[Senate Hearing 117-832]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 117-832

                              STUDENT LOAN
                           BANKRUPTCY REFORM

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

                                 HEARING

                               BEFORE THE

                       COMMITTEE ON THE JUDICIARY
                          UNITED STATES SENATE

                    ONE HUNDRED SEVENTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             AUGUST 3, 2021

                               __________

                          Serial No. J-117-32

                               __________

         Printed for the use of the Committee on the Judiciary
         
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                        www.judiciary.senate.gov
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                   U.S. GOVERNMENT PUBLISHING OFFICE                    
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                       COMMITTEE ON THE JUDICIARY

                   RICHARD J. DURBIN, Illinois, Chair
PATRICK J. LEAHY, Vermont            CHARLES E. GRASSLEY, Iowa, Ranking 
DIANNE FEINSTEIN, California             Member
SHELDON WHITEHOUSE, Rhode Island     LINDSEY O. GRAHAM, South Carolina
AMY KLOBUCHAR, Minnesota             JOHN CORNYN, Texas
CHRISTOPHER A. COONS, Delaware       MICHAEL S. LEE, Utah
RICHARD BLUMENTHAL, Connecticut      TED CRUZ, Texas
MAZIE K. HIRONO, Hawaii              BEN SASSE, Nebraska
CORY A. BOOKER, New Jersey           JOSH HAWLEY, Missouri
ALEX PADILLA, California             TOM COTTON, Arkansas
JON OSSOFF, Georgia                  JOHN KENNEDY, Louisiana
                                     THOM TILLIS, North Carolina
                                     MARSHA BLACKBURN, Tennessee
             Joseph Zogby, Chief Counsel and Staff Director
      Kolan L. Davis, Republican Chief Counsel and Staff Director
                           
                           
                           C O N T E N T S

                              ----------                              

                       AUGUST 3, 2021, 10:00 A.M.

                    STATEMENTS OF COMMITTEE MEMBERS

                                                                   Page

Durbin, Hon. Richard J., a U.S. Senator from the State of 
  Illinois.......................................................     1
Grassley, Hon. Charles E., a U.S. Senator from the State of Iowa.     3
Cornyn, Hon. John, a U.S. Senator from the State of Texas........     5

                               WITNESSES

Witness List.....................................................    37
Akers, Beth, senior fellow, American Enterprise Institute, 
  Washington, DC.................................................    13
    prepared statement...........................................    40
Barta, Diane, network manager, Richmond Hill, Georgia............    11
    prepared statement...........................................    38
Chapman, Christopher P., president and ceo, Accesslex Institute, 
  West Chester, Pennsylvania.....................................     9
    prepared statement...........................................    48
Gonzalez, Elizabeth, directing attorney, Consumer Law Unit, 
  Public Law Center, Santa Ana, California.......................    14
    prepared statement...........................................    52
Raoul, Kwame, attorney general, State of Illinois................     7
    prepared statement...........................................    63

                               QUESTIONS

Questions submitted to all witnesses by:
    Senator Tillis...............................................    69

                                ANSWERS

Responses of Diane Barta to questions submitted by:
    Senator Tillis...............................................    70
Responses of Christopher P. Chapman to questions submitted by:
    Senator Tillis...............................................    73
Responses of Elizabeth Gonzalez to questions submitted by:
    Senator Tillis...............................................    79

                MISCELLANEOUS SUBMISSIONS FOR THE RECORD

Consumer Bankers Association (CBA) letter, August 2, 2021........    91
Document H.R.1, a Bill, May 17, 2019.............................    87
Letter from Melanie A. Balton, July 27, 2021.....................    84
Letter from Brandon Beatty, student loans........................    89
Letter from Alicia Fung, July 26, 2021...........................    86
Letter from Joyce Rae, July 31, 2021.............................   118
Letter from Christian S. Robbins, regarding student loans and 
  bankruptcy, August 1, 2021.....................................    93
Letter from Kiana Wooten, July 26, 2021..........................   122
Statement of Tasha Berkhalter, Army Veteran, August 3, 2021......   124
Statement from Jonathan Harris, August 3, 2021...................   121
Statement of Joshua Queen, Air Force veteran, August 3, 2021.....   116
Testimony of Romishia Bradley....................................   126
Testimony from Alicia Fung, my student loan experience, July 26, 
  2021...........................................................    85
Testimony from Jaison Greene.....................................   114
Testimony from Gordon Wayne Watts, editor-in-chief, the Register, 
  August 9, 2021.................................................    96

 
                              STUDENT LOAN
                           BANKRUPTCY REFORM

                              ----------                              


                        TUESDAY, AUGUST 3, 2021

                              United States Senate,
                                Committee on the Judiciary,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10 a.m., in Room 
226, Dirksen Senate Office Building, Hon. Richard J. Durbin, 
Chair of the Committee, presiding.
    Present: Senators Durbin [presiding], Whitehouse, 
Klobuchar, Blumenthal, Hirono, Booker, Ossoff, Grassley, 
Cornyn, Lee, Cruz, Hawley, Tillis, and Blackburn.

          OPENING STATEMENT OF HON. RICHARD J. DURBIN,

           A U.S. SENATOR FROM THE STATE OF ILLINOIS

    Chair Durbin. The hearing will come to order. Today the 
Judiciary Committee will examine the unfair way that student 
loan debt is treated under the Bankruptcy Code. This is a 
problem we should have addressed a long time ago. I actually 
chaired a hearing on the same subject in this same room in 
2012.
    At times, I was alarmed--at that time, I was alarmed that 
student loan debt in America had surpassed $1 trillion. Less 
than a decade later, it has climbed to $1.7 trillion. Forty-
five million Americans carry student loan debt, and they're not 
just young people. Eight million are over the age of 50. Some 
are now learning that their Social Security checks are being 
garnished to pay the debt. These loans are with you for life.
    If you fall on hard times, forced to file bankruptcy, your 
mortgage debt can be discharged, your automobile debt can be 
discharged, your vacation home loan debt can be discharged, the 
mortgage you cosigned with your kids so they could buy their 
first home can be discharged. It is virtually impossible to get 
relief from student loans. Why? Because student loans are one 
of the very few types of debt that are exempted from discharge 
in bankruptcy. The concept of bankruptcy is a clean start, but 
not if you're dealing with child support, alimony, overdue 
taxes, criminal fines, and student loans.
    I'd like to turn to a brief video that highlights the need 
for this conversation.
    [Video shown.]
    Since I announced this hearing, people have been sending me 
stories. Linda Navarro, veteran of the U.S. Navy, went back to 
school when she was 39 years old. She is now 70. She has 
$145,000 in student loans. She has carried this debt for 31 
years. She wrote to me, ``There's no way to look forward.''
    Ronishia Bradley, a single mom with three kids. She's a 
hotel desk clerk. She has $51,000 in student loans--student 
debt, I should say. She's trying to get it discharged in 
bankruptcy. The Department of Education is fighting her all the 
way, saying she spent too much money on buying food for her 
children.
    Lisa from Arizona, a mother of two, filed for bankruptcy in 
2008, 13 years ago, but couldn't discharge her student loans. 
She now owes $217,000. This is new in America. It didn't use to 
be this way.
    Before 1976, student loans were treated like other types of 
unsecured debt in bankruptcy. If you were facing financial 
ruin, you could get relief. Then Congress got the idea that 
student borrowers were running to bankruptcy court right after 
graduation. This notion was based on more anecdote than data. 
Congress started passing laws to make it harder to discharge 
student loans. From 1978 to 1998, Congress made it so there 
were only two ways to get a student loan discharge: prove you 
had undue hardship or wait a period of years after the loan 
became due before filing bankruptcy.
    First, it was a five-year waiting period. Then it became 
seven years. Then in 1998, Congress rewrote the Higher 
Education Act. Excuse me. As a budget offset tucked in a 
provision, getting rid of the waiting period for student loan 
dischargeability, under the law now, there is no length of 
time, no waiting period. Federal student loans can only be 
discharged if the borrower proves he or she had undue hardship.
    That's an interesting standard. How is it applied? Proving 
undue hardship is nearly impossible. Starting with the 1987 
case called Brunner, courts have interpreted the phrase to set 
an impossibly high bar for relief. To pass the Brunner test of 
undue hardship, you have to convince a bankruptcy judge that 
it's hopeless that you'll ever repay, while the Department of 
Education or its guarantee agents are on the other side arguing 
against you.
    In 2017, the Wall Street Journal looked around for undue 
hardship cases. They found four, four cases in the Nation, when 
a bankruptcy judge discharged student debt for undue hardship. 
Four. I've tried for years to push the Department of Education 
to stop aggressively challenging undue hardship claims by 
student borrowers. I'm still pushing. I used the example of a 
quadriplegic disabled veteran. It didn't move them a bit. 
Congress can.
    We made a mistake in 1998. Undue hardship should not be the 
only path to address student loans and bankruptcy. There should 
be another option. We should go back to how it was before 1998, 
when borrowers could seek relief after a significant waiting 
period. That system worked.
    That's why today I'm introducing a bill with Senator 
Cornyn. I thank him for joining me in this bipartisan effort. 
It's called FRESH START Through Bankruptcy Act. We have talked 
about this problem of student loan and student debt long 
enough. It's time to fix it. Our bill would restore the ability 
of student loan borrowers to discharge Federal student loans 
after a waiting period of 10 years. It would pair this reform 
with accountability measures for colleges and schools that have 
consistently high default rates.
    We are sending a message to these schools. You are loaning 
taxpayers' money to students who count on your advice. The 
system is broken down. Universities have to be part of the 
solution. Everyone has skin in the game. You are no different.
    This is a big moment. I've been introducing student loan 
bankruptcy for a long time. This is the first time it's been 
bipartisan. Thank you, Senator. With this bill, we see a 
growing bipartisan consensus that the status quo isn't working 
and that we need student loan bankruptcy reform.
    I want to thank Senator Cornyn again for joining me. I want 
to thank our panel of witnesses for being here today. I will 
introduce them in a moment after Senator Grassley makes opening 
remarks.

         OPENING STATEMENT OF HON. CHARLES E. GRASSLEY,

             A U.S. SENATOR FROM THE STATE OF IOWA

    Senator Grassley. I am willing to take a look at your 
legislation. I'm going to have my remarks, though, related to a 
larger issue that I hope deals with the problem generally, not 
a solution to that problem, except some bills that I have in 
that are in other committees, because I think that we've got a 
major problem we've got to deal with on a larger scale.
    I thank you for holding the hearing, looking at higher 
education and the possible role of bankruptcy for student loan 
debt. I want to make clear that I believe we must look at the 
entire higher education ecosystem to solve these challenges. 
Recommendations to modify the Bankruptcy Code would address 
only symptoms of a larger problem. If we don't correct the 
underlying causes, then we're closing the barn door after the 
horses have gotten out.
    Nearly 44 million Americans owe more than $1.7 trillion of 
student loans, with the average graduate having debt of over 
$28,000. The amount of the outstanding student loan debt has 
doubled just the past 10 years.
    Related to increasing the amount of debt is the increasing 
cost of college education. In the last 20 years, the cost of 
attending a four-year public college has more than doubled. 
Going back further since 1978, it's had an astronomical 
percentage increase. This is more than double the rate of 
inflation and shows that there is a problem with how we're 
funding higher education.
    The Federal Government currently owns 92 percent of the 
outstanding student loan debt, and that percentage continues to 
increase. Federal loans are available to a large portion of the 
population, regardless of the ability to repay and well in 
excess of need. This provides colleges with an almost limitless 
supply of funding, which in turn creates no incentives for 
college to reduce costs, contributing to the higher and higher 
levels of debt--of debt.
    Many Senators have suggested looking at how it--to make 
sure schools are more accountable for the financial outcomes of 
their students. That's kind of hard to do because every college 
is different, and Federal standards may affect some very 
positively and some negatively and still not solve the problem.
    I'm also a strong proponent of making sure that people who 
are thinking about attending higher education are fully 
informed. I've introduced three bills this Congress, similar to 
bills that were introduced in previous Congresses. If we ever 
have a Higher Education reauthorization, I hope to get these 
included.
    This would provide resources to empower students to better 
understand college costs so that they can limit borrowing to 
what they need and can afford. These bills would provide 
students and their families with better information about the 
cost of college, from initially searching for colleges through 
the application process to accepting financial aid. Increasing 
transparency and ensuring potential students have this kind of 
information all help lead to more informed choices and 
hopefully more price competition between colleges.
    Several Members on the other side of the aisle have urged 
the Biden administration to cancel tens of thousand to 
$50,000--$10,000 to $50,000 dollars in student loan debt. This 
is a questionable idea. Debt forgiveness would be highly 
regressive and overwhelmingly benefit the wealthy at the 
expense of others. The administration also lacks the authority 
to do this. Even Speaker of the House Pelosi herself recently 
said, and I want to quote, ``The President can't do it, so 
that's not even a discussion.''
    We must consider the moral hazard and the cost to 
taxpayers. The majority of Americans decide to not attend 
higher education and pursue careers not requiring a college 
degree. That's their choice. Others decide to take out loans 
and attend college, and most are able to afford. That's their 
choice. I don't think that we--I don't think that we should ask 
those who did not attend college to pick up the tabs for those 
who did.
    I urge my colleagues to look at all the factors that are 
driving high levels of debt in higher education and closely 
examine the costs associated with any reform. Those remarks do 
not preclude my considering legislation that is suggested this 
very day and the purpose of this hearing.
    If I could just elaborate a little bit on why I think we 
have this bad problem. One of it goes back to a lot of bad 
Federal policies. If you remember during--before Obamacare, the 
Federal program was put in Obamacare to help pay for some of 
the costs of Obamacare. The Federal Government was supposed to 
make a lot of money off of these loans by setting an interest 
rate, service interest rate. We haven't made any money off of 
it like it was supposed to be. When you have banks giving out 
loans, I think there was more of a consideration of how much 
loan you should take out as opposed to what a Government direct 
loan gives.
    We have a Federal policy that encourages young people to 
get into more debt than they should. We also have a Federal 
policy that encourages our universities to tell students the 
maximum amount that they can learn--or loan, that they can 
borrow. Consequently, I think they borrow more than they 
should.
    I remember when President Mason was student--she was 
president of the University of Iowa, she'd come to my office, 
and we'd gradually talk about this problem of student debt. She 
would remind me at that time maybe the average debt was about 
$20,000--$29,000. She said if these students would borrow what 
it took for room and board, and tuition and books, there'd be 
several thousand dollars less debt.
    My University of Northern Iowa, and I think Iowa State 
University, have started advising students, ``Don't borrow all 
you can borrow.'' I think they have reduced the average student 
debt by about $3,000 per year. Some of these efforts are going 
to pay a price. We shouldn't be encouraging people to borrow 
more than they need to borrow. We don't give enough 
consideration to that, so we have a bigger problem than we 
ought to have. I could go on and on, but I'm going to stop.
    Chair Durbin. Thanks, Senator Grassley. Senator Cornyn, 
would you like to say a few words?

             OPENING STATEMENT OF HON. JOHN CORNYN,

             A U.S. SENATOR FROM THE STATE OF TEXAS

    Senator Cornyn. Yes. Thank you, Mr. Chairman. Thanks for 
scheduling this hearing, and to all the witnesses, we 
appreciate your testimony in person or virtually. This is an 
important issue. I think our bill, the FRESH START Through 
Bankruptcy Act will provide an important relief to students and 
accountability for schools. I think those have to go hand in 
hand.
    It's not hard to see that the incentives in higher 
education are badly broken. Teenagers are told they must borrow 
tens of thousands of dollars in order to get a good education 
and join the professional workforce. If--when they leave school 
they realize they've been sold a bill of goods, that their 
options are limited, or maybe they haven't been counseled 
appropriately when deciding what their course of study might be 
and what the possibility of actually finding a job adequate to 
repaying the debt they've incurred. We need to change that.
    I'm encouraged by the development of income-based 
repayment, public loan forgiveness, and other initiatives that 
the Department of Education is providing students. This bill 
that I've worked on with Chairman Durbin would increase that 
relief by permitting government student loans to be discharged 
in bankruptcy after 10 years. This 10-year window would help 
students without encouraging strategic bankruptcy.
    This part of our bill helps the individual student, which 
is important, but it doesn't solve the institutional problem 
here. Some institutions of higher education, no matter the size 
or the name on the door, are playing with house money. They can 
charge sky-high tuition, pocket taxpayer dollars, and graduate 
students who can't find jobs. When that happens, that's simply 
wrong. Schools need to face a little accountability.
    I don't want to prevent any student from getting a loan 
that they need in order to pursue their education. I was 
fortunate enough to get a student loan which enabled me to go 
to law school, and I'm grateful for that opportunity. These 
loans can provide young people with a pathway to a better life. 
Many schools provide extraordinary value to their students. I 
know for a fact, many counsel their students about what sort of 
indebtedness they are incurring and what that means in terms of 
their selection about a course of education and the potential 
for remuneration from their jobs once they leave school.
    The schools are also selling a product for a price, and 
that price needs to match what these students get out of it. 
That's why the second part of the FRESH START Through 
Bankruptcy Act creates a limited risk-sharing framework for 
schools when enough students default on their loans and fail to 
continue to repay them.
    I believe this framework is narrowly tailored but is 
absolutely necessary. Some schools have taken advantage of the 
American taxpayer for too long, and the students are the ones 
harmed by their excess. I'm glad to see this bill introduced 
today. I want to thank the chairman. I'm looking forward to 
building support for it and learning more and discuss in our 
discussions with the witnesses. Thank you.
    Chair Durbin. Thank you, Senator Cornyn. I think that 
question of accountability, as you and I have discussed before, 
is really part of this, an integral part of this. I'd like to 
credit Senator Jack Reed of Rhode Island who was one of--one of 
our first colleagues to introduce legislation along those 
lines. I've told him that we've included a reference to it in 
this bill. I hope he gets credit for it as he should. I hope 
this can move forward.
    We have four excellent--I'm sorry, five excellent 
witnesses. People are trying to figure out, which one's not 
excellent?
    [Laughter.]
    Before us today. I want to give a brief introduction to the 
witnesses.
    The first is Kwame Raoul, the 42d Attorney General of the 
State of Illinois. As the State's chief legal and law 
enforcement officer, Attorney General Raoul has been a leader 
in consumer protection, working to stop bad actors who prey on 
Illinois consumers and students. He served as attorney general 
since 2019, after serving 14 years as the Illinois State 
Senator.
    For those who want footnotes in history, it was Kwame Raoul 
who succeeded another State Senator named Barack Obama in that 
particular district. He previously served as prosecutor in Cook 
County and the staff attorney for City Colleges of Chicago.
    Christopher Chapman is here as president and CEO of 
AccessLex Institute, a position he's held since 2008. AccessLex 
Institute is a nonprofit that promotes broad-based access to 
quality legal education. Prior to joining that company, Mr. 
Chapman was the president and CEO of a nonprofit student loan 
provider, served as vice president of a student loan 
originator, worked in a private practice, and was a staff 
member in the U.S. House at one time.
    Diane Barta is with us virtually. Network administrator 
from Richmond Hills, Georgia. She and her husband, Chris, have 
two kids. She has an associate's degree and a bachelor's 
degree. Then she took out additional student loans to pursue a 
master's degree at the for-profit Ashford University. That may 
ring a bell, Senator. They were based in Iowa, I believe. She 
currently has over $120,000 in outstanding student loan debt. I 
thank her for being here to share her story.
    Dr. Beth Akers, senior fellow at the American Enterprise 
Institute, where her work focuses on the economics of higher 
education. Previously she worked as a senior fellow at 
Manhattan Institute, a visiting research scholar at the Federal 
Reserve Board, a fellow at Brookings, and a staff economist at 
the Council of Economic Advisers under President George W. 
Bush.
    Finally, Elizabeth Gonzalez, who I had the honor of meeting 
this morning, is the directing attorney for the consumer law 
unit with Public Law Center in Santa Ana, California. In this 
role, she provides direct representation of low-income debtors, 
including student loan borrowers. She serves as a member of the 
State of California's Department of Financial Protection and 
Innovation, its Debt Collection Advisory Committee. She is an 
adjunct lecturer in law at the University of Southern 
California. She is certainly welcome, despite being a Packers 
fan.
    Let me lay out the run-of-show of today's hearing. After we 
swear in the witnesses, each witness will have five minutes for 
opening statements, and then we'll turn to questions from 
Senators. I ask all the witnesses to please stand and raise 
your right hand.
    [Witnesses are sworn in.]
    Let the record show that they answered in the affirmative. 
We'll start off with General Kwame Raoul of Illinois.
    Yes. Get the red light on.

               STATEMENT OF KWAME RAOUL, ATTORNEY

         GENERAL, STATE OF ILLINOIS, CHICAGO, ILLINOIS

    Attorney General Raoul. I must be that fifth witness that 
didn't get swept into the excellent category. Thank you, 
Chairman Durbin, Ranking Member Grassley, Members of the 
Committee, for the invitation to speak to your Committee.
    I'm excited to contribute to the discussion of potential 
bipartisan game-changing bankruptcy reform for student loan 
borrowers. I thank the Chairman and Senator Cornyn for putting 
forth this measure.
    The Illinois Attorney General's Office has extensive 
experience dealing with the burden of student loans--that 
student loans place on consumers. In 2019, our office received 
over 700 complaints about higher education, most concerning 
for-profit schools and student loans. These high-cost schools 
target low-income students and their Federal student loans, 
which are incredibly and unnecessarily difficult for these 
students to discharge in bankruptcy.
    As a result, students are burdened with loans that many 
will never pay off in their lifetime. Those loans negatively 
impact students' abilities to make important life decisions.
    Americans hold over $1.7 trillion in student loan debt. 
Nearly 30 percent of Federal student loan borrowers default 
within 12 years of entering college.
    A major contributor to student debt load are predatory and 
expensive for-profit schools. For-profit schools have the worst 
repayment rates. A shocking 98 percent of programs that failed 
the Department of Education's gainful employment metrics, which 
measured students' ability to repay their loans by comparing 
debt to earnings, were at for-profit schools.
    Since I took office in 2019, we have discharged over $20 
million in fraudulently obtained student loan debt for Illinois 
borrowers, all used to pay for for-profit schools. 
Unfortunately, for borrowers, when the schools declare 
bankruptcy or seek similar refuge in receivership, funds are 
not available to make borrowers whole. Borrowers who need 
relief must be able to discharge their Federal student loans.
    Our experience investigating Westwood College, in 
particular, and ITT Technical Institute help illustrate the 
difficult--the difficult position these students are in. My 
office sued Westwood College in 2012. Despite the school's 
closure, the widespread discharge of students' private student 
loans, and my continued advocacy, Westwood students are still 
waiting for relief from their Federal student loans. My office 
brought claims against Westwood for misrepresenting the ability 
of students with Westwood credits to become police officers in 
Illinois.
    We also had claims against the school for making private 
students loans they know students could not pay. These loans 
were loss leaders designed to bring in just enough money to 
evade the 90/10 rule, which requires students to get 10 percent 
of their revenue from sources other than Title VII Federal aid. 
Default rates were as high as 90 percent for some cohorts.
    In 2016, my office applied to the U.S. Department of 
Education to discharge the loans of defrauded students. In 
2019, I wrote the Department, urging it to discharge the 
Westwood loans. In July of this year, the Department finally 
began to discharge some of individual applications, based on 
evidence we provided with our application. The relief is 
welcome, but students need more.
    The Department discharged loans for just under 500 
borrowers, but we applied for relief for over 3,000. The 
tuition for Westwood's criminal justice degree was as high as 
$75,000. And Westwood had other similarly high-priced programs.
    Similar to Westwood, ITT engaged in a scheme to evade the 
90/10 rule by pressuring students to take out private loans the 
school knew the students could not repay. Default rates were 
estimated to exceed 80 percent for some cohorts.
    ITT closed its doors and filed for bankruptcy in 2016. As 
of 2010, approximately 65.8 percent of ITT's revenue was 
derived from Federal education funds, around $1.1 billion. 
Instead of investing these funds in the students, in 2019, ITT 
allocated $489 million of its revenue to profit.
    In June 2019, my office along with 44 other Attorney 
Generals, in a bipartisan effort, announced a settlement 
against CUSO, one of the private loan providers, for more than 
$168 million in private student loan debt relief nationwide, 
benefiting more than 18,000 students.
    Similarly, in another bipartisan effort in September 2020, 
we announced a settlement against PEAKS, another such private 
loan provider, providing $333--$330 million nationwide in 
private student loan discharges.
    However, just like Westwood, the Federal loans continue to 
burden those students. This past April, a group of 25 States, 
including Illinois, submitted a group discharge application to 
the Department of Education on behalf of ITT students who 
attended from 2007 to 2010. They were all subject to 
misrepresentations by ITT--by ITT regarding the overstated 
income students could expect to receive with an ITT education.
    I acknowledge and applaud the Department's June 16 
announced granting of 18,000 borrowers defense to repayment 
applications for former ITT students.
    We can only do so much in enforcing consumer laws. Many 
for-profit schools file for bankruptcy themselves, including 
ITT and Corinthian Colleges. The students deserve the same 
right to bankruptcy relief as these schools. The standard loan 
repayment plan is designed so that loans are payable within 10 
years. Among those Americans who fail to pay their debt within 
this period are borrowers who will simply not be able to repay 
this debt.
    Under current law, the vast majority of these borrowers are 
unable to discharge their student debt in bankruptcy. Allowing 
student loans to be freely dischargeable after 10 years from 
the time they first became payable serves two key purposes. It 
provides relief for Americans experiencing most financial 
strain and who are otherwise eligible for bankruptcy relief, 
while also protecting solvency of Governmental student loan 
programs.
    As to the theory that those might strategically seek out 
such bankruptcy, there are ample provisions--provisions in the 
Bankruptcy Code to guard against fraud, bad faith, and abuse to 
ensure relief is limited to those debtors who deserve relief. 
Discharging such debts will allow these former students to have 
the lives they may have been putting off: buying homes, getting 
married, and even starting families.
    Further, I strongly urge the Committee to ensure that 
institutions are held accountable for failing to provide 
students an affordable education by tying bankruptcy charges--
discharges to institutional finances.
    Aligning its incentives at institutions with students' 
financial success was a recommendation made by the Senate 
Committee on Health, Education, Labor, and Pensions in its 
landmark 2012 report and also a goal of the gainful employment 
rule.
    Failing to hold these predatory institutions accountable 
does nothing but line the pockets of shareholders at the 
expense of taxpayers. Struggling borrowers have been waiting 
long enough. The time for reform is now. I thank you for the 
opportunity to speak today, and I look forward to answering 
questions.
    [The prepared statement of Attorney General Raoul appears 
as a submission for the record.]
    Chair Durbin. Thank you very much, Attorney General. Mr. 
Chapman.

               STATEMENT OF CHRISTOPHER CHAPMAN,

            PRESIDENT AND CEO, ACCESSLEX INSTITUTE,

                   WEST CHESTER, PENNSYLVANIA

    Mr. Chapman. Thank you, Chairman Durbin, Ranking Member 
Grassley, and the Members of the Committee. Thank you for the 
chance to testify about the treatment of student loans in 
bankruptcy, as has been mentioned, an often-overlooked 
component of the higher education financial landscape.
    Okay. My name is Christopher Chapman, and I'm the CEO of 
AccessLex Institute. We're a nonprofit organization with a 
membership comprised of the nearly 200 State-assisted and 
nonprofit law schools approved by the American Bar Association. 
AccessLex applies its resources to expand access to law school, 
while working to increase its affordability for the value--
excuse me, increase its affordability and value for the benefit 
of aspiring lawyers and, ultimately, the society they'll serve.
    As has been mentioned, reforming the bankruptcy process is 
necessary to address the negative consequences resulting from 
what is effectively judicial failure to adapt to legislative 
changes over the last 30 years. However, by effectively 
remaining static in spite of these legislative changes, the 
test for undue hardship has moved from what could be arguable 
an appropriate basis for analysis and application of law to an 
overly strict and uneven exercise, even for those small 
percentage of people who successfully navigate the procedural 
hurdles, which serves to frustrate the underlying goals of both 
the Bankruptcy Code and the Higher Education Act.
    I'm pleased to offer a proposal today that we've been 
pushing for almost seven or eight years that appropriately 
balances the important interest implicated by the discharge--
discharge of student debt and bankruptcy. It's a little 
different than the FRESH START proposal that I just heard about 
this morning, but it's offered in the same spirit. In other 
words, to fix a problem that exists that doesn't have to exist 
and can be remedied in fairly simple legislative ways.
    We've long advocated for responsible borrowing, offered 
quality counseling, and encouraged diligent and timely 
repayment at AccessLex Institute. To that end we offer many 
extensive financial education programs for our member schools 
and our member students, beginning with pre-law and going all 
the way through repayment. These services include our financial 
education program and the ability to talk with accredited 
financial counselors one on one. We believe that's a great 
model for what others can do more broadly in the higher 
education sector.
    However, we also recognize that access-driven student loan 
programs will necessarily produce some borrowers who are unable 
to pay, often for no reason of their own. Until we have a 
working crystal ball, defaults in the student loan program, in 
some cases bankruptcies, are a necessary cost of maximizing the 
intellectual capital of this country.
    In our view, there are three core factors which must be 
properly calibrated to maximize the efficacy of the substantial 
investment in higher education by the various stakeholders and 
the value to the country as a whole.
    First, the provision of equal and affordable opportunities 
for all who pursue higher education, which forms the basis of 
the Higher Education Act.
    Next, the ability for the honest but unfortunate debtor to 
obtain a fresh start, while also promoting equitable treatment 
of creditors, representing the core tenets of the Bankruptcy 
Code.
    Finally, the ready availability of capital to allow 
Americans to reliably and affordably pursue their education 
dreams, a factor equally applicable to both the Government as a 
lender and private sector lenders.
    In this spirit, we propose a return to the framework that 
existed prior to the 1998 amendments, with one substantive 
addition. Specifically, we propose that the undue hardship 
standard remain, but only for loans which either first enter 
repayment within the seven-year period preceding the applicable 
bankruptcy filing or loans which, without regard to time in 
repayment, are eligible to participate in an income-driven 
repayment plan providing for monthly payments no greater than 
15 percent of discretionary income with loan forgiveness 
available for a period no longer than 25 years.
    All other student loans would be evaluated--evaluated in 
bankruptcy proceedings consistent with other consumer debt.
    In addition, we strongly encourage Congress to revisit the 
definition itself of undue hardship. Congress has never defined 
this term, and the judiciary's attempts have resulted in an 
unduly strict standard that is unevenly applied, only 
exacerbated by the elimination of the limited waiting period in 
which it was applied.
    For example, creating clear guidelines for the minimum 
standard of living and establishing safe harbors for certain 
type of expenses in the analysis, like caring for a sick 
parent, could help rationalize the undue hardship analysis with 
the realities of today's borrowers, who have larger loan 
balances and longer repayment periods than those of prior 
decades.
    In sum, we believe our proposal effectively balances the 
interests of all parties involved to support a vibrant loan 
structure that encourages opportunity, access, affordability, 
and personal responsibility, all set against appropriate and 
acceptable capital risk for the private sector and taxpayers 
alike.
    Thank you very much for listening. I'm happy to answer any 
questions that you may have today or as the Committee works to 
advance these efforts at student loan reform in the future. 
Thank you.
    [The prepared statement of Mr. Chapman appears as a 
submission for the record.]
    Chair Durbin. Thanks very much, Mr. Chapman. We'll go to 
two virtual witnesses: Ms. Barta and then Dr. Akers. Ms. 
Gonzalez will wrap it up. Ms. Barta.

               STATEMENT OF DIANE BARTA, NETWORK

                MANAGER, RICHMOND HILL, GEORGIA

    Ms. Barta. Chairman Durbin, Ranking Member Grassley, 
Members of the Committee, good morning. My name is Diane Barta. 
I am 50 years old. I am a network manager living in Richmond 
Hills, Georgia. I have been married to my husband, Chris, for 
12 years, and we have two children, Reagan, 10, and Carter, 5. 
I have over $120,000 in outstanding student loan debt.
    I began my education at Central Technical College in Macon, 
Georgia, where I received an associate's of applied science. I 
then transferred to Troy University, where I completed a 
bachelor's degree in applied science and technology management. 
Upon completing my bachelor's, I started working in technology 
for the school district, but I wanted to teach. I undertook a 
master's degree. In 2011, I enrolled in Ashford University 
online. I had also done my undergraduate through Troy 
University e-campus, so I was comfortable with the online 
structure.
    I had a Pell grant to help me pay for my associate's 
degree. I also had to take out loans, as well, for the rest of 
my schooling because neither of my parents could afford the 
cost. In fact, I am the only one of my siblings who attended, 
let alone completed, college. Although I had to take out some 
loans for the undergrad, the price tag for Ashford University 
was much higher. It required me to take out almost $54,000 in 
loans, and that is in addition to $30,000 in loans from 
associate's and bachelor's degrees, and almost $36,000 in 
interest.
    You may be aware of Ashford University, which has been 
under scrutiny and lawsuits because of defrauding individuals. 
It started as a small Catholic, liberal college in Iowa. Then 
Bridgepoint Education purchased it and turned it into a for-
profit online school, took it public, and shut down the Iowa 
campus. In the meantime, it sold many students, including me, 
on the idea that it would provide a high-quality education in a 
convenient manner.
    In fact, I enrolled in Ashford because the recruiter told 
me that the program I was starting, a master's in teaching and 
learning with technology, would allow me to begin teaching 
online right after I finished. I have applied for many online 
teaching positions since completing my degree and never even 
been offered an interview. I now know that Bridgepoint and 
Ashford have been investigated and sued by five separate States 
and at least three Federal agencies for lying to students and 
others.
    In 2012, my husband lost his job as a commercial plumber. 
At that point, 100 percent of the bills and vehicles and 
everything was in my name. When, without his income, we 
couldn't make our payments, I had to file for Chapter 13 
bankruptcy. I cried when I did it. We didn't have any other 
options. Then I found out from the lawyer that I couldn't 
include my student loan debt, our biggest debt, in the 
bankruptcy.
    Despite paying back for 5 years, I still have $120,341 in 
student loan debt. Even though my husband eventually found a 
job, we are still not able to make the monthly payments on 
student loan, which are over $1,000.
    I have tried to find other ways to reasonably pay back my 
loans. I've tried to enroll in the income-based payment; 
however, I was told that I made too much and didn't qualify. 
Who can afford to pay $1,000 a month for student loans, 
especially when trying to raise children? I put my loans in 
forbearance twice to avoid defaulting. I have also applied for 
borrower's defense repayment for the debt I took out for the 
worthless master's degree at Ashford.
    My payments are currently paused because of the pandemic, 
but I worry what will happen when the pause ends and I still 
can't afford the high monthly payments. Will the Government 
garnish my wages? How can I afford to support my family?
    I could have discharged my loans in bankruptcy. As painful 
as the filing was, it would ultimately have been a big great 
relief. I wouldn't still be having sleepless nights worrying 
about how I'm going to pay and what happens to my children, my 
husband, and me if I cannot.
    Thank you.
    [The prepared statement of Ms. Barta appears as a 
submission for the record.]
    Chair Durbin. Thanks, Ms. Barta. Dr. Akers.

                STATEMENT OF BETH AKERS, SENIOR

             FELLOW, AMERICAN ENTERPRISE INSTITUTE,

                         WASHINGTON, DC

    Dr. Akers. Chair Durbin, Ranking Member Grassley, and 
Members of the Committee, good morning and thank you for 
inviting me here today to share my thoughts on this important 
issue.
    For the typical borrower, access to student debt creates an 
opportunity for economic mobility that would otherwise be 
unavailable. Some students, however, are left worse off 
financially for having gone to college. The political discourse 
surrounding student debt would have you believe that 
unaffordable student loans are inescapable. That's pretty far 
from the truth, at least for borrowers with Federal student 
loans, which make up over 90 percent of the outstanding loan 
balance in the Nation.
    Over the past decade and a half, policymakers have built a 
comprehensive safety net that gives borrowers a break when 
their loan payments are unaffordable. The Department of 
Education's income-driven repayment plans allow any student 
borrower to set his or her monthly payments to an affordable 
percentage of his or her monthly income without penalties. 
Borrowers whose debt remains unaffordable over 20 years will 
have the remaining balance forgiven.
    While it can be difficult to choose from and enroll in 
income-driven repayment plans, these plans are appropriate for 
the policy challenge at hand and can bring huge financial 
benefits for those who qualify.
    However, because IDR is administered across a complex 
variety of programs, each with a different criteria, program 
parameters, and payment calculations, the system can be 
excessively complex to navigate with many borrowers unaware of 
the benefits available to them. While the protections through 
IDR have been expanding, protections available through 
bankruptcy have declined. Over the past 30 years, a series of 
policy changes have made it more difficult for borrowers to 
have their student loans, both Federal and private, discharged 
in bankruptcy.
    The motivation for the special treatment of education debt 
was that investments in education could not be transferred. The 
borrower would always retain the benefits acquired from their 
education. This exception would make sense if investments in 
education paid off uniformly with large dividends. The reality 
is that some investments in education fall short of that mark, 
unpredictably offering little or no value to the borrower.
    In an economy that relies on largely self-financed 
investments and education as the primary mechanism for social 
mobility, it is untenable for students to have to risk their 
financial well-being without a robust safety net.
    In the past I have argued that it would be unnecessary for 
Congress to reconsider allowing for student loans to be 
discharged in bankruptcy due to the more nuanced safety net 
that IDR now provides. However, IDR is in need of serious 
reform. In the meantime, reinstating the option to have student 
loans, both Federal and private, discharged in bankruptcy under 
certain conditions would create an effective catch to the well-
intentioned, but inadequate, IDR system.
    The concern with allowing student loans to be discharged in 
bankruptcy is that some borrowers might use this option 
strategically, borrowing to pay for school and then entering 
bankruptcy as a less costly option than repaying their loans.
    The introduction of moral hazard is inevitable but can be 
mitigated through restrictions. For example, requiring a 
borrower to be in repayment for a number of years before the 
loan becomes eligible for bankruptcy would reduce the financial 
reward of bankruptcy while also increasing the cost. It would 
also be reasonable to require that borrowers with larger 
balances, like those from professional and graduate programs, 
would be required to pay for a longer period of time before 
their loans would become eligible for discharge.
    One consequence of allowing private student loans to be 
discharged in bankruptcy is that it would likely reduce the 
amount of credit available to students, with economically 
disadvantaged students being affected the most. The equity 
implications of this change might seem concerning, but they 
could actually be beneficial to borrowers. The loans that will 
no longer be made were likely unaffordable in the first place.
    Additionally, those who continue to have access to credit 
may also see higher interest rates. This seems to me a 
reasonable price to pay to allow truly struggling borrowers to 
be able to discharge their loans if needed in bankruptcy.
    Thank you for the opportunity to give testimony in this 
important hearing. I commend you for considering bankruptcy 
reform for students, knowing that it doesn't pack the same 
punch as flashier proposals that are on the table, but that it 
has the potential to substantially improve our system of higher 
education finance without exorbitant expense. I look forward to 
your questions.
    [The prepared statement of Ms. Akers appears as a 
submission for the record.]
    Chair Durbin. Thank you very much, Dr. Akers. Ms. Gonzalez.

                STATEMENT OF ELIZABETH GONZALEZ,

             DIRECTING ATTORNEY, CONSUMER LAW UNIT,

            PUBLIC LAW CENTER, SANTA ANA, CALIFORNIA

    Ms. Gonzalez. Thank you, Chair Durbin, Ranking Member 
Grassley, and Members of the Committee. Thank you for inviting 
me to testify today. I am here on behalf of Public Law Center 
clients who are low income. The Public Law Center is a 
501(c)(3) legal services organization committed to providing 
access to justice for low-income residents of Orange County.
    Through PLC's consumer law unit, we provide direct 
representation to assist low-income individuals with student 
loans as well as with bankruptcy. Our clients are usually over 
35, sometimes over 50, and in far too many cases, over 60 and 
above. In all of these cases, our clients are struggling to 
make ends meet and have almost always suffered an unexpected 
loss of income, making paying their bills a challenge.
    When student loan borrowers come to PLC for assistance, we 
look first at nonbankruptcy alternatives, usually an income-
driven repayment plan. Despite the availability of these plans, 
so many borrowers are unaware of IDR programs or find the 
application process confusing. For the most part, by the time 
they come to us, we're able to enroll most of these borrowers 
in an IDR program that provides a payment that they can afford. 
If we're not able to enroll them in an IDR program, other 
students have other options, such as a total and permanent 
disability discharge.
    In many cases, however, students enrolled in the IDR 
program are unable to make their monthly payments because 
paying 10 to 15 percent of their discretionary income is simply 
not possible, given the high cost of living in Orange County, 
including childcare.
    Just to put things in perspective, Orange County is at 87 
percent--the cost of living is 87 percent higher in Orange 
County than the national average. Housing costs alone are over 
374 percent higher in Orange County, 374 percent higher. 
Discretionary income in Orange County is anything but.
    The failure to make their IDR payments results in borrowers 
defaulting on their student loans, and in some cases having 
their wages or tax refunds garnished, or having a Federal 
judgment entered in against them, making them actually 
ineligible for IDR programs in the future. The borrowers who 
cannot afford their IDR plans have additional consumer debt, 
usually including medical debt, that they also cannot afford to 
pay.
    My heart breaks for Ms. Barta, as her story is one that I 
hear far too often through Public Law Center's work. Despite 
being so overwhelmed by debt, my clients, they hesitate to even 
bring up bankruptcy in a meeting with me. There is a stigma 
associated with filing for bankruptcy. These students, these 
borrowers, understand that bankruptcy makes it harder to find a 
place to live and means they will be unable to access 
affordable credit for many years.
    Overwhelmingly, PLC clients are ashamed that bankruptcy 
might be in their future. They did not plan to be unable to pay 
their bills, and they see filing for bankruptcy as a failure of 
sorts.
    For the most part, by the time a debtor gets to the point 
of considering bankruptcy and trying to discharge their student 
loans, they have exhausted their options for increasing income 
and decreasing expenses. In fact, borrowers we work with are 
often unable to afford rent in Orange County and end up relying 
on friends and family for free or reduced cost living. These 
debtors are often working as much as they can be, and usually 
have some limitations as to the type of work and how much work 
they can perform. These limitations, however, do not rise to 
the level of a disability, making it unable for them to engage 
in substantial gainful activity.
    Since 2012, PLC has provided approximately 5,000 bankruptcy 
consultations through debtors through our bankruptcy work. Out 
of these thousands of consultations, PLC has only filed five 
adversary proceedings in bankruptcy to attempt to discharge 
Federal student loans. That's because the bar, the undue 
hardship bar, is so high that we don't believe these other 
borrowers would be able to successfully discharge their loans 
in bankruptcy.
    When PLC does decide to seek a discharge of Federal student 
loans for a client, the complaints we file detail heartbreaking 
facts to support a finding of undue hardship. A client who 
relies on friends or family for housing because they cannot 
afford to rent even a room in a house, and who feels like a 
burden on their friends and family. A client who, despite being 
told by doctors that they should not work, continues to work in 
order to pay their bills, including their student loan payment. 
A client who has to deny a child a trip to the movies or toys 
because all of their income is spent on necessary expenses, 
including their Federal student loans.
    Despite these facts, these discharge cases are always 
contested. Borrowers are made to justify expenses, such as 
paying for internet service, and questioned about their 
financial situations to such an extent the borrowers sometimes 
just want to give up.
    The current system is just not working. The fact-specific 
demands of the undue hardship analysis places a tremendous 
burden on debtors, the bankruptcy courts, and frankly, 
Government counsel. The reality is that the undue hardship 
standard creates arbitrary, conflicting, and unfair results 
that negatively impact debtors.
    Most circuits, as Chair Durbin mentioned, use the Brunner 
test to determine whether a bankruptcy--student loan should be 
discharged in bankruptcy. There are three problems to the 
Brunner test. I'm not going to go into all of them, but I do 
want to focus on two of them. The difficulty in the undue 
hardship analysis usually comes from those first two prongs: 
maintaining a minimal standard of living, and that the 
circumstances are such that this is going to continue for the 
foreseeable future is the second prong.
    For the first prong, minimal standard of living--so, while 
being able to afford--not being able to afford your own place 
to live sounds like a borrower is unable to maintain a minimal 
standard of living, this is actually always a point of 
contention in these bankruptcy cases. The reasoning seems to be 
something like, ``But the borrower has a place to live that 
they don't have to pay for, so what's the problem?'' It's as if 
depending on friends and family for shelter in your 30's, 40's, 
or 50's is a positive situation.
    The second prong requires the court and the Government to 
predict the future, in a sense. Based on the past, insert 
however many number of years here, will that be the same in the 
future? Here--excuse me.
    While borrowers have established years of hardship, this is 
also a point of contention because, did the borrower do enough 
to increase their income? Surely, the borrower will earn more 
money in 5 or 10 years. The fact is that by the time the 
borrower comes to PLC and we have filed the case to discharge 
their student loans, the borrower has exhausted options for 
increasing their income and has hit their maximum earning 
potential.
    Reintroducing the temporal discharge option would remove--
would remove the arbitrariness and unfairness from the undue 
hardship analysis by, in a sense, codifying the second prong of 
the Brunner test. If a borrower finds themselves in a situation 
where they have to file for bankruptcy 7 or 10 years after the 
student loan became due, they have then established the 
situation has persisted for a significant amount of time and 
will maintain for the future.
    Actually, I'm happy to hear that everyone seems to be in 
agreement, all of the witnesses here seem to be in agreement 
that reintroducing the temporal discharge will help borrowers 
unable to afford even an IDR payment. There also seems to be 
agreement that not only won't students rush to file for 
bankruptcy and discharge their student loans, but that the 
bankruptcy system has in place protections against the abuse of 
the bankruptcy process. Everyone also seems to agree that the 
current IDR program and the system of undue hardship, that 
they're not working.
    Something has to change. Low-income borrowers, many of whom 
are individuals of color, are trapped in a cycle of being 
unable to pay their Federal student loans even on IDR plans. 
They default. They have wages or tax refunds garnished, 
rehabilitate their loans if possible, and then fall back into 
default. For those borrowers who have no other option, being 
able to discharge their Federal student loans in bankruptcy is 
the only way to truly have a fresh start and a chance at a 
financially stable future.
    [The prepared statement of Ms. Gonzalez appears as a 
submission for the record.]
    Chair Durbin. Thank you very much, Ms. Gonzalez. We 
appreciate your testimony. I understand five minutes is not 
enough, and many of you have come great distances. I hope in 
the questioning period you'll have opportunities to expound.
    Mr. Chapman, you closed your statement by talking about 
Congress creating a definition of undue hardship. Something has 
to give here. Whatever the definition under the Brunner test is 
today, it practically is no relief. I mean, when you look at 
the other areas of nondischargeability on the Bankruptcy Code, 
whether it's alimony or child support or taxes, that sort of 
thing, there is no undue hardship escape. I think Congress 
believed it was creating some sort of an out for the hardship 
case, but in the application of the Brunner test, that just 
doesn't work.
    What--do you have a definition that you have created? You 
made a reference to some elements.
    Mr. Chapman. We have not created a specific definition, but 
it's really--it's a combination of the temporal discharge 
period as well as the definition of undue hardship. I think 
both should be addressed, albeit with the reinstatement of a 
temporal discharge, the undue hardship definition becomes, I 
guess, less impactful, but still important.
    Chair Durbin. I have tried, with no success, to appeal to 
the Department of Education, which is the bill collector in 
main, to establish some sort of reasonable standard. I used the 
example of the quadriplegic disabled veteran, you know, who is 
in a terrible state and is not likely--is never going to see a 
change in circumstances and needs a helping hand. It doesn't 
seem to touch them in any way.
    I believe they are contracting out some of these collection 
services. Perhaps there may be some perverse financial 
incentives to always say no. In 5,000 cases since 2012 you had, 
or 5,000 clients since 2012, you've had five cases only at PLC. 
It gives you an indication, one out of a 1,000 that you think 
may even have a chance under hardship; is that correct?
    Ms. Gonzalez. Just to clarify, it's 5,000 consultations. 
Sometimes people come in for more than one consultation. Yes, 
the number is very low.
    Chair Durbin. I also want to address the issue, and I think 
rightly so, the Ranking Member raised the issue of moral hazard 
in terms of whether or not we're going to make it too easy to 
file bankruptcy, and people will be taking advantage of that 
opportunity. You seem to make the argument--you do make the 
argument that this is a tough thing to sell to a lot of people, 
even though they desperately need bankruptcy. It's their only 
escape from their current situation.
    That strikes me as an honest appraisal of what most human 
reaction is to the fact you're going through bankruptcy. People 
aren't happy to do it or anxious to do it in most cases. That's 
been your experience.
    Ms. Gonzalez. Absolutely.
    Chair Durbin. Attorney General Raoul, you've seen these 
schools, for-profit schools in particular, and Ms. Barta was a 
victim of one of them, Ashford. These schools are notorious. 
Eight percent of high school students go to for-profit colleges 
and universities. Over 30 percent of student loan defaults are 
from students in for-profit colleges and universities. They get 
into the system. They borrow up too darn much money. They even 
then drop out or then get a worthless degree and can't pay it 
back. It just keeps building in interest.
    You've tried to appeal on behalf of some of these classes 
of students, with some success, I'm happy to report. There are 
many of them that don't get that kind of relief or protection 
from the deception that they've been witnessing.
    Attorney General Raoul. That's right, Mr. Chairman. There's 
consensus among State Attorneys General, as I mentioned, in 
some of these actions, there's a bipartisan effort to hold 
these bad actors accountable. Even with the limited success, 
there are many students who just left without relief.
    Chair Durbin. I'm going to defer to my colleagues because 
they've been waiting patiently here. I think we are moving 
toward--I hope we are moving toward a consensus. Certainly, 
Senator Cornyn and I invite others to join in this 
conversation. We have talked about this student debt for how 
long? Decades. We haven't done a darn thing about it in a long 
time. We can do something now that is reasonable and 
meaningful. I think the ten--restoring the 10-years is a 
reasonable step in that direction, as well as accountability 
for the schools that are abusing the student loans from their 
point of view.
    It's been a long time since I've been a practicing lawyer, 
but I think about a 19-or 20-year-old young man or woman facing 
prospect of 10, 20, 30, 40 thousand dollars in debt and signing 
on the bottom line at that point in their lives. They need some 
help. They need some advice. Going back to the point made by 
Senator Grassley, somebody's got to say to them, ``Wait a 
minute. You don't need to borrow all that money.'' Or, 
``There's another way to do this.'' Or, ``Perhaps you ought to 
reassess the whole situation.''
    They don't have that kind of counseling. It's a university 
selling student loans from the Government, and students, many 
of them with no life experience to turn to and no reliable 
parent. The parents may never have been to college themselves. 
That puts us in this predicament many times. I think we're 
moving the conversation in the right direction, and I thank the 
panel for being here. Senator Grassley?
    Senator Grassley. Yes. I want people to think about if 
whether it's done by just Government decision or by the 
bankruptcy courts, if student loan debt was forgiven, more than 
half of that money would flow to families in the upper 40 
percent of income. The top 25 percent of households in the 
United States with incomes above $173,000 now holding 34 
percent of all outstanding debt. My question to Dr. Akers, what 
are your thoughts on the immediate student loan forgiveness? Do 
you believe that this would be a regressive policy?
    Dr. Akers. I do believe it would be a regressive policy. I 
think it's a terrible policy idea. Not only is it regressive, 
but it creates bad incentives for future borrowers. I just 
wrote a book advising people on how to pay for college. If this 
cancellation were to happen, I'd be advising people to borrow 
even more tomorrow than they're borrowing today. That's the 
problem that we create with that sort of sweeping forgiveness 
plan.
    Senator Grassley. I've already referred to several bills 
that I've introduced in this Congress and previous Congresses. 
For instance, my Know Before You Owe Federal Student Loan Act 
would require schools to inform students before they borrow 
about their likely debt compared to their likely salary based 
on their program of study. Combine that bill with the College 
Transparency Act, which I also support, students would know how 
much they're likely to make based on their chosen major in a 
specific college that they attend using data from previous 
graduates.
    Dr. Akers, do you think this kind of information could help 
borrowers avoid taking out loans beyond what they can afford to 
repay? What do you think better information for students would 
do for the cost of colleges?
    Dr. Akers. Absolutely. I'm a big fan of improving 
information that students have available to make decisions 
about their investments in themselves. I think the Government 
can only do so much in regulating institutions to ensure that 
quality exists. People are their own best advocate when it 
comes to shopping for colleges and knowing what's right for 
them.
    I'd love to see people be more aware of what the value of a 
degree is so that they can put pressure on institutions to 
charge prices that are in line with value. It's asking a lot of 
the consumers, but I think it's someplace that we can go 
effectively.
    Senator Grassley. Yes. Dr. Akers, do you have anything to 
advise beyond what I've already talked about my legislation 
would do?
    Dr. Akers. No, not particularly. One thing I'm concerned 
about, especially as we move into conversations about 
accountability and risk sharing, is the lack of discretion that 
financial aid offices have to counsel students or restrict 
their levels of borrowing. I often speak to financial aid 
officers who know that they're giving loans to students that 
are unaffordable, but they don't have the ability to constrain 
them from borrowing further.
    Senator Grassley. Mr. Chapman, do you have anything you'd 
like to add to this discussion we just had?
    Mr. Chapman. Yes. Thank you, Mr. Grassley. With respect to 
student loan forgiveness, we've never supported blanket student 
loan forgiveness. We believe the Government's role is to 
provide access and opportunity and serve as a backstop for 
those borrowers who struggle at the back end. We think that 
would be a better use of money than a blanket discharge of 
loans across the board. For that reason, and for some of the 
other reasons around moral hazard and the like. That's what we 
would add to that.
    Senator Grassley. The cost of attending college continues 
to increase. As I mentioned in my opening statement, the cost 
has doubled in the last 20 years, growing twice as fast as 
inflation. College continues to grow the administrative state 
and build lavish facilities off the never-ending stream of 
Government money. Dr. Akers, what do you think could be done to 
help reduce the cost of colleges? Second, should schools have 
some sort of skin in the game to hold them accountable?
    Dr. Akers. I do think that colleges should have some skin 
in the game, meaning their financial accountability for when 
their students struggle financially to repay their debt. What 
can we do to ease up the inflationary pressure on this? I think 
we need to make it reasonable for people to choose not to go to 
college. That's the only way that institutions will face the 
pressure that it takes for them to charge prices that are more 
in line with value.
    Consumers put pressure on all kinds of sellers of different 
goods to charge prices that are in line with what the product 
or the service is worth. There's no reason that can't happen in 
education.
    Senator Grassley. Thank you, Mr. Chairman.
    Chair Durbin. Thanks, Senator Grassley. Senator Whitehouse.
    Senator Whitehouse. Thank you, Chairman. First, thank you 
for your leadership on this issue. Attorney General Raoul, I 
don't know what you're hearing. I'm sure you meet with a lot of 
constituents in Illinois, but I want to share with my 
colleagues that when Rhode Island's realtors come in to see me 
to ask for what they need to support them in their professions, 
in the last couple of years, they've started raising this 
question of student debt. They're recognizing that there is so 
much student debt out there, that it's starting to depress 
their ability to put people who should be in houses into 
houses, because they're so burdened with debt.
    It's telling for me when you hear the realtors of the 
country coming in and saying, ``You really have to do something 
about the student loan debt, because we're seeing people who we 
should be able to put into a house--they're at the right time 
of their lives. They've got the right level of income. They're 
ready for this responsibility. They just have too much student 
loan debt.'' I appreciate everyone's attention to this issue.
    It also strikes me that while mortgages are available at, 
you know, three or four percent pretty readily, student loan 
debt often charges 8, 10, 12 percent. I wonder if Ms. Gonzalez 
and Attorney General Raoul could comment on that interest rate 
discrepancy and what that does to borrowers in an environment 
which other people are getting loans at much more favorable 
rates.
    Ms. Gonzalez. I can speak a little bit to that. I can say 
that because of the IDR program and the interest it accumulates 
when basically you're paying less than or just interest on the 
loan, the borrowers who took out X amount of loans end up owing 
three, four times that amount because of that accrued interest.
    This is especially true for those borrowers that took out 
loans in the 1990's or in the 2000's, and so now we're 20, 30 
years out at a six to seven or eight percent interest rate. In 
some cases, the amount of the interest actually is larger than 
the amount of the original principal.
    Senator Whitehouse. In bankruptcy, can the debtor and the 
entity holding the loan agree separately to a lower interest 
rate in order to allow both to continue?
    Ms. Gonzalez. Yes. There are--there are settlement options 
in bankruptcy. That is usually the way these cases go, rather 
than going to a trial.
    Senator Whitehouse. Yes.
    Ms. Gonzalez. You know, it's a hard row to hoe in terms of 
convincing government counsel that this is a case that should 
be settled out for something. Whether it's a lower interest 
rate, whether it's a zero payment for a certain number of 
years, things like that.
    Senator Whitehouse. As a general proposition, a bankruptcy 
is a bankruptcy, and a whole lot of different things can put an 
American into bankruptcy. One of the areas where I've been 
doing a lot of work, Attorney General, has been on medical 
bankruptcies, because medical bankruptcies, it's really hard to 
say that there is moral fault on the part of somebody who was 
driven into bankruptcy by having a heart attack, by getting 
horrible diagnosis, by facing an issue that puts them into an 
impossible financial situation that is not of their own making. 
It's an illness that befell them.
    Is it the case that the student loan debt is 
nondischargeable, Attorney General, whether or not that is the 
cause of the bankruptcy?
    Attorney General Raoul. The issue you raise about moral 
fault, the notion of sort of characterizing somebody who's 
trying to attain a higher education, knowing the differences in 
income between those who obtain a higher education as 
juxtaposed to those----
    Senator Whitehouse. Yes. Who would not want to do that, 
right? That's a good thing to do.
    Attorney General Raoul. Exactly. The idea of being able to 
characterize one who seeks out that higher education and the 
loans as a result of being in moral fault for----
    Senator Whitehouse. You know, even people do make that 
point, nevertheless. I agree with you. People do make that 
point. I think medical debt is an example of a place where 
nobody can make that argument fairly. If somebody has a 
terrible, terrible diagnosis, then that changes their lives. It 
can wipe out their finances. If they need to go into 
bankruptcy, that will be what drove them into bankruptcy. There 
is a bankruptcy judge sitting there and saying, ``You know, I'd 
really like to help you out, but there's this law about your 
student loan. Even though you are perfectly good about paying 
it back, even though you intended to, you got wiped out by 
something else.'' Even then----
    Attorney General Raoul. Yes. You're absolutely right, 
Senator. I'd like to go back to a point that you made at the 
outset and that Ms. Gonzalez touched on, is as you talked about 
the realtors in your area. These student loan burdens prevent 
people from what we as Americans believe is living out the 
American dream: being able to purchase a home, start a family, 
educate your kids.
    Senator Whitehouse. Yes.
    Attorney General Raoul. It's a burden preventing them from 
doing so. As a result of the higher interest rates, many of 
these borrowers will have that burden for the rest of their 
lives.
    Senator Whitehouse. My time's up, but I want to thank the 
Chairman, and I want to thank the whole panel.
    Chair Durbin. Thank you, Senator Whitehouse. Senator 
Cornyn.
    Senator Cornyn. Thank you, Mr. Chairman. Thanks to the 
witnesses for being here. I know there have been a lot of 
different efforts made, including in my State, to try to 
provide students with multiple options when approaching their 
education. You know, obviously for people who don't want to go 
to a four-year liberal arts college like I did, they can train 
for a trade, welder, plumber, which are in high demand and well 
compensated. There's a lot of opportunities there.
    Or you can, in my State--I'm sure it's typical in most 
States--you can get college credit while you're still in high 
school if you're so motivated. Our community colleges offer the 
best bang for the buck, I think, in terms of low-cost 
education. Then, again, and I'm sure my State is typical of 
others, in that the pipeline that is then created for people 
who want to pursue a four-year college degree and beyond.
    We're also seeing some interesting entrepreneurs, people 
like Steve Klinsky, who started something called Modern State 
Education Alliance. There's so much content that's available 
online now, actually provided by some of the most famous 
universities in the world. He started something called Free 
First Year to try to find some way for students to access that 
free content from these outstanding educational institutions 
and actually get credit toward their degree. There's a lot 
going on in this space because of the concern we all share 
about the burden of student debt.
    Ms. Akers, I'd like to just ask you, Dr. Akers, sometimes 
people have suggested that the fact that Government student 
loans are available almost without limitation and without 
really assessing the ability of the student to repay for the 
course of study they take is actually causing inflation in 
tuition costs at our colleges and universities. Is that--do you 
agree with that or disagree? Would you comment?
    Dr. Akers. I do believe it's true. In theory, you know, 
economics tells us that subsidies raise the cost price. That's 
simple economics. Access to loans is really someone spending 
with their own dollars. It shouldn't necessarily have that 
inflationary pressure. The reality is that when you survey 
students shortly after they have signed their first promissory 
note, they have no sense that they have even borrowed 
sometimes. It seems really likely to me that the escalating 
availability of student debt has contributed to tuition 
inflation over time.
    Senator Cornyn. Attorney General Raoul, we've got one, two, 
three, four former attorney generals up here and a lot of 
recovering lawyers. I'm concerned, and I know this is something 
that Chairman Durbin has spent a lot of time on, some of these 
for-profit schools, but in particular those who target veterans 
and others who have GI benefits and the like and take advantage 
of their naivety, perhaps, about what they will actually learn, 
whether it will allow them to earn a living or the like.
    Could you just talk a little bit about the consumer 
protection aspects of not only misrepresenting what sort of 
educational benefits you receive but also perhaps maybe the 
importance of having the school itself have some skin in the 
game or have some responsibility to counsel their students, to 
help them along the way, to help them understand, ``Well, just 
because you want to major in basket weaving rather than 
computer science, maybe you ought to think about what your 
prospects are for the future in terms of your ability to pay 
your outstanding student debt''?
    Attorney General Raoul. Yes, absolutely, Senator. I don't 
know whether to call you Senator General. Skin in the game is 
important. I think the gainful employment rule was a means of 
trying to create that. It was--it was gamed as well, as we 
talked about--I talked about in two examples I presented in my 
opening remarks.
    As I mentioned, we as attorneys general--State attorneys 
general on bipartisan basis try to use the consumer protection 
tool to protect students. It's limited in what it's able to 
provide. Ironically, these for-profit institutions can seek 
refuge by way of bankruptcy in a way that the students that 
they prey upon cannot. That's why I'm here. I appreciate your 
effort as well as the Chairman's effort to try to address this.
    Senator Cornyn. Ms. Gonzalez, let me just ask one last 
final question about the consequences of bankruptcy. I know 
there's concern about the moral hazard that people will borrow 
the money and then, knowing they can declare bankruptcy, 
perhaps trying to declare bankruptcy. I think that the bill 
that Senator Durbin and I proposed with the 10-year delay 
before that can happen addresses some of that moral hazard.
    Can you talk about the other consequences to an individual 
who declares bankruptcy? If you declare bankruptcy, it doesn't 
just potentially discharge your student debt. It has a lot of 
other consequences for an individual as well, doesn't it?
    Ms. Gonzalez. Yes, Senator. Some of the big ones, the 
bankruptcy stays on your credit report for 10 years. Anyone 
who's pulling your credit report will see that you filed a 
bankruptcy. That stays on for 10 years, which a long time--very 
long time.
    Access to credit--so, it's not so much that someone who has 
filed for bankruptcy won't be able to access credit. It's that 
they will be able to access credit at very high interest rates. 
Someone who maybe didn't file for bankruptcy who could get a 
car loan for not the lowest because their credit's not the 
greatest, but 7 percent, after bankruptcy, you're looking at a 
20-22 percent interest rate for a car loan.
    There's also a housing aspect to it. Even though 
technically maybe landlords aren't supposed to use the filing 
of a bankruptcy as a reason to refuse to rent somebody, it's 
looked at in the context of the credit worthiness as a whole, 
whether someone is going to be able to pay their rent on time.
    In some cases, employment is also affected. At least in my 
State, in California, there are certain job categories where an 
employer is allowed to look at your credit without any reason. 
A bankruptcy can affect your employment prospects. Practically 
speaking, a lot of employers ask for permission to pull the 
credit report. Providing that permission, now the employer can 
look at a credit report and see the bankruptcy and what does 
that mean for this person in the future.
    I think those are sort of the big ones. You know, I think 
that we can't get--I have to mention again, just the shame. 
Just the emotional and mental stress of the process of filing 
for bankruptcy, and then, after the fact, knowing that you're 
sort of starting at the bottom, even if you had a good credit 
score 20 years ago before you had the medical emergency or 
before you had the loss of income because of a pandemic.
    Chair Durbin. Thank you, Senator Cornyn. Senator 
Blumenthal.
    Senator Blumenthal. Thank you, Mr. Chairman. Thank you for 
your continued work and your leadership on this issue. To you 
and Senator Cornyn, thanks for your initiative on the FRESH 
START Through Bankruptcy Act. I'd very much like to be part of 
that bill.
    I've been working on this issue for a while with other 
Members of this Committee. I'm pleased to join Senator 
Whitehouse in introducing the Medical Bankruptcy Fairness Act. 
We all know that the major reason that people go into 
bankruptcy, the precipitating factors, most often medical 
costs, healthcare emergency.
    Just last week, I introduced this Strengthening Loan 
Forgiveness for Public Servants Act, which would reform the 
eligibility for student debt relief for public health workers, 
teachers, and others who dedicate their lives to public 
service. Right now someone has to work for 10 years before 
reaching the point where public service can be a reason for 
eliminating that debt. What I propose, very simply, is that it 
should be forgiven in intervals of two, four, six, eight years, 
so someone doesn't have to stay in the same job for 10 years in 
order to be eligible.
    There are all kinds of reforms that we can do. Some of 
them, as Senator Durbin mentioned, can be done administratively 
right now by the Department of Education. I think we ought to 
put a little bit more persuasive pressure on the Department of 
Education to take a more enlightened approach here.
    We all know that the undue hardship test, whatever it was 
meant to be, is really not working right now. Like other parts 
of the Bankruptcy Code, quite frankly. We've, I think, 
overlooked the opportunities to reform it in the past because 
sometimes it's viewed as technical and complex and difficult to 
reduce to a sound bite.
    I'm particularly interested in this idea that somehow 
students take this step with the idea they won't have to repay 
it. There is a moral hazard. Ms. Gonzalez, you've just 
described the burdens that result from resorting to bankruptcy. 
I'm assuming that students understand those consequences and 
wouldn't take debt with the idea they're just going to willy 
nilly resort to bankruptcy to discharge it. They would go into 
that debt still with the idea they're going to repay it. Am I 
correct in that?
    Ms. Gonzalez. I think you are, Senator. I think nobody 
plans on being in a situation where they have to file for 
bankruptcy.
    Senator Blumenthal. Because those burdens stay with people 
for a while, and they can be crippling in terms of getting a 
job, buying a house, all kinds of practical, human consequences 
that anybody thinking about going into bankruptcy would have to 
consider.
    Ms. Gonzalez. That's correct.
    Senator Blumenthal. Attorney General Raoul, is there more 
that you think we can do against the kinds of predatory lenders 
that all too often take advantage of veterans or others who may 
be lured into seeking degrees that aren't really going to give 
them the benefit of education that they think will provide 
careers or the terms of the loans that may be predatory as 
well?
    Attorney General Raoul. Senator, I think yes. I mean, I 
think, you know, as I illustrated in my example of Westwood, 
where the resources were shifted to profit instead of helping 
students, the notion of disgorgement of those ill-earned 
profits and an easier way of getting there, the notion that 
these institutions can rely on bankruptcy in a way that the 
students cannot in order to protect them from such is, ironic, 
at best, unjust sort of----
    Senator Blumenthal. Let me ask the question in a different 
way. If lenders knew that the debtors could discharge the debt 
in bankruptcy, maybe they would be a little more careful about 
the practices they use to lure those debtors into the debt in 
the first place, correct?
    Attorney General Raoul. Certainly, certainly.
    Senator Blumenthal. Thank you. Thanks, Mr. Chairman.
    Chair Durbin. Thank you, Senator Blumenthal. Continue with 
the former attorney generals club, Senator Hawley.
    Senator Hawley. Thank you, Mr. Chairman. Thank you for 
holding this hearing. Thanks to all of the witnesses for being 
here. It's great to see a current attorney general up here on 
the panel as well.
    There are a couple of things that I wanted to focus on. The 
first is that while I don't support cancellation of all student 
debt for the reasons that have been talked about, the massive, 
I think, subsidy to wealthier Americans and also the massive 
subsidy to universities, I want to say I can't think of very 
many good reasons to keep students with massive amounts of debt 
as lifelong serfs of banks and lifelong serfs of universities 
by not allowing them to discharge in bankruptcy their debt 
under appropriate circumstances.
    I want to thank Senator Cornyn and Senator Durbin and 
others for their work on this and say I think that this is a 
very sensible approach.
    I also want to say that I think that we need to focus on 
the role of the universities themselves. Attention's been drawn 
to for-profit universities, rightly, in terms of concerns 
there. Thank you for your work on that, Attorney General. Let's 
not let the more traditional universities off the hook. I want 
to come back to what the traditional four-year public and 
private universities have been doing.
    I mean, just look at the numbers here. The annual cost of 
just over the last few years--few decades, rather. The annual 
cost of tuition fees, room, and board at public four-year 
universities has increased 543 percent, from about $3,800 in 
1985 to almost $21,000 in 2018. I mean, that's unbelievable. 
It's increased 483 percent for private four-year universities 
over the same time period.
    I mean, the only good in America, the only product good or 
service in America, I believe, that has outstripped education, 
higher education, in terms of its cost is healthcare, which is 
stunning. I mean, because we all know the deep dysfunctions 
there. This is totally unsustainable.
    I want to come back to a point that, I think it was Senator 
Whitehouse made. That research shows that higher levels of 
student loan debt can lead people to delaying marriage, or not 
getting married, not being able to purchase a home, not being 
able to start a family in terms of having kids, or invest in a 
family if they do have kids. It's just unbelievable.
    I think that the role of the colleges and universities in 
perpetuating this and taking the money that has been allotted 
to students--I mean, the Federal Reserve Bank of New York did 
an analysis recently that showed for every new dollar that a 
college receives in subsidized loans, they raise their tuition 
cost 60 cents. I mean, so talk about just capturing the money 
and pocketing it. It's unbelievable.
    Dr. Akers, let me just ask you, because I know that you've 
looked at this. How do you think we should increase 
accountability on institutions that receive these student loans 
and are charging increasingly outrageous tuition while 
profiting and padding their endowments? What do you think that 
we can do about that?
    Dr. Akers. Yes. To say first, if the college is really 
expensive but it delivers huge dividends consistently in terms 
of great earning opportunities, then good on them. My concern 
is that we don't have that consistent outcome.
    Senator Hawley. Right.
    Dr. Akers. I think that regulations should be looking at 
the return on investments that students are getting in order to 
determine eligibility for Federal financial aid.
    The gainful employment regulations made that the case for 
for-profit and work training type programs. I'd like to see 
outcome-based accountability, meaning some measurers of ROI, 
return on investment for the students, used rather than the 
current system of accreditition that we have in place today as 
the gatekeeper to Federal funding.
    Senator Hawley. Let me ask you about this. I've introduced 
legislation that would make participating higher education 
institutions liable for up to 50 percent of any student loan 
balance that goes into default and that has been used toward 
the cost of attendance at the institution. What do you think 
about that idea?
    Dr. Akers. I'm a big fan of getting institutions to have 
skin in the game when it comes to the Federal loan program. I 
think the concerns are the implications for equity. We know 
that economically disadvantaged students will be the first to 
lose access to enrollment opportunities as a result of that. 
You need to be comfortable with that happening and potentially 
be willing to offset those losses with additional grants.
    Senator Hawley. I certainly wouldn't want to see 
discrimination against lower-income students or those from 
disadvantaged backgrounds. I mean, quite the reverse. What I do 
want to see is these colleges and universities who charge 
outrageous amounts of tuition and do nothing, currently, to 
have any kind of accountability for it. To me it is absolutely 
indefensible for these universities to be getting endowments.
    Like for instance, the University of Michigan has an 
endowment of $11.9 billion. Billion dollars. Harvard, $38.3 
billion. Yale, $29.3 billion. Stanford, $26.4 billion. 
Princeton, $25.9 billion. I mean, this is--and you go to the 
tuition that they cause--charge their students. Again, four of 
those are private, one of those is public. I could go on. It's 
unbelievable.
    Frankly, I believe it's indefensible that these colleges 
are charging the kind of tuition that they're charging. They're 
taking the Federal student loan money that they're taking. 
They're putting students on the hook. Then they're accountable 
for none of it. I mean, we've got to do something about this.
    I also think--and I'll end with this, Mr. Chairman. I also 
think it's important that we begin to allow Federal loan money 
and maybe non-loan money, Pell grants, for instance, to go to 
job training and certification programs. It shouldn't be that 
you have to go a traditional prescribed route to this 
particular college, to this particular program in order to 
access Pell grants, for instance. We should allow folks to take 
those into job training, into other certification programs to 
be able to break up this higher education monopoly.
    Thanks to all the witnesses for being here. Thank you for 
your work. Thank you, Mr. Chairman.
    Chair Durbin. Thank you, Senator Hawley. Senator Lee.
    Senator Lee. Thank you very much, Mr. Chairman. I want to 
sort of pick up where Senator Hawley left off. If you look at 
data going back several decades, we can see that there's 
nothing about the cost of higher education increase that we've 
seen that can be accounted for just with inflation. You know, 
the data indicates that back in 1985 the cover of room, board, 
tuition, and fees, you were talking about $3,859 a year. For a 
private four-year university, the total average was just over 
$9,000 per year.
    You know, a lot's happened since then. Wham! broke up. 
Parachute pants are no longer cool. Nobody watches Alf or Mr. 
Belvedere anymore, mercifully. The costs that have increased 
with higher education are staggering since then. You know, 
we're talking about basically a fivefold increase since then. 
It doesn't even begin to be something that we can explain 
through inflation.
    Dr. Akers, a July 2017 Federal Reserve Bank of New York 
study found that pass--found that there is a pass-through 
effect on tuition of changes in subsidized loan maximums of 
about 60 cents on the dollar. How does this pass-through effect 
explain these drastic leaps in the cost of higher education?
    Dr. Akers. I think Federal subsidies either through Pell 
grant spending or the availability of credit through the 
Federal lending program, that contributed in part to the 
inflation that we've seen. I don't think that they can explain 
all of it. The notion behind that pass-through of subsidies to 
the institutions is that basically we increase demand by giving 
students access to more money to spend on colleges. When 
there's more demand in the marketplace, the price rises. Allows 
the institutions or the sellers to increase their price.
    My other belief in this space is that we have been selling 
Americans on the notion that a college degree, now a four-year 
college degree, is essentially the golden ticket to the 
American dream. I think when we've done that, we've put 
artificial pressure on individuals to consume higher education 
at any price. We have not made it acceptable for people to 
exist and operate in our economy without a degree. By doing so, 
we have put a lot of power in the hands of institutions to 
raise prices.
    Senator Lee. It's that social pressure coupled perhaps with 
Government backing it up in the process of doing that. I think 
we've got to make sure--we can't control a lot of things. There 
are a lot of things that are not under our authority. We can 
certainly look for areas where the Government is making it 
worse.
    That's one of the reasons why I've introduced legislation 
called the Higher Education Reform Opportunity Act, or HERO 
Act. It tries to reform the higher education system in a number 
of ways, including by ending this sort of perverse iron 
triangle that often exists between traditional institutions of 
higher learning, the U.S. Department of Education, and the 
accrediting bodies recognized by such.
    It would also, among other things, bring about a cap in 
subsidized Federal higher education loans. How could caps on 
Federal student loans, coupled with extended repayment periods, 
end up leading to lower tuition and to lower monthly payments 
for borrowers?
    Dr. Akers. We know that when credit is made available for 
students, they're able to spend more, of course. To the extent 
that we constrain those dollars and students are not available 
to get private credit or money through other means, they'll be 
unable to spend the amount of money that the institution is 
demanding, and that necessarily puts downward pressure on 
prices, or at least hold them stable if we were to cap at 
current levels.
    I think the place we'd really want to look at doing that is 
in graduate and professional studies, where there could be a 
robust private lending market but that we have largely crowded 
it out by the unbounded availability of Federal credit for 
graduate students. Also in the PLUS Loan program as well.
    Senator Lee. AEI has summarized the student loan default 
data to try to figure out why those who default do so and what 
can be done about it. The researchers preparing these findings 
concluded, quote, ``The most consistent predictor of default 
risk is completion. Students who fail to complete their 
programs are far more likely to default than students who 
receive the degree. For this reason, default is most common 
among borrowers with small balances, since noncompleters 
attended school for shorter periods of time and thus 
accumulated less debt.''
    If that's the case, that most defaulters are noncompleters, 
what measures do you think we could take as the legislative 
branch of the Federal Government to simplify the student loan 
repayment system and address the issue of noncompletion?
    Dr. Akers. I think one of the issues is lowering the period 
of time over which someone needs to repay their loans before 
forgiveness if they have a very small balance loan. We know the 
default rates are highest among people who have less than a 
$5,000 balance. Requiring some of the $5,000 balance to remain 
in repayment potentially with negatively amortization happening 
over the course of 20 years just doesn't seem like the most 
appropriate policy solution.
    Senator Lee. Thank you. I see my time is expired.
    Chair Durbin. Thank you, Senator Lee. Senator Hirono.
    Senator Hirono. Thank you, Mr. Chairman. Ms. Barta, can you 
describe your own situation, particularly the choices you've 
had to make for you and your family when deciding where to 
direct the money you have? Also, would you describe how you 
think your life could change if you were able to discharge your 
student loans through bankruptcy?
    Ms. Barta. Yes, ma'am. It has affected us very much so. 
Right now, since I had to file for bankruptcy in 2012, and 
still have the student loan debt over my head, our house is 
strictly in my husband's name. Vehicles are strictly in my 
husband's name. My student loans are in forbearance right now. 
For the pandemic, they're stopped. If I had to pay those, 
there's no way I could pay $1,000 a month back and raising two 
kids.
    If I had been able to file bankruptcy, then we could have 
got a better house because I would have been able, you know, 
after 10 years to put my name on the house also, be able to get 
a vehicle in my own name. Instead, I have to rely on my 
husband's credit for all that.
    Senator Hirono. Ms. Barta, you're describing a situation in 
which this loan is a continual burden that colors a lot of 
your----
    Ms. Barta. Yes, ma'am.
    Senator Hirono [continuing]. What is happening with your 
family.
    Ms. Barta. Yes, ma'am. Very much so.
    Senator Hirono. Ms. Gonzalez, you deal with people who are 
in the kind of situation that Ms. Barta is in. How would the 
lives of the people that you work with, how would their lives 
change if they could discharge their loans?
    Ms. Gonzalez. Their lives would significantly improve. We 
would probably have people who would be more able to afford 
even, you know, the tiniest room in the tiniest house so that 
they have their own place to live as opposed to burdening their 
friends and family with couch surfing or living with someone 
else.
    We would probably have student borrowers who were able to 
do something that, I think, a lot of us take for granted, save 
for emergencies, save for retirement. Many of my clients do not 
have a safety net because any income they have goes to their 
IDR payment.
    Senator Hirono. In your testimony, although if undue 
hardship can be shown, but that's a very high burden, to the 
point where only a few of your clients even meet that burden. 
We should look at making some changes to maybe defining what we 
mean. Or I don't know what we need to do with that.
    Mr. Raoul, we know that--I know that for-profit colleges 
enroll only 9 percent of students but account for 30 percent of 
all student loan defaults. You have gone after these 
institutions, many of whom just file for bankruptcy, and they 
totally escape all responsibility. I'm wondering whether there 
can be a criminal statute that applies to this kind of 
behavior.
    Attorney General Raoul. You know, legislatures can propose 
all sorts of remedies toward various problems, so I haven't 
given much thought to criminal penalties, but the notion of 
having some vehicle toward disgorgement of those ill-earned 
profits is----
    Senator Hirono. Yes.
    Attorney General Raoul. The statistics that you mentioned 
around that, there's some discussion about responsibility of 
higher education institutions generally. It's important to note 
that 98 percent of the higher education institutions that have 
failed the gainful employment rule were for-profit 
institutions, 98 percent.
    Senator Hirono. There is, I would say, a lot of evidence 
that for-profit colleges and the degrees that emanate from 
those colleges do not amount to very much in terms of the 
ability of their graduates for employment.
    You talk about disgorgement. Yes, you mentioned that a lot 
of these entities make a lot of money, millions of dollars, 
doing this. Then when they're finally caught and prosecuted by 
somebody like you, they just escape through bankruptcy.
    I would ask you to give some thought to whether or not we 
can criminalize or create an ability for us to claw back some 
of the money that they've made over time. If there's that kind 
of legislation, I'd be really interested. Because it's one 
thing to support more Pell grants, for example. I'm one of the 
leaders in more Pell grants. It seems to be the more we make 
those kinds of avenues available, it just allows these for-
profit colleges to continue to raise their tuition. It's a 
vicious cycle. Thank you.
    Chair Durbin. Thank you, Senator Hirono. Senator Cruz.
    Senator Cruz. Thank you, Mr. Chairman. There's a concept in 
economics called rent seeking, whereby those with political 
power and influence go to those in government and seek special 
benefits at the expense of everyone else. Today's student loan 
racket--and it is a racket--I think is a powerful example of 
rent-seeking.
    The people who are losing are the working men and women of 
this country. They're losing on multiple fronts. Number one, 
they're losing because the cost of education has skyrocketed. 
The cost of education skyrocketing is a direct result of 
policies the Federal Government has put in place.
    We've heard the stats today about the cost of education. 
Today the cost of college tuition is 31 times more than it was 
in 1970. We've seen skyrocketing costs. In 1985 the cost of 
tuition, fees, room, and board was $3,859 a year at a public 
university, and $9,228 a year at a private four-year 
university. By 2018, those numbers had skyrocketed to $20,598 
per year at a public four-year university and $44,662 a year at 
a private four-year university.
    I can tell you, in families, that makes a real difference. 
In 1957, my dad came from Cuba to come to America to go to 
school. He came to Austin to go to the University of Texas. His 
first job was making 50 cents an hour as a dishwasher. Working 
as a dishwasher, he was able to pay his way through school. You 
can't do that anymore. The fees have skyrocketed.
    By the time I went to school, when I came out of college 
and law school, I had to take student loans. I had about 
$100,000 of student loans when I came out of law school. It 
took over a decade to pay off those student loans. The racket 
we have right now involves the Federal Government subsidizing 
unlimited student loans, which then sets up universities to 
jack up tuition and jack up cost over and over and over again.
    The racket gets even worse because we saw in recent years, 
led by congressional Democrats, the Federal Government 
nationalized the student loan industry. Now it's the Federal 
Government that is loaning the money that is directly 
subsidizing this massive debt burden and driving the cost 
through the roof. It's resulting in at universities, people on 
the staff and administration getting paid six-figure sums not 
to teach, not to teach but to engage in administration.
    Take a university like the University of Michigan. The 
University of Michigan right now, you can expect--an in-state 
student can expect to spend $130,000 during four years at the 
University of Michigan. An out-of-state student can expect to 
spend about $300,000 at the University of Michigan.
    Why is it so expensive? I'll tell you, there's massive 
overhead. For example, Michigan has right now, the University 
of Michigan, has 163 diversity and inclusion employees whose 
job it is to be administrative overhead--to put that in 
perspective, it has 2.3 diversity and inclusion officers for 
every one member of the history faculty. Our universities don't 
teach anymore. They are instead paid sinecures for people who 
go and work for the Government.
    By the way, they have become among the biggest donors to 
Democrats. It is striking just how many employees of public 
universities are massive Democratic donors to each of the 
Senators up here.
    There's a chart I tweeted out some time ago comparing the 
top donors to Donald Trump to the top donors of Joe Biden. 
Strikingly enough, among the top donors to Joe Biden were 
universities and Big Tech. In fact, according to this bubble 
chart, the biggest group of donors for Joe Biden were employees 
of the University of California. They actually, more than 
employees of Google, which was right behind, more than Amazon, 
Big Education supports Democrats.
    What are Democrats now saying? We're going to loan massive 
loans to you. We're going to drive up the cost. We're going to 
forgive that debt, which shifts all the cost to the taxpayers. 
The top fifth of households holds $3 in student loan for every 
$1 held by the bottom fifth. What Democrats are now proposing, 
to benefit the universities and keep jacking up costs, is to 
transfer money from working men and women. The top 25 percent 
of households with incomes above $173,000 hold 34 percent of 
outstanding student loan debts, and yet Democrats are proposing 
a massive wealth transfer away from working men and women.
    These are policies that don't make sense. These are 
policies, I believe, that are rent seeking, and they're hurting 
the working men and women.
    Chair Durbin. Thank you, Senator Cruz. Senator Ossoff 
online.
    Senator Ossoff. Thank you, Mr. Chairman. Thank you to our 
panel. I want to extend a particularly warm welcome to you, Ms. 
Barta, hailing from Richmond Hills in the State of Georgia. 
It's a pleasure to have you with us. Grateful for your 
testimony. Please give my regards to your family.
    I would like to appreciate you sharing your story with us. 
Just to help some of my colleagues on the Committee and me to 
really understand what the situation that you're in means for 
you and your family, to talk a bit more about how the burden of 
debt that you incurred is impacting your family and your 
ability to raise your two kids.
    Ms. Barta. I have $120,000--over $120,000 in student loans. 
My payments are over $1,000 a month, which you know, I'm not 
paying right now because we're in the pandemic stop. Honestly, 
there's no way I can pay over $1,000 a month and raise two 
kids, seeing kids to be able to do extracurricular activities. 
I can't even have a car in my name, a house in my name. I mean, 
it's a lot.
    You don't if, when it comes out of the pandemic, okay, if 
my wages are going to be garnished because I can't pay back my 
student loans. Most of it's from a college that, you know, has 
defrauded lots of students. It's just a lot.
    Senator Ossoff. You wanted to pursue a master's degree, Ms. 
Barta, because you wanted to engage in public service, correct?
    Ms. Barta. I worked for the school system for seven years 
and wanted to do online teaching. That's why I ended up going 
to Ashford is because they told me with the degree that I got 
that I would be able to do online teaching as soon as I got 
done with it. I've applied for many of jobs, and never even got 
an interview.
    Senator Ossoff. Is it fair to say you were misled by the 
institution that was marketing that degree to you?
    Ms. Barta. Very much so.
    Senator Ossoff. So, you took on this debt. You're unable to 
make the payments. Unable to own a car in your name.
    Ms. Barta. Yes, sir.
    Senator Ossoff. Unable to engage in your community and 
economic life and with your family in the way that you want to. 
It's because you wanted to teach. It's because you wanted to be 
an educator.
    Ms. Barta. Correct.
    Senator Ossoff. Ms. Barta, I again want to thank you for 
joining us and sharing your story. Oftentimes, the Senate hears 
from experts. Nothing is more powerful and effective than 
hearing from the people who are impacted by decisions that we 
make, by mistakes that our predecessors in the Congress have 
made, by the predations of institutions that lured you into a 
financially precarious situation, exploiting the fact that you 
wanted to make a contribution to our community and our State 
and our country.
    I thank you for your testimony. I look forward to sitting 
down with you in person. You have certainly strengthened my 
resolve and inspired me, and I hope many of my colleagues, to 
take on this issue with even greater focus and urgency. Ms. 
Barta, thank you so much. Mr. Chairman, I yield back.
    Chair Durbin. Thanks, Senator Ossoff. Let me join you in 
thanking Ms. Barta for her heartfelt testimony. It really 
brings home the real-life impacts of this issue. Senator 
Blackburn?
    Senator Blackburn. Thank you, Mr. Chairman. To each of you 
for being here today, thank you so much. Ms. Barta and Ms. 
Akers who have joined us remotely, thank you for that.
    I had an interesting conversation with a Tennessee mom back 
during the campaign when President Biden was suggesting that he 
was going to forgive large portions of student debt. This was a 
single mom who had worked two jobs. Her daughter, who was now 
college senior, had worked since she was 16. They had chosen 
junior college for her first 2 years. She would go to a 
community college. The daughter had continued to work in 
college.
    They had done all of this so that their hope being that she 
would graduate without the burden of student loans. They were 
diligent. They sacrificed. They saved. She came to me and she 
said, ``Okay, where is the fairness for somebody like me, who 
has worked hard and saved and has done the right thing when you 
talk about discharging student loans?'' I think that that's 
something that we do consider. Where is the fairness for people 
that have played by the rules?
    Likewise, we look at what has happened with private lenders 
and the Federal Government, the lack of transparency that is 
there, the lack of ability for people to find out exactly how 
they are keeping track of those lines, the interest that is 
due, the payments that are made. Mr. Chairman, I think we all 
agree, and everyone can see from the hearing today, a need for 
greater transparency, a need for more diligent oversight in 
what is taking place around student loans, what is happening 
there, and how this does impact the lives.
    Dr. Akers, I think I want to come to you first, if I may, 
please. You've--as I've listened to the hearing today and your 
comments, we've defined problems. I want you--to come to you. 
Then, Mr. Chapman, I'm coming to you, second, for an answer to 
this. What do you think is a more effective alternative to 
student loan cancellation than what we have in front of us at 
present? What is a more effective alternative to help those 
that are struggling to pay those loans? Dr. Akers----
    Dr. Akers. I firmly----
    Senator Blackburn. Go ahead.
    Dr. Akers. Yes, thank you. I firmly believe that it's 
important that we have a safety net for borrowers to ensure 
that those who do everything they can to come out ahead but 
still have hard times aren't saddled with debt for the rest of 
their lives. We have worked hard to create a system of income-
driven repayment to provide that safety net for borrowers.
    Unfortunately, the system that has been created is not 
working very well. There's tons of ways to reform it. Number 
one, it needs to be made simpler. Instead of a set of programs 
that student borrowers need to choose from, we need one single 
income-driven repayment program that students are automatically 
placed into when they enter repayment. That's the first thing 
I'd like to see.
    I think we also want to reconsider the thresholds below 
which students don't need to repay their loans. I found Ms. 
Gonzalez's testimony interesting when she talked about the 
amount that borrowers need to repay on income-driven repayments 
still makes standard of living unaffordable to them. That's 
something that we can adjust through the income-driven 
repayment program and the parameters of that program rather 
than through more aggressive student-loan cancellation broadly 
or a lenient bankruptcy policy.
    Senator Blackburn. Okay. Mr. Chapman.
    Mr. Chapman. Thank you. I agree with Dr. Akers that the IDR 
program really should be reformed and be simpler, easier to 
access, and much more clear to borrowers. That said, we also 
believe that----
    Senator Blackburn. Tend to it on the front-end, is what 
each of you are saying?
    Mr. Chapman. That's point one.
    Senator Blackburn. Okay.
    Mr. Chapman. Point two is, I also think it'd be 
strengthened in the sense that right now it's a one-size-fits-
all program no matter what your income is. I work with a lot of 
graduate and professional schools and students who have bigger 
debt but also bigger incomes and so qualify for IDR plans, 
which is great.
    One of the criticisms of the IDR plans is that you can have 
someone making into the six figures and still paying 10 percent 
of their salary or 15 percent of their salary. There does come 
a threshold where each additional dollar is more discretionary 
than those initial dollars. We've been looking at plans to have 
a graduated increase as income goes up to pay more----
    Senator Blackburn. You would tier it?
    Mr. Chapman. Yes.
    Senator Blackburn. Okay.
    Mr. Chapman. What you can do with that is you can use that 
money to support the struggling borrowers more and offset some 
of the Government's role on the backside.
    Senator Blackburn. Basically you would close loop that 
money flow?
    Mr. Chapman. Yes, that would be one way to do it.
    Senator Blackburn. Okay, all right. I know Ms. Gonzalez had 
some thoughts. I saw her making notes. Would you like to weigh 
in on this? My time is over, but I want to allow you to 
respond.
    Ms. Gonzalez. Sure. I would just say that the IDR program, 
as Dr. Akers and Mr. Chapman have said, it's not working 
because it's got that 10 to 15 percent of discretionary income, 
which is just based on a number. Discretionary income for one 
person is not discretionary income for another because people 
have higher housing costs, have higher childcare costs, have 
higher medical costs. That's a big challenge.
    Then I do just want to say that in terms of the bankruptcy 
reform, having this temporal discharge reinstated, it would 
help borrowers tremendously who are in a situation where they 
are at the end of their financial ropes because they're not 
running for bankruptcy just to get rid of the debt. There are 
other reasons as well.
    Senator Blackburn. Thank you all. I think the problem is 
well defined. I like the energy you've brought to your answers 
on how we find alternatives and a resolution to this. Mr. 
Chairman, thank you for the hearing.
    Chair Durbin. Thank you, Senator Blackburn, and for your 
patience being at the end of the line. You have to wait until 
others have their day in court. I thank you for your interest 
and your good line of questioning and comments. I just want to 
thank the entire panel for your contributions.
    This is an issue that I have dealt with for a long time. I 
came to this Committee over 20 years ago, and the first 
assignment was reforming the Bankruptcy Code. My chairman was a 
fellow named Grassley, who was the Chair of the Administrative 
Committee, and I was a brand-new Senator and Member of this 
Committee. We spent several years working on it. I was 
consulting with a professor at Harvard named Elizabeth Warren. 
He of course had his consultation with others too.
    Bankruptcy has always been an interest to me. I think it is 
particularly important in the context of these student loans. 
What you have brought out today in your testimony really gives 
me some hope that we, for the first time, are talking--and I 
hope you can sense this from the panel discussion here on this 
side, that there is bipartisanship behind this concept. I thank 
Senator Cornyn, especially, for leading that on the Republican 
side.
    The 10 years is not a new idea. It was, I think, the law 
that was extant during Ronald Reagan's administration. We've 
seen it work. It can work again, as far as I'm concerned. We 
are going to, at your invitation, Mr. Chapman and Dr. Akers, we 
are going to, as well as Ms. Gonzalez--we're going to embark on 
an evaluation of undue hardship, not as an alternative to the 
10-year, but as another option, another tool that can be used 
for those with less than 10 years, for example. There ought to 
be some reasonable definitions we can make of undue hardship.
    I think there is a growing sentiment that the colleges and 
universities have to have, as they say, skin in the game. They 
have to realize they're not just giving away taxpayers' money 
without any consequence, and that they are held accountable for 
literally misleading prospective applicants and students for 
student loans that end up burning them in ways that Ms. Barta 
has spoken to over the years.
    I might say a word about her situation. It really breaks my 
heart, Ms. Barta. I don't know the exact dates that you had 
your experience with Ashford, but it was more than 10 years ago 
that a Senator named Tom Harkin of Iowa did an extensive survey 
of the for-profit colleges and universities, and made a special 
case for Ashford, which had bought a small Catholic college 
being run by an order of nuns, changed the name to Ashford and 
went online, and started reaping huge profits and salaries for 
their CEO and other officers.
    It was clearly a disaster in the making. I'm afraid Ms. 
Barta got caught right in the middle of that and has paid 
heavily for it ever since. It's a reminder, Attorney General 
Raoul, the importance of your job, of really holding these for-
profit schools, all schools, accountable for the way they spend 
the public's money and Federal tax dollars. I'm sorry that Ms. 
Barta had her experience. Perhaps this administration will be 
more vigilant in dealing with this.
    I look forward to working with my colleagues across the 
aisle to pass the FRESH START Through Bankruptcy Act. The 
hearing record's going to remain open for 1 week for statements 
to be submitted on the record. Questions for the record may be 
submitted by Senators and may come your way by 5 p.m. on 
Tuesday, August 10th.
    I want to, again, thank the panel of witnesses, some of you 
incurring sacrifices to be here today. You came a long way, Ms. 
Gonzalez. You came a long way yourself, Attorney General. I 
thank you all for your participation, and the meeting will 
stand adjourned.
    [Whereupon, at 12:05 p.m., the hearing was adjourned.]
    [Additional material submitted for the record follows.]


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