[Senate Hearing 117-832]
[From the U.S. Government Publishing Office]
S. Hrg. 117-832
STUDENT LOAN
BANKRUPTCY REFORM
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HEARING
BEFORE THE
COMMITTEE ON THE JUDICIARY
UNITED STATES SENATE
ONE HUNDRED SEVENTEENTH CONGRESS
FIRST SESSION
__________
AUGUST 3, 2021
__________
Serial No. J-117-32
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Printed for the use of the Committee on the Judiciary
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
www.judiciary.senate.gov
www.govinfo.gov
__________
U.S. GOVERNMENT PUBLISHING OFFICE
54-740 WASHINGTON : 2024
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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
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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
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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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