[Senate Hearing 117-661]
[From the U.S. Government Publishing Office]




                                                        S. Hrg. 117-661


     PROTECTING STUDENT LOAN BORROWERS AND THE ECONOMY IN UPCOMING 
                              TRANSITIONS

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

                                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 STUDENT LOAN CRISIS

                               __________

                             JULY 27, 2021

                               __________

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


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



                Available at: https: //www.govinfo.gov /

                             _________
                              
                 U.S. GOVERNMENT PUBLISHING OFFICE
                 
52-109 PDF               WASHINGTON : 2023  






















            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, JULY 27, 2021

                                                                   Page

Opening statement of Chair Warren................................     1

                               WITNESSES

Letitia James, Attorney General for the State of New York........     3
    Prepared statement...........................................    25
Randi Weingarten, President, American Federation of Teachers.....     5
    Prepared statement...........................................    26
Persis Yu, Director, Student Loan Borrower Assistance Project, 
  National Consumer Law Center...................................     6
    Prepared statement...........................................    27

              Additional Material Supplied for the Record

Letter submitted by Sarah Ducich, Senior Vice President, Public 
  Policy and Government Relations, Navient.......................    35

                                 (iii)

 
     PROTECTING STUDENT LOAN BORROWERS AND THE ECONOMY IN UPCOMING 
                              TRANSITIONS

                              ----------                              


                         TUESDAY, JULY 27, 2021

                               U.S. Senate,
  Committee on Banking, Housing, and Urban Affairs,
                           Subcommittee on Economic Policy,
                                                    Washington, DC.
    The Subcommittee met at 3:03 p.m., via Webex and in room 
538, Dirksen Senate Office Building, 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 a hybrid format. Our Members are in person, but we will 
have witnesses who are testifying both in-person and by video.
    So, welcome to the second Economic Policy Subcommittee 
hearing on the student loan crisis. When we held our first 
hearing on this subject in April, I emphasized that the 
economic crisis caused by the pandemic and the pause on student 
loan payments increased the urgency to fix the program and to 
provide relief for millions of borrowers. Three months later, 
the student loan program is at a crossroads, and we should take 
advantage of the opportunity to make real change.
    The pause on student loan payments, interest, and 
collections that was put in place at the beginning of the 
pandemic is set to expire in about 2 months. This pause has 
shown how important it is to eliminate student debt. For some 
borrowers, the pause meant that they did not have to choose 
between food, rent, and paying student loan debt. For millions 
more, the pause gave them a chance to pay off other debt or 
even to put some savings aside. This was good for borrowers and 
good for our economy.
    Now the President should make these benefits permanent by 
using his authority to forgive $50,000 in student loan debt for 
all borrowers. In the meantime, it is critical that the 
Administration extend the payment pause, which is currently set 
to expire on September 30th.
    Earlier this month, I released the results of an 
investigation that found that student loan servicers were not 
ready for this pause to end. They need more time to connect 
with borrowers and more time to staff up to handle the needs of 
borrowers during the transition, and they are still waiting on 
important guidance from the Biden administration.
    Now there is a new set of complications that will take time 
to unravel. Two weeks ago, PHEAA, a large student loan servicer 
that has badly mismanaged the Public Service Loan Forgiveness 
Program, announced that they will be leaving the Federal 
student loan program. This is good news, very good news.
    PHEAA was responsible for failures in the Public Service 
Loan Forgiveness Program that have robbed untold numbers of 
borrowers of the debt cancellation that they were promised. The 
company has a nasty record of ripping off borrowers. Since 
2016, 9 different department reviews have uncovered problems 
with PHEAA's implementation of the program. PHEAA's problems 
were so extensive that they have been subject to four 
corrective action plans and two large fines.
    Despite these documented problems, when the company's CEO, 
James Steeley, appeared at our April hearing on student loans, 
he told what appeared to be a bald-faced lie about PHEAA's loan 
servicing record; he insisted that PHEAA had never been subject 
to department penalties. This was absolutely not true. When we 
learned about the actions taken by the Department of Education 
against PHEAA, Senator Kennedy and I sent a letter to Mr. 
Steeley, asking that he clarify the record. His response, which 
I am releasing today, is a mix of backsliding and denial that 
raises more questions than it answers.
    Senator Kennedy and I are from different parties, and we 
often hold different views, but we both believe in 
accountability. When a corporate CEO comes before our Committee 
to testify, we expect that person to be reasonably accurate 
and, if they make a mistake, to correct it as quickly as 
possible. Our job is oversight, and in this context it means 
that we have a responsibility to respond to misinformation and 
outright lies and to demand accountability for anyone who 
provides false and misleading testimony to Congress.
    As PHEAA leaves the student loan program, that is not the 
only problem we need to confront. Nearly 9 million borrowers 
will need to be transferred to a new servicer within a few 
months. This is no easy task, and the Administration has an 
important job to do to make sure that this transition happens 
smoothly.
    But this is also a rare opportunity for a fresh start and 
to make sure that the student loan program works the way it is 
supposed to. This is our best chance in years to build strong 
guardrails into student loan servicing contracts and to hold 
student loan servicers accountable if they screw things up. It 
is also a chance to fix the Public Service Loan Forgiveness 
Program, to make sure that our hardworking public servants get 
the relief that our Nation promised them.
    I appreciate our witnesses coming here today to give us 
perspective on how to make sure that that happens, and I will 
be working closely with the Education Department to provide 
student loan relief and to rebuild the student loan system so 
that it works in the best interest of borrowers.
    We have great witnesses with us today. First, joining us 
virtually, I am pleased to introduce the Honorable Tish James, 
the Attorney General for the State of New York. Attorney 
General James has been a fighter for student borrowers across 
her State, including bringing a case against PHEAA for its 
mismanagement of the Public Service Loan Forgiveness Program.
    Second, we have my good friend, Ms. Randi Weingarten, the 
President of the American Federation of Teachers. Ms. 
Weingarten represents more than a million public school 
teachers, nurses, and other dedicated public servants. She is a 
champion for debt relief on their behalf.
    And last, we have Ms. Persis Yu, the Director of Student 
Loan Borrower Assistance Project at the National Consumer Law 
Center. Ms. Yu is an expert on the student loan system and on 
consumer protection, and she is a tireless fighter on behalf of 
borrowers.
    I want to thank our witnesses for being with us today, and 
let us begin our testimony. Attorney General James, you are 
recognized for 5 minutes.

 STATEMENT OF LETITIA JAMES, ATTORNEY GENERAL FOR THE STATE OF 
                            NEW YORK

    Ms. James. Thank you, Madam Chair, and thank you for 
allowing me to testify virtually. I truly appreciate it.
    My name is Letitia James, and I am the Attorney General for 
the State of New York. Thank you for inviting me here today to 
discuss the challenges facing student loan borrowers and ways 
to protect them.
    Our office has significant experience protecting student 
loan borrowers based on our enforcement of State and Federal 
consumer protection laws. Since 2019, we have undertaken major 
investigations and actions against for-profit college, student 
lenders, and student loan servicers. Our work resulted in a $9 
million settlement with Federal student loan servicer conduit, 
formerly known as ACS, that provided relief to more than 40,000 
New York borrowers, $7.5 million in debt relief to more than 
900 New York students at the now defunct for-profit college, 
ITT Tech, and a settlement with Transworld Systems, a student 
loan debt collector, which resulted in $600,000 in restitution 
and penalties.
    Our investigations have revealed that student loan 
borrowers are being harmed by the misconduct of student loan 
servicers. In fact in October 2019, my office filed a lawsuit 
against the Pennsylvania Higher Education Assistance Agency, 
PHEAA, one of the Nation's largest student loan servicers, for 
its mismanagement of the Public Service Loan Forgiveness 
Program. This program allows individuals who work in public 
service, like teachers and nurses and members of the Armed 
Forces, to have their loans forgiven after making qualifying 
payments for 10 years.
    And as we allege in our lawsuit, PHEAA, operating under the 
name, FedLoan Servicing, failed these hardworking people by not 
accurately counting PSLF qualifying payments, failing to 
provide timely explanations of their determinations, and 
failing to inform borrowers of their options to challenge 
FedLoan's mistakes. As set forth in our lawsuit, FedLoan's 
inability to properly administer the program contributed to the 
shockingly high rate of rejection of PSLF forgiveness 
applications. When we filed our lawsuit, more than 98 percent 
of the applications were rejected as ineligible for 
forgiveness.
    And PHEAA recently announced, as you indicated, Madam 
Chair, that it will not be renewing its contract with the 
Department of Education. However, State and Federal 
investigations have revealed that servicer misconduct extends 
beyond a single servicer. The widespread misconduct stems in 
part from the absence of comprehensive Federal servicing 
standards.
    To prevent misconduct from continuing, the Department 
should implement such standards, including requiring servicers 
to provide accurate and timely information about income-driven 
repayment plans and public student loan forgiveness 
eligibility, requiring servicers to act in the best interest of 
borrowers, imposing robust quality assurance measures, 
implementing mechanisms for borrowers to appeal servicer 
actions, requiring timely processing of borrower submissions, 
and penalizing servicers who violate State and Federal consumer 
protection laws, including by reallocating the Federal student 
loan portfolio to other servicers.
    In addition, the Department of Education should provide 
relief to borrowers who have been harmed by servicer 
misconduct, including by retroactively crediting public student 
loan forgiveness borrowers with qualifying payments. The 
Department should also ensure that the onus is on the servicer, 
not the borrower, to identify and correct servicer error. In 
addition, where State and Federal investigations reveal 
systemic errors, the Department should provide broad, across-
the-board relief to harmed borrowers.
    The Department should also continue its work to reverse 
former Secretary DeVos's action to shield Federal servicers 
from State oversight. We applaud the Department for taking 
steps to restore information sharing with State attorney 
general offices. The Department should also retract the former 
Secretary's March 2018 notice that stated the position that 
State consumer protection laws are preempted by Federal law 
with respect to Federal loan servicers. Retracting this ill-
conceived notice will assure that States can continue their 
important work to protect borrowers in our States.
    In addition, Congress should expand access to public 
student loan forgiveness to all Federal loan borrowers who 
devote 10 years to public service regardless of the type of 
Federal loan or loan repayment plan. Expanding eligibility to 
encompass all such borrowers will provide relief to many who 
were victims of servicer error and will result in a fairer, 
more consistent, and more equitable public student loan 
forgiveness program.
    And finally, the Federal Government should take action to 
cancel a substantial amount of Federal student debt. I co-led a 
multistate coalition of 17 attorneys general, urging the 
adoption of House and Senate resolutions that call for the 
cancellation of up to $50,000 in Federal student debt for all 
Federal student loan borrowers. Canceling this debt will help 
free borrowers burdened by loan payments and allow them to move 
forward with their lives as well as help to close the racial 
and gender wealth gap.
    The student debt crisis has been exasperated by misconduct 
by student loan servicers. It is imperative that we create 
safeguards--rail guards, as you indicated--that protect 
students from servicer misconduct, especially students who work 
and who have made a commitment to the public good benefit that 
all of us enjoy. My office is committed to protecting students 
and student borrowers in New York State and across this 
country, and I thank you for allowing me the opportunity to 
testify today.
    Chair Warren. Thank you very much, General James. We really 
appreciate it.
    President Weingarten, you are recognized for 5 minutes.

 STATEMENT OF RANDI WEINGARTEN, PRESIDENT, AMERICAN FEDERATION 
                          OF TEACHERS

    Ms. Weingarten. Thank you, Senator.
    [Audio interruption.]
    Ms. Weingarten. Good afternoon. My name is Randi 
Weingarten, and I am the President of the American Federation 
of Teachers, and I am honored to be testifying before this 
Committee on this topic. Our union represents 1.7 million 
teachers and paraprofessionals, nurses, higher education 
faculty and staff, and public employees. In other words, we 
represent and work in the professions that make a difference in 
the lives of others, professions that require a college degree, 
which means our members have been increasingly burdened by 
unsustainable college debt.
    Over the last year-and-a-half, members of these very 
professions have done heroic work, keeping our communities up 
and running, caring for COVID patients, and educating our 
children during a school year like no other. Our teachers and 
school staff from pre-K through college are planning right now 
a full return to in-person learning, and they know they will 
need to make their students feel safe and welcome amid the 
myriad of crises that are facing the Nation right now. And 
frankly, the survey we did with the RAND Corporation this 
summer showed that 78 percent of teachers report experiencing 
frequent job-related stress during this pandemic, almost twice 
as much as other working adults. So for now, for many of them, 
the looming restart of student loan payments in this fall is 
deeply concerning and potentially ruinous financially, as you 
said, Chair Warren.
    So I am here on their behalf to raise these concerns, 
especially in light of the news that PHEAA will no longer 
service student loans. Most AFT members are eligible for PSLF, 
but after 3\1/2\ years, the Education Department is still 
rejecting 98 percent of applications and has nearly 150,000 
PSLF applications in backlog. What AG James just said is true 
across the board.
    The Biden administration inherited a broken system and 
wisely extended the pause on student debt that the Trump 
administration enacted. Combined, the two have effectively 
canceled over $90 billion in student loan interest, showing 
that the Administration can cancel student debt. The Biden 
administration and the Education Department can restore the 
promise of PSLF right now before student loan payments resume 
this September and immediately discharge debts for all 
borrowers who have completed at least a decade of public 
service while paying their Federal student loans.
    Borrowers need relief, not a mirage. They need help from a 
Government that promised to forgive the remainder of any debt 
still unpaid after 10 years of payments if they went into 
public service. Public service work is valuable and should not 
lead to a lifetime of debt that forced people to make--forced 
them into terrible decisions about whether to pay their loans 
or buy a home or raise a family.
    Let me give you one example in the short time I have left: 
Christine Conlon, a school-based occupational therapist in 
Staten Island, New York. For years, Christine kept detailed 
notes about her student loan payments, but she could not get 
PHEAA to reconcile its records with the evidence she repeatedly 
provided them. She should be just a few years away from PSLF if 
not for the problem of PHEAA, but PHEAA will not--they have 
lied repeatedly to her, including telling her she should just 
give up on public service loan forgiveness.
    Look, the AFT has made extraordinary efforts, as you all 
know, to make PSLF work, including going to court to seek 
justice that our members need. And while servicer errors have 
plagued the PSLF program for years, this has become blindingly 
apparent during the last Administration.
    I know, and I am glad, that the Biden-Harris administration 
seems primed to hold servicers accountable, like PHEAA, but 
what we are seeing is that they are running for the doors 
because they know how catastrophic they have been. If the 
Administration does not cancel student debt for public service 
workers before the fall, millions of them will be forced to 
transfer the loans that PHEAA currently has to no servicers and 
the new servicers will inherit loans with paper trails that 
will never be able to be untangled.
    The problem is clear. The solutions are clear as well. The 
Administration should cancel debt for all public service 
workers who have paid their debts for a decade and should 
cancel the debt of $50,000 of debt per borrower for the 
following reasons: These actions will make a big difference for 
all communities, particularly communities of color. Ninety-
three percent of the lowest-income Black households hold 
student debt, and they would experience substantial relief. In 
fact, debt cancellation would be an immediate and long-lasting 
stimulus to our economy, increasing average yearly pay by 
$3,000, and increasing the gross domestic product by $1 
trillion.
    We know that the Ed Department is trying, but right now is 
the moment to cancel up to $50,000 of debt and to do the work 
that we need to do to fix PSLF in the future. Thank you.
    Chair Warren. Thank you, President Weingarten.
    Ms. Yu, you are recognized for 5 minutes.

    STATEMENT OF PERSIS YU, DIRECTOR, STUDENT LOAN BORROWER 
        ASSISTANCE PROJECT, NATIONAL CONSUMER LAW CENTER

    Ms. Yu. Good afternoon. Chairwoman Warren, Members of the 
Committee, thank you for inviting me to testify today regarding 
how to protect student loan borrowers in the upcoming 
transitions in the student loan system. My name is Persis Yu. I 
am the Director of the National Consumer Law Center's Student 
Loan Borrower Assistance Project, and I offer my testimony here 
today on behalf of our low-income clients of the National 
Consumer Law Center.
    Our clients and millions of others like them take out 
student loans believing that they are the key to a better 
future. The vast majority of clients that I see are low-income 
women of color, who wanted to provide a better life for their 
children but are stuck instead in a cycle of inescapable debt.
    The student loan system is broken and has been broken for a 
very long time. Currently, in the United States, nearly 45 
million people owe more than $1.7 trillion on their student 
loans. Prior to the pandemic, roughly a quarter of Federal loan 
borrowers were delinquent or in default on their loans. Racial 
disparities in the student loan portfolio threaten the 
financial security of borrowers of color, with Black and Latinx 
borrowers defaulting at twice the rate of their White peers. 
Cruelly, the communities hit hardest by the student loan crisis 
are also the communities hit the hardest by the pandemic.
    The COVID-19 payment suspension, which provided vital 
protections to many of our clients throughout the pandemic, is 
currently set to expire on September 30th, just a few short 
months away. And on top of this looming deadline, two of the 
Department of Education's loan servicers, PHEAA and also 
Granite State servicers, have announced they will not be 
extending their contracts this December, meaning that roughly 
10 million borrowers will need to transfer their loan 
servicers.
    Student loan borrowers, low-income and otherwise vulnerable 
borrowers in particular, are at significant risk during these 
upcoming transitions. The combination of restarting payments 
along with the risks associated with large-scale loan transfers 
by servicers who have a long history of failing to adequate 
serve student loan borrowers will have dire consequences unless 
meaningful consumer protections are put in place to protect 
these borrowers.
    The end of the COVID-19 payment suspension, on its own, 
poses unprecedented challenges and is fraught with risk. 
Historical data from the Department shows that default rates 
typically spike following disaster-related forbearances. My 
clients and others like them face severe consequences if they 
default on their Federal student loans. The punitive collection 
tactics, such as wage garnishment, Social Security offsets, and 
tax refund offsets, often push low-income households to or even 
over the financial brink.
    I have heard from hundreds of borrowers who have lost their 
earned income tax credits and child tax credits due to default 
on their Federal student loans. These payments are designed to 
support families and lift millions of children out of poverty, 
but if a family has experienced student loan default, these 
payments may be seized in their entirety. The loss of the EITC 
and the CTC is devastating to my clients and their families. I 
have had clients unable to access stable housing. I have had 
clients unable to buy diapers, food, basic necessities for 
their children because of these offsets. Simply put, the 
student debt crisis was hampering our families' economic 
stability even before the pandemic.
    Notably, there are already approximately 9 million 
borrowers in default on their--on their student loans. The 
Department should immediately remove these borrowers from 
default. Otherwise, they will be subject to the Government's 
draconian collection powers as soon as the suspension ends.
    As the Department restarts payments for tens of millions of 
student loan borrowers, high-quality servicing is paramount. 
Getting borrowers into an affordable income-driven payment 
plan, or IDR, will be particularly important for ensuring 
borrowers' success. But starting repayment while also 
simultaneously transferring roughly 10 million borrowers will 
make this goal nearly impossible. The consequences of this 
massive and imminent transfer will impact all borrowers in the 
Department's loan portfolio.
    The remaining servicers will need to rapidly staff up and 
train a whole cadre of customer service representatives in a 
very short amount of time in order to absorb the accounts of 
nearly a third of the direct loan portfolio. At a time when two 
major changes are occurring for student loan borrowers, 
borrowers need the best servicing possible. Instead, they will 
likely receive--they will likely encounter inexperienced 
customer service representatives and servicers who are 
stretched too thin. Even in ordinary circumstances, errors in 
student loan servicing are common and often result in borrowers 
missing out on relief programs or on qualifying payments for 
IDR or PSLF. These mistakes cause borrowers to pay more and for 
a longer period of time.
    Fairness and justice require that these borrowers have the 
ability to enforce their rights when breached by servicers and 
obtain adequate remedies. Policymakers must also recognize that 
for many borrowers the harm from a bungled transition will come 
on top of years, if not decades, of financial distress and 
dreams postponed as a result of our broken student loan system.
    Widespread administrative debt cancellation is needed now. 
The student loan system has failed borrowers for too long. In 
addition to widespread administrative debt cancellation, the 
Department should clear the books of borrowers who are unlikely 
to ever repay their debts and automatically provide relief to 
all of the borrowers who are already entitled to cancellation 
under law. In addition to providing much-needed relief to these 
borrowers, if done prior to the restart of repayments, these 
steps will eliminate the debts of many of the hardest to reach 
borrowers and will allow servicers to dedicate their resources 
to ensuring the success of the remaining borrowers.
    Thank you for the close attention you are paying to 
protecting student loan borrowers in the upcoming transitions 
and for the opportunity to provide this testimony. I look 
forward to your questions.
    Chair Warren. Thank you very much. I Appreciate all of your 
testimony here.
    So I now yield to myself for 5 minutes of questions. The 
first hearing that we held in this Subcommittee just a few 
months ago focused on student loan servicers. These are the 
private companies that manage student loans for the Federal 
Government. During that hearing, I asked the CEO of PHEAA, one 
of the largest servicers in the country, whether the Department 
of Education had ever penalized his company in any way for its 
blatant mismanagement of the Public Service Loan Forgiveness 
Program or PSLF. He told me, ``No, they have not,'' but it 
turns out that was not true.
    After the hearing, the Department of Education sent Senator 
Kennedy and me a letter detailing the multiple penalties PHEAA 
has faced. So Senator Kennedy and I wrote to PHEAA's CEO, 
asking him why he had lied to Congress. Two weeks later, PHEAA 
announced they would be quitting the student loan program when 
their contract expires in December.
    Attorney General James, your office has had multiple 
dealings with PHEAA, including suing them for mismanaging the 
Public Service Loan Forgiveness Program. Based on what you have 
seen in New York, are you sorry to see PHEAA quit the student 
loan program?
    Ms. James. I think PHEAA's exit is an opportunity for a 
fresh start. As we allege in our lawsuit, PHEAA failed the 
teachers, the nurses, the social workers, those who serviced in 
the military by failing to accurately count these qualifying 
payments, failing to provide timely explanations of their 
determinations, failing to inform borrowers of their options to 
challenge their mistakes. Public workers who fulfill their 
obligations to the public should be able to get the debt relief 
they earn, and we are hopeful that the Department of Education 
will work with our office and other State and Federal partners 
to ensure that in the future that the public student loan 
forgiveness program fulfills its promise.
    Our case, as you know, is in the midst of discovery, and we 
will continue our litigation and hopefully get the relief that 
countless number of borrowers so desperately need, not only in 
New York but all across the country.
    Chair Warren. Thank you. You know, I think we all know what 
happened here. PHEAA realized that Congress and the Department 
of Education and the attorneys general were finally starting to 
hold them accountable for cheating borrowers and lying about 
it, so they turned and ran. I am glad they are gone. All 8.5 
million of the accounts that PHEAA currently handles now must 
be turned over to the student loan servicers.
    Ms. Yu, did the contract that PHEAA has with the Department 
of Education have any requirements in it obligating PHEAA to 
protect borrowers if they suddenly decided to quit?
    Ms. Yu. The contracts provide no meaningful requirements to 
borrowers in the case that they suddenly decide to quit, and 
importantly, they do not provide the meaningful relief to the 
borrowers if they get harmed, as indicated by General James.
    Chair Warren. OK. So let us talk a little bit about that. 
The Department is currently negotiating with PHEAA over what 
they need to do when PHEAA walks away. What specifically do you 
think the Department of Education should require from PHEAA to 
make sure that student loan borrowers are not hurt even more 
during the transition to a new servicer?
    Ms. Yu. Well, first of all, we need to learn from the 
lessons of the transfer from ACS a number of years ago. We need 
to learn that borrowers must have complete and full payment 
histories, and that includes the payment histories from prior 
servicers as well as the payment histories when the borrower is 
with PHEAA. They need to also transfer any records of 
complaints, any information where borrowers may have disputes 
about the loan system as well. And we need to be proactive 
about identifying vulnerable borrowers who might get lost in 
this transfer. But, critically, we need to understand that 
inevitably some borrowers will get harmed in this transfer, and 
we need to make sure that we have adequate remedies available 
to those borrowers.
    Chair Warren. I think that is a really important point. You 
know, President Weingarten made the point that PHEAA has done 
such a bad job of accounting for the loan payments that people 
have been making, but expecting them suddenly to have 100 
percent compliance when they make the transition, and they are 
not even going to stay in the business is pretty unrealistic. I 
thought you made a very powerful point about that.
    Look, our student loan system is broken more than just 
PHEAA. I have been saying for years that the Department of 
Education needs to do more to hold all student loan servicers 
accountable when they break the law or when they hurt 
borrowers, and for years the excuse has been that there is no 
alternative to working with these incompetent companies because 
there is no plan for how to get by without them. Contracts get 
renewed year after year after year, with no accountability and 
no consequences for bad behavior and zero provisions about what 
the companies would do if they went under or if they walked 
away. When the Federal Government props up companies like that, 
that is the definition of ``too big to fail.''
    Now in December, all of our servicer contracts will be up 
for renewal, not just PHEAA's but all of them, which means that 
right now the Department of Education is negotiating over what 
conditions these companies will have to agree to in order to 
keep making money off the student loan borrowers.
    Ms. Yu, what would loan servicing contracts with real teeth 
to protect our students look like?
    Ms. Yu. Yeah, thank you for your question. There needs to 
be real penalties for poor performance and abuse practices, and 
the Department needs to proactively look for those and do 
screenings. But the Department also needs to get out of the way 
of State attorneys general, like General James. And for private 
borrowers who are seeking relief using the State consumer 
protection laws, they need to rescind the notice on preemption 
that Attorney General James mentioned before but also prevent 
servicers from raising defenses such as preemption or 
derivative sovereign immunity, which are intended to shield 
them from liability and prevent them from giving borrowers real 
relief.
    Chair Warren. Thank you. We need to get control of our 
broken loan servicing system so that we never end up in this 
situations again. Right now, the incentives in the servicers' 
contracts are not strong enough to get them to change their 
behavior, and the penalties are nothing more than a slap on the 
wrist when the companies injure student loan borrowers. We have 
an opportunity over the next year to write new rules that will 
tell servicers that if they do a great job servicing the 
borrowers then they will be rewarded and if they mislead the 
borrowers or break the law then they are out. That is fair for 
everyone.
    I now recognize Senator Reed for his questions.
    Senator Reed. Thank you very much, Madam Chairman, and 
welcome to the witnesses.
    I must first recognize one of the AFT attendees, Sarah 
Tammelleo. I first met Sarah more than 30 years ago when she 
was in grammar school. She was handing out brochures for Jack 
Reed at a polling place at Park View Junior High School in 
Cranston, Rhode Island. Nice to see you again. And because of 
you I am here, and I do not blame you. I do not blame you.
    This is absolutely critical, and the Chair has raised a 
number of important issues. One legislative initiative I have 
been working on for years is to have those lenders with high 
default rates share the cost on a graduated basis, which I 
think will ensure that they provide the sort of loans for 
education that will lead to real jobs and real pay and the 
ability to pay back the loans. That is just one aspect. That 
might even be in the contract, I hope, negotiations that are 
going in now.
    But one of the areas--and I thought I would get President 
Weingarten's comments on this--is the educator pipeline. We 
need more educators. We have to have legislation that addresses 
this program, that touches capacity at the lower levels of 
communities, States, et cetera. One of the ideas we are talking 
about is doubling or increasing the TEACH grant to $8,000 per 
year and make it easier for educators to complete and get their 
credit.
    As you have talked about, we have to make loan forgiveness 
simpler. I believe it should be not at the end of 5 or 10 
years, but it should be progressive throughout your period of 
time so that in fact you can see some real tangible benefits 
early in terms of the commitment to public service.
    Any comments, President Weingarten?
    Ms. Weingarten. Thank you, Senator. So there are many 
things that could help solve the problems of how do we recruit 
and retain people in public service, people in teaching, and 
the TEACH grants are part of that, the doubling of Title I.
    Senator Van Hollen has had this great idea about the PACT 
Act in terms of how you increase both Title I and IDEA in a way 
that schools with kids with special needs or schools with kids 
who are poor or impoverished, they have a long--they have an 
understandable and tangible Federal investment that you can 
count on over multiple years, so you change the conditions in 
schools and people want to be in those schools. Parents want to 
send their kids there. Teachers want to teach there. Kids 
thrive there. So there is lots of different ways to try to 
recruit and retain over the long period of time.
    The dilemma right now is that with the pause ending in---
you know, in less--essentially, in less than 2 months, what is 
happening is that there is going to be this jolt on people. And 
none of the changes that were supposed to be made to make PSLF 
more functionable, more available, they have not happened yet. 
So you are going to have people who are all of a sudden going 
to be paying 400, 500, 800, 1,000 dollars a month at the same 
time as all of these existing problems still exist. So--and at 
the same time as they are going back to school for the first 
time, with a Delta variant and things like that.
    So that is why this urgency right now is so important in 
the short term as well as then dealing with your ideas for 
residencies, your ideas for how we recruit and retain, 
including the TEACH grants, for the longer term.
    Senator Reed. Thank you very much. And just a quick slight 
detour, I think very slight. School infrastructure is one of 
the major issues that I have been trying to advance in our 
various proposals for Rebuild America.
    Just a quick comment, President Weingarten, the schools in 
most communities are old and need a lot of work, and if we do 
not provide the resources, it goes to your point about why 
would a child want to go to a place that just does not work. 
And some of our communities keep the windows open all winter 
and children in coats so they could just stay in the classroom. 
I presume that you would strongly support this effort.
    Ms. Weingarten. I would strongly support this effort. Let 
me just give you this one example of this amazing school in New 
York City, Martin Luther King High School. The ventilation 
system never worked. Never worked. And with the CARES Act money 
that you helped get us--that you helped get us, we were able to 
work with the private sector to figure out why the ventilation 
system did not work. This school was built in the 1970s.
    I was the president of the teachers union in New York City 
for 10 years. I could not get the ventilation system to work. 
The CARES Act money, the work with a focus on ventilation, you 
walk into that school now, you can breathe. I am an asthmatic. 
I could breathe with a mask on. Could you imagine what that 
means for the thousands of kids who go into that school?
    And that is the kind of work that we need all throughout 
the country. Two-thirds of the country has ventilation systems 
in schools that are not appropriate. We need that money for 
infrastructure. It will create jobs. It will help kids breathe. 
And it will help us have a safe return to schooling this fall.
    Senator Reed. Thank you very much. Thank you, Madam 
Chairman.
    Chair Warren. Thank you, Senator Reed.
    Senator Van Hollen.
    Senator Van Hollen. Thank you. Thank you, Madam Chairman. 
Thank you for holding another hearing on this important issue, 
and thank you to all our witnesses for your efforts to make 
sure that we ultimately uphold the promise of the Public 
Service Loan Forgiveness Program.
    And, President Weingarten, thank you for mentioning the 
Keep Our Promises to America's Children and Teachers Act. With 
your help, we will get it over the finish line. And I was 
pleased to see the President's budget requests for both Title I 
and for IDEA. We need to make sure that is something that stays 
with us over the years.
    So you know, I represent a State where we have lots of 
folks who are engaged in public service, either Federal 
employees, of course, like other States, State employees, lots 
of nonprofit professionals. And they all were hoping to be 
beneficiaries of this program, this loan forgiveness program 
for public service, when they embarked on those careers, only 
to find out in many circumstances that they were at a dead end 
for various reasons. And we have all heard the very startling 
figure of the 98 percent denial rate, and we have got to turn 
that around.
    Attorney General James, thank you for all your efforts with 
respect to PHEAA and your lawsuit against PHEAA. Where do you 
think we can go from here in terms of remedy, and what 
administrative actions can the Biden administration take to 
help supply a remedy?
    Ms. James. Well, hopefully going forward, as they renew 
these contracts with the servicers, again requiring servicers 
to provide accurate and timely information about income-driven 
repayment plans and eligibility, requiring servicers to act in 
the best interest of borrowers and not the servicers 
themselves, imposing robust quality assurance measures, 
implementing mechanisms to borrowers to appeal servicer 
actions.
    Making--streamlining the process is so critically 
important. Staffing up is important. Requiring a timely 
processing of their submissions of the applications and again 
penalizing servicers who violate State and Federal law is so 
critically important. But also, just expanding the Public 
Service Loan Forgiveness Program to other Federal student loan 
borrowers would also be helpful.
    It is important to note that there are 45 million student 
loan borrowers in this country. We are only second in consumer 
loans to mortgages. And it is really critically important that 
we help Americans and that we ensure that these servicers are 
working in the best interest of borrowers, and that is so 
critically important.
    And last, as was mentioned by my colleagues, we need to 
extend the pause period, particularly during this epidemic and 
as we face new dangers. It is important that individuals have 
an opportunity to get back on track and that individuals are 
put in a position so they can pay their debt in a fashion and 
in a manner and in a time when it is most appropriate to them.
    Senator Van Hollen. Well, thank you for your good work in 
this area.
    And, Ms. Yu, thank you and the National Consumer Law Center 
for the work that you have been doing. And I saw that, together 
with the Center for Responsible Lending, you looked at some of 
the Department of Education borrowers, 428,000-plus, that were 
serviced by Navient, who collectively owe over $28 billion. And 
as I understand, the analysis that showed nearly two-thirds of 
these borrowers, who made payments during COVID, still had not 
paid--been able to repay dollar one of their principal, so they 
were underwater in that sense, and that, of those, almost 
90,000 borrowers owe more than 125 percent of their original 
balance now.
    So how much of this is due, in your opinion, to the 
servicer sort of malfeasance and outright negligence? And how 
do we fix this problem going forward?
    Ms. Yu. Thank you for your question, Senator. Servicer 
abuses absolutely keep borrowers out of affordable repayment 
plans which allow them to make progress on their student loans. 
When servicers--one of the very common problems that we see is 
that servicers steer borrowers into costly deferments and 
forbearances. And what that does is interest continues to 
accrue, and then after that interest accrues, it is 
capitalized. So we see that not only are borrowers being 
charged interest, but they are being charged on top of 
interest.
    We see actions by State attorneys general, by the CFPB, to 
hold servicers accountable for those actions, but we also 
need--we need more of those actions. We need the Department to 
take proactive steps to remedy that. But we also need to see 
borrowers given retroactive credit for the payments that they 
should have been able to make, and we need to see servicers 
held more accountable and to pay borrowers restitution for 
those--for those harms.
    Senator Van Hollen. Well, thank you. I look forward to 
working with all of you and Senator Warren and Members of the 
Committee to try to make this right for these students and 
borrowers. Thank you.
    Chair Warren. Thank you, Senator Van Hollen.
    Senator Smith.
    Senator Smith. Thank you so much, Chair Warren. Sounds 
great. And I really appreciate our testifiers who are here 
today.
    So the student debt crisis is out of control. We know this, 
and we have had an opportunity to really explore it during this 
hearing and the last hearing we held earlier this year. And I 
can tell you I hear from Minnesotans, my constituents, about 
this all the time. People that are struggling to carry student 
loan debt. This debt which is stifling their opportunity to 
become entrepreneurs or innovators or public servants, which is 
what they want to do. And this is bad.
    But what is worse is that borrowers who worked hard, who 
have made major life decisions, like committing to public 
service, and then in return not seeing that promised loan 
forgiveness that led them to make these decisions to begin 
with, only to find that because of some bureaucratic SNAFU they 
are not eligible, apparently, for student loan forgiveness at 
all.
    So this kind of debt relief would open the door for 
millions of Americans to have the freedom and the opportunity 
to build the lives that they want. And that is why it is so 
important that the Federal Government address this challenge 
and, I think, forgive up to $50,000 of student loan debt.
    Now, President Weingarten, I have heard from many 
Minnesotans, including of course many educators, about their 
struggles with the Public Service Loan Forgiveness Program. And 
as I said, they have done everything they have been asked to 
do, only to find that the servicer tells them everything is 
fine, everything is fine, until it is not fine. After years of 
making payments, they discover that they are not eligible for 
getting their remaining student loans forgiven.
    So I would like to ask you about a specific piece of this. 
You and I have spoken many times about the challenges of 
recruiting and retaining teachers, especially teachers of 
color. Can you tell me how you think these deep challenges with 
the public loan forgiveness program is affecting our challenges 
around recruiting and retaining teachers and what difference it 
would make if we fix this?
    Ms. Weingarten. So let me give you the example of one of 
the plaintiffs in a case that we have, who is a Minnesotan, 
Janelle Manzel, who could have had lots of other opportunities 
in her life. She is a math teacher. She decided to teach in the 
public schools in Minnesota, and she taught for 10 years, paid 
her student loans every month, and when it was time to get 
PSLF, she was given the royal runaround by her servicer and 
told that none of the payments qualified. Anyone who hears that 
story says, why would I become a teacher?
    And that story just runs rampant, not only through 
Minnesota but, as AG James could tell you, through New York. AG 
Stein from--could tell you from North Carolina. It is--it is 
why all these AGs have been out there trying to help all of us 
vindicate rights for people who have done everything right. And 
if we are trying to attract people into our profession, who do 
not come with a wealthy nest egg, they need the salary that 
they are making to actually make ends meet.
    Senator Smith. Right.
    Ms. Weingarten. And they had this promise of PSLF, and then 
they are told that they cannot get it. It says lots of things 
about Government inaction in so many different----
    Senator Smith. Right. Well, and it says so much about the 
promise of valuing teachers, the thanks that we give to 
teachers. But then are we going to put any beef behind that? 
Are we going to actually put our shoulder into demonstrating 
that respect and not only just talking about it?
    Ms. Weingarten. And let me say one more thing, which is 
that if this was in the financial markets and someone had a 
contract and that said that if you did X you will get Y, they 
would get Y.
    Senator Smith. Yes.
    Ms. Weingarten. The fact that we have such disrespect for 
this contract is part of the disrespect of public service, of 
nurses, of firefighters, and of teachers.
    Senator Smith. Yes, yes. Thank you for that.
    And I want to just--I have just a couple seconds left, but 
I want to go to Ms. Yu to actually follow up on something 
because when Chair Warren held the earlier hearing we heard 
from an individual who was struggling under student loan debt, 
trying to do everything that she could possibly do for her 
family and just literally sinking under this debt.
    I can hear sort of the challenge that some people would say 
here. They would essentially say--they would argue that 
providing student loan forgiveness to people like this, it is 
almost like a moral hazard, that you are rewarding people for 
not living up to their obligations. I am wondering, thinking 
about the clients that you serve, how you respond to that 
argument.
    Ms. Yu. Thank you. Thank you for your question, Senator. 
Look, we have a student loan system that is broken and has been 
holding our student loan borrowers back. Our system gives our 
borrowers very few opportunities to succeed and hammers them 
really hard anytime that they fail. We take their wages without 
a court order. We take their Social Security benefits. We are 
taking their earned income tax credit and their child tax 
credits, which are designed to lift their families out of 
poverty. We are hammering student loan borrowers, and we are 
making it really hard for them to succeed.
    Senator Smith. Thank you so much. I appreciate it.
    Thank you, Madam Chair.
    Chair Warren. Thank you, Senator Smith. I think that your 
question is right on target, that there are some who are 
willing to criticize people whose big sin was that they tried 
to get an education and now they are in financial trouble and 
cannot pay back the student loan debt and to hold them 
accountable, but then an organization like PHEAA, that has made 
millions and millions of dollars off this system, cannot even 
account for the payments that have come in, which goes to 
President Weingarten's point. How long would a credit card 
company last if it was not accounting for the payments that 
came in, or a mortgage loan company, and yet these student loan 
servicers keep getting their contracts renewed? I think we see 
why PHEAA decided that maybe it was a new day in Washington and 
a new day at the Department of Education and decided to tuck 
tail on this one and run.
    Senator Menendez, are you ready yet, or would you like me 
to start with Senator Ossoff?
    [No response.]
    Chair Warren. Senator Ossoff.
    Senator Ossoff. Thank you, Madam Chair. Thank you for your 
consistent attention to this issue. Thank you to our panelists.
    Ms. Weingarten, regarding Public Service Loan Forgiveness, 
a promise was made to America's teachers. Is that not right?
    Ms. Weingarten. Yes, Senator.
    Senator Ossoff. And what was that promise?
    Ms. Weingarten. The promise that was made--by the way, a 
bipartisan promise in 2007--was that in exchange for working in 
public service, teaching, nursing, firefighting, the Army, and 
paying your student loans for 10 years, the rest of those 
student loans would be forgiven. And it was a pretty simple 
promise. And it was done, as I said before, in a bipartisan 
way, to try and make clear that the United States valued this 
kind of public service. And while you may not get paid what you 
are worth, you certainly would be able to afford the education 
that was required for this kind of public service.
    Senator Ossoff. A bipartisan promise made to America's 
teachers, to servicemembers, to others who take on public 
service, who pay their loans diligently for a decade.
    Ms. Weingarten. Correct.
    Senator Ossoff. And in exchange for that service, this 
bipartisan promise was the prospect of the forgiveness of the 
remainder of their loans at the end of that decade. Is the U.S. 
Government making good on that promise?
    Ms. Weingarten. No. I mean, the--you know. Look, the Biden 
administration inherited a mess. The first year that we would 
have seen real making good on that promise was 2017. And the 
former Secretary of Education, Betsy DeVos, made that worse, 
not better, and then made it hard for anyone else, including 
attorney generals across the country or someone's--or a 
member's union to try to vindicate their rights, as the 
testimony of my colleagues have made so clear earlier today.
    The dilemma now is that there is such a backlog in the kind 
of cases that have come up to be redeemed under PSLF that no 
Administration, as good as the Biden administration is, is 
going to be able to get through a backlog of 150,000 cases and 
then on top of that every new case that comes in every day. And 
so what we are seeing is we are still seeing a huge fail rate 
in terms of not being able to redeem this basic promise, a fail 
rate of about 98 percent.
    Senator Ossoff. Well, I know the Chair is committed to 
this, and we have to make good on this bipartisan promise made 
to teachers and others who serve 10 years of diligent 
repayment, 10 years of service, that their student loan debt 
would be forgiven for that service. And I am ready to work with 
you, Madam Chair, to take the action necessary to make that 
happen.
    I want to ask you, Ms. Yu, about college affordability. My 
personal belief is that you should not have to take on a penny 
of debt to get a degree from a public college in this country 
or to get a degree from a HBCU in this country. The kind of 
opportunity that access to public college and HBCU education, 
without debt, would make for the people of Georgia would be 
extraordinary. And that is why I am advocating now that this 
Congress act to expand the Pell Grant program, to make higher 
education accessible to all Americans through our public 
colleges and HBCUs, without debt. What kind of a difference 
would expansion of the Pell Grant program make, for example, to 
the folks the organization serves?
    Ms. Yu. It would make a huge difference. We absolutely need 
to move away from a system of financing higher education 
through debt. Debt is holding back my clients. It is keeping 
them from being able to fulfill the promises. It also allows 
them to take the chance on an education. Right? Like, that is 
one of the problems that our clients see is that they are 
trying; they are trying, and some of them do not succeed.
    And we need to lower the risks of attempting to improve 
your lives and make--you know, get an education and have an 
opportunity to feed your family. We need to lower the risks. We 
need to move away from debt-financed higher education.
    Senator Ossoff. And, Ms. Yu, expanding opportunity can also 
mean expanding access to skills, job training, vocational 
training. And just as I believe that you should not have to 
take on debt to get a 4-year degree from a public college, I 
think we should be working to make access to job training and 
vocational skills free in this country. We have a national 
interest in having a highly skilled workforce, and there are so 
many people in Georgia and across the country for whom an HVAC 
certificate, a welding certificate, a commercial driving 
license is the ticket to a middle-class standard of living. 
What kind of a difference would it make in communities across 
this country to offer free job training and vocational 
training?
    Ms. Yu. That would make a huge difference.
    Senator Ossoff. Thank you, Ms. Yu.
    I yield back, Madam Chair.
    Chair Warren. Thank you, Senator Ossoff.
    Senator Menendez.
    Senator Menendez. Well, thank you, Madam Chair. First of 
all, I want to really thank you for the incredible, fierce 
advocacy that you have had in this regard in the way you view 
the Subcommittee. And I am pleased to be allowed to join, as a 
Member of the full Committee, you today.
    And of course, it seems to me that the best way to protect 
student loan borrowers is to forgive student loan debt, and I 
am pleased to be working with the Chair, Senator Schumer, and 
others to achieve that.
    But I would like to focus on the impact of PHEAA's upcoming 
student loan service transfer will have in my view. An already 
beleaguered program, the Public Service Loan Forgiveness 
Program, I think is going to be further beset by this transfer. 
So, Attorney General James, can you tell me any lessons that 
you learned from previous Federal Loan transfers?
    Ms. James. Well, thank you, Senator, for that question. The 
last Federal loan portfolio, the transfer provided valuable 
lessons that all of us should learn from. In 2013, the Federal 
loan servicer known as ACS, now known as Conduent, lost its 
contract to service Federal direct loans and transferred 
millions of loans to other servicers. And when ACS transferred 
its portfolio, many of the now servicers found that their 
records were missing and that ACS borrowers', their records 
reflected servicing errors.
    And as a result, some ACS borrowers, they lost credit for 
qualifying for the Public Service Loan Forgiveness Program. 
They lost actual paperwork and documents with respect to their 
payments, and such losses will unfairly delay their ability to 
obtain forgiveness and increases the cost of their loans. And 
there is a risk that similar programs could arise from PHEAA's 
transfer of loans to other servicers.
    And it is important to note that not only PHEAA has--is 
considering--is transferring their loans, but there is other 
servicers that are considering servicing their loans to other 
services as we review--as the Federal Government reviews 
contracts. And to ensure that such problems do not happen in 
this upcoming--in the upcoming transfer, the Department of 
Education, together with State and Federal partners and my 
colleagues all across this Nation, State attorney generals, we 
must ensure that PHEAA and other servicers, that they provide 
all the necessary and accurate and up-to-date records relating 
to the loans, that they ensure that new servicers audit and 
actively monitor accounts for any errors that might occur 
during or prior to transfer, that they have adequate staff to 
meet the demands of all borrowers, and that they ensure 
borrowers are not penalized for prior service errors or errors 
arising from the transfer, and last, but not least, that the 
burden is not put on borrowers but that the burden is placed on 
servicers.
    The Department should apply a rebuttable presumption that 
payments made during the period of missing records or 
qualifying for the Public Service Loan Forgiveness Program. 
That is so absolutely, critically important.
    You know, as was mentioned before, Senator, Senator Warren, 
Chair Warren, in the previous hearing, indicated how the 
student loan program and the amount of debt really just 
exasperates the racial wealth gap in our Nation. And it is 
important that individuals understand that this wealth gap, 
unfortunately, is having a disproportionate impact on borrowers 
of color and low-income borrowers all across this Nation. It is 
a system that has already been indicated by the Chair and 
others a system that is broken and needs to be fixed as soon as 
possible.
    Senator Menendez. Well, thank you. That was a very full 
answer, took most of my time. Do you have a--may I have another 
minute or two?
    Chair Warren. Of course.
    Senator Menendez. Oh, OK.
    Chair Warren. Take as long as you need here.
    Senator Menendez. That spoke to many of the questions I 
had, so you gave me a very comprehensive answer, Madam Attorney 
General.
    So basically, ACS not only managed millions of borrowers' 
Federal loans, but they executed the transfer poorly, and those 
transferred loans were riddled with missing or inaccurate 
information. And is it true that you found that ACS deceived 
borrowers concerning the availability of their PSLF 
opportunities?
    Ms. James. Yeah. We are again in the practice of looking at 
all of these loans, and our allegations include, but are not 
limited, to the fact that they engaged in deceptive business 
practices, Senator.
    Senator Menendez. Mm-hmm. And is it true that that 
mismanagement that you uncovered from ACS blocked consumers 
from obtaining the forgiveness that they qualified for under 
the PSLF program?
    Ms. James. Not only blocked them but delayed their payments 
and delayed their ability to pay off these loans and to not 
only pay off the loans but also to get a loan forgiveness under 
the PSLF program.
    Senator Menendez. So I would like to ask both you and Ms. 
Yu, so if that is the experience that we have here, do we not 
agree that there needs to be extensive supervision, both by the 
Department of Education and the CFPB, to ensure there is not a 
repeat of the errors that hurt student borrowers?
    Ms. Yu. Absolutely.
    Ms. James. I would agree, along with attorney generals all 
across this Nation. There needs to be a collaboration with all 
of the various agencies as well as the attorney generals.
    Senator Menendez. Now finally, today, 3.3 million private 
student loan borrowers owe an estimated $80 billion in loans 
that reference LIBOR. As the lenders transition away from 
LIBOR, I am concerned about the lack of protections for 
borrowers in private student loan contracts. Ms. Yu, as lenders 
transition away from LIBOR, can private lenders choose a 
replacement reference rate that is higher, thereby potentially 
increasing the borrowers' interest rate?
    Ms. Yu. Yes, they can.
    Senator Menendez. And how can Congress and regulators 
ensure that lenders choose a replacement reference rate that is 
fairest to the borrowers? For example, should the CFPB release 
guidance to private lenders as they transition away from LIBOR 
to ensure that borrowers are not stuck permanently paying 
higher interest rates?
    Ms. Yu. Yes. The CFPB must quickly complete its rulemaking 
related to LIBOR and encourage companies to adopt the SOFR, 
which is the recommended rate by the Alternative Reference 
Rates Committee.
    Senator Menendez. Yes. You know, Madam Chair, this is an 
area where you could have a dramatic increase in debt as a 
result of the transfer away from LIBOR.
    And I have a real concern with the fact that--and this is 
the very last point I will make--Ms. Yu, your research found 
that millions of borrowers who have been in income-driven 
repayment programs for more than 20 years, of that, only 32 
borrowers have had their loans canceled through income-driven 
repayment. Is that right?
    Ms. Yu. That is absolutely right.
    Senator Menendez. And according to the CFPB, more than 90 
percent of African Americans and 72 percent of Latino students 
take out loans to attend college in comparison to 66 percent of 
White students. Additionally, minority borrowers are defaulting 
on their loans at disproportionately high rates. What is the 
impact of IDR problems on borrowers of color, who 
disproportionately rely on student loans?
    Ms. Yu. Absolutely. The impact is that borrowers of color 
are paying more on their loans for longer, and this is robbing 
families and their communities of the wealth that they need to 
rebuild--to, frankly, you know, bridge the racial wealth gap.
    Senator Menendez. Well, ``more for longer'' is not a phrase 
I like, Madam Chair. And, you know, ``less for less time'' 
would be a lot better. So thank you to all of our witnesses for 
your insights.
    Chair Warren. And thank you, Senator Menendez. Appreciate 
your partnership in this. We will keep working on it. So, 
appreciate it.
    Let us see if we can wrap up where we are on the Public 
Service Loan Forgiveness Program. So the Public Service Loan 
Forgiveness Program was set up with a simple promise: Work in 
public service for 10 years, make payments toward your loans, 
and after a decade, your remaining balance will be canceled. 
But the Federal Government, with PHEAA's help, has failed to 
keep our end of the bargain.
    President Weingarten, let us go over some of the numbers 
here. You represent more than 1.7 million school teachers, 
nurses, early childhood educators, exactly the kinds of public 
servants who should benefit from this program. So I want to run 
through these numbers. How many people have applied for relief 
through the Public Service Loan Forgiveness?
    Ms. Weingarten. So, Madam Chair, according to the Education 
Department's most recent data, about 322,000 borrowers have 
applied for relief.
    Chair Warren. OK. And how many of those have successfully 
had their loans forgiven?
    Ms. Weingarten. 3,458.
    Chair Warren. And since you are a former school teacher, 
you can do the math on that?
    Ms. Weingarten. You know, I was a social studies teacher.
    Chair Warren. That is no excuse.
    Ms. Weingarten. But that is very few, about 2 percent.
    Chair Warren. About 2 percent. And here is the part that 
you can bring to Congress, to talk about it just one more time. 
You talk with your members. Why are they having trouble 
qualifying for loan forgiveness?
    Ms. Weingarten. So this is--I am really glad you asked that 
question, Madam Chair, because it was hard to--at least for me, 
it was hard to understand how teachers who very much follow the 
rules, that this was--as Senator Ossoff said earlier, it is a 
pretty simple promise that for 10 years, in exchange for you 
paying your debt each month for 10 years, you would get the 
rest of it forgiven.
    So they would be, you know, paying their debt. They would 
be sending in a coupon or doing a Venmo or doing whatever 
millennials do now to pay debt, and it would get credited, and 
they would keep the forms. But then what would happen is that 
they would hear ``Well, it is the wrong loan type'' or ``You 
are in the wrong repayment plan,'' or Servicer A said this, and 
then after 10 years Servicer A would say, ``Well, you have to 
go to the Department of Education to find out. You cannot talk 
to us about it.''
    And you would see these kinds of two different islands of 
misinformation because a person would go to the Department of 
Education and they would be told one piece of information and 
then they would go back to the servicer and say, ``The 
Department of Education said A'' and the servicer said, ``No, 
that is not true.''
    So it was a--it is a labyrinth where you could be wrong by 
a cent on 1 payment in 10 years and that could put you back to 
the beginning again.
    Chair Warren. Wow.
    Ms. Weingarten. It is--I have never seen such a mess from a 
program that is supposed to be pretty clear and the promise 
pretty direct.
    Chair Warren. Yes. Now there are a lot of reasons for this 
98 percent denial rate, this astronomical denial rate, 
including the complicated rules that Congress wrote. But a big 
part of the problem is that the Federal Government turned over 
the management of the program to a private company that could 
not do even the most basic part of the job. This company 
cheated public servants out of relief and, until recently, 
faced no meaningful consequences for its failures.
    Attorney General James, in your investigation, what role 
did you find that PHEAA played in denying forgiveness to public 
servants?
    Ms. James. My office alleges in our lawsuit that PHEAA's 
failure to accurately count the Public Student Loan Forgiveness 
qualifying payments contributed to, as you described, the 
shockingly high rate of denials, 98 percent, when borrowers 
apply for forgiveness.
    Again, the borrowers run the gamut. They are teachers. They 
are nurses. They are firefighters. They are police. They are 
librarians. They are even Government workers. And when we filed 
our lawsuit, again, more than 98 percent of those applications 
were rejected. And these are individuals, again, who have made 
payments and unfortunately were turned down, and they made 
these payments based on the promise that was made.
    And so going forward, we look forward to working with the 
Department of Education, and we look forward to working with 
our other--with other Federal and State partners to increase 
oversight over these servicers. In addition, it is important 
that, again, we extend the pause, that we offer $50,000 in debt 
relief to student borrowers, that we reverse the previous 
Administration's rule with respect to States being preempted by 
certain rules, and last but least, that the Federal agencies 
share information with State attorney generals so that we could 
collaborate and be partners together, to protect student 
borrowers all across this Nation.
    Chair Warren. Well, that is very powerful, Attorney General 
James, and I appreciate it.
    President Weingarten, I want to also give you a shot at 
that same question. What do you think the Department of 
Education should do to make this right?
    Ms. Weingarten. So first, the Department of Education has 
one of two choices. It could attempt to deal with 150,000 
claims that are backlogged, to try to untangle every single one 
of these in every single place. Or, it could actually have a 
presumption that says, if you have been a school teacher for 10 
years and you have some evidence that you have paid your loans, 
all the rest of the loans have been forgiven.
    And during this period of time, there could be a 
presumption that said that up to $50,000 of loans could be 
forgiven, which would be the preferable way because then you 
could start from scratch and fix these programs and hold these 
servicers accountable, and do the work that we need to do in 
the future to recruit and retain people in public service, and 
say, a promise made is a promise kept.
    But right now, it is such a tangled web. I do not know how 
any Department of Education is going to untangle the mess that 
Betsy DeVos left. So it would be the right thing to do to deal 
with the wealth gap, to deal with what has just happened in 
terms of the pandemic, to actually say, let us cancel $50,000 
of student debt and let us fix PSLF in the future.
    Chair Warren. Thank you. President Biden has the authority 
to fix this problem today. I know the Department of Education 
has put out a call for borrowers' feedback, and I encourage 
anyone who is watching this to submit their stories to the 
Secretary of Education, Secretary Cardona.
    I hope that once the Education Department hears from 
borrowers they will follow Congress's intent and simplify the 
rules of the program so that future public servants do not get 
lost in this maze. But let us be clear. We need wholesale 
forgiveness, and we need it now. People have been cheated. They 
have been given the runaround. People have been harmed over and 
over and over again. The President has the capacity to make 
this right, and it is time to do that.
    I would like to do one more issue before we leave today. So 
I am going to reset my clock here for another 5 minutes and ask 
a final round of questions. Just weeks after the Coronavirus 
pandemic started in March 2020, the Department of Education 
suspended student loan payments and collections and canceled 
student loan interest for every single student loan borrower. A 
Republican administration took this unprecedented step because 
borrowers needed help during a crisis.
    When he took office in January, President Biden extended 
this policy because millions of borrowers are still struggling 
to get back on their feet, but this payment pause is scheduled 
to end in just 2 months, on September 30th. This is a disaster 
in the making. This student loan time bomb could drag down our 
entire economic recovery when it explodes.
    Ms. Weingarten, tell me how important this student loan 
pause has been. How has the pause on student loan payments, 
interest, and collections affected the borrowers that you 
represent?
    Ms. Weingarten. So, sorry, Chair Warren, that I keep on 
telling stories of my members.
    Chair Warren. I want you to.
    Ms. Weingarten. But this is--this is--you know, it makes 
your heart break when you hear these stories and when you try 
to actually deal with this. So let me tell you about the story 
of Elise [phonetic], who is a clinical lab tech at SUNY Upstate 
Medical University in Syracuse. She went to college, she 
pursued her career, and then she had lots and lots of student 
loans. This is her quote to me: ``My husband and I drive a 10-
year-old car. I cannot buy work shoes even though the ones I 
wear are contaminated with body fluids. I have to work overtime 
just to make ends meet. I am doing work that I love and that 
people depend on, but my debt is a prison sentence that will 
haunt me and my family for life.''
    What happened with the pause? It gave her the money so that 
her husband could stay home to care for her child because child 
care had closed while she was working. It gave them some 
breathing room so that they could buy a new car. It gave them 
the breathing room so that they did not have to worry every 
single month whether she was going to buy work shoes or whether 
she was going to pay her student debt.
    I hear these stories all the time, the kind of breathing 
room that it gave people so that they could navigate during 
this period of time, and even with that you see the stress that 
my members are under. That is why we are so concerned that in a 
month or two, as schools are trying to reopen, as our job is to 
create a welcoming and safe environment, people are going to 
start stressing about what they are going to do again when they 
start having payments of 200 to 400 to 600 to 1,000 dollars a 
month.
    And if we do not have a solution long-term for the debt, if 
we do not cancel that debt long-term, if they cannot figure 
that out, then they are going to have on top of that this PHEAA 
transition and these other transitions, which will be also 
equally stressful because the paperwork is so bad already.
    Chair Warren. The pause has been good for Elise, good for 
Elise's family, and good for our economy.
    Now some people are saying the economy is improving and as 
more people get vaccinated we are getting COVID under control. 
That is true, and that is obviously good news. So they are 
wondering, why do we still need a pause in student loan 
payments?
    You have talked about this some, President Weingarten. But, 
Ms. Yu, I want--your organization also works with student loan 
borrowers. So let us think together about how prepared student 
loan borrowers are. Have these borrowers been told what their 
monthly payments will be after the pause ends?
    Ms. Yu. They have not.
    Chair Warren. Have the servicers been proactively 
communicating with borrowers to help them get ready for a 
restart?
    Ms. Yu. No, they have not.
    Chair Warren. A lot of borrowers' financial situations have 
probably changed in the last year and a half. Has the 
Department of Education made it easier for people to enroll in 
income-driven repayment plans or to update their income 
information?
    Ms. Yu. No. In fact, the opposite, many people are 
struggling with that.
    Chair Warren. And some borrowers are facing other problems. 
If a borrower is facing eviction or foreclosure, do you think 
that paying their student loans is going to be at the top of 
their mind?
    Ms. Yu. Not at all.
    Chair Warren. You know, even before COVID, student loan 
debt disproportionately hurt people of color and exacerbated 
racial wealth gaps. These are the same communities that have 
been hardest by the pandemic. And as I said, the suspension is 
scheduled to end in just 2 months. So, Ms. Yu, what risks to 
consumers are you worried about if the repayments start on 
October 1st as scheduled?
    Ms. Yu. Thank you, Senator. So we know that the economic 
recovery has not been even and some of the most vulnerable 
borrowers are still struggling the most. We are very concerned 
about borrowers in default, who are going to have their Social 
Security benefits immediately seized when the payment 
suspension ends. I am very concerned about borrowers relying on 
their earned income tax credits and their child tax credits 
when next tax season comes. But we are also worried about the 
millions of borrowers who will not even know that payments have 
restarted because they have no contact with their servicers and 
will have trouble accessing income-driven repayment and then 
will fall into default as a result of communication failures 
and servicing errors.
    Chair Warren. You know, we talk about the borrowers are not 
ready; the system is chaotic. The student loan servicers are 
not ready either. When I ask them about their plans, one 
servicer described the complexity of the challenge as 
``unprecedented,'' noting that ``The Federal Student Aid 
servicers have never attempted to move 43 million-plus accounts 
into a repayment status, all at once, all across the country.''
    Last month, I led 60 of my House and Senate colleagues in 
calling on President Biden to extend the payment pause at least 
until March 2022 to give borrowers, to give servicers, and to 
give the Department of Education more time to prepare. I am 
fighting to cancel $50,000 of student loan debt so that 
borrowers who are struggling can get permanent relief. In the 
meantime, borrowers are facing a financial disaster on October 
1st. President Biden should act immediately to make sure that 
all borrowers are protected.
    I want to thank our witnesses who have been here today. I 
want to thank you for your testimony. I also just want to thank 
you for your work, your hard work in the trenches on behalf of 
people who are struggling with student loan debt.
    For Senators who wish to submit questions for the record, 
those questions are due 1 week from today, Tuesday, August 3rd. 
For our witnesses, you will 45 days to respond to any 
questions. Thank you again for being here and sharing with us 
today.
    With that, this hearing is adjourned.
    [Whereupon, at 4:29 p.m., the hearing was adjourned.]
    [Prepared statements and additional material supplied for 
the record follow:]
                  PREPARED STATEMENT OF LETITIA JAMES
               Attorney General for the State of New York
                             July 27, 2021
    Good Afternoon Chair Warren, Ranking Member Kennedy, and Members of 
the Committee. My name is Letitia James and I am the Attorney General 
for the State of New York. Thank you for inviting me here today to 
discuss the challenges facing student loan borrowers and ways to 
protect them.
    My office has significant experience protecting student loan 
borrowers based on our enforcement of State and Federal consumer 
protection laws. Since 2019, we have undertaken major investigations 
and actions against for-profit colleges, student lenders, and student 
loan servicers. Our work resulted in a $9 million settlement with 
Federal student loan servicer Conduent, formerly known as ACS, that 
provided relief to more than 40,000 New York borrowers; $7.5 million in 
debt relief to more than 900 New York students at the now-defunct for-
profit college ITT Tech; and a settlement with Transworld Systems, a 
student loan debt collector, which resulted in $600,000 in restitution 
and penalties.
    Our investigations have revealed that student loan borrowers are 
being harmed by the misconduct of student loan servicers. In October 
2019, my office filed a lawsuit against the Pennsylvania Higher 
Education Assistance Agency (PHEAA), one of the Nation's largest 
student loan servicers, for its mismanagement of the Public Service 
Loan Forgiveness (PSLF) program. This program allows people who work in 
public service, like teachers, nurses, and members of the armed forces, 
to have their loans forgiven after making qualifying payments for 10 
years. Our lawsuit alleges that PHEAA, operating under the name FedLoan 
Servicing, failed these hardworking people by not accurately counting 
PSLF-qualifying payments, failing to provide explanations of their 
determinations, and failing to inform borrowers of their options to 
challenge FedLoan's mistakes. As set out in our lawsuit, FedLoan's 
inability to properly administer the PSLF program contributed to the 
shockingly high rate of rejection of PSLF forgiveness applications. 
When we filed our lawsuit, more than 98 percent of applications were 
rejected as ineligible for forgiveness.
    PHEAA recently announced that it will not be renewing its contract 
with the Department of Education. However, State and Federal 
investigations have revealed that servicer misconduct extends beyond a 
single servicer. The widespread misconduct stems, in part, from the 
absence of comprehensive Federal servicing standards. To prevent 
misconduct from continuing, the Department should implement such 
standards, including:

    requiring servicers to provide accurate and timely 
        information about income-driven repayment plans and PSLF 
        eligibility;

    requiring servicers to act in the best interests of 
        borrowers;

    imposing robust quality assurance measures;

    implementing mechanisms for borrowers to appeal servicer 
        actions;

    requiring timely processing of borrower submissions; and

    penalizing servicers who violate State and Federal consumer 
        protection laws, including by reallocating the Federal student 
        loan portfolio to other servicers.

    In addition, the Department should provide relief to borrowers who 
have been harmed by servicer misconduct, including by retroactively 
crediting PSLF borrowers with qualifying payments. The Department 
should also ensure that the onus is on the servicer, not the borrower, 
to identify and correct servicer errors. In addition, where State and 
Federal investigations reveal systemic errors, the Department should 
provide broad, across-the-board relief to harmed borrowers.
    The Department should also continue its work to reverse former 
Secretary DeVos's actions to shield Federal servicers from State 
oversight. We applaud the Department for taking steps to restore 
information-sharing with State attorneys general offices. The 
Department should also retract Secretary DeVos's March 2018 notice that 
espoused the position that State consumer protection laws are preempted 
by Federal law with respect to Federal loan servicers. Retracting this 
ill-conceived notice will ensure that States can continue their 
important work to protect borrowers in our States.
    In addition, Congress should expand access to PSLF loan forgiveness 
to all Federal loan borrowers who devote 10 years to public service, 
regardless of the type of Federal loan or loan repayment plan. 
Expanding PSLF eligibility to encompass all such borrowers will provide 
relief to many who were victims of servicer error and will result in a 
fairer, more consistent, and more equitable PSLF program.
    Finally, the Federal Government should take action to cancel a 
substantial amount of Federal student debt. I co-led a multistate 
coalition of 17 attorneys general urging the adoption of House and 
Senate resolutions that call for the cancellation of up to $50,000 in 
Federal student debt for all Federal student loan borrowers. Canceling 
this debt will help free borrowers burdened by loan payments and allow 
them to move forward with their lives, as well as help to close the 
racial and gender wealth gap.
    The student debt crisis has been exacerbated by misconduct by 
student loan servicers. It is imperative that we create safeguards that 
protect students from servicer misconduct, especially students whose 
work and commitment to the public good benefit all of us. My office is 
committed to protecting students and student borrowers in New York 
State and across the country. Thank you for allowing me the opportunity 
to testify today.
                                 ______
                                 
                 PREPARED STATEMENT OF RANDI WEINGARTEN
               President, American Federation of Teachers
                             July 27, 2021
    Good afternoon, I'm Randi Weingarten, President of the American 
Federation of Teachers.
    Our union represents 1.7 million teachers and paraprofessionals, 
nurses, higher education faculty and staff, and public employees. In 
other words, AFT members work in professions that make a difference in 
the lives of others--professions that require college degrees, which 
means our members have been increasingly burdened by unsustainable 
college debt.
    Over the last year-and-a-half, members of these very professions 
have done heroic work, keeping our communities up and running, caring 
for patients in COVID-19 wards, and educating our children during a 
school year like no other. Our teachers and school staff from pre-K 
through college are planning a full return to in-person learning, and 
they know they will need to make their students feel safe and welcome 
amid the myriad crises facing our Nation. A survey we did with the Rand 
Corp. showed 78 percent of teachers reported experiencing frequent job-
related stress--almost twice as many as most other working adults 
during the pandemic. And now, for many, the looming restart of student 
loan payments in the fall is deeply concerning and potentially ruinous 
financially.
    I am here on behalf them to raise concerns, especially in light of 
the news that the Pennsylvania Higher Education Assistance Agency 
(PHEAA) will no longer service student loans.
    Most AFT members are eligible for Public Service Loan Forgiveness, 
but after 3\1/2\ years, the Education Department is still rejecting 98 
percent of applications and has nearly 150,000 PSLF applications in 
backlog.
    The Biden administration inherited a broken system and wisely 
extended the moratorium on student debt that the Trump administration 
enacted. Combined, the two have effectively canceled over $90 billion 
in student loan interest.
    The Biden administration and the Education Department can restore 
the promise of PSLF now--before student loan payments resume this 
September--and immediately discharge debts for all borrowers who have 
completed at least a decade of public service while paying their 
Federal student loans.
    Borrowers need real relief, not a mirage. They need help from a 
Government that promised to forgive the remainder of any debt still 
unpaid after 10 years of payments if they went into public service. And 
they need a reason to tell the next generation of borrowers that public 
service work is meaningful and valuable, not a clear path to a lifetime 
of debt that will force them to make terrible decisions about whether 
to pay their loans, buy a home, or put food on the table.
    Take, for example, Christine Conlon, a school-based occupational 
therapist in Staten Island, N.Y. For years, Christine has kept detailed 
notes about her student loan payments, but she can't get PHEAA to 
reconcile its records with the evidence she is repeatedly providing to 
them. Christine should be just a few years away from PSLF if not for 
the problem of PHEAA failing to properly record her payments, and that 
has meant she has put off major life choices like buying a home.
    Every day, horror stories like Christine's arise detailing 
borrowers who learn years into repayment that a technicality made them 
ineligible for PSLF, that their servicer lied, and that they will have 
to restart the 10-year clock toward PSLF--if they're still even able to 
do that. As countless lawsuits by State attorneys general have made 
clear, student loan servicing companies, like PHEAA--working on behalf 
of the department--have failed to provide borrowers with sufficient and 
correct information regarding PSLF eligibility.
    The AFT has made extraordinary efforts to make PSLF work, but we've 
also had to deliver financially devastating news to our teachers, 
corrections officers, and nurses, information their servicers and the 
Education Department should have given them years before. We have even 
had to go to court to seek the justice our members were not getting on 
their own.
    And while servicer errors have plagued the PSLF program for years, 
this reality became blindingly apparent during the last Administration. 
Now that the Biden-Harris administration seems primed to hold servicers 
accountable, those servicers, like PHEAA, are canceling their contracts 
instead of being subject to meaningful oversight. This is evidence of a 
system run catastrophically amok.
    If the Administration does not cancel student debt for public 
service workers before the fall, millions of them will be forced to 
transfer the loans currently serviced by PHEAA to new servicers that 
will inherit loans with paper trails that can never be untangled.
    The problem is clear, and the solution is too: The Administration 
should cancel debt for all public service workers who have made 
payments on their Federal loans for a decade AND should cancel up to 
$50,000 of debt per borrower.
    These actions will make a big difference for communities of color: 
93 percent of the lowest-income Black households with student debt 
would experience total student debt relief with $50,000 in 
cancellation. And debt cancellation would be an immediate and long-
lasting stimulus to our economy--increasing average yearly pay by 
$3,000 and increasing the gross domestic product by $1 trillion.
    The promise of Public Service Loan Forgiveness remains broken, and 
while the Education Department recently took a positive step by 
soliciting feedback on these failures, public service workers can't 
wait for a fix or new rule years into the future. On behalf of millions 
of borrowers, I call on the Administration to cancel student debt now.
                                 ______
                                 
                    PREPARED STATEMENT OF PERSIS YU
 Director, Student Loan Borrower Assistance Project, National Consumer 
                               Law Center
                             July 27, 2021
Introduction
    Chairwoman Warren, Ranking Member Kennedy, and Members of the 
Committee, thank you for inviting me to testify today regarding how to 
protect student borrowers in the upcoming transitions in the student 
loan system. I offer my testimony here on behalf of the low-income 
clients of the National Consumer Law Center (NCLC). \1\
---------------------------------------------------------------------------
     \1\ The National Consumer Law Center (NCLC) is a nonprofit 
organization specializing in consumer issues on behalf of low-income 
people. Since 1969, we have worked with thousands of legal services, 
Government, and private attorneys and their clients, as well as 
community groups and organizations that represent low-income and older 
individuals on consumer issues. NCLC's Student Loan Borrower Assistance 
Project provides information about student rights and responsibilities 
for borrowers and advocates, and provides direct legal representation 
to student loan borrowers. We work with other advocates across the 
country representing low-income clients. We also seek to increase 
public understanding of student lending issues and to identify policy 
solutions to promote access to education, lessen student debt burdens, 
and make loan repayment more manageable. See the Project's website at 
www.studentloanborrowerassistance.org.
---------------------------------------------------------------------------
    As the director of NCLC's Student Loan Borrower Assistance Project 
at NCLC, I lead NCLC's policy and advocacy efforts to make the student 
loan system work for the students it is intended to help. Our efforts 
are grounded in our direct legal assistance work with low-income 
clients in Massachusetts who are struggling with student loan debt. In 
addition to our work in Massachusetts, we consult with advocates across 
the country representing borrowers, many with complaints against 
student loan servicers.
    Our clients, and millions of others like them, take out student 
loans believing they are the key to a better future. But for many, that 
dream will never come to fruition because the student loan system is 
broken and has been broken for a very long time. Currently in the 
United States, nearly 45 million people owe more than $1.7 trillion on 
their student loans. Prior to the pandemic, roughly a quarter of 
Federal borrowers were delinquent or in default on their loans. \2\ As 
I and my colleagues witness every day from low-income borrowers here in 
Massachusetts, borrowers often default because they do not understand 
how to navigate the Federal student loan system and their loan 
servicers fail to provide them with accurate information.
---------------------------------------------------------------------------
     \2\ See U.S. Dep't of Educ., Federal Student Aid, Data Center, 
Federal Student Loan Portfolio; see also, Student Loan Servicing: 
Analysis of Public Input and Recommendations for Reform, Consumer Fin. 
Prot. Bureau (Sept. 2015).
---------------------------------------------------------------------------
    Defaulting carries severe consequences for borrowers and their 
families. The Federal Government has collection powers against 
defaulted student loans that far exceed the collection powers of most 
unsecured creditors. Wielding these coercive collection tools, the 
Government often siphons thousands of dollars from borrowers already 
experiencing financial distress. The Government can garnish a 
borrower's wages without a judgment, seize tax refunds (including the 
Earned Income Tax Credit (EITC) and Child Tax Credit (CTC)), and seize 
portions of Federal benefits such as Social Security. The amount the 
Government seizes using these tools often is far greater than the 
amounts borrowers would have been required to pay under an income-
driven repayment (IDR) plan. These punitive collection activities can 
push low income households to or over the financial brink. Facing 
involuntary collections often means that our clients cannot afford 
their rent, pay for medication, cover transportation to and from work, 
or even buy food. Simply put, the student debt crisis was already 
hampering both families' and the Nation's economic stability even 
before the current pandemic.
    Racial disparities in the student loan portfolio and with default 
rates in particular disproportionately expose borrowers of color to 
these Government offsets and other damaging debt collection practices. 
\3\ At every income level, Black households are more likely to hold 
student debt than their White counterparts. \4\ Moreover, as the 
Education Trust's research shows, at every income level, Black 
borrowers are more likely to default than White borrowers. \5\ In fact, 
Black borrowers at the highest income levels are twice as likely to 
default than the lowest earning White borrowers. Thus, the Government's 
collection practices have the disastrous effect of systematically 
removing wealth from communities of color through seizures of wages, 
tax refunds, and benefits to service student debts and huge collection 
fees. In effect, such practices systematically strip wealth from 
families and communities which are already economically disadvantaged 
and disproportionately of color. Cruelly, the communities hit hardest 
by student loan crisis are also the same communities hit the hardest by 
the COVID-19 global health crisis.
---------------------------------------------------------------------------
     \3\ Judith Scott-Clayton, ``The Looming Student Loan Default 
Crisis Is Worse Than We Thought'', Economic Studies at Brookings (Jan. 
2018), available at https://www.brookings.edu/research/the-looming-
student-loan-default-crisis-isworse-than-we-thought/; Ben Miller, ``The 
Continued Student Loan Crisis for Black Borrowers'', Center for 
American Progress (Dec. 2, 2019), available at https://
www.americanprogress.org/issues/educationpostsecondary/reports/2019/12/
02/477929/continued-student-loan-crisis-black-borrowers.
     \4\ Raphael Charron-Chenier and Louise Seamster, ``Some Notes on 
the Impact of Student Debt Forgiveness Across Income Groups'', 
Scatterplot (Dec. 17, 2020) available at https://scatter.wordpress.com/
2020/12/17/some-notes-onthe-impact-of-student-debt-forgiveness-across-
income-groups/.
     \5\ Victoria Jackson and Tiffany Jones, ``The `Black Tax' Is Key 
to Understanding and Solving the Black Student Debt Crisis in the Time 
of COVID-19 and Beyond'', The Education Trust, (Apr. 16, 2020) 
available at https://edtrust.org/resource/the-black-tax-is-key-to-
understanding-and-solving-the-black-student-debt-crisis-in-thetime-of-
covid-19-and-beyond/.
---------------------------------------------------------------------------
Protecting Low-Income Borrowers During Loan Transfers and Restarting 
        Repayment
    As the U.S. Department of Education restarts Federal student loan 
repayment for over 30 million student loan borrowers, high quality 
servicing is going to be paramount. Despite the critical nature of 
servicing at this time, both the Pennsylvania Higher Education 
Assistance Agency \6\ (AKA ``FedLoan Servicing'') and the New Hampshire 
Higher Education Loan Corporation \7\ (AKA ``Granite State Management & 
Resources'') announced that they will not be extending their Federal 
contracts this December. This has potentially devastating consequences 
for, not just for the roughly 10 million borrowers whose loans will 
need to be transferred, but for all borrowers in the Federal student 
loan portfolio. The remaining servicers will need to rapidly increase 
staffing and train a whole cadre of customer service representatives in 
a very short amount of time in order to absorb the accounts of nearly a 
third of all Direct loan borrowers.
---------------------------------------------------------------------------
     \6\ Pennsylvania Higher Education Assistance Agency, ``News 
Advisory: PHEAA Federal Student Loan Contract Statement'' (July 8, 
2021) https://www.pheaa.org/documents/press-releases/ph/070721.pdf.
     \7\ New Hampshire Higher Education Association Foundation, Press 
Release: ``NHHEAF Network Will Not Seek Renewal of Federal Student Loan 
Servicing Contract'' (July 19, 2021) https://www.nhheaf.org/pdfs/
investor/NHHEAF-Network-IR-Announcement-07-19-21.pdf.
---------------------------------------------------------------------------
    Even prior to the two servicers' announcements that they were not 
renewing their contracts, research by The Pew Charitable Trusts 
concluded that ``simultaneously navigating uncertainty, financial 
challenges, and a confusing repayment system could lead borrowers to 
reach out to loan servicers in unprecedented numbers when payments 
resume, overwhelming the system.'' \8\ At a time when two major changes 
are occurring for student loan borrowers, borrowers need the best 
servicing possible. Instead, they will likely encounter inexperienced 
customer service representatives and servicers who are stretched too 
thin.
---------------------------------------------------------------------------
     \8\ Sarah Sattelmeyer and Lexi West, ``Outreach From Borrowers 
Could Overwhelm Student Loan System When Pandemic Pauses End'', Pew 
Charitable Trusts (Nov. 3, 2020) available at https://
www.pewtrusts.org/en/researchand-analysis/articles/2020/11/03/outreach-
from-borrowers-could-overwhelm-student-loan-system-when-pandemicpauses-
end.
---------------------------------------------------------------------------
    It is imperative that the Department of Education protect the 
interests of the most vulnerable student loan borrowers as it decides 
how and when to restart repayment while also transferring roughly 10 
million borrowers' loans. \9\ Borrowers--low-income and otherwise 
vulnerable student loan borrowers in particular--are at significant 
risk during the upcoming transitions. As will be described in greater 
detail, the combination of restarting repayment, along with the risks 
associated with large scale loan transfers by servicers with a long 
history of failing to adequately serve Federal student loan borrowers, 
will have cataclysmic consequences unless meaningful consumer 
protections are put in place.
---------------------------------------------------------------------------
     \9\ Michael Stratford, ``Another Federal Student Loan Servicer To 
Call It Quits'', Politico (July 20, 2021), https://
subscriber.politicopro.com/article/2021/07/another-federal-student-
loan-servicer-calls-it-quits-2070755.
---------------------------------------------------------------------------
1. Risk of Restarting Repayment for Borrowers
    Since the passage of the CARES Act in March 2020, Congress put 
critical protections in place to help Federal student loan borrowers 
weather the COVID-19 pandemic. Among other protections, the CARES Act 
suspended payments and interest accrual and ceased collection on all 
Department-held Federal student loans. That payment suspension is 
currently set to expire on September 30. The end of the COVID-19 
payment suspension is fraught with risk as the Department of Education 
attempts the unprecedented task of bringing tens of millions of student 
loan accounts into repayment after over a-year-and-half of being 
suspended. Historical data from the Department demonstrates that 
default rates typically spike following disaster-related forbearances. 
\10\ Specifically, following Hurricanes Harvey, Irma, and Maria and the 
California wildfires, the loans of borrowers living in those impacted 
areas were placed in mandatory administrative forbearance. \11\ This 
means that borrowers' loans were counted as being current without the 
borrower having to make any payments, something intended to help people 
deal with the fallout of a natural disaster. Unfortunately, after these 
disaster forbearances ended, many borrowers never reentered repayment 
which resulted in their loans defaulting. The resumption of payments 
following the COVID-19 payment suspension has the potential to be much 
worse than what we saw following these previous disasters because those 
were much shorter in duration and impacted a significantly smaller 
number of borrowers. Allowing borrowers to fall into default following 
the end of the payment suspension, which would make them vulnerable to 
loss of wages, social security benefits, and the critical family 
supports such as the EITC and CTC, will have devastating consequences 
for these borrowers and will eviscerate any economic recovery following 
the pandemic.
---------------------------------------------------------------------------
     \10\ Ben Kaufman, ``New Data Show Student Loan Defaults Spiked in 
2019--A Warning to Industry and DeVos Amid Economic Fallout'', Student 
Borrower Protection Center (Mar. 13, 2020), available at https://
protectborrowers.org/every-26-seconds/ (citing Fed. Student Aid, 
Federal Student Aid Posts New Reports to FSA Data Center (Aug. 07, 
2019)).
     \11\ Id.
---------------------------------------------------------------------------
    The risks created by the transition to repayment are not limited to 
eventual student loan default, which only occurs 270 days after missing 
a payment. Even before a payment is missed, borrowers can suffer dire 
consequences such as overdrawn bank accounts if auto-debits resume 
without borrowers having sufficient funds in their bank accounts. If 
payments are unaffordable, borrowers may be forced to either forgo 
paying for basic necessities or miss their student loan payments and 
experience negative credit reporting which can hold them back for years 
to come.
    In addition, approximately 9 million student loan borrowers are 
currently in default. \12\ Unless the Department takes immediate action 
to remove these borrowers from default, they will be subject to the 
Government's draconian collection powers immediately upon the end of 
the payment suspension. \13\ Many of the borrowers in default are older 
Americans who will face seizure of a portion of their Social Security 
benefits for old student loans of their own or loans they took out for 
family members.
---------------------------------------------------------------------------
     \12\ U.S. Dep't of Educ., Federal Student Aid Default Management, 
Official Cohort Default Rates for Schools, https://www2.ed.gov/offices/
OSFAP/defaultmanagement/cdr.html.
     \13\ Letter from Senator Elizabeth Warren, et al., to Secretary of 
Education Miguel Cardona dated April 19, 2021, available at https://
www.warren.senate.gov/imo/media/doc/
2021.04.19%20Letter%20to%20ED%20about%20Auto%20Rehab%20Student%20Loans.p
df. See also Sarah Sattlemeyer, ``3 Ways Biden Can Help Families and 
Student Loan Borrowers'', Brookings (April 22, 2021) available at 
https://www.brookings.edu/research/three-ways-the-biden-administration-
can-help-families-and-student-loan-borrowers-affected-by-the-pandemic/.
---------------------------------------------------------------------------
2. Risk of Transfer of Loan Servicing
    Prior large-scale transfers of Direct loans have resulted in 
serious long-term harm to vast numbers of Federal student loan 
borrowers and should serve as a warning for the upcoming loan 
transfers. From the beginning of the Government's Direct Loan Program 
in 1994 until 2008, the Department of Education contracted with a 
single Direct Loan servicer--ACS (Xerox). In 2009, as it was moving to 
a system under which nearly all student loans were originated directly 
by the Federal Government through the Direct Loan Program, the 
Department entered into new servicing contracts with four companies, 
Great Lakes Educational Loan Services, Nelnet, FedLoan Servicing 
(PHEAA), and Sallie Mae (now Navient). Loans were transferred from ACS 
to the new servicers between the years 2009 and 2013. \14\ The 
Department also contracts with a number of nonprofit student loan 
servicers, including Cornerstone, Granite State, HESC/EdFinancial, 
MOHELA, and OSLA. \15\
---------------------------------------------------------------------------
     \14\ National Consumer Law Center, Student Loan Law 5.2.1.1 (6th 
ed. 2019), updated at www.nclc.org/library.
     \15\ Id.
---------------------------------------------------------------------------
    As described by a report by the American Federation of Teachers and 
the Student Borrower Protection Center:

        Public reports contemporaneous to the transition indicate not 
        only that ACS executed the handover process poorly, but the 
        transferred loans were also plagued with missing or inaccurate 
        information, among a host of other servicing errors. In 2012, 
        one journalist described Direct Loan borrowers as `Dazed and 
        Confused by [the] Servicer Shuffle,' while a large, unnamed 
        student loan servicer reported to the CFPB that at least half a 
        million transferred accounts had problems. \16\
---------------------------------------------------------------------------
     \16\ ``Broken Promises: The Untold Failures of ACS Servicing'', 
American Federation of Teachers and Student Borrower Protection Center 
(Oct. 2020) available at https://protectborrowers.org/wp-content/
uploads/2020/12/Broken-Promises-ACS-12-9.pdf.

    Borrowers whose loans were transferred during this time complained 
that ``they were hit with higher payments and fees after their loan 
balances were transferred to another servicer . . . without warning.'' 
\17\ Data shows that over a hundred thousand loans were transferred 
with ``incorrect information or with borrower information missing, 
including data related to past bankruptcy settlements.'' \18\
---------------------------------------------------------------------------
     \17\ Lisa Parker, ``Student Loan Borrowers Say They're Being 
Gouged'', NBC 5 Chi. (July 23, 2013) https://www.nbcchicago.com/news/
local/target-5-student-loans-mohela/1955834/.
     \18\ ``Broken Promises'', supra n. 16.
---------------------------------------------------------------------------
    The impact of this incorrect information has had lingering effects 
on the Federal student loan portfolio today. Thousands of borrowers 
seeking to cancel their loans through the Public Service Loan 
Forgiveness (PSLF) program are struggling to demonstrate that they have 
made the required number of qualifying payments. These PSLF problems 
are a foreboding sign of what is to come. Many low-income borrowers 
will soon qualify for forgiveness of the remainder of their student 
loans because of having made 20 or 25 years worth of qualifying 
payments in IDR. If the transfer of servicing results in the same level 
of erroneous and lost payment records, we will see the same chaos but 
with our most vulnerable borrowers.
    Finally, loan transfers inevitably result in massive confusion for 
borrowers. As Will Shaffner, MOHELA's director of business development 
and Government relations said in 2012, ``Anytime you change a servicing 
relationship, it can cause concern.'' \19\ Additionally, the ability to 
contact borrowers will be hampered by the lack of good contact 
information on file for tens, if not hundreds of thousands of 
borrowers. \20\ Given that most borrowers have not had contact with 
their servicers since March 2020, the number of borrowers without 
accurate contact information has likely increased. This will 
disproportionately harm low-income borrowers who are more likely to 
have moved during the payment suspension.
---------------------------------------------------------------------------
     \19\ Marian Wang, ``Student Loan Borrowers Dazed and Confused by 
Servicer Shuffle'', ProPublica (Apr. 23, 2012) available at https://
www.propublica.org/article/student-loan-borrowers-dazed-and-confused-
by-servicer-shuffle.
     \20\ During the COVID-suspension, the Department of Education was 
unable to return illegally seized wages to over 20,000 borrowers due to 
not having current contact information for these borrowers. See Lawsuit 
Against DeVos Ends; Fight for Defrauded Borrowers Continues, Nat'l 
Consumer Law Center, (Mar. 22, 2021) available at https://
www.studentloanborrowerassistance.org/lawsuit-against-devos-ends-fight-
for-defaulted-borrowerscontinues/. Similarly, in attempting to 
notifying borrowers who were determined to qualify for a total and 
permanent disability discharge through a data match with the Social 
Security Administration, nearly 47,000 notices were returned for to 
sender. See Response to National Student Legal Defense Network request 
to U.S. Dep't of Education, 21-01335-F (May 24, 2021).
---------------------------------------------------------------------------
    The Department of Education must take steps to ameliorate the 
negative consequences of loan transfers and to make sure that repayment 
is not restarted until loans have been successfully transferred.
3. The History of Servicing Abuses Preventing Borrowers From Accessing 
        High Quality Servicing
    Servicers are often borrowers' first point of contact when 
attempting to resolve their student loans. With the assistance of a 
competent and efficient servicer, financially distressed borrowers may 
avoid default by accessing the flexible repayment plan, loan 
cancellation program, or deferment or forbearance option appropriate 
for their circumstances. Unfortunately, as has been extensively 
documented, the student loan servicing industry has long been rife with 
misconduct.
    The four largest Federal student loan servicers have a documented 
history of ``widespread servicing failures'' that ``create obstacles to 
repayment, raise costs, cause distress'' and ``driv[e] borrowers to 
default.'' \21\ According to an October 2017 report by the Consumer 
Financial Protection Bureau (CFPB), problems in the student loan 
servicing industry included a range of payment processing, billing, 
customer service, borrower communications, and income-driven repayment 
plan enrollment problems. \22\
---------------------------------------------------------------------------
     \21\ CFPB Concerned About Widespread Servicing Failures Reported 
by Student Loan Borrowers, Consumer Fin. Prot. Bureau (Sept. 29, 2015).
     \22\ Annual report of the CFPB Student Loan Ombudsman Strategies 
for Consumer-Driven Reform, Consumer Fin. Prot. Bureau (Oct. 2017).
---------------------------------------------------------------------------
    Income-driven repayment (IDR) is at the heart of affordable loan 
repayment options offered by the Higher Education Act (HEA), which 
governs the Federal student loan program. IDR plans require borrowers 
to pay only a set percentage of their income toward their student loan 
bills. Depending on the borrower's income, this can be a small or even 
zero monthly payment. \23\ An IDR plan gives the borrower a sustainable 
loan repayment amount and a path to forgiveness of any remaining 
balance after 20 or 25 years of IDR payments. \24\
---------------------------------------------------------------------------
     \23\ 20 U.S.C. 1087e(d)(1)(E) (applicable to Direct Loans), 
1098e (FFEL). See 34 CFR 682.215 (FFEL), 685.221 (Direct Loan).
     \24\ Id.
---------------------------------------------------------------------------
    More than 25 years have passed since the implementation of the 
first IDR plan, the Income-Contingent Repayment Plan (ICR). This means 
that student loan borrowers who entered ICR before 1996 should be 
receiving loan forgiveness for completing 25 years of qualifying 
payments. Because of changes in IDR repayment options, borrowers 
originally enrolled in ICR who have not yet completed 25 years of 
payments can achieve forgiveness sooner or immediately by switching to 
the Revised Pay As You Earn plan, which counts the prior payments and, 
for borrowers without graduate debt, has a shorter repayment period (20 
years). Yet, of the 4.4 million borrowers \25\ who have been in 
repayment on their Federal loan for more than 20 years, only 32 
borrowers have received cancellation under IDR. \26\
---------------------------------------------------------------------------
     \25\ Education Department Responses to Data Request by Senator 
Warren, (April 2, 2021) available at https://www.warren.senate.gov/imo/
media/doc/Education%20Department%20Response
%20to%20Sen%20Warren%20-%204-8-21.pdf.
     \26\ ``Education Department's Decades-Old Debt Trap: How the 
Mismanagement of Income-Driven Repayment Locked Millions in Debt'', 
Nat'l Consumer Law Center & Student Borrower Protection Center (March 
2021), available at https://www.nclc.org/images/pdf/student-loans/IB-
IDR.pdf.
---------------------------------------------------------------------------
    Moreover, despite the abundant benefits of IDR plans to the 
financial health of borrowers and their families, the Department and 
its servicers have consistently failed to make these plans accessible 
for many borrowers, and the U.S. Government Accountability Office (GAO) 
has documented low levels of participation by eligible borrowers. \27\ 
Problems with enrolling and renewing borrowers in IDR are prevalent. 
Entering a borrower into an IDR plan is time-intensive and expensive 
for servicers, so too often servicers fail to invest resources in 
ensuring that borrowers understand and successfully access the most 
affordable and sustainable repayment plan. Instead, servicers steer 
many borrowers into forbearances and deferments, which are profitable 
for the servicer but costly to the borrower, and in many cases, 
servicers have misrepresented that those borrowers have no other 
repayment options.
---------------------------------------------------------------------------
     \27\ U.S. Gov't Accountability Office, ``Federal Student Loans: 
Education Could Do More To Help Ensure Borrowers Are Aware of Repayment 
and Forgiveness Options'', Report No. GAO-15-66 (Aug. 2015).
---------------------------------------------------------------------------
    An NCLC client had this experience as she struggled to afford her 
student loan payments after completing a medical assistant program at a 
local for-profit school. Every year, she dutifully contacted her 
servicer and submitted documentation of her financial hardship. 
Nevertheless, despite clear eligibility for a zero-dollar payment, she 
had never been enrolled in an IDR plan. When this borrower came to 
NCLC, she had never even heard of IDR options. Instead, each year when 
she called her servicer to discuss her financial situation and options, 
she was directed into a number of forbearances. She had been out of 
school since for over 7 years before coming to our office and was still 
in good standing on her loan, due to her extreme diligence. However, 
the servicer's actions steering her towards forbearance have wasted 
years she could have spent in an affordable repayment plan, working 
toward the eventual resolution of her loan. This client's experience is 
far from unique, and private and State enforcement actions targeted at 
this type of misbehavior tell similar stories. \28\
---------------------------------------------------------------------------
     \28\ Consumer Financial Protection Bureau, Office for Older 
Americans & Office for Students and Young Consumers, Snapshot of Older 
Consumers and Student Loan Debt (Jan. 2017). See, e.g., Consumer Fin. 
Prot. Bureau v. Navient Corp., 2017 WL 3380530 (M.D. Pa. Aug. 4, 2017); 
Lawson-Ross v. Great Lakes Higher Education Corp., No. 18-14490 (11th 
Cir. 2020); Grewal v. Navient Corp., No. ESX-C-172-2020 (N.J. Super. 
Ct. Ch. Div. Oct. 20, 2020); People v. Pa. Higher Educ. Assistance 
Agency, No. 1:2019cv09155 (S.D.N.Y. Oct. 3, 2019); Vullo v. Conduent 
Educ. Services (Jan. 4, 2019) (consent order), available at 
www.dfs.ny.gov; Nelson v. Great Lakes Higher Education Corp., No. 18-
1531 (7th Cir. 2019); People v. Navient Corp., No. CGC-18-567732 (Cal. 
Super. Ct. Nov. 1, 2018) (first amended complaint); Mississippi v. 
Navient Corp, No. 25CH1:18-CV-00982 (Miss. Ch. Ct. Hinds Cty. July 17, 
2018); Commonwealth v. Navient Corp., No. 19-2116 (M.D. Pa. Oct. 5, 
2017); Marek v. Navient Corp., 2017 WL 2881606 (N.D. Ohio July 6, 
2017); People v. Navient Corp., No. 17CH761 (Ill. Cir. Ct. Cook Cty. 
Jan. 18, 2017) (complaint).
---------------------------------------------------------------------------
    Failing to ensure that borrowers are able to access IDR has harmful 
and expensive consequences. In 2016, the GAO estimated that a borrower 
owing $30,000 in Federal loans who spent 3 years in a forbearance would 
pay $6,742 more than a borrower on a 10-year standard repayment plan 
who did not spend any time in forbearance. \29\ The GAO further stated 
that encouraging ``forbearance over other options that may be more 
beneficial, such as [IDR] plans,'' will continue to place some 
borrowers ``at risk of incurring additional costs without any longterm 
benefits.'' \30\
---------------------------------------------------------------------------
     \29\ U.S. Gov't Accountability Office, ``Federal Student Loans: 
Education Could Improve Direct Loan Program Customer Service and 
Oversight: Highlights'', Report No. GAO-16-523, 19 (May 16, 2016).
     \30\ Id. at 20.
---------------------------------------------------------------------------
    Getting borrowers into an affordable IDR plan will be particularly 
important for ensuring borrower success following the upcoming restart 
to repayment. Without improvements by servicers, borrowers will lose 
out on the many important benefits of IDR, such as making qualifying 
payments towards cancellation after 20 or 25 years, or 10 years for 
public service workers. In the worst case, borrowers will lose out on 
the opportunity to stay in good standing on their loans and may fall 
into default with its devastating consequences.
4. The Need for Greater Servicer Accountability and Remedies for 
        Borrowers
    Unlike the protections in other areas of consumer credit such as 
credit cards and mortgages, there are few laws specifically governing 
student loan servicer conduct for either Federal or private loans. In 
its October 2013 report, the CFPB pointed to protections in the Real 
Estate Settlement Procedures Act (RESPA) for mortgages and the Credit 
Card Accountability Responsibility and Disclosure (CARD) Act for credit 
cards and the need to examine whether these types of reforms could 
apply to the student loan servicing market. \31\
---------------------------------------------------------------------------
     \31\ Annual Report of the CFPB Student Loan Ombudsman, Consumer 
Fin. Prot. Bureau (October 16, 2013).
---------------------------------------------------------------------------
    The CFPB pointed out that some of the provisions in mortgage 
servicing rules that could apply to student loan servicers include 
notice of transfer of loan servicing, timely transfer of documents to 
new servicers, payoff statements, error resolution and dispute review 
procedures, continuity of contact, records retention, and early 
intervention for borrowers nearing default. \32\
---------------------------------------------------------------------------
     \32\ Id.
---------------------------------------------------------------------------
    In April 2019, the New York Times highlighted one of the problems 
keeping borrowers from accessing loan forgiveness: errors in the count 
of their qualifying payments. \33\ In order to verify the number of 
qualifying payments and to ensure that servicers are counting payments 
properly, borrowers need to have access to a full and complete payment 
history. Unfortunately, borrowers do not currently have easy access to 
this information, as servicers are often the only ones who have this 
data. Borrowers are able to get basic loan level information from the 
Federal Student Aid website, but it does not provide payment level 
data.
---------------------------------------------------------------------------
     \33\ Ron Lieber, ``Your Student Loan Servicer Will Call You Back 
in a Year. Sorry.'' N.Y. Times, April 12, 2019.
---------------------------------------------------------------------------
    The student loan servicer that is servicing a particular loan 
should have payment records, but the extent to which they make this 
information available varies by servicer. \34\ In contrast to 
mortgages, where servicers are required to provide the borrower with 
information within 30 days of a qualifying written request, there are 
no Federal standards requiring a student loan servicer to give the 
borrower a payment history.
---------------------------------------------------------------------------
     \34\ See Persis Yu, ``Student Loan Forgiveness Cannot Work Without 
a Right to a Payment History'' (May 22, 2019), available at https://
protectborrowers.org/qualifying-payments/.
---------------------------------------------------------------------------
    According to the New York Times, some borrowers are told that it 
could take up to a year to get the information. \35\ It took over a 
year-and-a-half for one NCLC client to receive a complete payment 
history from FedLoan Servicing.
---------------------------------------------------------------------------
     \35\ Lieber, supra n. 33.
---------------------------------------------------------------------------
    There are some protections in the contracts that the Department 
signs with the servicers. However, borrowers rarely know about those 
rights. In general, the Department states in the contracts that it does 
not intend to provide additional service level requirements, but it 
does expect ``best of business practices'' to be deployed. Servicers 
are also required to meet ``all statutory and legislative 
requirements.'' The contractually provided incentives fail to set 
standard and transparent borrower protections and for too long, the 
Department has failed to adequately enforce these requirements. 
Further, the lack of Department enforcement combined with limited 
borrower rights to enforce protections means that servicers are largely 
unaccountable when they fail to provide quality service or violate 
applicable law.
    Even if the Department acted more aggressively to police the 
contractors through termination or sanctions, harmed borrowers would 
not be made whole. Often, the harm caused by servicer errors and abuses 
cannot be remedied by simply applying an administrative forbearance or 
returning the borrower's money. For example, when money is erroneously 
debited from a borrower's bank account, it can lead to overdraft fees 
and insufficient funds to cover basic necessities like groceries or 
rent. When servicer abuses prevent borrowers from accessing critical 
programs or missing out on qualifying payments for IDR and PSLF, it 
causes borrowers to pay for a longer time and to pay more over the life 
of the loan. Fairness and justice require that borrowers have the 
ability to enforce their rights when breached by servicers and to 
obtain adequate remedies.
    Yet few student loan borrowers have the ability to seek redress 
when servicers violate their rights. The few who are able to find a 
lawyer to assist them still face an uphill battle because the HEA 
provides no explicit private right of action to student loan borrowers 
who seek to enforce disclosure requirements or challenge a servicer's 
failure to comply with other obligations set out in Federal law. 
Borrowers can raise State law claims, including those based on fraud 
and misrepresentation, but servicers assert both that these claims are 
preempted by the HEA and that they are shielded from liability through 
derivative sovereign immunity. The Department can address this need for 
remedies both by broadening the cancellation provisions of IDR to 
ensure that borrowers get credit for time that should have qualified 
for a cancellation, more consistently and robustly compromising or 
modifying borrowers' loans, and supporting borrowers' efforts to recoup 
damages through private litigation by withdrawing its notice of 
interpretation on preemption \36\ and prohibiting its servicers and 
debt collectors from asserting preemption and governmental contractor 
immunity defenses.
---------------------------------------------------------------------------
     \36\ Federal Preemption and State Regulation of the Department of 
Education's Federal Student Loan Programs and Federal Student Loan 
Servicers, 83 FR 10619 (March 12, 2018).
---------------------------------------------------------------------------
Conclusion
    With the impending transition of student loan servicing for tens of 
millions of student loan borrowers, it is critical that Congress and 
the Department of Education take proactive steps to ensure that 
borrowers are protected. As with most things, the most vulnerable 
borrowers are the ones who will be harmed the most. Low-income 
borrowers are vulnerable to unaffordable loan repayments, improperly 
debited payments, negative and sometimes erroneous credit reporting, 
and in many cases, the seizure of wages, Federal benefits, or vital tax 
credits. These consequences threaten the financial stability of 
borrowers, their families, and wider communities.
    In structuring both the plans to transfer millions of loans and to 
end the COVID-19 payment pause, the Department must give borrowers as 
many chances to get back on track as possible. But policymakers must 
also recognize that, for many borrowers, the harm from a bungled 
transition will come on top of years if not decades of abusive 
servicing and collection practices.
    Widespread administrative debt cancellation is needed to remedy the 
failures of our student loan system. The student loan system has failed 
borrowers for too long. While they have waited, their debt has 
ballooned, and their financial futures have grown more bleak. Over 4 
million borrowers have been in repayment for over 20 years, \37\ yet 
only 32 borrowers have had their loans canceled through income-driven 
repayment. \38\ In addition to widespread administrative debt 
cancellation, the Department should clear the books of borrowers who 
have been in repayment for more than 15 years, and automatically 
provide relief to all of the borrowers who are already entitled to 
cancellation under existing law. In addition to providing much needed 
relief to these borrowers, if done prior to restarting repayments, 
these steps will eliminate the debts of many of the hardest to reach 
borrowers and will allow servicers to dedicate their resources to 
ensuring the success of the remaining borrowers.
---------------------------------------------------------------------------
     \37\ Laura Camera, ``Progressives Up the Pressure on Biden Over 
Student Debt Cancellation'', U.S. NEWS (April 14, 2021), available at 
https://www.usnews.com/news/education-news/articles/2021-04-14/
progressives-up-thepressure-on-biden-over-student-debt-cancellation, 
citing Education Department Responses to Data Request by Senator 
Warren, (April 2, 2021) available at https://www.warren.senate.gov/imo/
media/doc/education%20Department%20Response%20to
%20Sen%20Warren%20-%204-8-21.pdf.
     \38\ Education Department's Decades-Old Debt Trap, supra n. 27.
---------------------------------------------------------------------------
    Thank you for the close attention you are paying to how to protect 
student loan borrowers in the upcoming transitions in the student loan 
system, and for the opportunity to provide this testimony. I look 
forward to your questions.



              Additional Material Supplied for the Record


LETTER SUBMITTED BY SARAH DUCICH, SENIOR VICE PRESIDENT, PUBLIC POLICY 
                   AND GOVERNMENT RELATIONS, NAVIENT


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]