. Through this work, I have observed 
the devastation faced by families struggling with student loan debt, 
the broader impact of this crisis on our economy, and the inadequacy of 
the current system for addressing these problems.
A. Borrower Advocacy
    Our designated Student Loan Assistance Unit (Unit) advocates for 
borrowers by helping them communicate with their loan servicers, 
getting information about their accounts, resolving disputes, assisting 
with applications for Federal programs and helping borrowers understand 
the requirements for IDR plans, PSLF and other programs. The Unit's 
staff is on the frontlines of the student loan crisis every day. Over 
the past four years, the Unit has annually received an average of 2,600 
hotline calls and 950 written help requests and generated savings and 
refunds of $1.5M for student loan borrowers each year. The Unit's staff 
speaks with borrowers who have found their way to my Office in despair. 
Many have been struggling with student loan debt for years and in some 
cases--for decades.
    The work of this Unit has afforded our office an inside view into 
the problems confronted by borrowers and the inordinate complexities of 
the systems that they are routinely required to navigate, often with 
grossly inadequate information and assistance from the private 
companies hired to service their loans. From inside the Student Loan 
Assistance Unit, it is clear that the system is plagued by servicing 
errors and abuses that have trapped borrowers in unaffordable debt by 
denying them access to vital programs like IDR and PSLF.
    Although our Student Loan Assistance Unit has achieved significant 
outcomes for individuals, ultimately, a borrower-by-borrower approach 
to ensuring that loan servicers are identifying and correcting account 
errors and helping students access Federal debt assistance programs is 
an inefficient and ineffective way to combat the student debt crisis.
B. Litigation
    In August 2017, my Office brought a lawsuit against the 
Pennsylvania Higher Education Assistance Agency, d/b/a FedLoan 
Servicing, challenging a variety of student loan servicing practices. 
PHEAA is one of the largest student loan servicers in the country and 
manages the Federal loan accounts of over 200,000 Massachusetts 
residents. The lawsuit alleged, in part that PHEAA: (i) prevented 
borrowers participating in the PSLF program from making progress 
towards and achieving loan forgiveness by depriving them of the 
opportunity to make necessary payments to obtain forgiveness and by 
misrepresenting the eligibility requirements of the program and (ii) 
prevented borrowers from timely obtaining affordable IDR plans.
    The resolution of the PHEAA case, reached 2 months ago in February, 
provides significant relief to public servants and borrowers affected 
by these practices. The settlement requires PHEAA to conduct individual 
loan account audits for every Massachusetts borrower with a Federal 
student loan upon submission of a claim form. If every eligible 
borrower requests an audit, PHEAA will conduct over 200,000 reviews for 
Massachusetts alone. The settlement sets forth the scope of the audit 
and broadly applies to a wide variety of servicing errors, and provides 
borrowers with loan account corrections and monetary payments. 
Obtaining the loan account correction relief required significant 
advocacy to and negotiation with the Department, which owns the loans 
had has the exclusive authority to permit account corrections. Notably, 
the Department does not allow corrections for every type of servicing 
error, including when a servicer misrepresents certain eligibility 
requirements of the PSLF program.
    The PHEAA litigation and resulting settlement illustrates how 
barriers erected by loan servicers and the Department have prevented 
borrowers from managing repayment and obtaining loan forgiveness. It 
also highlights the inefficiencies of using enforcement actions or a 
borrower-by-borrower approach to address the student debt crisis. It 
took over 3 years of hard-fought litigation preceded by a year-and-a-
half long investigation before we were able to obtain this resolution, 
and the relief is only available to Massachusetts borrowers. In order 
to identify borrowers harmed by PHEAA's servicing errors, 
individualized audits of potentially hundreds of thousands of loan 
accounts are necessary because PHEAA's servicing system is insufficient 
to identify errors and the borrowers affected by them.
    PHEAA is not the only Federal loan servicer to face scrutiny. State 
Attorneys General and the CFPB have also filed lawsuits against 
Navient, another of the Nation's largest Federal loans servicers. These 
lawsuits allege that Navient routinely misled struggling borrowers 
about their repayment options. Rather than taking the time to counsel 
borrowers and help them enroll in more affordable IDR plans, Navient 
allegedly steered borrowers into costly long-term forbearances that 
resulted in hundreds of millions of dollars being added to their loan 
balances. Notably, despite routinely representing to borrowers that 
Navient would help them find affordable repayment options, in the 
course of these litigations, Navient has argued that, ``there is no 
expectation that the servicer will act in the interest of the 
consumer.''The lawsuits filed against Navient by Government regulators 
also allege that the company used faulty methods to notify borrowers of 
the steps they needed to take to continue making income-driven 
payments, and that the company misapplied and misallocated borrowers' 
payments. Finally, some of these lawsuits allege that Navient made 
millions of dollars in predatory high-risk loans to students attending 
for-profit colleges that had low graduation rates and provided 
graduates with scant employment prospects. Navient allegedly knew that 
the borrowers would be unable to repay these loans, but made them in 
order to build business relationships with schools and secure other 
types of loan volume.
    I have also devoted significant resources to confronting the 
widespread abuses and financial devastation wrought by predatory for-
profit schools. For-profit schools account for a disproportionate 
percentage of defaults and often do not lead to gainful employment. To 
address this, my office has brought enforcement actions against over a 
dozen such schools in Massachusetts, including several large national 
chains that lured students with false promises and left them with 
worthless degrees, few job prospects, and insurmountable debt.
    Our enforcement actions against for-profit schools led the Obama 
administration to grant tens of millions of dollars in Borrower Defense 
discharges to thousands of Massachusetts students relating to 
Corinthian Colleges, Inc. and American Career Institute. However, these 
discharges are just a drop in the bucket, and our efforts to secure 
Borrower Defense discharges for other defrauded students have been 
stymied by the previous Administration. In the past 4 years, my office 
has repeatedly sued the Department to obtain discharges and to uphold 
sensible Borrower Defense and Gainful Employment rules that are 
intended to protect not only borrowers, but also taxpayers and the 
Federal fisc.
3. The Department of Education Should Exercise Its Authority To Forgive 
        $50,000 of Federal Loan Debt for Every Student Borrower
    In light of the harms caused by these systemic failures and the 
overwhelming burden facing borrowers, President Biden should direct 
Secretary Cardona to cancel up to $50,000 in Federal student loan debt 
for every student borrower. Such debt forgiveness is within the 
Secretary's statutory authority and would provide critical relief to 
borrowers.
    The general powers enumerated in the Higher Education Act (HEA) 
provide the Secretary with the authority to effectuate broad debt 
relief. The HEA authorizes the Secretary to ``enforce, pay, compromise, 
waive, or release any right, title, claim, lien, or demand, however 
acquired, including any equity or any right of redemption.'' 20 U.S.C. 
1082(a)(6) (emphasis added). \10\ By statute, the exercise of the 
Secretary's authority to compromise debt ``shall be final and 
conclusive upon all accounting and other officers of the Government.'' 
20 U.S.C. 1082(b). The only statutory restriction placed on this 
authority is the requirement that the Secretary ``not enter into any 
settlement of any claim under [Title IV] that exceeds $1,000,000'' 
without requesting ``a review of the proposed settlement of such claim 
by the Attorney General,'' Id. The HEA thus provides the requisite 
authorization for the Secretary to engage in broad debt reduction.
---------------------------------------------------------------------------
     \10\ While this language is included in the portion of the HEA 
specific to FFELP, the Secretary regularly relies on the general powers 
conferred to the Secretary under these provisions in administering 
other Title IV programs, including the Direct Loan program. 
Additionally, the portion of the HEA governing Federal Perkins loans 
includes a comparable grant of authority to the Secretary. See 20 
U.S.C. 1087hh.
---------------------------------------------------------------------------
    Discharging up to $50,000 in Federal student debt owed by each 
student loan borrower would provide immediate relief to millions of 
struggling borrowers and give a much-needed boost to our economy. Such 
broad cancelation of Federal student loan debt would also help remedy 
predatory practices that have disproportionately harmed people of color 
and create a viable future for millions of Americans. Indeed, an expert 
analysis projected that such a policy could amount to total loan 
forgiveness for over 75 percent of households with student debt and 
result in meaningful gains to net worth for households of color. \11\ 
By permitting borrowers to increase their consumption and investments, 
such debt forgiveness would have the additional effects of increasing 
home ownership, allowing borrowers to complete their educations, and 
empowering borrowers to pursue professional opportunities.
---------------------------------------------------------------------------
     \11\ Elizabeth Warren Website, https://elizabethwarren.com/wp-
content/uploads/2019/04/Experts-Letter-to-Senator-Warren-.pdf (last 
visited on April 7, 2021).
---------------------------------------------------------------------------
    I appreciate the opportunity to share these views with the 
Subcommittee and thank the Subcommittee for its careful examination of 
these important issues. Please do not hesitate to contact me for any 
additional detail or clarity, or with any questions you may have.
                 PREPARED STATEMENT OF DOMINIQUE BAKER
 Assistant Professor of Education Policy, Southern Methodist University
                            
                            April 13, 2021
                             
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

                  PREPARED STATEMENT OF DARIMIR PEREZ
                         Student Loan Borrower
                             April 13, 2021
    Hello Chairwoman Warren, Ranking Member Kennedy, and Members of the 
Subcommittee. Thank you for giving me the opportunity to participate in 
today's hearing and to share my story.
    My name is Darimir Perez, and I am a middle school guidance 
counselor in Washington Heights, in New York City.
    I immigrated to the United States from the Dominican Republic with 
my siblings when I was 13 years old, and unfortunately my father passed 
away soon after. As a result, my 18-year-old sister dropped out of 
college to help support the family; her sacrifice enabled me to become 
the first member of my family to graduate from college. I was very 
aware of the cost of college, turning down partial scholarships to 
attend private universities. Instead, I attended the City College of 
New York and was able to graduate from undergrad with no student loan 
debt.
    I got married and started a family--I'm the proud parent of twin 
children who are now 18 years old.
    When my children were young, I began working as a paraprofessional 
in New York City schools. I noticed the need for bilingual counselors 
and the difficulties parents experienced. I was reminded of my own 
struggles navigating the school system. It inspired me to provide 
consistent support to students while holding them to high standards, an 
opportunity I had not received.
    Knowing that I wanted to work in schools, and being fully aware of 
all my responsibilities as a mother and the first college graduate in 
my family, I needed to be careful about student loans so I did my 
research. TEACH.org is a website led by Microsoft and the U.S. 
Department of Education; I used the website to find a local college 
where I could get my graduate degree and that would make me eligible 
for student loan repayment assistance. I graduated with my master's 
degree in the spring of 2010, with about $50,000 in student loans. I 
found a full-time job in New York City schools and was promised loan 
repayment assistance from a city program. More than 10 years later, I 
still have about $35,000 worth of loans from my own education, and last 
year I took out parent PLUS loans to help my children attend college 
and have a ``real American'' college experience.
    How is it that more than 10 years later, having put money toward my 
loans every year, while working full time in public service, I still 
have so much debt? Every time I called my loan servicer and tried to 
explain I needed a different payment plan because I couldn't afford it, 
they rushed me off, offering forbearance to eliminate my headache. It 
was a magic pill I took without knowing the side effects.
    I know I have to pay my loans, and I want to pay them and not be 
late in paying them--but if the monthly payment is so high that I can't 
afford it, I will have to choose which to pay and which to be late on. 
When I talked to my servicer (Navient), I was repeatedly steered toward 
going into forbearance, without being told that interest would continue 
to accrue or that going into forbearance would limit my ability to earn 
Public Service Loan Forgiveness--a program I was not advised about--and 
without being given other information that now, in retrospect, I wish I 
had known. I just trusted my loan servicer too much, and believed them 
when they said, ``Forbearance is the best option for you until you are 
able to make full payments. It is ok, you don't have to worry, we 
understand.'' And so even though I repeatedly called and tried to find 
a solution, in the end I simply complied.
    I should be a candidate for Public Service Loan Forgiveness, since 
I've worked in the NYC schools for more than a decade, but when I asked 
Fed Loans, they told me I didn't qualify because my payments were 
interrupted--not consecutive--and that I needed to make a certain 
amount of consecutive payments in order to be a candidate. I've since 
learned that that should not disqualify me from the program.
    The loan pause during the last year has made a great difference in 
my life! I was finally able to fully repay one of my loans. I was also 
able to pay off some medical bills, help my mom and family, put some 
money toward my kids' education and cover current medical bills due to 
COVID-19.
    Having this student loan debt has affected my life in many ways. I 
had always wanted to have three kids, to buy a house in a peaceful 
area, to enroll my twins in all the extracurricular activities they 
were interested in, and to have the choice to not take on extra work so 
I could spend more time with my family, but those things were not an 
option with my loans.
    I'm a college graduate, and I can't even afford to send my own kids 
to college! My friends who never went to college, their kids are better 
off than mine. Even though I did everything right for my own kids--
supporting them, and keeping them focused achieving top grades and 
working toward positive things in a neighborhood with a lot of negative 
distractions--I sadly don't feel that they are better off than I was, 
because of the cost of college and student loan debt.
    I truly believe that education can change lives; that's why I've 
stayed in my job. But having some relief from my student loans would 
make a wonderful, positive difference in my life.
                 PREPARED STATEMENT OF JOHN F. REMONDI
                       President and CEO, Navient
                       
                             April 13, 2021
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

                 PREPARED STATEMENT OF JAMES H. STEELEY
   President and CEO, Pennsylvania Higher Education Assistance Agency
                             April 13, 2021
    Chairwoman Warren, Ranking Member Kennedy, and Members of the 
Subcommittee on Economic Policy, my name is James Steeley, and I am the 
President and CEO of the Pennsylvania Higher Education Assistance 
Agency--also known as PHEAA. Thank you for the opportunity to speak 
with the Committee today as you examine America's Student Debt Burden 
and Its Impact on Racial Justice, Borrowers, and the Economy.
    PHEAA is a multifaceted Pennsylvania State agency offering 
financial aid services to students and families throughout the 
Commonwealth; a contracted Federal student loan servicer following the 
rules and requirements set forth by both Congress and the U.S. 
Department of Education, and an administrator of Pennsylvania student 
aid programs, which helps students and families as they pursue an 
affordable postsecondary education.
About PHEAA and Its Public Service Mission
    PHEAA was created 57 years ago by the Pennsylvania General Assembly 
with the primary mission of creating affordable access to higher 
education for Pennsylvania students and their families.
    Since then, we have helped generations of Pennsylvanians to afford 
higher education while minimizing their reliance on student loan debt.
    PHEAA--as a State agency governed by a bipartisan board of 
directors comprised mostly of State legislators--exists solely to 
fulfill our public service mission.
    The values that we use to guide our workforce in support of our 
mission are to be customer centric, respectful, and inclusive; to be 
devoted to good citizenship; and to have the courage to evolve by 
taking ownership and viewing challenges as opportunities.
    With a union workforce, many of our employees are proud members of 
the America Federation of State, County, and Municipal Employees.
    Unlike other loan servicers, PHEAA is engaged in student loan 
servicing because it aligns with and supports our public service 
mission--most importantly the funding of grant awards to students who 
have the most financial need.
    For the 2020-21 award year, the need-based PA State Grant Program 
provided grant awards to approximately 120,000 students, with a maximum 
award of $4,525.
    PHEAA has contributed more than $1 billion from its business 
earnings to supplement the PA State Grant and other student aid 
programs, while covering all administrative costs, which saves 
Pennsylvania taxpayers nearly $15 million annually.
    This also makes Pennsylvania's student aid programs among the most 
efficient in the Nation, since every dollar appropriated to those 
programs goes directly to benefit the students who need it most.
    PHEAA is working on a Statistical Brief that highlights how the PA 
State Grant Program plays a crucial role in decreasing student loan 
debt--and how increased gift aid funding can help relieve Pennsylvania 
undergraduates from having the second highest debt levels in the 
Nation.
    Our research shows that PA State Grant recipients who are Pell-
eligible as of initial enrollment borrow almost $9,000 less, on 
average, over 4 years.
    I will be happy to share this Statistical Brief in its entirety 
with you when it is finalized.
    PHEAA also uses its earnings to support a variety of critical 
outreach and student aid awareness initiatives focused on helping 
students make wise choices early in the career and college planning 
process so they can avoid unnecessary student loan debt.
    This type of outreach is vital when you consider that a 2018 
NerdWallet study (www.nerdwallet.com/blog/2018-fafsa-study/) showed 
that nationally, students missed out on $2.6 billion in free money in 
the form of Federal Pell Grants due to more than 660,000 high school 
graduates not filling out the FAFSA.
    In Pennsylvania alone, 22,399 high school graduates would have been 
Federal Pell Grant eligible if they had just completed the FAFSA. This 
resulted in $87.9 million in gift aid being left on the table.
    To help combat this situation, PHEAA's education and outreach 
efforts are spearheaded by 13 Higher Education Access Partners who live 
and work in communities throughout the Commonwealth. These 
professionals provide a variety of hands-on student-aid related 
services to students, families, educators, schools, and community 
partners.
    As a group, our Access Partners participate in more than 5,000 
financial aid events over the last 2 years, helping to increase 
awareness of various student aid opportunities, application processes 
and deadlines, including FAFSA completions, and how to borrow 
responsibly.
    In response to the COVID-19 pandemic, this group continued its 
outreach by offering what were once highly attended in-person events as 
highly attended online events, including working with members of our 
Pennsylvania Congressional delegation to offer specialized constituent-
based programs.
    PHEAA's pivot to virtual outreach also included financial aid 
webinars, virtual one-on-one sessions, and #FinAidFridays, where PHEAA 
experts join with other industry partners on Facebook and Twitter to 
discuss and answer questions about financial aid, scholarships, 
financial aid offers, the FAFSA, and more.
Student Debt
    Effective outreach is more important now than ever, as student loan 
debt continues to be a serious concern. Nationally, 44.7 million 
student borrowers owe more than $1.71 trillion in student loans 
(Sources: federalreserve.gov/releases/g19/current/default.htm and 
newyorkfed.org/medialibrary/interactives/householdcredit/data/xls/sl-
update--2018.xlsx).
    In Pennsylvania, 65 percent of college graduates carry some student 
loan debt, with an average debt load of more than $39,000--the 2nd 
highest in the Nation (Source: ticas.org/wp-content/uploads/2020/10/
classof2019.pdf). Unfortunately, student debt levels are alarmingly 
higher for Black graduates than they are for White graduates. According 
to a 2016 Brookings study (Source: brookings.edu/research/black-white-
disparity-in-student-loan-debt-more-than-triples-after-graduation), 
Black students with bachelor's degrees owe $7,400 more in student debt 
on average upon graduation than their White counterparts. The National 
Center for Education Statistics found that Black students borrow 
Federal student loans at higher rates than other groups of students. An 
estimated 77.7 percent of Black students borrow Federal student loans 
to pay for a higher education. This figure is significantly higher than 
the national average for all students (60 percent) and for White 
students (57.5 percent).
    PHEAA has consistently advocated for all students and families to 
avoid unnecessary loan debt and has been leading efforts in the 
Commonwealth with extensive community outreach, planning guides, online 
tools, and other resources.
    The priority for any successful higher education funding plan is to 
become knowledgeable about the options and obligations a student will 
have before, during, and after postsecondary school.
    This means working to minimize the total cost of attendance and 
exhausting eligibility for gift aid, such as grants and scholarships, 
thereby minimizing the need to borrow.
    While it would be desirable for students not to have to borrow, it 
is not the reality for most students and families today. It is no 
secret that the cost of a postsecondary education continues to rise. 
Often, grants, scholarships, and family savings are not sufficient, and 
it becomes necessary to take out student loans. In these cases, PHEAA 
encourages students to first exhaust their eligibility for low-cost 
Federal student loans, which offer a variety of benefits during 
repayment that can make a borrower's loan debt more manageable.
    To further assist students and families in being well informed 
prior to borrowing, PHEAA created MySmartBorrowing.org, which is 
available nationally.
    This free resource engages high school students and potential 
borrowers early in the planning process--before any decisions are made 
to borrow money--helping them weigh the benefits and expenses of 
various decisions to make better choices as they develop their higher 
education success plan.
    MySmartBorrowing.org provides unique estimators that help determine 
a student's possible higher education costs at different schools, 
future salary expectations for a particular degree, availability of 
employment opportunities, and their potential ability to repay loans 
comfortably while also affording an independent lifestyle after 
graduation.
Special Programs
    PHEAA administers several Pennsylvania student aid programs that 
specifically target assistance toward minority students and those from 
economically and educationally underserved backgrounds.
    This includes the Higher Education of the Disadvantaged Program--
often referred to as the Act 101 Program--that was part of the 
Commonwealth's Higher Education Equal Opportunity Act of 1971.
    Act 101 was created with the vision of enhancing postsecondary 
education opportunities and achievements of undergraduate students from 
economically and educationally underserved backgrounds.
    The primary author and sponsor of this legislation was Pennsylvania 
State Representative K. Leroy Irvis, the first African-American to 
serve as Speaker of the House in the Pennsylvania House of 
Representatives and the first to serve in that capacity in any State 
legislature in the United States since Reconstruction.
    The Act 101 Program assisted 3,673 students at 33 participating 
institutions of higher education throughout the Commonwealth during the 
2019-20 school year and has served more than 20,000 students over the 
last decade.
    PHEAA also co-administers the Cheyney Keystone Academy Program with 
the Pennsylvania State System of Higher Education (PASSHE). With $3.5 
million in funding from the Commonwealth, combined with a $500,000 
supplement provided by PHEAA, this program makes $4 million in funding 
available in the current year to provide full scholarships to 
academically gifted students enrolled at America's oldest historically 
Black college--Cheyney University of Pennsylvania.
    This program served 322 Cheyney University students during the 
2019-20 academic year. Additionally, PHEAA co-administers the Horace 
Mann Bond--Leslie Pinckney Hill Scholarship (Bond-Hill) Program with 
the Pennsylvania Department of Education. This program provides 
financial assistance to qualified students from Cheyney University and 
Lincoln University--another of Pennsylvania's Historically Black 
Colleges and Universities--who pursue preprofessional programs in law, 
medicine, podiatry, or dentistry at Penn State, the University of 
Pittsburgh, Temple University or at one of the PASSHE universities.
    The Bond-Hill Program provided scholarships to 33 students during 
the 2019-20 academic year with $800,000 in Commonwealth funding.
Student Loan Servicing
    While PHEAA is best known in Pennsylvania as a higher education 
planning and funding resource, we are most known to Members of this 
Committee as a Federal student loan servicer.
    PHEAA, took on the role of a Federal student loan servicer in 2009 
and, has been on the front lines since then, witnessing many program 
changes, expansions, and complex revisions. As a Federal student loan 
servicer, PHEAA is required to adhere to the laws as written by 
Congress and the rules and regulations set forth by the U.S. Department 
of Education (Department). This includes Department guidance, such as 
Dear Colleague Letters, contract change requests, and administrative 
guidance.
    It is not, nor has it ever been, within the purview of PHEAA to 
unilaterally change or override program rules and requirements. 
However, PHEAA regularly advocates on behalf of borrowers with the 
Department and continues to put forward proposed policy changes and 
collaborative suggestions that can improve both experiences and 
outcomes for students and borrowers.
Public Service Loan Forgiveness (PSLF) Program


    The Public Service Loan Forgiveness (PSLF) Program was established 
under the College Cost Reduction and Access Act of 2007 and provides an 
opportunity for a borrower's remaining balance on their Federal Direct 
Loans--after 10 years of qualifying payments--to be forgiven, provided 
that the borrower meets specific eligibility requirements, including 
having been employed by a qualifying public service employer.
    While the premise sounds simple--work for 10 years in public 
service and have your loan forgiven; the reality of the program's 
complexities has made the process challenging and often frustrating for 
all involved.
    While the Program was created in 2007, the first servicing contract 
for PSLF was not awarded until 2011, at which time PHEAA became the 
primary servicer. Prior to PHEAA being selected as the servicer for 
PSLF, public information on the program was largely limited to what was 
expressly written in the law; there was no Department of Education 
published guidance to ensure that all the program rules were being met 
by borrowers--including having the right loan, being in the right 
repayment plan, and being employed by the right employer.
    It is important to note, that in 2007, when the Program was 
created, approximately 75 percent of borrowers had ineligible Federal 
Family Education Loan Program (FFELP) loans, as only Federal Direct 
Loans are eligible for PSLF. It was not until the 2010-11 academic year 
that all new Federal loan borrowers became Federal Direct Loan 
Borrowers.
    It was PHEAA's partnership and collaboration with the Department 
that resulted in the first Employer Certification Form, or ECF, 5 years 
after establishment of the program. This form is critical to beginning 
the process for a borrower interested in PSLF. There was, and still is, 
no Department requirement for this form to be submitted on a regular 
basis; however, PHEAA continues to encourage borrowers to recertify 
annually to provide for regular review of their eligibility status.
    In 2018, Congress passed the Consolidated Appropriations Act, which 
provided additional conditions under which borrowers may become 
eligible for loan forgiveness through the Temporary Expansion of Public 
Service Loan Forgiveness (TEPSLF) Program.
    TEPSLF alleviated some of the confusion created by the lack of 
program support early on by addressing which repayment plans may or may 
not be eligible for PSLF. However, while again, the premise was simple, 
complexities remain around TEPSLF.
    While the office of Federal Student Aid (FSA) designated PHEAA as 
the only servicer of the PSLF and TEPSLF Programs, borrowers are not 
required to transfer their loans to PHEAA from their current servicer 
until they express interest in or apply for forgiveness. PSLF is, by 
its nature, a retroactive program looking at the employment and payment 
histories of individuals--in some cases long before PHEAA becomes their 
servicer.
    When measuring the success of PSLF, it is important to remember 
that most borrowers who request forgiveness are not yet mathematically 
eligible to be approved. This is because the Program requires 120 
qualifying payments to be eligible for forgiveness and the overwhelming 
majority have simply not yet been in repayment for 10 years.
    Much like ``Public Service Loan Forgiveness'' sounds like a simple 
concept, so does the idea that you ``make 120 payments and you are 
finished.'' This gives rise to such questions as, ``How difficult can 
it be to count 120 payments?'' or ``Why does it take so long to count 
those payments'' and ``I made the payment, why doesn't it count?''
    We fully understand the frustration of borrowers and of Congress 
seeking answers to those questions. Unfortunately, the rules of the 
Program as established by the Department, have various, mandated 
conditions with defined terms, including:

    Was the payment made on time?

    Was the payment early?

    Were there forbearance or other status changes on the 
        account?

    Was the repayment plan a qualifying plan?

    Does the employment qualify?

    PHEAA has worked diligently with the Department to address these 
pain points and the confusion they cause for borrowers and has had some 
success in simplifying and streamlining the process.
Complexities of a Backward-Looking Program
    As previously mentioned, PSLF requires 10 years of qualifying 
payments to be eligible for forgiveness. Therefore, the first time a 
borrower could actually apply and qualify for PSLF forgiveness was in 
September 2017.
    Some of the news headlines around PSLF have been that 99 percent of 
borrowers, as of November 2020, had been denied forgiveness and 
therefore the program and PHEAA's administration of the program are 
broken.
    While in fact, only about 5 percent, or 65,000, of the 1.3 million 
borrowers who have expressed interest in PSLF have achieved both 10 
years of qualifying repayment AND 10 years of qualifying employment on 
at least one loan. Borrowers who would have qualified also had to 
navigate the complexities of the program without any published guidance 
or other assistance from the Department before PHEAA began servicing 
PSLF in 2012.
    The forgiveness trend, as PHEAA predicted, has begun to improve 
since the Department last published figures in November 2020, as more 
borrowers have had sufficient time to meet their 10-year employment 
obligation and PHEAA worked with the Department to improve 
communications and processes to help borrowers successfully navigate 
the rules to achieve forgiveness. For example, PHEAA has overhauled its 
online portal to provide significant detail into every payment a 
borrower has made, helping to clarify the distinction between why a 
payment may be qualifying, eligible, or not qualified.
    Adding strength to this trend is the fact that PSLF specifically 
targets Federal Direct Loan debt for forgiveness, which began to 
increase rapidly about 10 years ago--which matches the required 10 
years of qualifying payments--as FFELP loans were legislatively phased 
out by Congress in 2010-11.
    In December 2019, at PHEAA's insistence, the Department agreed to 
establish a joint task force with PHEAA to meet at least biweekly to 
review and implement further improvements to the Programs.
    Since the Task Force's first meeting in January 2020, PHEAA has 
delivered on several crucial enhancements that have increased speed, 
accuracy, and flexibility for borrowers, including:

    A change in the lump sum requirements thereby allowing 
        borrowers to make a single payment to cover and satisfy several 
        monthly payments (which is especially beneficial for military 
        members)

    Supporting interaction with FSA's first tool allowing 
        borrowers to determine eligibility of most qualifying employers

    The development of a single combined form for Employment 
        Certification TEPSLF and PSLF

    Since September 2017, when the first borrowers became eligible, we 
have seen a steady increase in borrowers successfully achieving 
forgiveness and we expect to see them to attain more than $1 billion in 
loan forgiveness within the next 12 months. As more borrowers qualify 
for forgiveness in the coming months and years, we expect this upward 
trend continue.
    One borrower who recently achieved forgiveness reached out to PHEAA 
to share her experiences with the PSLF program and spoke of the ``life-
changing effect'' it had on her and on her career as a special need's 
teacher.
    I have attached her letter to this testimony, as she not only 
expresses appreciation for PHEAA's work in helping her achieve loan 
forgiveness, but also attests to the profound benefits that can be 
realized through PSLF. My organization and its employees regularly 
celebrate with borrowers when they attain the life changing event of 
earning this forgiveness and we applaud their public service.
Legal Matters
    As a Federal servicer, PHEAA works with borrowers throughout the 
Nation, helping them manage their debt according to the Program rules 
set forth by the Department of Education and Federal law.
    However, there are instances when Federal rules that PHEAA is 
contractually required to follow conflict with the rules and oversight 
regulations of individual States.
    PHEAA continues to engage with our State and Federal regulators to 
comply with all requirements but when lawsuits are filed against us, 
PHEAA, as an agency of the Commonwealth of Pennsylvania, is obligated 
to take certain legal steps.
    Recently, PHEAA was mentioned in the news in relation to a 
settlement agreement that it entered into with the Massachusetts 
Attorney General's Office regarding a civil lawsuit connected to 
PHEAA's servicing of federally owned student loans.
    The agreement, which was reached after 5 years of cooperation 
between PHEAA, the Department and the Massachusetts Attorney General's 
Office, had no findings of wrongdoing, and no fees or penalties were 
assessed against PHEAA.
    The Massachusetts Attorney General's Office's 5+ year investigation 
identified errors on 25 out of 250,000 Massachusetts student borrower 
accounts and PHEAA has already remedied those accounts. PHEAA also 
implemented a notice and claims process to allow eligible MA borrowers 
to request to have their account more closely reviewed.
    While PHEAA strives to service loans without any errors or 
exceptions, and never purposefully or intentionally causes harm to a 
borrower, mistakes do occur and when they do, PHEAA immediately takes 
steps to correct such errors. We work diligently to meet all Service 
Level Agreements under the terms of our servicing contracts and to 
treat all borrowers with respect and empathy.
    The Massachusetts Attorney General's lawsuit also included 
allegations related to the Federal TEACH Program, which PHEAA services 
in accordance with Federal law and Program rules.
    Under PHEAA's settlement agreement with the Massachusetts' Attorney 
General, if any cases are identified where a TEACH Grant had been 
improperly converted to a loan and a reconsideration request was denied 
by the Department of Education, PHEAA agreed to pay off that loan. 
However, as of this date, neither PHEAA nor the Massachusetts Attorney 
General's office has identified a single instance where this scenario 
occurred.
    Nationally, PHEAA currently assists 79,713 TEACH recipients and has 
worked with the Department to implement many improvements to this 
program. These include:

    Identified a significant number of suspected conversions by 
        the prior servicer and is working with the Department on 
        implementing solutions

    Developed insightful outcomes reporting for the Department 
        to better shape policy

    Identified a need to provide relief to recipients who are 
        impacted by natural disasters

    PHEAA continues to look for TEACH Program improvements and is 
excited about the opportunity to digitize the teaching service 
certification with the Department, which will improve outcomes and 
experiences for participants.
    Additionally, PHEAA is currently operating pursuant to the 
Department's guidance to provide relief to teachers who may have been 
disrupted during the 2019-20 school year due to COVID-19 and did not 
believe they could receive credit towards teaching full time or a full 
year. This includes direct outreach to more than 30,000 individual 
recipients who did not receive any 19-20 credit to make them aware of 
this available relief.
Conclusion
    As I conclude my remarks, I want to express PHEAA's genuine 
desire--not just as a Federal servicer with first-hand knowledge and 
experience, but as a public servant--to be part of the solution to the 
student loan debt crisis that is impacting millions of Americans.
    PHEAA's mission, values, and goals closely align with the stated 
purpose of this Committee hearing. As always, PHEAA stands ready to 
work with members of Congress and the Administration to develop 
inclusive new initiatives that can help all students and families 
afford a higher education while avoiding burdensome or crippling 
student loan debt.
    On behalf PHEAA's dedicated employees and the nearly 10 million 
students and borrowers that we serve, thank you for the opportunity to 
appear here today.
    I welcome the opportunity to answer your questions.
                                 ______
                                 
                    PREPARED STATEMENT OF BETH AKERS
            Resident Scholar, American Enterprise Institute
                             April 13, 2021
    Chair Warren, Ranking Member Kennedy, and Members of the 
Subcommittee: Thank you for inviting me here today to share my 
assessment of this important issue. The volume of student loan debt in 
the economy has now surpassed $1.6 trillion, which is an alarming 
milestone. Concern about student debt was once a niche issue, but with 
45 million \1\ Americans now holding student debt, it has rightly 
become an issue of national concern. Your attention to this subject 
today is apt.
---------------------------------------------------------------------------
     \1\ Raksha Kopparam and Austin Clemens, ``The Rising Number of 
U.S. Households With Burdensome Student Debt Calls for a Federal 
Response'', Washington Center for Equitable Growth, October 21, 2020, 
https://equitablegrowth.org/the-rising-number-of-u-s-households-with-
burdensome-student-debt-calls-for-a-federal-response/
#:text=In%202019%2C%20it%20was%20a%20whopping%2024%20percent.
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    I am honored to be able to share the insights I have collected 
about this issue throughout a number of years working in this space as 
a policymaker and researcher. I began working on this issue as a staff 
economist in the Council of Economic Advisers under the George W. Bush 
administration, while working toward a Ph.D. in economics at Columbia 
University, and have since been researching the economics of higher 
education in the think tank industry, currently at the American 
Enterprise Institute and previously at the Brookings Institution and 
the Manhattan Institute. Throughout my career, my focus has been on 
studying the Federal system of higher education finance, with a focus 
on student debt, with the goal of improving the efficacy of our system 
of higher education as a mechanism for social mobility.
The Impact of Student Loan Debt on Individual Borrower Well-Being
    When considering the impact of student debt on individuals, it's 
important to recognize the appropriate counterfactual for the 
comparison. While borrowers in repayment would be unequivocally better 
off if they didn't have to make payments on their debt, most are better 
off with debt and a degree than they would be if they'd not pursued 
higher education. That's not only because college degree holders earn 
higher wages but also because they find themselves unemployed less 
often than peers without degrees. The act of borrowing to pay for 
college often lowers current wealth but will ultimately increase 
lifetime earnings and economic well-being.
    While students completing bachelor's degrees with debt have average 
balances of approximately $30,000, \2\ the degrees they hold will, on 
average, raise their lifetime earnings by $2.8 million. \3\ The price 
tag for higher education can be high, but the returns are generally 
even higher. Economists from the Federal Reserve have estimated that 
students investing in associate and bachelor's degrees will earn a 15 
percent rate of return, which is about twice the rate of return in the 
stock market, on the dollars spent on the cost of enrollment. \4\
---------------------------------------------------------------------------
     \2\ College Board, ``Trends in Student Aid: Highlights'', 2020, 
https://research.collegeboard.org/trends/student-aid/highlights.
     \3\ Anthony P. Carnevale, Stephen J. Rose, and Ban Cheah, ``The 
College Payoff: Education, Occupations, Lifetime Earnings'', Georgetown 
University Center on Education and the Workforce, 2011, https://
cew.georgetown.edu/cew-reports/the-college-payoff/.
     \4\ Jaison R. Abel and Richard Deitz, ``Do the Benefits of College 
Still Outweigh the Costs?'' Federal Reserve Bank of New York, 2014, 
https://www.newyorkfed.org/medialibrary/media/research/current-issues/
ci20-3.pdf.
---------------------------------------------------------------------------
    The largest student loan balances, like the ones we often read 
about in the newspaper, are uncommon and most often held by borrowers 
with advanced degrees who also have access to very high earnings. Only 
6 percent of borrowers owe more than $100,000. \5\ A recent study 
authored by my two copanelists for this hearing indicates that more 
than 40 percent of the outstanding student debt in this country was 
used to pay for graduate or professional programs, with MBAs and law 
schools being the largest sources of debt. These high-balance borrowers 
hold a surprising share--one third--of all outstanding student debt. 
\6\
---------------------------------------------------------------------------
     \5\ Adam Looney, David Wessel, and Kadija Yilla, ``Who Owes All 
That Student Debt? And Who'd Benefit If It Were Forgiven?'' Brooking 
Institution, January 28, 2020, https://www.brookings.edu/policy2020/
votervital/who-owes-all-that-student-debt-and-whod-benefit-if-it-were-
forgiven/.
     \6\ Looney, Wessel, and Yilla, ``Who Owes All That Student Debt?''
---------------------------------------------------------------------------
    For the typical borrower, access to student debt through the 
Federal Loan Program creates an opportunity for economic mobility that 
would otherwise be unavailable. Some students, however, are left worse 
off financially for having gone to college. Borrowers who find 
themselves in this situation often fall into two categories: those who 
start but don't complete a degree and those who complete a degree but 
find that it doesn't deliver the opportunities in terms of employment 
that would justify its cost.
    We see that noncompleters make up a disproportionate share of 
borrowers who struggle to repay their debt. \7\ This explains why 
borrowers with small balances, less than $5,000, are finding themselves 
in default on their loans more often than borrowers with larger 
balances. \8\ Debt without a degree is one of the most problematic 
trends of the current Federal policy regime.
---------------------------------------------------------------------------
     \7\ College Board, ``Trends in Student Aid 2015'', Figure 14A, 
2015, https://research.collegeboard.org/pdf/trends-student-aid-2015-
full-report.pdf.
     \8\ Kristin Blagg, ``Underwater on Student Debt: Understanding 
Consumer Credit and Student Loan Default'', Urban Institute, August 
2018, https://www.urban.org/sites/default/files/publication/98884/
underwater-on-student-debt-0.pdf.
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    Another problem that needs to be addressed, especially for 
borrowers of color, is low-quality institutions that do not effectively 
prepare their graduates for the employment that would justify their 
often high cost of attendance. There are programs and institutions in 
every sector of the higher education industry that fail to prepare 
their graduates, but the problem of a low-quality education, which 
generates both worthless credentials and large numbers of indebted 
dropouts, has been concentrated in the for-profit sector.
    Low-income, first-generation, and minority students are 
disproportionately represented in this group. Black students, for 
example, make up just 13 percent of students enrolled at public 
colleges but comprise 21 percent of students at for-profit colleges. 
\9\ This is an important driver of the repayment crisis being faced by 
these borrowers. Half of Black borrowers who began a degree program in 
2003-04 had defaulted on their loan 12 years later, compared to just 
one in five White borrowers. \10\
---------------------------------------------------------------------------
     \9\ Suzanne Kahn, Mark Huelsman, and Jen Mishory, ``Bridging 
Progressive Policy Debates: How Student Debt and the Racial Wealth Gap 
Reinforce Each Other'', Roosevelt Institute, Century Foundation, and 
Demos, September 9, 2019, https://rooseveltinstitute.org/publications/
bridging-progressive-policy-debates-student-debt-racial-wealth-gap-
reinforce-each-other/.
     \10\ Ben Miller, ``The Continued Student Loan Crisis for Black 
Borrowers'', Center for American Progress, December 2, 2019, https://
www.americanprogress.org/issues/education-postsecondary/reports/2019/
12/02/477929/continued-student-loan-crisis-black-borrowers/.
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The Inadequacy of Borrower Protection and Relief Programs
    Ideally, borrowers who find their loan payments unaffordable due to 
lack of earnings opportunities would take advantage of the existing 
safety nets--namely, the set of income-driven repayment (IDR) programs 
including Public Service Loan Forgiveness--but evidence suggests that 
the safety net created by these programs is falling short.
    Income Driven Repayment Is Too Complex. Despite IDR's 
appropriateness for the policy challenge at hand, the system hasn't 
been working well. The reason for this is largely that IDR is 
administered through a complex variety of programs, each with different 
eligibility criteria and a range of program parameters. The amount 
borrowers are expected to pay is calculated differently across 
programs, as is the number of years before borrowers can qualify to 
have their balance forgiven. The result is a system that is excessively 
complex to navigate, with many borrowers unaware of the benefits 
available to them. As of 2016, only 43 percent of undergraduates with 
loans reported that they were aware of their eligibility for IDR. \11\
---------------------------------------------------------------------------
     \11\ Matthew Chingos, ``Structural Changes to Student Loan 
Repayment Could Make Forgiveness Work Better for Struggling 
Borrowers'', Urban Institute, February 19, 2021, https://www.urban.org/
urban-wire/structural-changes-student-loan-repayment-could-make-
forgiveness-work-better-struggling-borrowers.
---------------------------------------------------------------------------
    While IDR is now universal for all Federal student borrowers, it 
became that way only after a series of legislative and executive 
interventions, \12\ between 1992 and 2015, stitched together a 
patchwork of loosely related programs. Factual evidence about how IDR 
has been used is limited, but anecdotes about the challenges of 
navigating the system, even by financially savvy consumers, indicate 
systemic problems. This rickety policy framework desperately needs to 
be replaced with a single user-friendly IDR plan that can be 
universally marketed and better understood.
---------------------------------------------------------------------------
     \12\ Lumina Foundation, ``Chapter 6: Evolution of Student Loan 
Repayment: When the Bill Comes Due'', https://www.luminafoundation.org/
history-of-federal-student-aid/chapter-six/.
---------------------------------------------------------------------------
    The complexity of these programs is especially problematic for 
economically disadvantaged borrowers. Borrowers with large balances 
from graduate and professional degrees, which are most often White 
students from middle- to high-income families, seem to be navigating 
the programs successfully, perhaps because they have so much to gain 
from loan forgiveness. Of the loans disbursed from 2020 to 2029 and 
repaid through IDR, the Congressional Budget Office estimates that 
borrowers with debt only from undergraduate studies would have $40.3 
billion forgiven, while those who borrowed for graduate school would 
have $167.1 billion forgiven. \13\
---------------------------------------------------------------------------
     \13\ Congressional Budget Office, ``Income-Driven Repayment Plans 
for Student Loans: Budgetary Costs and Policy Options'', February 2020, 
https://www.cbo.gov/system/files/2020-02/55968-CBO-IDRP.pdf.
---------------------------------------------------------------------------
    Widespread Student Loan Cancelation Is the Wrong Solution. Some 
might argue that these facts justify a blunt intervention, like mass 
loan cancelation, which would not require the borrower to jump through 
hoops to collect the benefit. But that's not the case. The complexity 
of the current safety net is not due to the income-based eligibility 
criteria; it is complex because of the manner in which it was created, 
through a combination of piecemeal, nonconforming policy changes. 
Borrowers who made their way through college and took out loans to do 
so are certainly capable of navigating an income-tested student loan 
relief program if it were designed with the intention of being user-
friendly and accessible.
    In addition to being an unnecessarily blunt fix to the problem of 
an inadequate safety net, widespread student loan cancelation would 
create additional problems. I am especially concerned about the 
distortion of borrower and institution incentives that would likely 
exacerbate the problems of ballooning loan balances and rampant tuition 
inflation.
    Students enrolling in college after a student loan jubilee would 
have good reason to think that any debts they take on in pursuit of a 
degree would potentially be forgiven in the future. This would 
encourage students to borrow more than they would have otherwise, by 
financing a greater share of their costs or attending a more expensive 
institution. In response, institutions would likely be driven to raise 
their costs. While colleges and universities don't always act as firms 
would in economic models, they would likely raise their prices over 
time in response to the increase in demand and willingness to pay. If 
mass loan cancelation were implemented, we'd likely find ourselves 
having this same conversation again, but with larger balances to 
contend with.
    Not only would widespread loan cancelation create moral hazard, but 
it would also deliver more benefits to well-off borrowers than to needy 
ones and would thus do little to address the inequality implicit in our 
economy. A comprehensive loan-forgiveness program would deliver 10 
times more benefit to borrowers in the top 10 percent of earners than 
it would provide to borrowers in the bottom 10 percent of earners. \14\
---------------------------------------------------------------------------
     \14\ Sylvain Catherine and Constantine Yannelis, ``The 
Distributional Effects of Student Loan Forgiveness'', University of 
Chicago Becker Friedman Institute for Economics, December 9, 2020, 
https://bfi.uchicago.edu/working-paper/2020-169/.
---------------------------------------------------------------------------
    Additional Solutions. Higher education is an essential mechanism 
for social mobility in our economy. Since alternative pathways to 
financial prosperity outside education after high school are not 
plentiful, it is crucial that our system of higher education finance 
offers a pathway through higher education that isn't riddled with 
financial risk. Aspiring students shouldn't have to fear that college 
will leave them worse off financially than where they started.
    This goal can be achieved by a sweeping reform of the student loan 
safety net to make it simpler to navigate and more readily understood 
by potential beneficiaries. The set of IDR programs should be replaced 
with a single, universal program, and the process of application and 
income certification should be streamlined to support borrowers.
    Policymakers might also consider reforming the parameters that 
determine benefits to reallocate benefits or alter their generosity. 
For example, it would be reasonable to require high-balance borrowers 
(who likely attended graduate or professional school) to make payments 
on their loans longer than borrowers with small balances before they 
become eligible for forgiveness. Policymakers could also decrease the 
amount of disposable income that borrowers are expected to devote to 
repayment or raise the threshold of income below which borrowers aren't 
required to make payments. Reasonable people can disagree about the 
appropriate level of generosity of the student loan safety net, so I'll 
refrain from providing a specific recommendation today and instead 
illustrate that there are multiple ways to tweak the repayment system 
and make it more equitable.
    A regime for higher education finance that provides a robust safety 
net must also require that we not let borrowers continue to take on 
debts that are predictably unaffordable. Constraining borrowing among 
graduate students and parents would be a good start. Increasing the 
role of student employment and financial outcomes in assessing a 
school's eligibility for participation in the Federal student loan 
program would also go a long way in this effort.
Student Debt and the Macro Economy
    Since investments in higher education, on average, provide a net 
positive return (even taking into account the cost of borrowing), 
spending on education that is financed with Federal student loans is 
generally a wealth-enhancing activity both individually and 
collectively. In other words, we are richer as a Nation because of our 
public and individual investments in higher education. However, these 
benefits are not equally distributed, and some groups are being 
systematically made worse off by enrolling in higher education.
    Many are concerned that student debt is causing borrowers to delay 
milestones such as home ownership, marriage, and parenthood. It does 
seem likely that alleviating borrowers of their debt would allow them 
to engage in these activities sooner (if they wish), but this does not 
mean that debt is causing a delay. The more apt question would be 
whether individuals with student debt are delaying these activities 
relative to what they would have done had they never gone to college in 
the first place. That is a much harder question to answer, but given 
that borrowing and college attendance are, on average, wealth-enhancing 
activities, how they would also be constraining these behaviors is 
unclear.
    In this vein, many have argued that loan cancelation would provide 
a valuable stimulus to the economy. In theory, it could encourage 
borrowers in repayment to redirect their resources elsewhere, perhaps 
toward purchasing a home, getting married, or having children. It would 
likely have this affect; however, the magnitude would be small relative 
to the cost of the effort. This is because the benefits would be 
disproportionately delivered to higher-income borrowers and because the 
benefit would not be delivered immediately but rather through 
alleviating payments that were due monthly for decades into the future. 
There are far more effective forms of stimulus that could be 
immediately enacted if this were a priority.
Conclusion
    The startling statistics in the student loan program and 
revelations of inequity might seem like cause for dramatic and 
immediate action, like student loan cancelation. However, the problems 
with our system of higher education finance cannot be repaired with 
such blunt efforts and must be addressed with more nuanced, incremental 
changes. I would urge you all to consider that smaller, and less 
politically exciting, reforms might better serve students and 
accomplish our collective goal of having our higher education finance 
system effectively and equitably support this pathway to economic 
prosperity.
    Thank you for the opportunity to give testimony in this important 
hearing. I look forward to presenting these comments and evidence to 
the Subcommittee and answering questions.
                                 ______
                                 
               PREPARED STATEMENT OF CONSTANTINE YANNELIS
Assistant Professor of Finance, Booth School of Business, University of 
                                Chicago
                             April 13, 2021
    Dear Chair Warren, Ranking Member Kennedy, and Members of the 
Committee, thank you for inviting me and the opportunity to testify 
today.
    Education is the single highest return investment most Americans 
will make. Thus getting our system of higher education finance right is 
of fundamental importance for American households and to the American 
economy.
    A key point that has to be made whenever discussing student loans 
is that the outcomes of borrowers vary widely. It is undeniable that a 
significant number of borrowers are struggling, and are sympathetic 
candidates for some kind of relief. Student loan balances have surged 
over the past decades. According to the New York Fed, last year student 
loans had the highest delinquency rate of any form of household debt. 
\1\ At the same time, the majority of borrowers end up earning high 
amounts and do not have difficulties repaying their loans. \2\ A 
college education is, in the vast majority of cases in America, a 
ticket to success and a high-paying job. A very large portion of the 
borrowers who struggle attend a relatively small number of 
institutions--predominantly for-profit colleges. \3\
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     \1\ https://www.newyorkfed.org/microeconomics/hhdc/background.html
     \2\ Looney, Adam, and Constantine Yannelis. ``A Crisis in Student 
Loans?: How Changes in the Characteristics of Borrowers and in the 
Institutions They Attended Contributed to Rising Loan Defaults''. 
Brookings Papers on Economic Activity 2015, no. 2 (2015): 1-89.
     \3\ Looney, Adam, and Constantine Yannelis. ``A Crisis in Student 
Loans?: How Changes in the Characteristics of Borrowers and in the 
Institutions They Attended Contributed to Rising Loan Defaults''. 
Brookings Papers on Economic Activity 2015, no. 2 (2015): 1-89.
---------------------------------------------------------------------------
    The core of the problem in the student loan market lies in a 
misalignment of incentives between students, schools, and the 
Government. This misalignment comes from the fact that borrowers use 
Government loans to pay tuition to schools. If borrowers end up getting 
poor jobs, and they default on their loans, schools are not on the 
hook--taxpayers end up paying the costs. How do we address this 
incentive problem? There are many options, but let me first comment on 
a commonly proposed solution, universal loan forgiveness.
    One common proposal is some form of blanket student loan 
cancelation. This is an extremely regressive policy--it provides more 
assistance to higher income rather than lower income borrowers. This is 
primarily because people who go to college tend to earn more than those 
who do not go to college, and people who spend more on their college 
education--like those who attended medical and law schools--tend to 
earn more than those who spent less on their college education, like 
dropouts and associate's degree holders.
    My own research, which is joint with Sylvain Catherine at the 
Wharton School of the University of Pennsylvania shows that most of the 
benefits of universal loan cancelation would accrue to high income 
individuals. Individuals in the top 20 percent of the earnings 
distribution would receive six to eight times as much debt relief as 
individuals in the bottom 20 percent of the earnings distribution. \4\ 
These basic patterns are still true for policies that limit forgiveness 
up to $10,000 or $50,000.
---------------------------------------------------------------------------
     \4\ Catherine, Sylvain, and Constantine Yannelis. ``The 
Distributional Effects of Student Loan Forgiveness''. No. w28175. 
National Bureau of Economic Research, 2020.
---------------------------------------------------------------------------
    Another problem with capped student loan forgiveness is that many 
struggling borrowers will still face difficulties. A small number of 
borrowers have very large balances, and very low incomes. Policies 
forgiving $10,000 or $50,000 in debt will leave their significant 
problems unaddressed. While income phaseouts make forgiveness less 
regressive, it is a very blunt instrument, and leads to many 
individuals who earn large amounts over their lives receiving 
substantial loan forgiveness, like medical residents and judicial 
clerks.
    If the goal of policymakers is to make sure that funds get into the 
hands of borrowers at the bottom of the income distribution, in a 
progressive way, blanket student loan forgiveness does not accomplish 
this goal. Rather, the policy primarily benefits high earners. \5\
---------------------------------------------------------------------------
     \5\ Catherine, Sylvain, and Constantine Yannelis. ``The 
Distributional Effects of Student Loan Forgiveness''. No. w28175. 
National Bureau of Economic Research, 2020.
---------------------------------------------------------------------------
    While I am convinced from my own research that student loan 
forgiveness is regressive, this is also the consensus of economists. 
The panel of prominent economists run by The Initiative on Global 
Markets at the University of Chicago asked economists whether ``Having 
the Government issue additional debt to pay off current outstanding 
loans would be net regressive.'' \6\ The panel included economists from 
both the left and the right at leading institutions. The results of the 
survey were telling. Not a single economist disagreed with the idea 
that student loan forgiveness was regressive. This is because the facts 
are clear on this issue--to borrow a phrase commonly used, ``the 
science is settled.'' Student loan forgiveness is a regressive policy, 
that mostly benefits upper income and upper middle class individuals.
---------------------------------------------------------------------------
     \6\ https://www.igmchicago.org/surveys/student-debt-forgiveness/
---------------------------------------------------------------------------
    One of the topics of this hearing is the effect of student loan 
forgiveness on racial inequality. One of the most distressing failures 
of the Federal loan program is the high default rates and significant 
loan burdens on Black borrowers. And student debt has been implicated 
as a contributor to the Black-White wealth gap. However, the data show 
that student debt is not a primary driver of the wealth gap and student 
loan forgiveness would make little progress closing the gap but at 
great expense. The average wealth of a White family is $171,000, while 
the average wealth of a Black family is $17,150. \7\ The racial wealth 
gap is thus approximately $153,850. According to my paper, which uses 
data from the Survey of Consumer Finances, and not taking into account 
the present value of the loan, the average White family holds $6,157 in 
student debt, while the average Black family holds $10,630. These 
numbers are of course unconditional on holding any student debt.
---------------------------------------------------------------------------
     \7\ https://www.brookings.edu/blog/up-front/2020/02/27/examining-
the-black-white-wealth-gap/
---------------------------------------------------------------------------
    Thus, if all student loans were forgiven, the racial wealth gap 
would shrink from $153,850 to $149,377, which is shrinking it by just 
under 3 percent. Thus the policy would cost about $1.7 trillion, and 
shrink the racial wealth gap by about 3 percent. Surely there are much 
more effective ways to invest $1.7 trillion if the goal of policymakers 
is to close the racial wealth gap. For example, targeted, means-tested 
social insurance programs are far more likely to benefit Black 
Americans relative to student loan forgiveness. \8\ For most American 
families, their largest asset is their home, so increasing property 
values and home ownership among African-Americans would likely do much 
more to close the racial wealth gap, although the racial income gap is 
the primary driver of the wealth gap. \9\ Wealth is ultimately driven 
by earnings and workers' skills--what economists call human capital. 
\10\ In sum, forgiving student loan debt is a costly way to close a 
very small portion of the Black-White wealth gap.
---------------------------------------------------------------------------
     \8\ https://www.brookings.edu/blog/up-front/2021/02/12/putting-
student-loan-forgiveness-in-perspective-how-costly-is-it-and-who-
benefits/
     \9\ Aliprantis, Dionissi, Daniel Carroll, and Eric R. Young. ``The 
Dynamics of the Racial Wealth Gap''. (2019).
     \10\ Heckman, James J. ``Invest in Early Childhood Development: 
Reduce Deficits, Strengthen the Economy''. The Heckman Equation 7 
(2012): 1-2.
---------------------------------------------------------------------------
    How can we provide relief to borrowers who need it, while avoiding 
making large payments to well-off individuals? There are a number of 
policy options for legislators to consider. One option to provide 
relief is to bring back bankruptcy protection for student loan 
borrowers.
    Another option is expanding the use of Income-Driven Repayment, or 
IDR. One fact which is often missed in the policy debate is that we 
already have a progressive student loan forgiveness program, and that 
is IDR. IDR plans link a borrower's payments to their income, they 
typically pay 10-15 percent of their income above 150 percent of the 
Federal poverty line. \11\ Depending on the plan, after 20 or 25 years, 
remaining balances are forgiven. Thus, if a borrower earns below 150 
percent of the poverty line, he or she never pays anything and the debt 
is forgiven for these low income individuals. If the borrower earns low 
amounts above 150 percent of the poverty line, he or she makes some 
payments and receives partial forgiveness. If a borrower earns a high 
income, he or she fully repays their loan. Put simply, higher income 
people pay more and lower income people pay less. \12\ IDR is thus a 
progressive policy.
---------------------------------------------------------------------------
     \11\ Mueller, Holger M., and Constantine Yannelis. ``The Rise in 
Student Loan Defaults''. Journal of Financial Economics 131, no. 1 
(2019): 1-19.
     \12\ Karamcheva, Nadia, Jeffrey Perry, and Constantine Yannelis. 
``Income-Driven Repayment Plans for Student Loans''. Vol. 2. CBO 
Working Paper, 2020.
---------------------------------------------------------------------------
    IDR plans provide relief to struggling borrowers, who face adverse 
life events or are otherwise unable to earn high incomes. There have 
been problems with the implementation of IDR plans in the United 
States, but the problems are fixable, and some have been fixed by 
recent legislation. \13\ Many countries such as the U.K. and Australia 
successfully operate IDR programs, that are administered through their 
respective tax authorities.
---------------------------------------------------------------------------
     \13\ Mueller, Holger M., and Constantine Yannelis. ``Reducing 
Barriers to Enrollment in Federal Student Loan Repayment Plans: 
Evidence From the Navient Field Experiment''. Working Paper. 2020.
---------------------------------------------------------------------------
    Beyond providing relief to borrowers, which is very important, we 
could do more to fix technical problems, and incentives. We could give 
servicers more tools to contact borrowers and inform them of repayment 
options like IDR, and we could also incentivize servicers to sign more 
people up for IDR. But, while we may be able to make some technical 
fixes, servicers are not the root of problems in the student loan 
market. A small number of schools and programs are accounting for a 
large portion of adverse outcomes. \14\
---------------------------------------------------------------------------
     \14\ Looney, Adam, and Constantine Yannelis. ``The Consequences of 
Student Loan Credit Expansions: Evidence From Three Decades of Default 
Cycles''. Working Paper. 2020.
---------------------------------------------------------------------------
    To fix this, policymakers can also directly align incentives 
between schools and borrowers. For example, Brazil has had similar 
problems with their student loan program. Recently, they gave schools 
``skin in the game'' and required them to pay a fee based on dropout 
and default rates. This helps align the incentives of schools and 
borrowers. Making revenues go directly to schools from IDR plans, or 
Income-Share Agreements, where individuals pay an uncapped portion of 
their income, could also help align the incentives of schools, 
students, and taxpayers.
    In closing, I want to stress that Federal student loans are an 
important part of college financing and intergenerational mobility. The 
roots of our student loan problem is a misalignment of incentives. 
Since the student loan problem has been so slow moving and continuous, 
I like the analogy of a frog slowly boiling in a pot of water over a 
flame. Policies like student debt cancelation are not extinguishing the 
flame--they aren't fixing the incentive problem. All you would be doing 
is moving the frog into a slightly cooler pot of water. And if we don't 
fix the core of the problem, even if you forgive $50,000 of debt for 
current borrowers, balances will continue to grow and we will be having 
another hearing with a similar theme in 10 or 20 years' time.
                  PREPARED STATEMENT OF ALEXANDER HOLT
       Policy Analyst, Committee for a Responsible Federal Budget
                             April 13, 2021
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

                   PREPARED STATEMENT OF ADAM LOONEY
  Executive Director, Marriner S. Eccles Institute, University of Utah
                             April 13, 2021
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

       RESPONSES TO WRITTEN QUESTIONS OF SENATOR KENNEDY
                      FROM JOHN F. REMONDI

Q.1. Can you discuss your role in the Federal student loan 
process?

A.1. Thank you for this important question. To best appreciate 
the reform proposals that Navient presented at the April 13, 
2021, hearing, it is critical to understand the origins of the 
current Federal student loan system and the role of companies, 
such as Navient, that provide services to the Federal 
Government for Federal student loans within the larger student 
loan ecosystem.

The Roles of Congress, the U.S. Department of Education, and Higher 
        Education Institutions

    In 2010, Congress passed, and President Barack Obama signed 
into law, the Health Care and Education Reconciliation Act of 
2010 \1\ (HCERA), which made the Federal Government, through 
its Direct Loan program, the exclusive originator and owner of 
all new Federal student loans. Congress sets the terms and 
conditions for how Federal loans are issued and repaid, and the 
Executive Branch is charged with issuing rules and regulations 
to implement the policy that Congress enacts. Specific terms 
and conditions that Congress sets include the loan program's 
interest rates, loan limits, and various repayment and 
deferment programs, such as income-driven repayment.
---------------------------------------------------------------------------
     \1\ Health Care and Education Reconciliation Act of 2010, 42 
U.S.C. 1305 (2010): https://www.govinfo.gov/content/pkg/PLAW-
111publ152/pdf/PLAW-111publ152.pdf.
---------------------------------------------------------------------------
    Individual colleges and universities set their own tuition 
and fees, and borrowers decide the amount needed to borrow 
based on their resources and the institution's cost and 
financial aid offers. The U.S. Department of Education issues 
loans according to the terms and conditions set by Congress, 
disbursing the loan funds directly to a school.

The Role of Loan Servicers

    For each loan it issues, the Department of Education 
appoints a company to track loan balances, post payments, and 
work with borrowers to help them repay their loans. The work 
includes responding to borrower problems and questions, and 
helping borrowers assess their many repayment options based on 
their individual circumstances--all with the objective of 
helping them to successfully pay off their loans.
    The Department of Education selects student loan servicers 
as Government contractors through an extensive and rigorous 
Federal Government procurement process. \2\ Student loan 
servicers begin to work with students only after they have 
borrowed--after Congress has set the loan terms, the higher 
education institution has set the tuition cost, and the loan 
proceeds have been spent.
---------------------------------------------------------------------------
     \2\ The Department of Education currently works with multiple 
servicers: Nelnet/Great Lakes ($469 billion in ED volume), PHEAA ($381 
billion in ED volume), Navient ($234 billion in ED volume), and several 
other smaller organizations including MOHELA, OSLA, and ED Financial 
(which, combined, service $152 billion in ED volume).
---------------------------------------------------------------------------
    The graphic below provides a helpful summary of the life 
cycle of a student loan, detailing the roles of various players 
within the system.



Q.2. Are student loan servicers to blame for problems the 
Federal Government created?

A.2. Many blame student loan servicers for the complexity of 
the Federal student loan program. However, the program's 
complexity is largely the result of layers of good intentions. 
It is not helpful nor productive to cast blame when it will 
require collective action to simplify the program and eliminate 
hurdles for borrowers' success.
    The role of student loans servicers is narrowly defined by 
the specific terms of our contract with the Department of 
Education. We recognize that, because we engage with and help 
borrowers every day, some observers erroneously believe that we 
have influence over loan policy and rules; when in fact we do 
not set these policies and rules. Our analysis of Federal 
student loan borrower complaints submitted through the Consumer 
Financial Protection Bureau (CFPB) portal shows that more than 
97 percent of complaints related to Federal policy or loan term 
disagreements, while only 2.7 percent related to loan servicer 
error. \3\ In fact, Federal student loan servicers have no say 
in interest rates or repayment terms, and we do not benefit 
from the interest paid on loans as they are owned by the 
Federal Government. Federal student loan servicers also have no 
authority to waive credit bureau reporting, lower interest 
rates or forgive student debts, which are some of the major 
concerns that borrowers identify.
---------------------------------------------------------------------------
     \3\ Navient, ``Analysis of Submissions From the CFPB Consumer 
Response Portal'', 2019, https://news.navient.com/static-files/
f440450e-bb37-46e2-a314-2c52d82b8713.
---------------------------------------------------------------------------
    This confusion over the role of servicers led to false and 
unfounded allegations at the April 13, 2021, hearing that 
require a response.
    First, Navient's subsidiary readily implemented all of the 
new guidance on reporting borrower complaints that came from a 
2013 Department of Education Inspector General report as soon 
as it was issued. Contrary to assertions at the hearing, our 
subsidiary was in full compliance with the Department's 
requirements--and, as a contractor should, made adjustments as 
the Department gave new guidance. Prior to the report, the 
Department's Federal Student Aid office only required private 
collection agencies, such as our subsidiary, to report written 
complaints, but not verbal complaints. The IG report found that 
FSA should require reporting on verbal complaints. FSA agreed 
and our subsidiary quickly implemented this new instruction.
    Second, Navient's primary mission has always been to help 
borrowers navigate a complicated student loan repayment 
process, helping borrowers to identify the best option that 
works for them in their particular situation. That is why 
Navient is the industry leader in helping borrowers avoid 
default. In fact, our borrowers are 34 percent less likely to 
default than borrowers served by other companies. We're also a 
leader in helping borrowers navigate the complexity of the 
approximately 60 Federal repayment options as 34 percent of all 
Federal borrowers we serve--51 percent of balances--are 
enrolled in income-driven repayment (IDR) plans. While certain 
cherry-picked accusations from the CFPB's lawsuit against 
Navient was referenced at the hearing, court discovery has 
shown that every borrower the CFPB identified had in fact 
received information from Navient about IDR plans, including 
before and immediately after enrolling in forbearance.
    Finally, despite statements made at the hearing otherwise, 
there has been no final finding that Navient owes the Federal 
Government $22 million for alleged overpayments. The U.S. 
District Court for the Eastern District of Virginia is 
reviewing this matter--the first independent judicial review of 
this issue to date. The case involves a technical issue that 
dealt with unique financing issued in 1993 and retired more 
than 15 years ago where we relied on guidance issued by the 
Department of Education. The outcome will have no effect on the 
terms of any student loan borrower accounts. Our practices at 
the time were consistent with Department of Education guidance, 
which was codified in a formal letter the Department had 
issued.

Q.3. In your opinion, what hurdles do student loan borrowers 
face in our current system? What can the Federal Government do 
better?

A.3. Through my regular call listening, I hear the challenges 
some borrowers face. The list below identifies some of the 
major drivers of student borrower struggles.

Student Borrower Hurdles

    First, college enrollment has increased with each 
generation and by more than 60 percent during the past 30 
years. \4\ While this has resulted in a record high college-
educated adult population, it has also been accompanied by 
lower Government investment in education, resulting in more 
students needing student loans to attend school.
---------------------------------------------------------------------------
     \4\ U.S. Bureau of Labor Statistics, ``Consumer Price Index for 
All Urban Consumers: Tuition, Other School Fees, and Childcare in U.S. 
City Average'' [CUSR0000SEEB]. Washington, DC: https://
fred.stlouisfed.org/series/CUSR0000SEEB.
---------------------------------------------------------------------------
    Second, the cost of college has skyrocketed. Since 1983, 
college costs have grown by more than 700 percent, an amount 
that both outpaces health care cost increases \5\ and is five 
times greater than the rate of inflation. \6\ While there are 
multiple components to higher education tuition pricing, the 
simple fact remains that the ever-increasing cost of attendance 
drives an increased need to borrow.
---------------------------------------------------------------------------
     \5\ U.S. Bureau of Labor Statistics, ``Consumer Price Index for 
All Urban Consumers: Medical Care in U.S. City Average'' [CPIMEDSL]. 
Washington, DC: https://fred.stlouisfed.org/series/CPIMEDSL.
     \6\ U.S. Bureau of Labor Statistics, ``Consumer Price Index for 
All Urban Consumers: All Items in U.S. City Average'' [CPIAUCSL], 
Washington, DC: https://fred.stlouisfed.org/series/CPIAUCSL.
---------------------------------------------------------------------------
    Third, even as the college enrollment rate has surged, many 
students do not graduate, and the data show that leaving school 
without a degree is the single largest factor driving student 
loan defaults. Department of Education data show that only 62 
percent of students pursuing a bachelor's degree graduate 
within 6 years, and the rate is even lower at less competitive 
or open enrollment colleges. \7\
---------------------------------------------------------------------------
     \7\ U.S. Department of Education, National Center for Education 
Statistics, ``The Condition of Education Undergraduate Retention and 
Graduation Rates''. Washington, DC: April, 2020. https://nces.ed.gov/
programs/coe/indicator-ctr.asp
---------------------------------------------------------------------------
    Fourth, graduate degree borrowing has been a significant 
factor in the growth in student debt. In 2006, graduate 
students became eligible to borrow the full cost of attendance 
(including living expenses) through the Government's Grad PLUS 
program. Graduate programs enroll only 15 percent of all 
students in higher education, yet they account for 40 percent 
of Federal student loans issued each year. \8\ The program has 
increased access for more people to pursue advanced degrees but 
has also caused a significant increase in outstanding student 
debt.
---------------------------------------------------------------------------
     \8\ Ben Miller, Center for American Progress, ``Graduate School 
Debt; Ideas for Reducing the $37 Billion in Annual Student Loans That 
No One Is Talking About''. Washington, DC: January, 2020. https://
www.americanprogress.org/issues/education-postsecondary/reports/2020/
01/13/479220/graduate-school-debt/
---------------------------------------------------------------------------
    Fifth, loan repayment options have grown exceedingly 
complex, and some of the options create confusion and 
challenges for borrowers. There are now nine different IDR 
plans--each with different pros and cons and eligibility 
requirements. These payment plans greatly increase monthly 
affordability. However, they also have the effect of stretching 
out payments to as long as 25 years and often increase total 
loan costs and the outstanding balance on the loan.

Actionable Solutions

    The good news is that there are several practical, 
achievable measures that Congress can pass to help current and 
future borrowers avoid or overcome these challenges. We group 
these in three categories here, and more detail is in the 
written testimony submitted for the April 13, 2021, hearing.
    First, Congress and the Administration should consider 
several targeted, practical loan forgiveness programs for those 
who have been attempting to pay for over 30 years and for those 
in default for over 10 years. We also recommend making student 
loans dischargeable in bankruptcy after a good faith period of 
repayment.
    Second, Congress should implement faster forgiveness 
programs for current and future borrowers, through enactment of 
a ``Forgive-As-You-Go'' plan. Congress can simplify the 
numerous repayment programs by combining similar programs into 
one that prevents loan balances from increasing over time and 
eases the enrollment process. Rather than wait for years to 
realize loan forgiveness, under Forgive-As-You-Go, borrowers 
would see their balance decline each month as they make their 
payments adjusted to their income and receive monthly loan 
forgiveness.
    Third, students should receive better support before they 
borrow and while enrolled in school to help more students 
achieve their goal of graduation. Simply put, borrowers who do 
not graduate face greater challenges than those who do. 
Increased education about borrowing would help students and 
their families understand the total cost to earn their degree, 
the amount they need to borrow, and how their program of study 
and career choices will help them repay their loans. The 
Government and higher education institutions can work together 
to improve these outcomes for current and future students.
    Navient stands ready to work with policymakers, members of 
Congress, and the Biden-Harris administration to bring about 
these and other important reforms.
                                ------                                


       RESPONSES TO WRITTEN QUESTIONS OF SENATOR KENNEDY
                     FROM JAMES H. STEELEY

Q.1. Can you discuss your role in the Federal student loan 
process?

A.1. PHEAA is a multifaceted Pennsylvania State agency offering 
student financial aid services throughout the Commonwealth, 
while also serving as an administrator of Pennsylvania student 
aid programs--all of which help students and families as they 
pursue an affordable postsecondary education.
    As you know, there are many facets within the Federal 
student loan and student aid programs. Congress initiates and 
passes legislation establishing Federal student loan programs 
such as the Federal Family Education Loan Program (FFELP)--
which the Federal Direct Loan program eliminated in 2010--the 
Public Service Loan Forgiveness Program (PSLF), and Teacher 
Loan Forgiveness, among others.
    Congress sets the terms for these loan programs, including 
interest rates, loan limits, borrower qualifications, and 
repayment and deferment plans, such as Income-Driven Repayment 
(IDR) and Income-Based Repayment (IBR). Congress has, over 
time, created multiple student loan repayment options, 
including nine different IDR plans, all with nuances and 
subparts which can be extremely complex and confusing to 
borrowers.
    Students choose where they purse their postsecondary 
education, be it a 4-year, 2-year, or other training 
opportunity. These institutions establish their tuition costs 
and fees, which is what a student uses to determine how much 
money they will need to borrow to fund their higher education.
    The U.S. Department of Education disburses the student's 
Federal loan directly to schools according to the loan 
program's terms as set by Congress. The Department of Education 
hires student loan servicers as Government contractors to 
perform loan servicing activities on those loans, such as 
tracking loan balances, applying payments, and counseling 
borrowers through their individual circumstances, with the goal 
of successfully achieving full repayment (or loan forgiveness).
    The hiring process to become a Federal loan servicer is a 
rigorous and competitive procurement process. Currently, there 
are six Federal student loan servicing entities.
    PHEAA became a Federal student loan servicer in 2009 and 
has since worked closely with student loan borrowers to help 
them achieve successful repayment. While this has been 
challenging as the Federal loan programs have undergone many 
complex expansions and revisions over the last 12 years, we 
remain steadfast in our mission as a public service State 
agency to assist borrowers throughout the Commonwealth and the 
Nation to responsibly manage their debt.
    PHEAA's role as a student loan servicer is just one of the 
areas in which we operate and assist students and families in 
navigating the student aid system, while creating affordable 
access to higher education for Pennsylvania students and their 
families.
    As a trusted public servant for nearly 60 years, PHEAA has 
helped generations of Pennsylvanians to afford higher 
education, while minimizing their reliance on student loan 
debt.
    PHEAA uses its earnings to support a variety of critical 
outreach and student aid awareness initiatives focused on 
helping students make wise choices early in the career and 
college planning process so they can avoid unnecessary student 
loan debt.

Q.2. Are student loan servicers to blame for problems the 
Federal Government created?

A.2. As a Federal student loan servicer, PHEAA is required to 
adhere to the laws as written by Congress and the rules and 
regulations set forth by the U.S. Department of Education. 
PHEAA is strictly bound by those laws and the terms of our 
servicing contract with the Department of Education; therefore, 
it is not within PHEAA's purview to unilaterally change or 
override any program rule or eligibility requirement. 
Nevertheless, PHEAA regularly advocates on behalf of borrowers 
with the Department of Education and continues to put forward 
proposed policy changes and collaborative suggestions that can 
positively improve both experiences and outcomes for students 
and borrowers.
    As a longstanding public servant and Federal loan servicer, 
PHEAA finds no value in assigning blame; rather, we endeavor to 
be part of the solution to any problem or challenge created by 
or associated with the Federal student aid programs.
    PHEAA has a history of providing Congress and the 
Department of Education with sound proposals for addressing 
issues, specifically within the PSLF program, that were most 
impactful for borrowers. We also established with the 
Department of Education a joint Task Force that meets biweekly 
to review borrower issues and implement further improvements to 
the PSLF Program.
    Since the Task Force's first meeting in December 2019, 
PHEAA has delivered on several crucial enhancements that have 
increased speed, accuracy, transparency, and flexibility for 
borrowers, including:

    A change in the lump sum requirements thereby 
        allowing borrowers to make a single payment to cover 
        and satisfy several monthly payments (which is 
        especially beneficial for military members)

    Supporting interaction with FSA's first tool 
        allowing borrowers to determine eligibility of most 
        qualifying employers

    The development of a single combined form for 
        Employment Certification for TEPSLF and PSLF

    Major enhancements to our borrower portal providing 
        full transparency for a PSLF borrower to review their 
        loan level payment history, the status of each payment 
        in terms of being eligible, qualifying or denied for 
        PSLF with further information as to reasons a payment 
        may not ``count.'' This level of detail provides every 
        PSLF borrower with the opportunity to submit a request 
        for an additional review on any nonqualifying payments.

Q.3. In your opinion, what hurdles do student loan borrowers 
face in our current system? What can the Federal Government do 
better?

A.3. The Federal loan programs are complex, confusing, and 
frequently changing. These changes make it difficult for 
borrowers to fully understand all the elements and nuances of 
the programs. Multiple repayment plans, various complicated 
forgiveness programs, and inconsistent messaging are all 
elements that should be improved for the borrower's benefits. 
Of course, the continued rising costs of a postsecondary 
education remains a difficult barrier for many.
    What is often lost in the press and among policy makers in 
regard to student loans and student loan servicers is, 
servicers only become involved after the debt is taken on by 
the borrower.
    Individuals make decisions about which school to attend, 
how much money to borrow and what career they intend to pursue, 
long before a servicer has any involvement in the repayment of 
their debt. Federal Direct Loans are often bundled together as 
part of an aid package so student borrowers frequently do not 
have the level of transparency that consumers have with other 
types of loans. As stated earlier, institutions of higher 
education determine their costs and fees and, again, servicers 
are not party to any of those decisions. Therefore, servicers 
are not able to influence costs, loan debt, repayment programs, 
or determine ability to repay.
    PHEAA works with borrowers to assist them in gaining a 
footing, within the parameters set forth by Congress and the 
Department of Education, in meeting the debt obligations they 
have in a manner that will be successful for them. The 
programs, as outlined here are complex and overwhelming for 
some; but, at the same time, serve as the only means by which 
many students can pursue their postsecondary goals.
    One example of program complexity is the PSLF Program. The 
premise for PSLF may sound basic, but the reality of the 
program's complexities has made the process challenging and 
continually frustrating for all involved.
    Congress created PSLF in 2007; however, the first servicing 
contract for PSLF was not awarded until late 2011, at which 
time PHEAA became the sole servicer. Prior to PHEAA being 
selected as the servicer for PSLF, public information on the 
program was largely limited to what was expressly written in 
the law; there was no Department of Education published 
guidance for borrowers to follow to ensure that all the program 
rules were being met--including having the right type of loan, 
being in the right repayment plan, and being employed by the 
right type of qualifying employer.
    It's important to note, that in 2007, when PSLF was 
created, approximately 75 percent of Federal borrowers had 
FFELP loans, loans that were ineligible for participation in 
PSLF as designated by Congress. In 2010, through the Health 
Care and Education Reconciliation Act of 2010 (HCERA), the 
FFELP program was eliminated and the Federal Government, 
through the Direct Loan program, became the exclusive 
originator and owner of all new Federal student loans. To 
qualify for PSLF, a borrower must have a Direct Loan; thus, it 
was not until the 2010-2011 academic year that all new Federal 
loan borrowers became Federal Direct Loan borrowers. This is 
highly relevant to the timing of when borrowers could become 
eligible for forgiveness.
    It was through PHEAA's partnership and collaboration with 
the Department of Education that resulted in the creation of 
the first Employer Certification Form (ECF), 5 years after 
establishment of the program. This form is critical to 
beginning the process towards loan forgiveness for a borrower 
interested in PSLF. While there was, and still is, no 
Department requirement for this form to be submitted on a 
regular basis, PHEAA encourages borrowers to recertify 
annually, which triggers a regular review of their eligibility 
status.
    Because employment must be verified to confirm eligibility 
for PSLF, PHEAA has long recommended the establishment of a 
publicly available eligible employer database to provide a tool 
to borrowers when considering their eligibility for PSLF. That 
database, first discussed in 2012, was implemented by the 
Department in 2020, 13 years after the program's inception.
    In 2018, Congress passed the Consolidated Appropriations 
Act, which provided additional conditions under which borrowers 
may become eligible for loan forgiveness through the Temporary 
Expansion of Public Service Loan Forgiveness (TEPSLF) Program.
    TEPSLF alleviated some of the confusion created by the lack 
of early program support by addressing which repayment plans 
may or may not be eligible for PSLF. However, while again, the 
premise was simple, complexities remain around TEPSLF.
    While the Office of Federal Student Aid (FSA) designated 
PHEAA as the only servicer of the PSLF and TEPSLF Programs, 
borrowers are not required to transfer their loans to PHEAA 
from their current servicer until they express interest in or 
apply for forgiveness. PSLF is, by its nature, a retroactive 
program looking at the employment and payment histories of 
individuals--in some cases long before PHEAA becomes their 
servicer.
    PSLF requires 120 qualifying payments to be eligible for 
forgiveness. There have been many headlines and statements made 
about a ``99 percent denial'' rate, which unfortunately, is 
quite misleading. Most of the ``denials'' to date have simply 
been due to the overwhelming majority of applicants having not 
yet been in repayment on an eligible direct loan for 10 years 
and made the necessary 120 qualifying payments while being 
employed by a qualifying employer. Therefore, rather than a 
``hard denial'', most of these applicants are just not 
eligible--yet. Since November 2020 (the date of the last 
published figures by the Department of Education), we have seen 
a steady upward trend of borrowers successfully achieving 
forgiveness and we expect to see more than $1 billion in loan 
forgiveness within the next 12 months.
    Much like ``Public Service Loan Forgiveness'' sounds like a 
simple concept, so does the idea that you ``make 120 payments 
and you are finished.'' This gives rise to such questions as, 
``Why does it take so long to count those payments'' or ``I 
made the payment, why doesn't it count?'' We fully understand 
the frustration of borrowers and of Congress seeking answers to 
those questions. Unfortunately, the rules of the Program as 
established by the Department, have various, mandated 
conditions with defined terms, including:

    Was the payment made on time?

    Was the payment early?

    Were there forbearance or other status changes on 
        the account?

    Was the repayment plan a qualifying plan?

    Does the employment qualify?

    PHEAA has worked diligently with the Department of 
Education to address these pain points and the confusion they 
cause for borrowers and has had some success in simplifying and 
streamlining the process.
    As stated here and in my hearing testimony, PHEAA has a 
great deal of experience and information in the operation these 
programs and strives to assist borrowers and families through 
what is too often a stressful process. We continue to offer our 
expertise to you, your colleagues, the Department of Education 
and others interested in finding real solutions to issues 
impacting students, families, and the aid programs. There is 
much we can do working together to make real improvements that 
will have immediate and long-lasting positive impacts on 
borrowers.
                                ------                                


       RESPONSES TO WRITTEN QUESTIONS OF SENATOR KENNEDY
                        FROM BETH AKERS

Q.1. If we cancel student loans today, what about next year's 
graduating class? What about those that have just paid off 
their loans?

A.1. Response not received in time for publication.

Q.2. Who stands to benefit most from student loan cancelation?

A.2. Response not received in time for publication.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR DAINES
                        FROM BETH AKERS

Q.1. Can you expound on why canceling debt is a poor idea 
beyond the fact that it is unfair to those who paid their loans 
off? More specifically, if we go down this road, how likely is 
this to become a recurring handout that distorts lending and 
borrowing practices?

A.1. Response not received in time for publication.

Q.2. I grew up on construction sites with my father, so I know 
how important hard skills learned by builders, plumbers, 
electricians, welders, roofers, and technicians are. Many of 
these folks secure high paying jobs before graduating, and are 
able to discharge their loans far more quickly than other 
elements of the labor force. Can you each explain how career 
and technical education should be prioritized as part of the 
strategy to address student debt?

A.2. Response not received in time for publication.
                                ------                                


       RESPONSES TO WRITTEN QUESTIONS OF SENATOR KENNEDY
                   FROM CONSTANTINE YANNELIS

Q.1. What kind of boost to income would debt cancelation even 
have for borrowers?

A.1. In regards to the effects of student debt on incomes, 
there is not a lot of evidence showing that canceling student 
debt would increase incomes. One of the most cited studies is 
actually by the current Chair of the Council of Economic 
advisers and former Dean of the Princeton policy school, 
Cecilia Rouse. The study actually finds that debt causes 
graduates to choose substantially higher salary jobs. So if we 
take the results of that study written by the Chair of Biden's 
Council of Economic advisers at face value, we would expect 
student debt cancelation to actually lower incomes. Now, there 
are a lot of reasons why the results in that study may not 
apply to the general population, and there are other studies 
including my own, for the sake of brevity let me just say that 
the evidence is mixed and there is not strong evidence that 
student debt cancelation, for the general population, will 
increase incomes.

Q.2. Is debt cancelation an effective method of stimulating the 
economy?

A.2. On the issue of student debt stimulating the economy, I 
think Jason Furman, the Chair of former President Obama's 
Council of Economic advisers put it best when he said that the 
effects would be ``close to zero.'' The reason why student debt 
cancelation is a poor form of stimulus is that most of the 
canceled payments would come far in the future, so we aren't 
really putting any money in anyone's pocket today. Even worse, 
for each dollar of canceled payments, the Government has to 
issue an additional dollar of debt or raise taxes. This could 
have negative effects on spending canceling out any potential 
positive effects of student debt cancelation.
    In sum, claims that student debt cancelation will have 
massive stimulative effects on the economy are at best 
uncertain, and in some cases clearly incorrect. Some of the 
claims being made today by those in favor of student loan 
cancelation appear detached from reality and the expert 
consensus.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR DAINES
                   FROM CONSTANTINE YANNELIS

Q.1. Many students are compelled to attend the best schools 
that will accept them regardless of their financial 
circumstances. Soaring tuition has made attending college 
prohibitively expensive. Will you share with me how debt 
cancelation fails to address the underlying causes of crushing 
student debt, and perpetuates the cost of education?

A.1. I agree that rising costs of college are an important 
issue. One thing to note is that canceling student debt might 
further increase the costs of college, if students anticipate 
future forgiveness.
    Predatory colleges might even use loan forgiveness as a 
recruiting tool to encourage students to take on more debt. A 
large body of recent academic work has shown that colleges 
capture Federal loans and grants by raising tuition. This is 
often referred to as the ``Bennett hypothesis.'' Simply 
canceling debt will do nothing to fix the ultimate cause of 
rising debt--high tuition and other expenses--and in several 
years we will be in the exact same situation.

Q.2. I grew up on construction sites with my father, so I know 
how important hard skills learned by builders, plumbers, 
electricians, welders, roofers, and technicians are. Many of 
these folks secure high paying jobs before graduating, and are 
able to discharge their loans far more quickly than other 
elements of the labor force. Can you each explain how career 
and technical education should be prioritized as part of the 
strategy to address student debt?

A.2. While there are many high-earning professions that do not 
require a college degree, individuals with higher educational 
attainment tend to earn more. While on average those who attend 
college and graduate school earn more, an important point is 
that there are large differences across school and degree 
types. Many students, particularly at less selective 
institutions and degrees might be better served attending 
shorter technical or vocational programs, rather than borrowing 
heavily for degrees with low returns. Separating which programs 
and degrees have high returns is an area where more data and 
analysis is needed.
                                ------                                


       RESPONSES TO WRITTEN QUESTIONS OF SENATOR KENNEDY
                      FROM ALEXANDER HOLT

Q.1. How would the Federal Government find the money to cancel 
student loan debt?

A.1. Canceling student debt would immediately increase the 
Federal deficit. Because the Federal Government itself owns 
most outstanding Federal student loan debt, it would not need 
to immediately raise additional funds to cancel that debt in 
the short term. Instead, policymakers would need to increase 
taxes, cut spending, or increase borrowing over time to replace 
lost debt repayments. The Committee for a Responsible Federal 
Budget estimates that canceling $10,000 of debt would cost 
about $245 billion, with a range of $210 billion to $280 
billion. Canceling $50,000 would cost $950 billion, with a 
range of $675 billion to $1.04 trillion. Full cancelation of 
the Federal student loan portfolio would cost around $1.57 
trillion. From an accounting perspective, the cost is added to 
the deficit immediately, while the impact on the debt would be 
more gradual.

Q.2. What are the fiscal trade-offs for forgiving student loan 
debt?

A.2. Blanket cancelation of student loan debt is trading debt 
for one group (individual borrowers today) with another (future 
taxpayers and beneficiaries of other Government programs). 
Unfortunately, student debt cancelation is both extremely 
expensive and regressive. For instance, a study by Sylvain 
Catherine and Constantine Yannelis shows that the top income 
decile receives more benefit than the bottom 30 percent of 
earners for either $10,000, $50,000, or full cancelation. As 
for the macroeconomic benefit, a new analysis published by the 
Committee for a Responsible Federal Budget shows that for each 
dollar spent on debt forgiveness, it would result in only about 
10 to 13 cents of economic output while most stimulus measures 
produce 50 cents to two dollars of output.
    The cost of canceling all Federal student debt itself is 
about 7 percent of 2021 GDP (though that cost would be added to 
the debt gradually). This cost rivals the size of the Tax Cuts 
and Jobs Act and the American Rescue Plan, which both cost $1.9 
trillion, and comes in the context of already high and rising 
national debt. Debt held by the public currently exceeds the 
size of the economy and is projected to reach a new record as a 
share of Gross Domestic Product (GDP) by the end of this fiscal 
year--eclipsing the previous record set immediately after World 
War II--before rising to a record 113 percent of GDP by the end 
of the decade under current law.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR DAINES
                      FROM ALEXANDER HOLT

Q.1. Can you expound on why canceling debt is a poor idea 
beyond the fact that it is unfair to those who paid their loans 
off? More specifically, if we go down this road, how likely is 
this to become a recurring handout that distorts lending and 
borrowing practices?

A.1. If some amount of student debt is canceled, it would be 
reasonable for a future student to think that there is at least 
a chance that their debt could be canceled. That will mean that 
some students will probably borrow more than they otherwise 
would have. This puts less pressure on higher education 
institutions to keep tuition down and therefore makes it easier 
to raise tuition and fees. As institutions increase prices, 
students would be forced to borrow more. And as students borrow 
more, calls for another round of debt forgiveness would 
increase, especially since students would be borrowing more 
since the last cancelation. This could evolve into an endless 
cycle of cancelation that would effectively render student 
borrowing meaningless. To the extent lawmakers are concerned 
about a student loan crisis, it would be more effective to 
correct for the causes of the crisis, as opposed to 
intermittently canceling debt without doing anything to control 
for the rising costs of higher education.

Q.2. I grew up on construction sites with my father, so I know 
how important hard skills learned by builders, plumbers, 
electricians, welders, roofers, and technicians are. Many of 
these folks secure high paying jobs before graduating, and are 
able to discharge their loans far more quickly than other 
elements of the labor force. Can you each explain how career 
and technical education should be prioritized as part of the 
strategy to address student debt?

A.2. Career and technical education is an important aspect of 
higher education. In certain instances, shorter-term programs 
can lead to high-paying jobs in important sectors in the 
economy.
    Apprenticeship programs can also be an effective way to 
teach skills while on the job. Overall, the Government should 
prioritize Federal financial aid to programs that lead to 
positive outcomes for students and scrutinize programs that 
leave students with high debt but no increase in earning 
potential. This is true for all types of programs in the 
Federal financial aid system. It's also worth noting that some 
career and technical education programs that operate outside of 
the Federal financial aid system can be quite successful when 
connected to employer needs in the communities the schools 
serve.
                                ------                                


       RESPONSES TO WRITTEN QUESTIONS OF SENATOR KENNEDY
                        FROM ADAM LOONEY

Q.1. Is student loan debt a major contributing factor for the 
decline in home ownership among young adults? What about 
marriage?

A.1. Young Americans face headwinds from two major recessions 
in the last decade, which has made it harder to embark on a 
successful career, and from surging home prices, which has 
delayed their ability to afford a home. However, individuals 
with a good quality college degree fared much better than other 
Americans in the labor market, are more likely to find a job, 
and typically earn higher incomes. That is an important reason 
why college graduates and even student loan borrowers are more 
likely to be able to purchase a home and are more likely to be 
married.
    Even among similarly situated individuals who have gone to 
college, the best evidence suggests that rising student loan 
balances are not the central cause of the decline in home 
ownership among younger Americans and can account for only a 
small share of the decline.
    Moreover, the effect of student debt may stem not directly 
from the amount of debt owed itself, but because some borrowers 
default on their loans, which impairs their credit and ability 
to take out a mortgage.

Q.2. Can you explain the correlation between college-educated 
individuals and income levels? How do they fair in comparison 
to those who never graduated college or only have a high school 
diploma?

A.2. College-educated individuals earn significantly more than 
those who never graduated from college or have only a high 
school diploma. They also are less likely to become unemployed, 
are healthier, wealthier, live longer lives, and enjoy many 
other benefits. For instance, the average bachelor's degree 
recipient earns about $1m more over a career than a worker with 
only a high school diploma. According to the Bureau of Labor 
Statistics, in May 2021, the unemployment rate of high school 
graduates was 6.8 percent, more than double the unemployment 
rate of individuals with a college degree (3.2 percent). 
According to the Federal Reserve's Survey of Consumer Finances, 
in 2019 the median net worth of households headed by a college 
graduate was $308,200. For households headed by an individual 
with a high school diploma, it was $74,000. A 25 year old with 
a college degree can expect to live more than 3 years longer 
than a 25 year old with only a high school diploma. For these 
and other reasons, postsecondary educational attainment rewards 
typical students with tangible benefits that outstrip the cost 
of tuition.
              Additional Material Supplied for the Record
  LETTER FROM MARION ROSS FEDRICK, PRESIDENT, ALBANY STATE UNIVERSITY
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

  JOINT LETTER FROM MARY SCHMIDT CAMPBELL, PRESIDENT, SPELMAN COLLEGE
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

           JOINT LETTER SUBMITTED BY SENATOR ELIZABETH WARREN
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

  FINAL ALERT MEMORANDUM FROM PATRICK J. HOWARD, ASSISTANT INSPECTOR 
GENERAL FOR AUDIT, DEPARTMENT OF EDUCATION, OFFICE OF INSPECTOR GENERAL
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

   LETTER FROM MARC EGAN, DIRECTOR OF GOVERNMENT RELATIONS, NATIONAL 
                         EDUCATION ASSOCIATION
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

          LETTER FROM JUSTIN DRAEGER, PRESIDENT AND CEO, ASFAA
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

          LETTER FROM SHERRY G. TAGGART, STUDENT LOAN BORROWER
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

                               [all]