[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
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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.
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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.
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\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.
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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.
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\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/.
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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\
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\14\ National Consumer Law Center, Student Loan Law 5.2.1.1 (6th
ed. 2019), updated at www.nclc.org/library.
\15\ Id.
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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\
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\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\
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\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.
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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.
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\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).
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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\
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\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).
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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\
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\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.
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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\
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\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.
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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.
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\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).
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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\
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\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).
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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\
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\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.
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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\
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\31\ Annual Report of the CFPB Student Loan Ombudsman, Consumer
Fin. Prot. Bureau (October 16, 2013).
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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\
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\32\ Id.
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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.
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\33\ Ron Lieber, ``Your Student Loan Servicer Will Call You Back
in a Year. Sorry.'' N.Y. Times, April 12, 2019.
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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.
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\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/.
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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.
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\35\ Lieber, supra n. 33.
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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.
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\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).
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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.
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\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.
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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]