[Senate Hearing 117-644]
[From the U.S. Government Publishing Office]
S. Hrg. 117-644
EXAMINING STUDENT LOAN SERVICERS AND
THEIR IMPACT ON WORKERS
=======================================================================
HEARING
before the
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED SEVENTEENTH CONGRESS
SECOND SESSION
ON
EXAMINING STUDENT LOAN SERVICERS, INCOME-DRIVEN REPAYMENT,
AND OTHER LOAN REPAYMENT PROGRAMS, AND HOW STUDENT
DEBT IMPACTS BORROWERS, HOW PROPER OVERSIGHT CAN ENSURE
BORROWERS ARE PROTECTED, AND THE BROAD ECONOMIC IMPACT
OF STUDENT LOAN DEBT
__________
MAY 5, 2022
__________
Printed for the use of the Committee on Banking, Housing, and Urban Affairs
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Available at: https: //www.govinfo.gov /
______
U.S. GOVERNMENT PUBLISHING OFFICE
55-749 PDF WASHINGTON : 2026
COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
SHERROD BROWN, Ohio, Chairman
JACK REED, Rhode Island PATRICK J. TOOMEY, Pennsylvania
ROBERT MENENDEZ, New Jersey RICHARD C. SHELBY, Alabama
JON TESTER, Montana MIKE CRAPO, Idaho
MARK R. WARNER, Virginia TIM SCOTT, South Carolina
ELIZABETH WARREN, Massachusetts MIKE ROUNDS, South Dakota
CHRIS VAN HOLLEN, Maryland THOM TILLIS, North Carolina
CATHERINE CORTEZ MASTO, Nevada JOHN KENNEDY, Louisiana
TINA SMITH, Minnesota BILL HAGERTY, Tennessee
KYRSTEN SINEMA, Arizona CYNTHIA LUMMIS, Wyoming
JON OSSOFF, Georgia JERRY MORAN, Kansas
RAPHAEL G. WARNOCK, Georgia KEVIN CRAMER, North Dakota
STEVE DAINES, Montana
Laura Swanson, Staff Director
Brad Grantz, Republican Staff Director
Elisha Tuku, Chief Counsel
Dan Sullivan, Republican Chief Counsel
Cameron Ricker, Chief Clerk
Shelvin Simmons, IT Director
Pat Lally, Hearing Clerk
(ii)
C O N T E N T S
----------
THURSDAY, MAY 5, 2022
Page
Opening statement of Chairman Brown.............................. 1
Prepared statement....................................... 39
Opening statements, comments, or prepared statements of:
Senator Toomey............................................... 3
Prepared statement....................................... 40
WITNESSES
Mike Pierce, Executive Director, Student Borrower Protection
Center......................................................... 5
Prepared statement........................................... 42
Neal McCluskey, Director, Center for Educational Freedom at the
Cato
Institute...................................................... 7
Prepared statement........................................... 66
Responses to written questions of:
Senator Rounds........................................... 144
Jalil Mustaffa Bishop, Cofounder and Assistant Professor, Equity
Research Cooperative, Villanova University..................... 9
Prepared statement........................................... 80
Additional Material Supplied for the Record
Statement submitted by Deborah Harburger......................... 146
Statement submitted by Jonathan Hammond.......................... 148
Statement submitted by Rae Pickett............................... 151
Statement submitted by Megan Bailey.............................. 154
Statement submitted by Emily Robinson............................ 158
``Why Do Black College Graduates Have a Lower Homeownership Rate
Than White People Who Dropped Out of High School?'', Jung Hyun
Choi, Laurie Goodman, Urban Institute, February 27, 2020....... 160
``Fact Check: The Truth About Maximus/Aidvantage Student Loan
Account Servicing''............................................ 167
(iii)
EXAMINING STUDENT LOAN SERVICERS AND
THEIR IMPACT ON WORKERS
----------
THURSDAY, MAY 5, 2022
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Committee met at 10 a.m., via Webex and in room 538,
Dirksen Senate Office Building, Hon. Sherrod Brown, Chairman of
the Committee, presiding.
OPENING STATEMENT OF CHAIRMAN SHERROD BROWN
Chairman Brown. The Senate Committee on Banking, Housing,
and Urban Affairs will come to order.
Thanks to the three witnesses, some traveling long
distances to be here in person. We do these hearings pretty
much--I would assume we'll continue for at least a while to do
them hybrid. So witnesses sometimes call in from Seattle or
Philadelphia or somewhere else. And Members still can--and can
cover more hearings this way, we'll ask questions from their
offices. Many will be here, and we will see how that goes.
Forty-three million Americans are drowning in 1.75
trillion, that's, a thousand billion, dollars in student debt.
That debt prevents generations of Americans from pursuing their
dreams, seeing their hard work pay off. It holds people back
from buying a home, starting a business, getting married and
starting a family.
Earlier this week, this Committee held a listening session
to hear from workers about how student loan debt has impacted
their lives and how it has undermined the dignity of work. We
heard about how borrowers face impossible choices between doing
the work they care about and trying to pay off mounds of
student debt.
Megan Bailey, a social worker in rural Montana, realized
that to afford college either she would be saddled with
enormous debt or her parents would be saddled with enormous
debt, therefore, jeopardizing their retirement. She took on the
debt herself. She now owes more than $200,000. She sacrificed
her financial future in order to make sure her parents could
retire. That's a choice no one should have to make.
It really wasn't supposed to be like this. Taking on debt
to pay for college is an investment in your future, they tell
us, an investment that pays off in the long run with a higher
paying job and a promise perhaps of middle-class stability. It
is what we tell people about the American dream: Work hard,
play by the rules, you will get ahead in life.
It's what Rae from Toledo, in my State, believes. She
thought if you took on debt to go to college, if she worked
hard, if she dedicated herself to public service, she would get
ahead. Instead, she has paid $96,000 on $75,000 in student debt
she owed. She is nowhere near being done with these loans
despite having a job and working hard every day.
The overwhelming number of borrowers do play by the rules.
They do work hard. Go to college, check. Get a job, check. Work
hard every day, check. But instead of achieving the American
dream, borrowers are trapped in debt and economic instability.
The debt trap, as we know, is even worse for Black and
Brown Americans; 90 percent of Black students, 72 percent of
Latino students borrow to attend college, 66 percent of White
students do.
It is not an accident this cycle of debt is a direct result
of bad Federal and State policy. We have not invested in public
education the way we used to, pushing tuition higher and
higher, pushing students to take on more and more debt. In
2020, more than half of all bachelor's degree recipients from
public and private 4-year institutions graduated with student
debt and owed an average of $28,000. The days that some of us
remember are long gone, when hard work at a part-time job could
put you through school.
Too many of the debt forgiveness programs that students are
told they will be able to count on are mismanaged, in some
ways, not really even managed at all, by student loan services.
The income-driven repayment programs supposed to erase eligible
borrowers' debt after making enough payments, it's canceled the
debt of 32 out of 4.4 million Americans who are eligible. That
is not 32 percent. It is not 32,000. It is not 3,200. It is 32
people out of 4.4 million. Many of these borrowers have been
enrolled in making payments for 20 or 25 years. According to a
recent NPR report, loan servicers fail to properly count
qualified payments and did not accurately track borrowers'
progress toward cancellation for millions of people. These are
some pretty big mistakes.
We created this program to protect people from being
trapped forever in debt. It's not working.
Congress created another program designed to forgive
student loan debt, the Public Service Loan Forgiveness Program.
We promised these students if they dedicated 10 years to public
service, generally at modest compensation, we know--teachers,
nurses, firefighters--their loans would be forgiven. Yet,
because of poor servicing--and there is no other way to
describe it--98 percent of eligible borrowers are rejected for
Public Service Loan Forgiveness. Ninety-eight percent. And the
great majority of them thought they were doing things right.
They paid every month for 10 years.
One of these who was rejected was Deborah Harburger, from
Maryland. She has been a social worker for the State of
Maryland for more than 18 years. She should have had her debt
forgiven 5 years ago, yet she was rejected for Public Service
Loan Forgiveness in 2017. Five years of monthly payments that
could have gone to her savings or retirement or her college
savings. Service mismanagement particularly of these two
programs has led to borrowers having larger debt for longer
periods of time.
The Biden administration recently implemented a temporary
PSLF waiver to allow rejected borrowers to reapply for
forgiveness. That allowed Emily Robinson, a teacher from
Georgia, to finally have the remaining $22,000 of her student
loan debt forgiven. She taught 17 years. She was rejected once
before for loan forgiveness.
She told us she finally received her Thanksgiving miracle
when all her student loans were forgiven. She said when she saw
the remaining balance on her loans at zero, she started to cry.
Imagine how she thought then. She says she can now start saving
for retirement after 17 years serving the public.
That was an important first step by the Biden
administration, but it is not enough. The Biden administration
has the power to change the financial lives and future of
millions of borrowers by forgiving meaningful portions of
student debt.
CFPB has a role here as well. Student loan servicers need
to be closely supervised to ensure that borrowers receive the
forgiveness they have earned through the programs that Congress
established. Under the Trump administration, CFPB was not
concerned with the average worker. We know that. We saw that.
We have seen that in reality at the time, and we have seen it
proven since. But under the leader of Director Chopra, CFPB is
finally working to hold these servicers accountable.
Americans shouldn't be trapped by a system that was
supposed to be an opportunity to work their way into the middle
class and really understand the dignity of work. I call on the
Administration to think about Emily and Rae and Megan and
Deborah, who worked hard their entire lives, still drowning in
debt. You have the power to reform this broken system, to give
people power and agency in their lives, and to unleash the
potential of future generations in this great country.
Senator Toomey.
OPENING STATEMENT OF SENATOR PATRICK J. TOOMEY
Senator Toomey. Thank you, Mr. Chairman, and welcome to our
witnesses today.
When Congress created the universal student loan programs,
it did not call them student grant programs. In fact, there are
separate grant programs, like Pell, for low-income students.
But Congress created the student loan program with the same
expectation as any other loan program, that the loans would be
paid back.
Now some of my Democratic colleagues clearly want the
President, despite his lacking the legal authority, to cancel
many of these outstanding loans, effectively converting them
into grants, of potentially tens of thousands of dollars per
borrower. So let us be clear about what canceling student loan
debt means. It is a massive wealth transfer from taxpayers to a
small subset of mostly wealthy individuals.
First of all, fewer than one in five adults, American
adults, even have Federal student loan debt. That means that
210 million American adults have no Federal loan debt. So why
do 80 percent of American adults have no student loan debt?
Well, many of them never went to college. Or, they went to
college, but they did not take out student loans; they just
paid as they progressed. Or, they took out student loans to pay
for college, and they paid them back.
Second, individuals with a bachelor's degree or higher
overwhelmingly make more money than people who do not have
those degrees. The vast majority of them are perfectly able to
repay their loans. They have significantly lower unemployment
rate, and on average, they earn a million dollars more over
their lifetime than non-college graduates.
Third, student loan debt is primarily owed by wealthy
families and graduate students. Even the Washington Post's
left-leaning editorial board has blasted the President's plan
as a transfer to the wealthy. They wrote, ``A broad
cancellation would offer huge undeserved benefits'' to
individuals in high paying fields, and they corrected pointed
out that ``The vast number of American taxpayers lacking
university degrees would subsidize well-heeled, white-collar
professionals.''
Now all student debt is obviously voluntarily incurred.
Over half of all student debt is taken by graduate students,
many of whom happily incur the debt because they are entering
high paying fields, like business and medicine and law. Of
course, some graduate students that are not highly valued by
the labor market, as the Wall Street Journal wrote, ``Doctorate
recipients in the humanities in 2019 earned $53,000 on average.
Machinists make more.'' Now this begs the question. Why should
a machinist ever have to pay off the loans of an art history
Ph.D., let alone a medical doctor?
Beyond being a massive wealth transfer to the well-off and
well-credentialed, student debt cancellation is grossly unfair
to every other American. Frankly, it is a slap in the face to
the machinist, to the taxpayer, to anyone who did not go to
college, and to anyone who works for a living, making financial
sacrifices so they can pay their own or their kids' college
bills that they saved instead of going on vacation or splurging
on gadgets. Those people do not have student loans, but they
have got other debt.
Should the Government cancel their mortgages, their car
loans, their credit card bills? Of course not. It is almost
never acceptable for the taxpayers to be forced to be
responsible for someone else's voluntarily incurred private
debt.
Cancellation of student debt obscures the root cause of the
problem here, and the root cause of this problem is the
outrageously high cost of higher education. For decades, the
Government showered students with cheap debt and grants to go
to college. With Government paying so much of the costs,
students were largely indifferent to the price. Understanding
that price did not matter to their customers, colleges
responded by raising tuition. According to a study by the New
York Fed economists, anytime there is an increase in the amount
that a student can take out for a Federal-subsidized loan, 60
percent of that increase is passed through as a tuition hike.
The solution is obvious here, less Government subsidization
and more personal responsibility, but it seems some have
forgotten these immutable economic truths.
Colleges have little incentive to keep prices reasonable if
they believe Government will cancel the debt used to pay for
the tuition. They have already demonstrated that they are
willing to raise prices at multiples of the rate of inflation
because they can. If Government starts canceling everyone's
debt, then we can expect another surge of higher education
inflation. With the Government expected to issue roughly a
trillion dollars in new student loan debt over the next decade,
we will soon be right back in the same position.
Let me conclude by dispelling an argument that you may hear
today, that student debt cancellation will somehow ease
inflation. The opposite is clearly true.
Through May 1st of this year, the nonpartisan Committee for
a Responsible Federal Budget, or CRFB, estimated that the COVID
student loan repayment pause has already effectively canceled
$5,500 per borrower on average and thereby pumped roughly $5
billion of excess stimulus into the economy each month with no
corresponding increase in the supply of goods and services. The
CRFB estimates that full debt cancellation could raise
inflation from the already outrageously high levels by between
a-third and a-half additional percentage point. So in addition
to being egregiously unfair and bad policy, Americans simply
cannot afford it.
Thank you, Mr. Chairman.
Chairman Brown. Thank you, Senator Toomey.
I will introduce today's witnesses. Mike Pierce is the
Executive Director and cofounder of the Student Borrower
Protection Center. He served at CFPB as Deputy Assistant to the
Bureau, advising the Bureau's work related to student lending
and servicing. Mr. Pierce holds a bachelor's degree from George
Washington University in public policy, a law degree from the
College of William and Mary.
Welcome, Mr. Pierce.
Dr. Neal McCluskey is the Director of the Center for
Educational Freedom at the Cato Institute, coeditor of the book
Unprofitable Schooling: Examining Causes of, and Fixes for,
America's Broken Ivory Tower. He is on the editorial board of
the Journal of School Choice. He holds a master's in political
science from Rutgers-Newark and a Ph.D. in public policy from
George Mason.
Welcome, Dr. McCluskey.
Dr. Jalil Mustaffa Bishop is an assistant professor at
Villanova University, cofounder of the Equity Research
Cooperative, and a native of Twinsburg, Ohio. His latest paper,
``Jim Crow Debt: How Black Borrowers Experience Student
Loans'', studied the impact of the student debt crisis on Black
Americans. He received his bachelor's in history from Dartmouth
and his master's and Ph.D., in higher ed from UCLA.
Dr. Bishop, welcome.
And, Mr. Pierce, if you would begin your testimony and
please keep it close to 5 minutes. Thank you, all of you.
STATEMENT OF MIKE PIERCE, EXECUTIVE DIRECTOR, STUDENT BORROWER
PROTECTION CENTER
Mr. Pierce. Thank you, Chairman Brown, Ranking Member
Toomey, Members of the Committee. Thank you for the opportunity
to testify today.
My name is Mike Pierce, and I am the Executive Director of
the Student Borrower Protection Center and a former Federal
regulator for the student loan industry.
The story of the student debt crisis is one marked by
widespread economic distress, Government inaction, corruption,
and shocking abuses by some of the largest financial companies
in the world. Today, even with the momentary pause in student
loan payments, borrowers experience hardship as rising debt
produces fewer homeowners and more credit card debt,
jeopardizes secure retirements, and drives intergenerational
debt. Worse, Administrations of both parties have failed to
confront the disparate effects this crisis has on people of
color, widening the racial wealth gaps caused by centuries of
systemic racism. The stark reality is that the student debt
crisis is principally a failure of public policy and not merely
a symptom of runaway college costs, a crisis made far worse by
the student loan industry running roughshod over people with
student debt.
The ongoing payment pause has a bulwark for borrowers
against rising inflation, protecting millions from choosing
between loan payments and necessities, like food, clothing, or
shelter. This expansive effort to help people with student debt
represents a remarkable break with history.
For more than half a century, lawmakers repeatedly used
debt to expand access to college under the mistaken convention
that student debt is ``good debt.'' This conventional wisdom
has set up a generation of students to fail. Underlying all of
this, the Department of Education has historically behaved more
like Wells Fargo than a branch of the U.S. Government. The
Education Department's indifference to widespread lawbreaking
by student loan companies over the past three decades has
driven a widening gap between borrowers' rights and borrowers'
experiences.
When millions of families lost their homes to foreclosure
more than a decade ago, housing advocates warned of a similar
gap between homeowners' rights and their experiences. This sad
history is repeating itself.
The law makes bold promises to borrowers, including that
student loan payments will always be affordable and never be a
lifelong burden. Yet, before the pandemic, more than one
million borrowers defaulted each year. Officials of both
parties routinely call this broken, a mess, and corrupt.
The Administration has made meaningful efforts to remedy
the failures plaguing student loan system, but these changes
are not enough. Two weeks ago, a Government audit found that
for nearly a decade officials knew that the student loan
industry was not taking the necessary steps to deliver
cancellation to the lowest-income people and engaged in a
shocking cover-up.
Consider the 30-year struggle of one low-income borrower
who started with less than $9,000 in debt. Her debt has now
topped $100,000. Along her way, the loan servicer routinely
misled her about her options that would have led to debt
cancellation. Abuses like this have caused millions of
borrowers to needlessly spend decades trapped in debt.
Beyond the Federal student loan market, private sector
firms backed by Wall Street and Silicon Valley have constructed
a minefield of risky, expensive, and predatory debt and credit.
As I explained in my written testimony, over the past decade,
the biggest banks and fintech companies have competed to fleece
American students.
I want to close by returning to the concept of student debt
as a trap. Across the financial marketplace, laws prohibit
lenders from offering loans that let borrowers pay less than
the interest charged every month, loans that allow debt burdens
to actually grow over time. Regulators call this a ``debt
trap.''
Yet, this is routinely the case for people with student
debt, and this debt trap snaps shut more often for people of
color, particularly Black borrowers. For every 1 Black borrower
who repays a Federal student loan after 12 years, 6 more owe
more debt than they originally borrowed. Fully two-thirds of
Black borrowers are caught in a debt trap today. This would be
illegal if the lender was any actor other than the United
States of America.
President Biden did not break the system, but he has
promised to fix it. It is up to him to wield the awesome power
vested in the Secretary of Education and cancel student debt
for every student loan borrower.
According to critics, families and the broader economy will
somehow be worse off when Joe Biden keeps his promise to cancel
student debt, claiming that this is a giveaway to the college
educated and ignoring the roughly 4 in 10 people who have debt
and no degree. This may play well on Wall Street, but it rings
hollow on Main Street where poll after poll shows a large
majority want the President to cancel student debt, including
most who did not go to college and most who have no debt at
all.
With the stroke of pen, Joe Biden can improve the lives of
tens of millions of people. Our economy is stronger when those
who have faced financial precarity have the opportunity to
build wealth. Canceling student debt is just, it is equitable,
it is legal, and it is the only appropriate response to decades
of Government mismanagement and industry abuse.
Thank you again for the opportunity to provide testimony,
and I look forward to your questions.
Chairman Brown. Thank you, Mr. Pierce.
Dr. McCluskey, you are recognized for around five minutes.
Thank you.
STATEMENT OF NEAL MCCLUSKEY, DIRECTOR, CENTER FOR EDUCATIONAL
FREEDOM AT THE CATO INSTITUTE
Mr. McCluskey. Chairman Brown, Ranking Member Toomey,
distinguished Senators, thank you for inviting me to speak with
you.
My name is Neal McCluskey, and I am the Director of the
Center for Educational Freedom at the Cato Institute, a
nonprofit, nonpartisan, public policy research organization. My
comments are my own and do not represent any position of the
Institute.
Federal student loan programs are problematic, and it is
important to address both their current impacts and fix them in
the long term. Included in this is servicing, but problems
there are just a symptom of a dysfunctional system. That said,
loan problems do not justify drastic action such as sweeping
cancellation, which would create bigger problems, from helping
the well-to-do to exacerbating tuition inflation and workforce
distortions.
Now complaints about loan servicers are well documented,
but they are hired by the Department of Education, and if they
do their job poorly it is incumbent on Ed to get the problems
fixed. The Department, however, has long failed to do so. This
is not simply a failure of bureaucracy. The system created by
Congress is often inscrutable to borrowers, servicers, and
quite possibly, Ed itself, featuring a dizzying array of loans
and repayment plans that interact in confusing ways. Given
this, it is no surprise that many complaints about servicers
are actually about the programs. A 2019 analysis found that
only 44 percent of complaints about servicers to the Consumer
Financial Protection Bureau concerned things under servicers'
control while 35 percent were really about Federal rules.
Beyond the direct problem, Federal student loans have major
unintended consequences. First, they fuel skyrocketing college
prices. One recent analysis found that for every dollar
increase in subsidized loan maximums prices rose 60 cents.
Second, while they may have enabled greater college
attendance, degrees have become increasingly hollow, with big
increases in both the time students--or, decreases in both the
time students spend studying and literacy among degree holders.
Third, boosted enrollment has likely fueled credential
inflation, employers seeking degrees for jobs that did not
previously require them. Relatedly, about a third of nonrecent
graduates who are 4-year degree holders are in long-term jobs
that do not require the credential.
Finally, aid does not appear to have coincided with an
increasing share of 4-year degree holders who are low-income.
The share of all bachelor's degrees held by dependent members
ages 18 to 24 of families in the lowest income quartile has
hovered around 10 percent since 1970 and dropped a bit from the
beginning to the end.
Now the ideal solution to this, to the student aid problem,
is phasing out Federal lending. But, what to do about the
current situation?
First, do nothing extreme, including mass debt
cancellation. Despite many problems, college is still typically
a good investment, with the average 4-year degree holder
earning approximately 1.2 million more dollars over their
lifetime than someone with just a high school diploma. Graduate
degree holders earn even more. Taxpayers, roughly two-third of
whom do not have 4-year degrees, should not fund cancellation
for those who will see major financial payoffs.
Repaying student debt is also not especially burdensome for
most borrowers. Four-year degree graduates who borrow typically
have monthly payments well within their ability to pay.
Debt is also disproportionately incurred by wealthier
people. Households in the highest income quartile hold 34
percent of all student debt while the lowest quartile holds
only 12 percent.
Absent student lending reform, mass cancellation would also
encourage more borrowing and price inflation, exacerbate
credential inflation, de facto penalize Americans who economize
on their education or, after graduation, economize to pay off
loans, and it would be illegal, or at the very least a gross
violation of separation of power, if done by Executive order.
Now there are things that Congress can do to improve the
situation that are short of mass cancellation. Income-driven
repayment is intended to help struggling borrowers. The
Department must correct all borrower records, and Congress
should simplify IDR going forward, perhaps consolidating it
into one program which borrowers are automatically enrolled
into unless they choose standard repayment. Congress should
also eliminate probably the highly problematic parent and grad
PLUS loans. Congress could make discharging Federal student
loans in bankruptcy easier, though, important to remember is
that taxpayers would bear the cost of that. Congress could also
institute skin in the game, in which colleges pay a share of
their defaults.
Servicers are not the root lending problem. That is the
Federal system itself. However, it has not created so terrible
a problem that it justifies mass cancellation. What it requires
is fixing the existing programs to help struggling borrowers
and to ultimately shrink Federal lending.
Thank you again for the opportunity to testify, and I look
forward to your questions.
Chairman Brown. Thank you, Dr. McCluskey.
Dr. Bishop, you are recognized for 5 minutes. Thank you.
STATEMENT OF JALIL MUSTAFFA BISHOP, COFOUNDER AND ASSISTANT
PROFESSOR, EQUITY RESEARCH COOPERATIVE, VILLANOVA UNIVERSITY
Mr. Bishop. I want to thank the Chairman, Ranking Member,
and the rest of the Committee for inviting me here today.
My name is Dr. Jalil Mustaffa Bishop. I grew up in
Twinsburg, as the Chairman shared, but Twinsburg Heights in
particular, a nearly 100-year-old Black community that taught
me most of what I know about justice work and also what I
needed to survive Government-created debt traps, as an
unincorporated Black neighborhood in Twinsburg City.
I bring those lessons here today as a professor of
education and as an activist for Black freedom projects. My
goal is to make clear that we are in a student debt crisis, a
Black student debt crisis in particular, and that canceling all
student debt, again, all student debt, is the best solution for
a decades-long policy failure, that is, student loans.
So let us just use some common sense. Student loans is
basically the Federal Government looking at families and
saying, you do not have enough to pay for college, but here is
a loan, though, we know you do not have enough to pay for
college, let alone enough to make these loan payments.
We then say, do not worry. You are going to make enough
money to repay those loans in 10 years.
We then had decades of evidence that borrowers were not
able to make enough money, so we moved them to 20- to 25-year
repayment plans.
We have not developed to hold colleges, loan servicers,
accreditation agencies, the Department of Ed, or a low-paying
labor market accountable. We still have only punished one
group, ensured one group has consequences every time, and that
is the borrower, the borrower who has failed way before they
ever sign a loan in the first place.
We are in a student debt crisis and, arguably, have been in
one for the last 20 years. In that time, we have watched the
total outstanding student loans increase by over 107 percent,
from less than $400 billion in the early 2000s, hitting $1
trillion in 2012, and now on the fast track to hit $2 trillion.
The crisis should be understood primarily through two
issues, default and endless years of payment. First, we have a
growing number of defaults for struggling borrowers. Before the
pandemic, we had 10 million borrowers in default. Default means
debt collection fees on top of your student loan balance but
also that borrowers can be sued or have their incomes or tax
returns garnished.
And this brings us to the second part of the crisis,
endless years of payment. People are making payments only to
see their balance increase due to interest. When we look back
at loans issued each year since 2009, the majority of those
balances are increasing instead of being paid down.
Under the Trump administration, the Department of Education
released a report that estimated that $500 billion worth of
student loans will not be repaid, and again, this was pre
pandemic. During the pandemic, the Government has not received
payments for the last 2 years due to the pause, and both the
borrowers and the Government have been fine. Evidence simply is
showing that increasingly student loans will not be repaid.
People simply do not have the money to repay because they have
not found high paying jobs that allow them to earn incomes both
to afford a high quality of life and to repay their student
debt. People on a payment path to nowhere.
It did not have to be this way. We once had a grant-driven
higher ed system in the late 70s in the early 1980s. Now when
it comes to low-income students, the Pell Grant covers less
than 33 percent of college costs when it used to cover the
majority.
Every year, we burden students and their parents with 80 to
100 billion dollars of student loans. This is unnecessary. For
example, if we just increased the Pell Grant by $6,000 a year,
it would eliminate parent PLUS loans for 75 percent of all low
income parents and 85 percent of all low-income Black parents.
Six thousand dollars. But instead, we give it all as a loan,
throw families into a financial crisis, and the only one who
wins are the debt collectors, loan servicers, and law firms who
go after borrowers for repayment.
For the rich, we are willing to spend in the trillions. For
working-class people aiming to earn education, we give them a
lifetime debt sentence.
In addition, the student debt crisis must be understood as
a racial justice issue. It is eradicating any chance at wealth
for communities of color, especially Black communities. When we
look at Black households with student debt, 52 percent have
zero or negative wealth. When we look at Black households with
no student debt, the percentage drops to 25 percent.
Black people are not just without wealth. We are being
pushed deeper into the negative wealth hole. In this way,
student loans are not just a racial justice issue. They are a
racist tool.
I coauthored a report with Dr. Jonathan Davis in the
Education Trust called Jim Crow Debt. We heard from nearly
1,300 Black borrowers around about how student loans are a debt
trap. Debt traps that we have seen in history, like
sharecropping, contract mortgages, most recently subprime
mortgages and payday loans that limits Black people's ability
to build generational freedom.
Student loans do not belong in a conversation about
opportunity. They only belong in a conversation about how come
again this country created a debt trap that is so vicious that
it captures and holds Black students, their parents, and wider
communities of color in debthood for a lifetime.
So I opened up with common sense, and I want to close with
common sense about why student debt cancellation will not help
the rich unless all of a sudden a rich person in this country
is someone who is on a payment plan, has zero in assets, has
more debt than income, is a person of color, and lives in a
census tract that is working-class because this describes the
face of a student loan borrower.
So let us make it clear: $10,000 is not enough. Even
$50,000 is not enough, for economic and racial justice. Black
people, my family, my community are more likely to owe over
$50,000 just for undergrad, have parents who borrow into the 6
figures, rely on private student loans, and if we ever make a
6-figure income we often have 6-figure loan debt.
So you cannot limit student debt cancellation and also
claim to care about racial justice. The data are not on your
side, people's life stories are not on your side, and history
will not be on your side. We need full debt cancellation, and
we need it yesterday.
Thank you to the Committee, and I look forward to your
questions.
Chairman Brown. Thank you, Dr. Bishop.
I want to start with the last 2 minutes or so of your
testimony, when you stated that 52 percent of Black households
with student debt have zero or negative wealth, and that number
is 25 percent for those without student debt. What happens
when--you are essentially arguing it is worse for Black
Americans to take out debt to go to college in order to build
wealth than to not do it. What happens in the next 5 years if
we or the President do not do something about this?
Mr. Bishop. So as we know, there is a student debt crisis
for borrowers overall, but when we look at what is happening
with Black students, we are seeing a growing kind of median
debt balance that is sometimes tripling when compared to their
White counterparts. So if we do not cancel student debt, if we
do not move toward a path of providing higher education as a
public good, you are going to continue to see Black borrowers,
Black families, Black communities have the highest student loan
balances, have the highest concentration of student loan
delinquencies, and not just struggle to build wealth but
struggle to get out of the hole that is getting deeper and
deeper around negative wealth.
Chairman Brown. Thank you. Good explanation. When I took
the chairmanship 14, 15 months ago, this Committee was just
called the Senate Banking Committee to most people,
colloquially and almost efficiently. It is full name is
Banking, Housing, and Urban Affairs, and we focused really on
housing and all that comes with that perhaps more than anything
else. Housing is just universally understood as the best way to
build intergenerational wealth. In the race gap there, Black
home ownership has not much changed since Dr. King's
assassination, which sort of preempted Congress finally to pass
Fair Housing.
So can you explore for a moment how student debt is
exacerbating the racial wealth gap? And I would think a major
component of that is if you face major student debt you don't
have a downpayment for a home, you are not able to get a loan,
or you simply cannot afford a home.
Mr. Bishop. So what we have to understand is that the
racial wealth gap was built through systemic racism, that
student loans did not create the racial wealth gap, but it is
absolutely increasing and intensifying that gap. When we look
at home ownership rates for Black college grads, they have a
lower home ownership rate than White college dropouts, and this
is important for us to understand because the best way to
guarantee that you build wealth is being able to start with
wealth. And most wealth in this country comes through
inheritance. It comes through being able to build equity in
your home, and that is something that has not been available to
Black people fairly, inclusively, or equitably.
So it is something that we have to understand, that student
debt is digging that hole deeper. But it is also not a silver
bullet, canceling student debt, but it allows that hole to stop
growing deeper for Black families and communities.
Chairman Brown. Thank you, Dr. Bishop. Could you submit to
the Committee later the data on your statement, which was an
extraordinary statement, that home ownership is higher among
White dropouts than Black graduates?
Mr. Bishop. Absolutely.
Chairman Brown. If you would do that, that could be very,
very useful to us.
Mr. Pierce, student loan servicer mismanagement contributed
to borrowers having--explain how student--I am sorry. Explain
how student loan servicer mismanagement contributed to
borrowers having larger debt for longer periods of time. It is
quite a phenomenon that people think they are paying and living
up to their end of the bargain on two of the big programs and
they find out at the end of 10 years that some mistake was made
and they have lost any ability to get forgiveness. So talk
about that and talk about what CFPB can do to ensure student
loan servicers are properly servicing these loans and that
borrowers are protected.
Mr. Pierce. Absolutely. So taking a step back and thinking
about how we got here, the Government has depended on these
private sector companies called student loan servicers to give
people advice about how to repay their student loans going back
decades. Sometimes these are private sector companies that own
federally backed loans; sometimes they are contractors for the
Government. But in both cases, law enforcement officials of
both parties going back multiple Administrations have alleged
that these companies routinely provide bad advice to people.
And in particular, there is one scheme called forbearance
steering, where a company tries to rush a borrower off the
phone because it costs more money to provide them counseling
and, in doing so, puts them in a repayment option that adds
more cost to the debt and knocks them off track for loan
forgiveness.
And I do want to cite in particular one company, Navient.
Navient was alleged by the Consumer Financial Protection Bureau
to have added $4 billion in unnecessary interest charges on the
backs of more than 1.5 million of its customers over the course
of the better part of a decade. That litigation by the Consumer
Financial Protection Bureau is still ongoing, but earlier this
year Navient did enter into a settlement with a bipartisan
coalition of attorneys general led by attorneys general from
both of your States, the Republican Attorney General of Ohio
and the Democratic Attorney General of Pennsylvania. And in
that settlement, these bipartisan attorneys general alleged
that Navient engaged not only in this forbearance steering
scheme but knocked borrowers off track as they tried to
maintain affordable loan payments under income-driven repayment
over the long term.
Chairman Brown. Thank you, Mr. Pierce.
Senator Toomey.
Senator Toomey. Thank you, Mr. Chairman.
Dr. McCluskey, let us consider for a minute the case of two
similarly situated families with children who are in college.
Let us say that they are about the same size. They have got
about the same income. They have very limited assets in both
cases.
But one of the families spent 18 years of their children's
lives scrimping and saving to pay for their kids' college
education. The other family lived more comfortable. Maybe they
took some more vacations. Maybe they bought newer cars.
The first family then writes a check, series of checks, to
pay the tuition for their kids' college, and the second family
has no college savings, so they take out a student loan.
Tell me what you think about the fairness of saying to the
family that worked hard and sacrificed, ``It is nice that you
did that, but now your taxes are going to go to pay for the
tuition of the family that chose to live more comfortably
instead of saving for college.'' How is that fair?
Mr. McCluskey. Yeah, it is highly problematic to say to
people who did their best to minimize the cost of higher
education for themselves that you will now pay for people who
did not, and this is a problem in that people who take out
student loans are not all necessarily low-income or even middle
income. We see that higher-income families have taken out loans
often to go to college.
The real danger, I think, to any sort of sweeping
cancellation is what does that say then in the future. The
future then is, well, we should just expect that if we take out
debt it will be forgiven because how could you forgive debt in
the past and not do it again. So we are making it even worse in
incentivizing people to say, you know, we really should not
economize as best we can because we will expect these loans to
be forgiven.
Senator Toomey. Doesn't the logic of the argument that we
should wipe out this debt, doesn't it kind of require that it
becomes a permanent thing? And I think Dr. Bishop even alluded
to the idea that these should be grant programs.
And if we said, well, anybody who happened to graduate
prior to, I do not know, 2022 gets all their debt forgiven, how
do you not forgive the debt of someone who graduates in 2024 or
2025? So it is sort of embedded in the logic and inevitability
that this is meant to be a permanent feature.
Mr. McCluskey. You would sort of logically have to conclude
that. I have not actually seen something that said we or a lot
of discussion about eliminating student loan programs. I have
just seen primarily discussion of cancellation. And if you do
cancellation without reform, at the very least, of existing
programs, you are absolutely creating incentives for much more
borrowing in the future with the assumption that it will be
forgiven.
Senator Toomey. Totally. That would be the expectation.
From 1998 through 2018, which I think is the most recent
year for which we have data, inflation in general--now we have
data more recent than that for inflation, but you will see the
point I am getting to. Inflation increased by 56 percent, in
general, during that period of time. College tuition increased
by 183 percent, 3 times the general elevation of the price
level of the economy.
So how strong is the evidence that this massive excess
inflation is related to increases in Government contributions,
and what would the effect on college tuition be if we did a
broad cancellation?
Mr. McCluskey. Yeah, so there is very strong evidence that
the student aid programs have enabled price inflation in
college. We both actually cited the Fed report. That is just
one among many studies that have found an inflationary effect
of aid. If you look at sort of the historical sweep of prices
where you see a big increase, a big kink, in how much we
increase prices, it was the late 1970s, early 1980s when
student loans were greatly expanded to who could access them.
So the evidence is very clear, I think, that aid fuels price
inflation; it enables it.
And if we say that we are going to cancel debt now, you
have sort of automatically put even more powerful incentives to
borrow as much as you can and for colleges to raise prices as
much as they can because really a third party, taxpayers, will
be the ones who pay for it.
Senator Toomey. So, just my last point. So the logical
conclusion of this, as we have discussed, is just make it all
free. Just give the money away. Just make it grants. Just make
college free.
In my State, there are quite a number of skilled, blue
collar jobs that pay more than the average college graduate
earns upon graduation. There is welders and plumbers and people
with all kinds of skills that are very valuable. But if you
said, well, we will just make the taxpayers pay for all of
college, what kind of distortions would we get as a result of
that policy?
Mr. McCluskey. We would see a lot more people who would be
going to college, and we would see what we have seen now for
several years, which is employers are increasingly requiring
degrees for jobs that did not previously require them, where
there is not evidence that the skills needed to actually do
that job have changed. So we create a credential inflation
problem. For those jobs where it is much more valuable to have
on-the-job training, we will incentivize employers to say,
``and also have a degree'' because there are more degrees out
there. It is a very basic screening we could do, to say, well,
you may be able to give us an idea you can finish something you
started if you have a degree, and it is just easier to ask for
those things.
But that credential inflation is incredibly inefficient,
and it hurts people in the workforce, saying, now go to 4 years
of school that you could be working and learning valuable
skills.
Senator Toomey. Thank you very much.
Thanks, Mr. Chairman.
Chairman Brown. Thank you, Senator Toomey.
Senator Menendez from New Jersey is recognized.
Senator Menendez. Thank you, Mr. Chairman.
For years, I have watched and listened as my constituents
and their families have suffered irreparable financial harm at
the hands of their student loan servicers. Year after year,
millions of borrowers are mistreated by the student loan
servicers, who routinely provide inaccurate information, fail
to disclose and explain fees that are charged to borrowers, and
ultimately make it harder for borrowers to pay off their loans.
This is especially true for our nation's public servants who
have often served as frontline workers during the COVID-19
pandemic. Cumulatively, these missteps cost borrowers millions
of dollars in interest and additional payments, and in some
cases borrowers have no choice but to remain in the workforce
beyond their preferred retirement timeline just to pay off the
loans.
What is upsetting to me is that this current mess was
preventable. The Department of Education has known about these
systemic issues for years. Its own Inspector General found in
2019 that despite regularly identifying instances of servicers'
noncompliance with the terms and conditions of the loans the
Education Department did not track or analyze these failures
nor did they hold servicers accountable for their poor
performance, especially servicers of loans in the Public
Service Loan Forgiveness Program. That failure to act means
added financial pain for the borrowers we are talking about
here today.
Beginning in at least 2009, when the first Federal student
loan servicer, Affiliated Computer Services, better known as
ACS, began servicing student loans, there is a documented
history of the company's endless errors, especially related to
its handling PSLF-qualified loans.
So, Mr. Pierce, your organization released a report in 2020
detailing ACS's repeated failures. How specifically did ACS
mishandle borrowers' accounts, and what kind of impact did that
have on borrowers, especially on the PSLF borrowers?
Mr. Pierce. Thank you, Senator Menendez, and thank you for
all of your leadership on these important issues over the
course of more than a decade.
ACS was a very important market participant going back to
the earliest days of the student loan program as the sole
student loan servicer for the Federal Government in Public
Service Loan Forgiveness's first years but also as a major
market participant servicing Federal student loans that were
then owned by big banks, like Wells Fargo and JPMorgan. This
company committed more than five million individual errors on
borrowers' accounts over its time as a Government contractor,
and it was the target of enforcement actions for its private
sector servicing by attorneys general in New York and in
Massachusetts and the Consumer Financial Protection Bureau. All
told, ACS is responsible for many of the underlying problems
that resulted in 98 out of every 100 public service workers
applying for PSLF ultimately being rejected.
Senator Menendez. Ninety-eight out of a hundred. Now will
the limited PSLF waiver that expires in October, as well as
Ed's most recent forbearance waiver announced last month,
rectify all of ACS's egregious missteps, especially those
related to the PSLF borrowers?
Mr. Pierce. It is a start. More than 100,000 public service
workers have had their debts canceled since October. That is
about 7 times more debt relief than the prior 14 years of the
program, but it is not enough. There are certainly public
service workers who are going to miss out on this limited
opportunity because they do not know about it or because they
have been provided bad information even now by their student
loan company about what their rights or options are.
Senator Menendez. Well, the Pennsylvania Higher Education
Assistance Agency, known as PHEAA or by its other names of
FedLoan or American Education Services, replaced ACS as the
largest servicer of PSLF loans in 2014. So, Mr. Pierce,
Massachusetts and New York recently reached settlements with
PHEAA about its student loans servicing, especially its PSLF
servicing. How did PHEAA, acting as FedLoan, mishandle borrower
accounts?
Mr. Pierce. A whole range of different abuses by this
company, which, to be clear, is a private sector company but
was created by the Commonwealth of Pennsylvania and has existed
with the implicit backing of Pennsylvania taxpayers despite
this record of abusing its customers. It routinely mishandled
borrowers' paperwork, provided bad information, steered
borrowers into forbearance, the same scheme that Navient was
accused of by a different group of attorneys general, and taken
together, these abuses resulted in the collapse of the Public
Service Loan Forgiveness Program before Joe Biden stepped in to
make things right.
Senator Menendez. So will the limited PSLF waiver and the
most recent forbearance announcement rectify all of PHEAA's
missteps?
Mr. Pierce. Once again, it is not enough. Joe Biden needs
to cancel student debt for everybody because these piecemeal
actions are important and necessary in their own right but they
won't reach every borrower that has been wronged by this legacy
of mismanagement and abuse.
Senator Menendez. OK. Thank you so much for your responses.
Mr. Pierce. Thank you, Senator.
Chairman Brown. Thank you, Senator Menendez.
Senator Smith from Minnesota is recognized from her office.
Senator Smith. Good morning. Sorry, Chair Brown. I was not
expecting to be on so quickly, but I am glad to be with you.
Let me just start out, if I could, with Mr. Bishop, and I
would like to actually follow up on the line of questions that
Ranking Member Toomey was asking. So Ranking Member Toomey was
essentially, if I understand it, suggesting that the loan
forgiveness essentially creates a moral hazard, that it
actually encourages irresponsible behavior. That is not his
word, but it encourages people who haven't saved, who haven't
maybe done all the right things, to continue in that behavior
to the detriment of families that have scrimped and saved, as
Senator Toomey said.
I am wondering, Dr. Bishop, if you could just respond to
that and help us understand how that fits with what you see as
the underlying challenges with student loan debt.
Mr. Bishop. Thank you. So in my research and my time
working with student loan borrowers, I really have not seen
evidence of borrowers being reckless or that those who are
borrowing student loans are just because they failed to save.
As was noted, college costs have increased rapidly, and we
should not conflate the need to hold colleges accountable to
get costs under control the same as students or borrowers
somehow having a failure in personal responsibility.
One thing I like to remind people is that in this country
we subsidize or give a tax break to families who put money into
college savings accounts, but usually those are families who
have the additional income to be able to put money up each year
into those college savings accounts. We spend $55 billion a
year subsidizing those accounts. That is more money than we
spend on Pell Grants for low-income students.
So it is important to think about what is in our policy
structure that incentivizes those who already have additional
income and additional wealth to be able to afford college and
then what is in our policy infrastructure that disadvantages
those who do not have that extra money because you can't save
if you do not have the additional income or the ability to put
that money into savings.
So this is not a matter of personal responsibility. It is a
matter of college costs that have grown rapidly, as was noted,
but also not having a free college option to make clear that
allows families to access higher ed without going into a debt
sentence for not just a decade but now we have many borrowers
who have been carrying this debt for nearly 20 years.
Senator Smith. Thank you. Thank you. I appreciate that.
You also talked about how the declining value of Pell
Grants and how--I hear about this from Minnesota all the time
as we have one of the highest student debt concentrations in
Minnesota than really almost any place in the country.
And there has been this dramatic shift in the buying power
of the Pell Grant to student loans, shifting from grants to
loans. I guess you can call that free college, but I mean, I
think that that is sort of benefit, as you said, of higher
education being a public good. Could you just describe kind of
what you think has--from your research, what has sort of driven
that shift, and what would be the impact of changing policy so
that we put more emphasis on grants versus loans especially for
Black and Brown people, people who are already living with the
challenges, the systemic challenges, with racism that we have
in our communities?
Mr. Bishop. Thank you. So what's important to make clear is
that, again, we had a grant-driven system in higher education,
and in the moment when Black and Brown and low-income students
started to enroll in higher number is where we saw this major
shift to student loans as a way we are financing college
opportunity. And that is important to understand in that,
again, there was a different type of financing system that we
had just in the 1970s and 1980s.
So what this means is that now Black and Latino students,
who the majority of these students are Pell-eligible, do not
have access to a Pell Grant that actually covers the cost of
college attendance, and the consequence of that is that these
communities of color have to rely on student loans at higher
rates, that nearly 90 percent of Black students are relying on
student debt.
And this is an issue not only when we are thinking about
higher education as a public good, but it is an issue when you
think about the impact of that student debt as borrowers have
to carry it throughout their lifetime and are limited as they
are trying to do other life planning around labor market,
family planning, saving for retirement, having something as
simple as a savings account for a healthy emergency or a car
repair. So it is not just what happens to students in those
early years when they are trying to decide how to pay for
higher ed, but it follows them as they go through their
lifetime, as adults and increasingly as older adults.
Senator Smith. Well, I think this is why we call this debt
trap. I have talked to people in Minnesota who said it feels
like a big bait and switch. You know, I am told that what I
need to do in order to better my economic opportunity, to lift
myself and my family up is to get a higher education, and then
it ends up being actually a weight that loads me down as I am
trying to figure out how to buy a house, how to buy a car, how
to maybe take a job that much more fits my interests and my
long-term goals, but I can't do that.
And I think it also--you know, we have to remember that
these are college students often who are working two, sometimes
three jobs while they are trying to be in college, do the very
best that they can, and also catch up on those student loans.
And we have also not talked a lot today about how many
people take on these student loan debts and then they never
finish because they cannot afford to finish, something--and so
then they have the debt without the benefit of the degree.
Thank you, Mr. Chair.
Chairman Brown. Thank you, Senator Smith.
Senator Warren from Massachusetts is recognized in person.
Senator Warren. Thank you, Mr. Chairman. Right now,
President Biden is considering canceling debt for the 43
million Americans who have student loans. Now this policy is
incredibly popular with the American public, no matter who you
ask, and that includes people with student loans and people
without student loans. Big majorities support cancellation, and
I think the reason for that is that there is scarcely a working
person in America who does not have a friend, a family member,
a co worker who is weighed down by student loan debt.
But if you are listening to the talking heads with fancy
degrees who oppose this policy, you might be under the
impression that the borrowers who the President wants to help
are all wealthy. They are all wealthy Harvard grads who do not
need any help with their loans.
So what I would like to do is just look deeper into the
data. Dr. Bishop, you are an expert on student borrowers and
their experience in the student loan system. What does the data
say about who borrows money to attend college? Are they
generally very wealthy?
Mr. Bishop. I think the data is quite clear that those who
borrow student loans are not wealthy, that they are not people
who have high levels of assets, that more than half of
borrowers with student loans--or, more than half of student
debt is held by families with zero or negative household
wealth, and especially when we are looking at communities of
color, where again we see almost 90 percent of Black students
borrowing student loans compared to 68 percent of White
students. So the idea that student loans are carried by wealthy
families, I think, is something that does not show up in the
data and also is something that, again, goes against what we
understand as rich people or wealthy.
Senator Warren. OK. So these people who are borrowing are
people with, at best, very modest means.
Let us take a look then about the kinds of schools they
attend. Do most borrowers take out loans so they can attend
elite schools or business schools, Dr. Bishop?
Mr. Bishop. No. And as someone who went--as someone who was
a low-income student who went to one of these elite schools, we
know that the vast majority of borrowers are not coming from
the Ivy League, that when we look at those selective schools we
see around 0.3 percent of all borrowers come from the Ivy
Leagues.
Senator Warren. Wait a minute, Dr. Bishop. Can you say that
in the other way? What proportion of student loan borrowers are
not coming from the Ivy Leagues?
Mr. Bishop. So 99 percent come from institutions that are
not the Ivy Leagues.
Senator Warren. So 99.7, according to your data, right?
Mr. Bishop. Yes.
Senator Warren. OK. So they are not coming from the Ivy
League.
So let us do one more. Critics argue that canceling student
loans would mean helping out people who are earning good money
with their college degrees and will be able to pay off their
loans without the Government stepping in. Dr. Bishop, are those
valid criticisms? Are student loan borrowers all earning
college graduate wages and in a good position to pay off their
loans?
Mr. Bishop. No. So we know that 40 percent of student loan
borrowers have student debt but do not have a college degree.
We know that increasingly many student loan borrowers are
parents who do not have the so-called lifetime earning
trajectory ahead of them, that when we look at Black students
we know that they owe more than they originally borrowed a
decade out and that 20 years out they have only paid down, on
average, 95 percent--or, they still owe 95 percent of their
original student loan balance.
Senator Warren. So, Dr. Bishop, could I ask you just to
unpack that just a little bit? So students go into college,
right, and they borrow while they are in school. And you said
what proportion of them never graduate from college?
Mr. Bishop. Forty percent of student loan borrowers.
Senator Warren. Forty percent, so four out of every ten of
the students who is carrying student loan debt.
Do they make college grad wages?
Mr. Bishop. Absolutely, not.
Senator Warren. No. So here they are; they are earning like
high school grads, but they are managing college loan debt.
And then you also said people do not think of it this way.
You borrow money, but--for what proportion of Black students
did you say 12 years out from when they started borrowing money
are actually deeper in debt?
Mr. Bishop. So we know 66 percent of Black student loan
borrowers over a decade out are deeper in debt, owe more than
they originally borrowed.
Senator Warren. And why do they owe more than they
originally borrowed?
Mr. Bishop. Because we understand that Black students not
only borrow more but they access higher institutions that are
more likely to be for-profits and predatory, to be institutions
that are already underresourced themselves, and that they are
navigating a higher ed system that is very different than their
White counterparts as far as opportunities and accessibility.
Senator Warren. Yeah. And I assume also we are talking
about what kind of wages they earn.
Mr. Bishop. Absolutely. So entering the labor market, which
often does not get as much attention in these conversations, we
still have persistent employment gaps, racial income gaps, that
even as Black people earn more degrees we see our wages not
reflecting that.
Senator Warren. I appreciate this. You know, it is clear
that the opponents of student loan cancellation are living in a
bubble of privilege that is completely disconnected from the
reality of the people who borrow money to get an education. As
you said, 99.7 percent of borrowers did not get an Ivy League
degree. Heck, 40 percent of them did not get any degree at all.
The majority of these loans are held by people with zero
wealth. And Black borrowers are not just treading water trying
to keep up with your payments; they are actually falling
behind.
Meaningful student loan debt cancellation is the single
most powerful thing the President of the United States could do
on his own to help narrow the racial wealth gap among
borrowers, to help families that are struggling with rising
costs, and to expand opportunities for millions of people.
You know, we need to stop listening to out-of-touch pundits
and politicians whose biggest worry is that we might be helping
working people too much.
Thank you, Dr. Bishop.
Thank you, Mr. Chairman.
Chairman Brown. Thank you, Senator Warren.
Senator Warner from Virginia is recognized from his office.
Senator Warner. Thank you, Mr. Chairman. I appreciate also
the opportunity to go in front of my friend, Jon Tester.
You know, I will just ask one question that I wanted to
highlight, and this is for Mr. Pierce. You know, if we go back
and it is an issue I have been working on for some time--to
1982, I think Congress created in the student loan program the
ability for a couple to consolidate their loans together and at
a slightly lower rate pay on it in a single payment. The pitch
made, I think, made some good macro sense. But at that point,
the Congress never allowed, even if the couple were to then
separate or get divorced, any ability to separate this
consolidated loan, and consequently, one party or the other,
oftentimes the female spouse, got stuck with that burden.
Do you know, Mr. Pierce, any other student loan product
that does not allow borrowers to separately--if they took on
the debt separately, to somehow not separate again if they have
some kind of an event like an divorce to take place?
Mr. Pierce. No, I do not.
Senator Warner. I appreciate that. Matter of fact, this was
so egregious that Congress stopped issuing this type of loan
consolidation with this restriction on being able to separate
the payments downstream if the couple comes apart in 2006.
This came to my attention from a woman named Sarah, who was
a single mom and teacher in McLean. She and her ex-husband
separated. The ex-husband, frankly, did not pay his share of
the bills, and Sarah, single mom, as a teacher got stuck paying
that joint consolidation effort literally for months. She ended
up having even some of her wages garnished.
Mr. Pierce, the Education Department has told me there are
approximately--remember, these were all loans pre-2006--14,000
plus outstanding joint consolidation loans held by the
Department with a total outstanding balance of about $800
million. Can you talk a little bit about this issue? I know you
are familiar with it, what kind of burden it puts on these
individuals oftentimes who may have been in an abusive
relationship, oftentimes their former partner being willing to,
basically: Screw it. I am going to leave all this obligation on
you.
You know, I have got a bill with Senator Rubio and Senator
Smith and Senator Cornyn that would allow this kind of breakup
to take place. Could you weigh in on that and give me your
views?
Mr. Pierce. Absolutely. So you mentioned a number of the
problems with these loans, particularly in cases of domestic
violence or marriages where one spouse is taking advantage of
the other and it causes financial ruptures in families, where
one spouse may end up assuming responsibility for the debt owed
jointly.
Your bill would help dissolve these loans but not just to
help provide a fairer outcome for borrowers but to actually
restore access to key parts of the student loan safety net that
are denied to borrowers that have these so-called spousal
consolidation loans, including access to Public Service Loan
Forgiveness and the ability to get an income-driven repayment
that actually matches their financial circumstances. Right now,
the student loan safety net is failing people with these so
called spousal consolidation loans, and your legislation would
fix this mess.
Senator Warner. Well, I appreciate that, Mr. Pierce.
And I would point out, Mr. Chairman and Ranking Member,
this is something that we got virtual unanimity. There is one
Senator who still has a hold, and we are trying to work through
this. But this is bipartisan, not going to solve all the
problems. But for 14,000 Americans who are caught up in these
joint consolidation loans, many of them having circumstances
again, as Mr. Pierce just said, was spousal abuse, we could
provide some much needed relief.
My hope is that we can get that one Senator's hold removed.
And I will yield back the balance of my time and really do hope
you go to Senator Ossoff next week and keep Senator Tester in
that box waiting for, you know, hours and hours to come. Thank
you, Mr. Chairman.
Chairman Brown. Thank you, Senator Warner.
Senator Van Hollen of Maryland is recognized in person.
Senator Van Hollen. Thank you, Mr. Chairman, Ranking Member
Toomey. Thank all of the witnesses here today.
I want to start by talking about some of my constituents
who have also been victims of this very broken process.
And, Mr. Pierce, thank you for your testimony, all of you.
Grateful for your contributions here. As you point out, a sort
of bipartisan failure in policy has been made worse by
widespread lawlessness across the student loan industry.
I have a constituent. Her name is Ms. Regina Showalter. She
is a 12-year Federal Government employee at the Department of
Defense. She reached out to us because payments that she had
made to her loan servicer had not been counted toward the
Public Service Loan Forgiveness eligibility, and that happened
when her loan was transferred from one servicer to another
servicer. Fortunately, because the Biden administration put in
place this temporary waiver, we had a little breathing room,
and we have bene able to resolve that particular case.
But as you know, there are millions of others who are not
getting the relief they need, including another constituent,
Deborah Harburger, who shared her testimony before this
Committee just earlier this week. She is a social worker. Her
employment is covered by the Public Service Loan Forgiveness
Program, the type of employment she is engaged in, but her
application for forgiveness was denied in 2017 after 10 years
of regular payments, 120 payments, because her student loan
servicer never informed her that her FFEL loan was not eligible
under the requirements of the PSLF. So we are working with her
right now.
My question to you is the Biden administration is reviewing
this process. We are in the process of bringing on new student
loan servicers. What is your level of confidence that we are
going to be able to address the issues where we have seen
failings in the past, and are the new contracts putting in
place affirmative obligations on the loan servicers to make
sure that their borrowers are fully informed of where they
stand?
Mr. Pierce. Thank you for the question, Senator, and I want
to start by saying the Biden administration has taken major
steps to hold these student loan companies, including
appointing my former boss, former CFPB Director Cordray, to
lead the Government's Office of Federal Student Aid, which is a
big step forward. It is the first time that an Administration
has ever made a meaningful effort to try to hold these
companies accountable and to try to do better by people with
student debt, but it is not enough.
And we are in a place where companies like Navient and
FedLoan Servicing that were responsible for messing this up in
the first place have parted ways with the Government, and that
is a good thing on its own terms. But the companies that are
coming in behind them, firms like Maximus which operates at
Aidvantage, are also showing evidence of the same sorts of
sloppy service and potentially illegal practices that left us
in this place.
Senator Van Hollen. Well, thank you. That is why, as you
say, we have both the good news and the bad news. The good news
is progress under the Biden administration. The bad news is we
got a long way to go.
And I agree with Senator Warren that there is an important
place here for loan forgiveness, at least up to certain
amounts. And I think as the last round of questioning with you,
Dr. Bishop, indicated, we can address the issues which are
primarily, in my view, very much exaggerated about providing
sort of windfalls to wealthy families, as you already
indicated.
You know, one of the roots of the challenges here is the
Pell Grant, which, when it was first devised back in the 1970s,
covered about 80 percent of the cost of a 4-year college
education whereas today that is under 30 percent, which means
that students who cannot afford to go to college, you know,
have to borrow at least enough to make up the difference.
Dr. Bishop, you have talked about in your testimony a Pew
Trust report that shows that from 2019 a national sample of
Federal loan borrowers--the report was 2019, showed that
borrowers from 2003 to 2004 found 12 years--after 12 years of
initial borrowing, over half of them experienced negative
amortization. Can you just in the remaining time talk about the
fact that folks are totally underwater, and what are the only
available remedies at this point?
Mr. Bishop. So what is important to understand is that, you
know, not only are Black borrowers underwater when we look at
their repayment progress, we also are seeing increasingly,
really since 2009, that loans each year, if we look back at
their origination, that the balances are increasing, are not
being paid down, the majority of those loans.
So when we think about kind of the student debt crisis,
yes, we are seeing it intensify for Black borrowers. We are
seeing it intensify for borrowers who are in default. But when
we look at borrowers overall, even when they are on income-
based repayment plans, those balances are not being paid down.
They are being extended out to 20, to 25 years. And really,
there is no evidence or no real sign that the Government is
going to be able to have this money repaid, that borrowers are
going to be able to make these payments.
And the question that we have to ask ourselves is, if we
are saying in 20 to 25 years we are going to potentially cancel
this debt, and we have all this evidence now that these loans
are not going to be repaid, why make people go through 20 to 25
years of harmful payments?
Why continue to pay hundreds of millions of dollars to loan
servicers and debt collection agencies and private law firms to
go after borrowers who simply do not have the money when we
could use debt cancellation now to provide harm reduction right
now in real time.
Senator Van Hollen. Thank you.
Thank you, Mr. Chairman.
Chairman Brown. Thank you, Senator Van Hollen.
Senator Tester is recognized from his office, Senator
Tester of Montana.
Senator Tester. I want to thank you, Mr. Chairman, and I
appreciate the recognition. And I want to thank you for
including a constituent of mine in your roundtable on Tuesday,
Megan Bailey, who is a veteran social worker serving her fellow
Montanans but is struggling with the process for accessing the
Public Service Loan Forgiveness that she has earned, and so far
that has occurred way too often.
Before I get to my questions, I just want to say one thing.
There has been a lot of great points that have been made during
this hearing, but there is one thing that is a fact, and that
is this generation of folks who are going to college are
getting layered with too much debt. College costs too much.
I go back to my family. I have got two older brothers. When
they went to college in the late 60s, my oldest brother drove a
truck for the summer and paid for his college with that 3
months of work. That is simply impossible today. And my folks
were able to pay for my college when I went to work--when I
went to college.
On that say farm that my wife and I operate, when my kids
went to college, we could not afford to pay for the tuition for
my kids. They had to take out loans. And why is that? I can
tell you why that it is. That is because the public support,
the public dollars, the tax dollars that go into these
institutions has dried up, and the student has seen increased
tuition because of that, and it has made college unaffordable.
So what is the big deal? Who cares? You know? The fact is
if we are going to maintain ourselves as the leading democracy
in this world public education is critically important; K-12
public education is. So those folks that want to privatize
public education I do not know what your end game is, but it is
not going to be for the country.
And if you want an economy that moves forward, higher
education is the key. If we want to be the biggest, greatest
country in the world, higher education and getting the next
generation of leaders educated is very important. And you
cannot saddle them with tens of thousands of dollars in debt,
or they will choose not to go to school, and that's a bad
thing.
I graduated with a degree in music. I use that degree
seldom, but what that degree tells potential employers is that
I can apply myself and I can accomplish a job. So that degree
is very, very important even if it is not used in your major
subject area.
We have got a lot of work to do here. A lot of work. And I
do not believe that students should have no skin in the game.
They should have some in the game because I think skin in the
game counts. But this is too much skin, and it just is not
working.
So my question is for you, Mr. Pierce. We have seen
significant improvements in recent months in folks being able
to finally use the Public Service Loan Forgiveness Program. It
is a program that I am strong supporter of, but it is also a
program that I have been very frustrated with. It has improved,
but it still is not perfect. So, Mr. Pierce, what else needs to
be done to keep improving this program so that the folks who
have kept up their end of the deal, working and serving their
communities, get that benefit that they have earned?
Mr. Pierce. Thank you, Senator Tester. The short answer is
the Biden administration needs to use all of the tools that it
already has to write stronger rules, to be able to provide this
promise to borrowers that if they work in public service,
whether that is as a teacher or a health care worker or a
firefighter, that they are able to actually get their debts
canceled after a decade of service. For the better part of 15
years, the rules for this program have been full of tricks and
traps and have knocked a generation of public service workers
off track.
The Biden administration has taken great steps to try to
open the door to debt relief for those public service workers,
but it is not enough, and it is not permanent. As you rightly
explained, at the end of October, this limited waiver for
public service workers is set to expire, and the Biden
administration needs to extend that waiver right now, provide
public service workers with certainty, and then also rewrite
the rules of this program so that it works moving forward.
Senator Tester. So, Mr. Pierce, your Student Borrower
Protection Center has published research on the challenges that
rural borrowers face in repaying student loans compared to
those folks that move to metropolitan areas, including the
impact that it has on young farmers. But what has SBPC seen as
causes for that difference, and are there things that we as
policymakers can do to address that gap?
Mr. Pierce. I want to cite some research done by the
Federal Reserve Board of Governors actually that found that
student debt is driving rural so-called brain drain, that
people that grew up in rural communities may even go to school
in rural communities, but they are not staying there. They are
moving to cities that have more vibrant labor markets, and that
is causing rural communities to struggle.
We hosted an event with the Young Farmers Association a bit
more than a year ago, and we heard from farmers working in
rural communities about how much advanced knowledge it takes to
run a modern farm in 2022 and that that requires a higher
education. But the crushing weight of student debt prevents
people from staying on the farm and makes them leave their
communities, and it is producing less vibrant, less resilient,
less robust rural communities.
Senator Tester. Well, I want to thank you. I want to thank
all the folks who testified. I want to thank you, the Chairman
and Ranking Member.
Look, this is a huge problem, and it does not go away
unless we are proactive and looking for ways to solve the
student debt problem, and I think by working together we can do
some good stuff.
Thank you, Mr. Chairman.
Chairman Brown. Thanks, Senator Tester.
Senator Warnock from Georgia is recognized, if you are
ready.
Senator Warnock. Thank you so very much, Chairman Brown. It
is good to be here, and I am so glad that we are having this
hearing on ``Examining Student Loan Servicers and Their Impact
on Workers''.
It is clear to me that the number one thing that the
President of the United States can do right now to lower costs
for Georgians and help close the racial wealth gap is to cancel
student debt. Here is an opportunity to do something truly
transformational, and that is why I have been pushing President
Biden to cancel up to $50,000 in Federal student debt, which
research shows will boost our economy, create jobs, spur small
business creation and home ownership, and free an entire
generation from the crushing economic burden of student debt.
I say this as someone who was the first in my family to
graduate from college, and I would not be here without low
interest loans at a time when you could actually pay them off
and Pell Grants.
Dr. Bishop, I am concerned that too many folks in
Washington do not understand who actually has student debt and
who does not. What are some misconceptions about who has
student debt, and what does the research say about who actually
carries this debt burden?
Mr. Bishop. So we have seen a lot of narratives and
research and framing that those who carry student debt are the
wealthy because they have, you know, so-called high incomes,
and I think first we have to be clear that there is a
difference between wealth and income. When we look at the
assets that student loan borrowers have, we see that student
debt is overwhelmingly concentrated amongst borrowers who have
zero or negative wealth. So again, this is not the common-sense
way that we would describe someone who is wealthy.
When we think about who is actually struggling, sometimes
we hear this number only cancel $10,000 because that is the
number of people who are really struggling. And we know
particularly for Black borrowers that if we cancel 10,000 today
that will still leave 83 percent of Black borrowers who not
only still have student debt, but they have student debt where
they owe more than they originally borrow.
So a part of this is understanding that when we are talking
about debt cancellation----
Senator Warnock. So I hate to interrupt you, but I want to
be clear. If you cancel $10,000?
Mr. Bishop. Eighty-three percent of Black borrowers would
not only still owe student debt, but they will owe more than
they originally--still owe more than they originally borrow
because Black borrowers, we know, are more likely to borrow
$50,000 to $100,000 of student debt. So $10,000 absolutely
would provide some relief but really will not do what is
possible to really close those gaps for Black borrowers.
Senator Warnock. Thank you. And that makes sense because if
you have a student loan, by definition, your family does not
have wealth in the first place. I know that when I entered
college my family's income was equal to the tuition, room, and
board at Morehouse. That is why the majority of loans are held
by those with no household wealth at all. It is also why 86
percent of Black students take out Federal student loans to
attend college compared to 68 percent of White students. Twenty
years down the road, you see the huge difference.
Mr. Pierce, I have also heard criticisms that there would
be a massive backlash to debt cancellation from folks who paid
off their loans and folks who didn't go to college. Have you
seen evidence to support this claim that there would be this
huge backlash?
Mr. Pierce. No, Senator, and in fact, polling that we
released just this morning with Data for Progress finds the
opposite is true. Large majorities, by a nearly 2:1 margin,
support action by Joe Biden to cancel student debt, including
53 percent of people without debt and 57 percent of people that
did not go to college.
Senator Warnock. And would folks who do not need student
debt cancellation or who did not attend college, would they
also benefit from student debt cancellations?
Mr. Pierce. Absolutely. We would have a more robust and
more vibrant economy. People would be able to buy goods and
services, buy homes, move up in the world, and everybody
benefits when people that have student debt now finally have
financial freedom.
Senator Warnock. Well, thank you so much. I think that
student debt cancellation is the right thing to do right now,
and it is the smart thing to do, and it is just good public
policy. Too many of our children have a mortgage before they
have a mortgage.
And it is a scar on the conscience of our country, and I
think it is actually holding our economy back. We need to
increase home ownership, the entrepreneurial vision. And one
thing we can do right now is cancel student debt in a way that
will actually be significant and transformational, and I hope
we can get this done sooner rather than later.
Thank you so very much.
Chairman Brown. Thank you, Senator Warnock.
Senator Daines from Montana is recognized.
Senator Daines. Chairman, thank you. I am going to cut to
the chase. I believe President Biden's misguided student loan
policies are simply unfair. Let us think about somebody who
decided not to go to college. In fact, we are seeing more
Americans deciding not to go to college, perhaps to go to trade
schools to find a trade that they can enjoy and immediately get
a good paying job.
What about those who worked around the clock to pay off
their debts? Should these individuals be responsible for paying
off the student loans for a lawyer or a lobbyist? The answer
is, no, they should not.
In fact, those who would actually benefit the most from
Biden's and the Democrats' student loan policy are those who
choose to pursue advanced degrees and are often making a high
income already.
What Biden and the Democrats are trying to do is push yet
another one of these socialist schemes, cooked up by the far
left, that will expand the Government, balloon the deficit,
worsen the already out of control inflation crisis that is
hitting the pocketbooks of the American people and Montanans.
It does nothing to address the root issue of ballooning tuition
costs.
Listen, I got a student loan. I got a chemical engineering
degree at Montana State University. I got a student loan. I
paid it off.
In fact, this may actually encourage colleges and
universities to increase costs because, I mean, at some point
they have got to be thinking to themselves, why not? The
Federal Government will come right back and do it again.
So I turn to my questions. Dr. McCluskey, it is a big deal
with someone makes their final student loan payment, especially
years after hard work. Is it fair for them, and to them, for
the Federal Government to bail out somebody who knowingly took
out student loans and accepted an obligation to repay them?
Mr. McCluskey. It is important to understand that the basic
parameter, basic understanding of a loan is you will pay----
Senator Toomey. Turn on your mike.
Mr. McCluskey. The baseline is when you take a loan the
expectation is you will pay it off, and we have to remember
that it is taxpayers who will end up paying the cost if these
are not repaid because having these debts repaid is built into
the Federal budget. There is an expectation that money will
come in. And it is a major disincentive for people to look for
the most efficient way to get the education, the skills, and
knowledge that they need if they think I can take a loan, I can
buy more things at college that I like, and I will not be
repaying it because the expectation is there will be
forgiveness.
And it is important to understand there is actually
research that shows--came out around 2015, I believe. It is
called College as Country Club--that other than people at the
very top of academic levels, when they choose schools, choose
it based on amenities. So it is not the academics. It is often
the stuff, you know, the social life and things like that that
go with college.
So it is a very major concern when we do not have the
people who are consuming the education be the ones who are
primarily paying and if we tell them we are going to forgive
debt going forward that is a great disincentive to think hard
about what you are purchasing.
Senator Daines. So let us think about somebody who chooses
not to go to college. What does a universal action like this
mean for people who choose not to go to college?
Mr. McCluskey. Well, so it incentivizes more and more
people to go to college, and that fuels the credential
inflation problem we have had, where increasingly we see
employers requiring degrees for jobs that did not previously
require them. There is no evidence the job has changed in the
demand. But you have this sort of very basic signal that may
say somebody was able to finish what they started, but it is an
extremely expensive way to get that signaled. Go to college for
4 years to pay for it or to have taxpayers pay for it.
And so it puts somebody who could more efficiently get
those skills in a terrible bind, where they end up feeling I
have got to go to college even though it will be expensive,
even though it will be 4 years that are not productively spent
earning, and says, go do that. And it is very bad for them and
the economy.
Senator Daines. One of the single greatest challenges we
face right now in this economy is we cannot find enough people
to fill the jobs that are currently available. Through the
years I was going to college, I actively pursued finding summer
work so I could pay to go to college. I could not quite get it
all. I had to get a small student loan to make it all work.
But I think this is yet one more incentive that keeps
people from getting out there and getting back in the
workplace, by forgiving these loans. I think it is a
fundamental fairness question as well.
Dr. McCluskey, have you studied the long-term impacts of
student loan servicers exiting the Federal loan servicing
program since the payment pause was enacted during the
pandemic?
Mr. McCluskey. I have not studied that.
Senator Daines. What do you think the economic indicators
need to be in order for the White House to end this moratorium?
Any thoughts on that?
Mr. McCluskey. Well, I think it is now time to end it. The
idea of the moratorium was that when we were entering the
pandemic, we were entering economic lockdowns, it made sense to
say: We are heading for a very bad time economically. It makes
sense to pause repayment on these loans.
We exited that at the beginning--the first quarter of 2021,
and still we have this freeze. This should have been ended a
long time ago.
Senator Daines. All right. Thank you.
Chairman Brown. Senator Daines, thank you.
Senator Cortez Masto is recognized, from Nevada.
Senator Cortez Masto. Thank you, Mr. Chair. Thank you to
the panel members for being here.
Mr. Pierce, as your testimony notes, a recent Government
Accountability Office report indicated approximately 94 percent
of servicemembers and civilian employees of the U.S. Department
of Defense who previously applied for relief through the Public
Service Loan Forgiveness Program have been denied. And then
back in November of 2021, I, because of this, wrote a letter to
the Department of Education about their proposed changes to the
PSLF Program and the need for them to work to match data from
the Defense Department to automatically count our military
members' years in service toward the PSLF.
I know you are tracking this data closely and the changes
that are being made to the PSLF. What type of progress are we
seeing on this, and do you have any concerns with what is
happening so far?
Mr. Pierce. Thank you for raising this really important
issue, Senator. We have been watching closely to see how our
men and women in uniform benefit from this initiative the Biden
administration has rolled out. It does make the simple promise
not just to teachers and nurses but also to servicemembers that
if they serve in the military or work in other public service
for a decade they have a right under Federal law to have their
debt canceled, and just 124 servicemembers in the first decade
in change of this program ever had their debts canceled.
And the Biden administration has made some progress. A
recent Washington Post report uncovered that about 1,500
servicemembers have had their debt canceled, but that is out of
hundreds of thousands of people that are potentially eligible.
And as best as we can tell, based on what is pubic, the
Government has yet to actually deliver on that promise to match
data with the Department of Defense and to automatically cancel
debt for every eligible servicemember.
Senator Cortez Masto. Well, yeah, and the same GAO report
notes that the Defense Department says that the poor public
perception around the PSLF's implementation issues have led the
Department to not market it for recruitment and retention
purposes. It really speaks to the importance of fixing this
program, and thank you again for highlighting this and
continuing with me and others to address these concerns.
Let me jump to the panel in general on income-driven
repayment communication. In March of this year, the GAO
released a report that looked at the gaps in income-driven
repayment plans. IDR plans offer the promise of forgiveness to
eligible borrowers with student loan debt after 20 to 25 years
of repayment based on income. But the report found that major
gaps in communication from the Department and its loan
servicers regarding communication to borrowers about progress
toward forgiveness and payment tracking.
So I understand the Administration has recently taken some
positive steps in this area, but is there anything Congress
should be doing to provide a statutory requirement about proper
communication to borrowers? And, Mr. Bishop, let me start with
you.
Mr. Bishop. So I think when we think about the income based
repayment plans we should understand that we are at the point
now where we have tried several different types of plans. We
are--currently, as we speak, the Department of Ed is preparing
to roll out another plan.
And we have to really learn from the mistakes around not
only miscommunication but making plans that are just simply
paperwork-ridden and complicated. So as we are thinking about
communication and how to make sure borrowers understand the
options that are there, we have to also make sure that the
plans are actually designed in a way that are streamlined for
borrowers to get the benefits that they deserve.
So instead of waiting till the end of 10 or 20 to 25 years
to offer benefits, that is something that can happen as
borrowers are making progress, particularly our borrowers in
the public service program. I think there is also an
opportunity here for us to think about what stronger
accountability policies can we have for loan servicers so that
we are not waiting years and having to go through lawsuits to
actually get any level of accountability for loan servicers who
just simply are not doing accurate information because it takes
more time and time for them is more money.
Senator Cortez Masto. Mr. McCluskey.
Mr. McCluskey. Yeah, I think that the most important thing
going forward is to simplify income-driven repayment. There are
multiple ways to enter income-driven repayment. It is very
confusing what all the different programs are because you have
PAYE, REPAYE, IDR, IBR, lots of different acronyms that people
are told, and it is because it has been an evolution simply
over decades of always adding new programs instead of saying:
Wait a minute. This has become sort of an inscrutable mess to
most people. Let us go to one income-driven repayment plan and
make very clear what it is and who it applies to.
The good news is we have moved away largely from FFEL.
There are a still few FFEL debts left. The difference between
FFEL and direct loans confused a lot of people with repayment,
and so making it as simple as possible is key.
Senator Cortez Masto. Thank you.
Mr. Pierce.
Mr. Pierce. I agree with everything that my colleagues both
just said, but I would add one other point. It should not
require an act of Congress to fix this mess. Joe Biden has the
ability to cancel student debt for everybody, but he can also
rewrite the rules for these income-driven repayment plans so
that we are just making a better deal for folks. If one option
is the best option and the best option for everybody, we have
simplified the student loan system, and we have managed to do
that in a way that actually does uplift people's financial
lives.
Senator Cortez Masto. Thank you.
Thank you, Mr. Chair.
Chairman Brown. Thank you, Senator Cortez Masto.
We will begin a second round. I will ask a couple of
questions. Maybe not the whole 5 minutes, we will see.
This question is for both Dr. Bishop and Mr. Pierce. The
Administration's changes to IDR and the temporary PSLF waiver
are good first steps to ensuring more borrowers get the
forgiveness that Congress has promised. However, two borrowers
at our Dignity of Work listening session on Tuesday discussed
the application process is still hard to navigate, cancellation
is not guaranteed.
So, Professor Bishop, if you would start, and then Mr.
Pierce. What would the economic impact of meaningful debt
cancellation be on low-income and minority borrowers?
Mr. Bishop. So I think that this is an opportunity at least
in my lifetime, but maybe really the first time in history, for
the Federal Government to see what is a debt trap, a race-
driven debt trap, and eradicate for communities of color. So
this is an opportunity not to wait till decades later, not wait
until we can really document the devastation and give an
apology, but actually do something material right now, with
action steps that can bring about justice. So I think this is a
historic moment, a moment to think about working-class people
and communities of color.
And we have abilities and legal authority to do things now
through the executive branch that, again, gives us a moment not
to wait later on, where we have to apologize and tell
communities of color we got it wrong when we have right now the
opportunity to get it right.
Chairman Brown. Thank you.
Mr. Pierce, answer that, but I want to throw another
question on top of it and do that together. How does CFPB
ensure the servicers follow these recent changes to the program
so that borrowers are able to actually access the debt
cancellation that they have earned?
Mr. Pierce. So to answer your first question, I am also
going to point to the polling we released this morning with
Data for Progress that shows that if we don't act now, if
payments do start again at the end of August, 40 percent of
people are going to struggle to make--to afford basic needs,
like shelter and food, and 6 in 10 people are going to make
major changes to saving and spending. So I think it is
important to recognize the financial freedom that canceling
student debt will provide people but also the enormous negative
effects on households from throwing them back into this deeply
broken student loan system.
And the CFPB is a really important part of the solution
here. So these big, private sector student loan companies that
choose to bid for Government contracts and choose to do this
work on behalf of taxpayers routinely break the law, and the
CFPB is there to provide regular, routine oversight. Student
loan servicing should be boring. You should not have to know
who your student loan servicer is. You should not care what
they do every day. It should just work. And the CFPB providing
regular oversight is the key to making that happen for people.
Chairman Brown. So this is the CFPB communicating with the
Department of Education, making sure they coordinate, notifying
borrowers who may have been high-risk or been misled.
Mr. Pierce. Absolutely.
Chairman Brown. Correct?
Mr. Pierce. Yeah.
Chairman Brown. OK. Thank you.
Senator Toomey.
Senator Toomey. Thanks, Mr. Chairman. Senator Tester made
the point that college is just too expensive, and I have to say
I agree with that, but I think we ought to be looking at one of
the major drivers that we discussed a little bit earlier,
Government subsidy. This is not even controversial among
economists, that the level of Government subsidy is a big
driver of the fact that higher education prices have escalated
much faster than the general price level throughout the
economy.
Dr. Bishop made, I think, a valid point, which was that we
subsidize college education through our tax code because we
allow people to save for college and the growth and the value
of their savings is not taxed. That is true. Frankly, I would
support eliminating that if we took the savings and used it to
lower marginal tax rates across the board. That would be more
fair. That would be nondiscriminatory. That would be pro
growth.
But, the current policy is regressive in that sense, but
what is amazing is loan cancellation is much more regressive.
So let me ask a couple of questions of Dr. McCluskey. First
of all, let us just state the obvious here. What percentage of
people who take on student debt are forced to do so versus what
percentage voluntarily choose to borrow the money to pay for
college?
Mr. McCluskey. Well, it is difficult to say forced versus
voluntary because some people may feel forced because student
aid has fueled price increases. So it is, I think, legitimate
to say we have a problem with student loans and lots of the
other programs, like you mentioned, that put the thumb on the
scale to consume higher education.
Senator Toomey. I have to disagree that it is hard to make
this--of course, it is voluntary. Nobody is compelled to take
out a student loan. People do it because they think it is in
their interest to do so.
Mr. McCluskey. Right.
Senator Toomey. And it is a completely voluntary
transaction. But to go to this question of how regressive this
is, the data that I have suggests that over half of all student
loan debt is held by graduate students. Is that your
understanding?
Mr. McCluskey. Yes. So the skew of student debt is
absolutely right. Nobody is required to take on student debt,
and people take it on because it greatly increases your chances
of much higher lifetime earnings. And graduate school in
particular does that, especially professional school.
Senator Toomey. Right. So the data that I have seen is
that, on average, Americans with a college degree earn a
million dollars more over their lifetime than people without a
college degree.
So my last question is tell me if this--if you are aware of
any data that contradicts this. According to the University of
Chicago economists' studies, they estimate that two-thirds of
the benefits of full debt cancellation would be captured by the
top 50 percent of income earners. The top 50 percent of income
earners. They are not--those, by definition, are not extremely
poor people, but that is where this benefit would go. How is
this not extremely regressive?
Mr. McCluskey. Right. I have not seen evidence that says
that that is not accurate. The top decile in income earners
have $46,700 for those who borrowed. The lowest quartile is
$26,000.
So what we are looking at certainly there are a lot of low-
income people who would get a fair amount from forgiveness, but
most of it is skewed toward people who have done things like
gone to medical school, become doctors, and those professional
degrees, you get about 3.1 million more dollars over your
lifetime than someone who has not gone to college, that
finished in high school. Of course, if you are going to get
that payoff, you should be responsible for paying it, not
taxpayers.
Senator Toomey. Thank you, Mr. Chairman.
Chairman Brown. Thank you, Senator Toomey.
Senator Warren is recognized.
Senator Warren. Thank you, Mr. Chairman. I appreciate an
opportunity to keep asking some more questions about this.
So President Biden is considering canceling student loan
debt for tens of millions of Americans, and Republicans are
attacking the idea because they do not want the President to
get credit for helping working families that need help. So one
of the arguments they have been making is that canceling
student loan debt will somehow make inflation worse. So that is
the question I want to pursue in this round.
Republicans' arguments, I think here, are completing out of
step with reality. When the pandemic hit 2 years ago, President
Trump halted all student loan payments, and they have been
paused ever since then. In other words, the Federal Government
has already been effectively canceling every month of student
loan payments for more than 2 years.
Now, Mr. Pierce, you are an expert on student debt and its
impact on borrowers and the economy, so let me ask you. What
does the data show about how 2 years of student loan
cancellation has impacted inflation?
Mr. Pierce. Thank you for the question, Senator Warren, and
I actually want to cite the same conservative think tank, the
Committee for a Responsible Federal Budget, that Senator Toomey
cited in his opening remarks, noting that it is putting
billions of dollars back in borrowers' pockets, but that is
just a few billion dollars in a many trillion-dollar economy.
It has not--the same analysis shows that it has not
contributed substantially to inflation, and in fact, it is just
driving 0.02 percent of inflation. That is one-quarter of one
tenth of all inflation in America. The White House actually
puts that estimate even lower. And 97 percent of all inflation
is due to other causes, like the war in Ukraine, problems with
the supply chain, and most importantly, greed by mega
corporations that are profiteering off of the pandemic.
Senator Warren. OK. So even the most conservative think
tanks say about--is it two-tenths of 1 percent of inflation may
have been affected?
Mr. Pierce. That is right.
Senator Warren. Let us unpack that a little bit because
according to the New York Fed the payment pause has saved
borrowers $84 billion a year. $84 billion for 2 years sounds
like a lot of money to most people, including me. And you are
saying that, even so, it only contributed two tenths of 1
percentage point to the rate of inflation. So why is it that
$84 billion a year is not adding more inflation?
Mr. Pierce. That is because--and again, I am citing a
conservative think tank here.
Senator Warren. Got it.
Mr. Pierce. That is because we have a multitrillion dollar
economy that is driven by consumer spending. And this billions
of dollars in relief, it is life changing for the families that
benefit from it, but it is just a drop in the bucket for the
economy.
Senator Warren. OK. So let me see if I have got this
straight. Republicans' so-called solution to rising prices is
to tell hardworking families that they need to start writing
checks for hundreds or thousands of dollars a month to the
Federal Government. You know, that is not just a slap in the
face to borrowers who are barely getting by right now. It also
would have virtually no impact on inflation.
But let us talk about what cancellation of student loan
debt would do for the economy. Mr. Pierce, what impact would
meaningful student debt cancellation have on families'
pocketbooks and the broader economy?
Mr. Pierce. So as you mentioned, we have canceled student
loan payments for 2 years.
Senator Warren. Yeah.
Mr. Pierce. And research that we published with the
California Policy Lab and our Student Loan Law Initiative at
University of California-Irvine found that the average family
saves 200 bucks a month, 43 percent of those borrowers have
used that to pay down high-cost credit card debt, and the
borrowers with the worst credit, with the weakest credit going
into the pandemic, have experienced the biggest gains. So this
is progressive policy, and it is a breath of fresh air for
people that have struggled for too long.
Senator Warren. Right. And for people who are now getting
rid of the long-term principal, what does this mean for their
lives? What can they now do?
Mr. Pierce. This will expand opportunities for home
ownership. It will make a generation of renters turn into a
generation of homeowners. It will help people save for
retirement. And, it will help fight the plague of
intergenerational student debt. It will free up people's money
to help the next generation pay for college.
Senator Warren. So, a lot of opportunity, a lot of long
term stability for families. You know, this would be real money
in the pockets of American families who are struggling to pay
their bills right now.
And let's be clear about what is happening here.
Republicans are desperate to stop the President from doing
something that would help working families, so desperate that
they are peddling lies about how student loans debt
cancellation would impact our economy.
Here are the facts: Canceling student debt would unlock
opportunities for Americans across the country. It is a crucial
step in reforming the broken student loan system. And, it would
not inflate the economy; it would make it stronger for years to
come.
The President needs to provide meaningful student debt
cancellation for hardworking families, and he needs to do it
now.
Thank you for being with us.
Chairman Brown. Thank you, Senator Warren.
Senator Reed from Rhode Island is recognized.
Senator Reed. Thank you very much, Mr. Chairman. Secretary
Cardona, when he assumed office, described the preceding years
as administrative failures in terms of the programs, and one of
them was the failure of the Department's servicers to perform
the most basic function, keeping track of borrowers' payments.
So, Mr. Pierce, what steps should Congress take to reform just
the administrative aspects of the student loan program?
Mr. Pierce. There are a number of steps that Congress can
take. Congress can restore bankruptcy rights to student loan
borrowers, Congress can help clean up big pieces of the student
loan system, and Congress could make college free.
But the good news for student loan borrowers is that
Congress does not need to act to rein in abuses by predatory
student loan companies. The Biden administration has all the
tools and all the legal authority it needs, working both with
the Department of Education and the Consumer Financial
Protection Bureau, to clean up this mess.
Senator Reed. Thank you. Another aspect, as we emerge from
COVID, as we are moving forward, is providing sort of
incentives to the lenders so that they are much more sensitive
to the students they are teaching, the courses they are
teaching. I mean, I have been proposing for many years a risk
sharing provision, that institutions of learning that have very
high default rates should share the default with the U.S.
Government, and I think that will have several effects. One is
to ensure that their courses are preparing people adequately
for work and repayment, and also that they do not simply use
the loan program as a money machine. How do you feel about
that, Mr. Pierce?
Mr. Pierce. That would be an enormous step forward. There
are unaccountable schools, particularly, but not exclusively,
for profit colleges that have profiteered off of the Federal
student loan system for decades and have driven student loan
defaults. Enrollment in those for-profit colleges are roughly 1
in 10 of America's students, but it is 1 in 5 borrowers and
more than a third of all student loan defaults, and taxpayers
are left holding the bag.
Senator Reed. So that seems to be a very simple market
driven approach to fixing a problem that is quite obvious. Is
that your opinion?
Mr. Pierce. I would agree with that.
Senator Reed. The final question is that we are looking at
cutting back on Federal lending and Federal support, which may
in fact just drive people into the private sector, and as we
have just talked about, there are some activities in the
private sector that are not particularly consumer-friendly.
Could we be creating a bigger problem, i.e., the need to
borrow money for school will not go away; if the Federal
Government leaves, now you are at the hands of private
operators, some whom are very credible and very thoughtful but
many others who are looking at it strictly as a way to make
money, not to enhance the productivity and the life of American
people?
Mr. Pierce. Absolutely. And as I note in my written
testimony, there has been a number of scandals between Wall
Street and Silicon Valley over the course of decades that show
when students depend on the private sector as their sole source
of financing, in particular, things often go off the rails
because these loans are designed to fail.
We saw a decade ago with some of the collapses of the large
for-profit colleges that they had designed their own private
lending scheme and told investors that they expected 6 out of
every 10 borrowers that took a private student loan to fail but
that that was OK because as long as they could use those
private loans to be able to get access to Federal student loans
everyone would come out ahead, everyone but their students.
Senator Reed. Thank you very much.
Thank you, Mr. Chairman.
Chairman Brown. Thank you, Senator Reed.
Senator Cortez Masto.
Senator Cortez Masto. Thank you. First of all, let me just
say thank you for this great conversation today. This is the
same debate that is happening in my State right now. And I
think every question that has been asked by the Senators and
the comments, thank you. This is indicative of what we are
dealing with.
But to the panel members--and let me start with Mr. Pierce.
I was listening to Senator Daines' comments because this is
something I do here in my State. I paid for my student loans. I
worked hard. I worked a second job. Mr. McCluskey said people
should be responsible. You take out a loan. You should be
responsible. I did it. Why shouldn't everybody else have to do
it and not get that forgiveness?
What is your response to that? If you are talking to people
in my State and across the country that feel the same way, what
is the response to that and why there should be some sort of
forgiveness?
Mr. Pierce. Thank you, Senator. I think, to start, student
loans are not like car loans and mortgages, and for millions of
people that have these loans the rules were rewritten after
they took on these debts. For many people who have low incomes,
they were told to raise their hand and take advantage of the
options that their student loan servicer would tell them about.
And when they picked up the phone and they called for help,
they were misled, and as a result, their loan balances grew.
The debts they owe now are far greater than when they first
attended college. That is particularly true for Black
borrowers.
This is not just an issue about people getting free stuff
from the Government. This is about justice, and it is about
equity. And I do not think any place in America people believe
that predatory lenders should be able to get off scot-free. In
this case, the Government is a predatory lender.
Senator Cortez Masto. Mr. Bishop.
Mr. Bishop. And I would second all that Mike Pierce shared.
And I think that the other way for us to think about this is
that when students come to borrow student loans, because of the
lack of information, the constant change in rules, the constant
change in price for a college education, it is impossible to
come into your first year and really determine how much you are
going to borrow for the cost of that college, that by the time
you get to your third or fourth year your cost of attendance
may have increased dramatically.
And even with your best personal responsibility, your best
personal budgeting, it was nothing you could do to anticipate
or prepare for that increase. But you are in your third or
fourth year, and you have to continue to borrow or you will not
get that college degree and be in a worse spot where you have
student debt and no degree.
So a part of this, too, is understanding that there is a
larger system at play here outside of just personal
responsibility that is often leading to the debt situations and
the crisis that we are seeing right now.
Senator Cortez Masto. Thank you.
And, Mr. McCluskey, do you believe it is true there are
predatory lenders out there?
Mr. McCluskey. Well, at this point, the overwhelming lender
is the Federal Government. There has been a problem in which
Federal loans will--if you want a Federal loan, there is
essentially no assessment of what is it you want to study,
where you want to go study it. If this were a private loan, you
probably would not see that because there is risk to that
lender. For the Federal Government, it is really risk to the
taxpayer.
So you might say that the Federal Government has been
predatory except that is not the goal. The goal has been to
give people the money to go to college, but we have not looked
at all the unintended consequences of that, which include
massive tuition inflation, it includes massive credential
inflation.
But what we have to remember, I think, is that ultimately
left holding the bag are taxpayers, who did not have a say in
any of those given loans. And as bad as the situation is with
Federal student aid--and student loan which, I think, needs to
be reformed--the reality is about two-thirds of American
taxpayers do not have a bachelor's degree.
And people who do have a bachelor's degree, on average,
earn 1.2 million more dollars over their lifetime than someone
with just a high school diploma. If you go to professional
school, you make 3.1 million more dollars. Those people, the
baseline should be they repay those taxpayers who had really no
say in any given loan and really did not have any direct say in
how the system was set up.
Senator Cortez Masto. Let me tell you about an unintended
consequence that I have concerns about. In the State of Nevada,
we lack general practitioners, physicians. One of the things,
as I have done my roundtable discussion with our doctors
throughout the years, I have learned is that because the
student loans are so high as a doctor many graduate, don't
become a general practitioner because it doesn't pay enough to
be able to pay your student loans, so they go into specialty
care.
And so now we are seeing choices being made by individuals.
Particularly this is true, listen, for attorneys and others.
And I am not defending it. I am only telling you what I am
hearing. Choices are being made when in actuality it would be
better in my State to have more general practitioners,
including in our rural communities, and we have incentivized in
Congress the ability to get more doctors in our rural
communities by waiving their debt.
So I do think there are unintended consequences that we
have to be dealing with when we are talking about services to
taxpayers that need it, particularly around health care and
other needs. And I think this is a complex issue, but we should
be thinking about all of the above as well.
So I thank you again for the conversation.
Chairman Brown. Thank you, Senator Cortez Masto.
Thanks to the witnesses, all three of you, for providing
testimony.
I would like to submit for the record testimony of Jonathan
Hammond of Massachusetts, who took on student debt to attend a
for-profit coding boot camp. Instead of learning useful skills,
he got just stuck with a $10,000 loan. Without objection, so
ordered.
I would also like to submit for the record the testimonies
of Rae Picken, Megan Bailey, Emily Robinson, and Deborah
Harburger. They were in our Dignity of Work listening session
on Tuesday. Without objection.
Their stories describing their struggle with student debt
while raising families, going to school, serving the public are
exactly the reason the Administration should cancel a
meaningful amount of student debt. They should be part of the
official record of today's hearing.
For Senators who wish to submit questions to the three of
you, those questions are due 1 week from today, Thursday, the
12th.
To the witnesses, please submit your answers to these
questions for the record within 45 days of receipt.
Thank you again.
The Committee is adjourned.
[Whereupon, at 11:55 a.m., the hearing was adjourned.]
[Prepared statements, responses to written questions, and
additional material supplied for the record follow:]
PREPARED STATEMENT OF CHAIRMAN SHERROD BROWN
Today, 43 million Americans are drowning in $1.75 trillion in
student debt.
That debt is preventing generations of Americans from pursuing
their dreams and seeing their hard work pay off.
It holds people back from buying a house, starting a business,
getting married, starting a family.
Earlier this week, this Committee held a listening session to hear
from workers about how student loan debt has impacted their lives and
undermined the dignity of their work.
We heard about how borrowers face impossible choices between doing
the work they care about and trying to pay off mountains of student
debt.
Megan Bailey, a social worker in rural Montana, realized that to
afford college, either she would be saddled with enormous debt, or her
parents would be--jeopardizing their retirement.
Megan took on the debt herself and now owes more than $200,000. She
sacrificed her financial future in order to make sure her parents could
retire.
That's a choice no one should have to make.
It wasn't supposed to be like this.
Taking on debt to pay for college is supposed to be an investment
in your future--an investment that pays off in the long run with a
higher-paying job and a promise of middle-class stability.
It's what we tell people about the American Dream: work hard, play
by the rules, and you'll get ahead in life.
It's what Rae from Toledo, Ohio, believed.
She thought that if she took on debt to go to college, if she
worked hard, if she dedicated herself to public service, she would get
ahead.
Instead, Rae has paid $96,000 on $75,000 in student debt she owed,
and is nowhere near being done with these loans, despite having a job
and working hard every day.
The overwhelming number of borrowers do play by the rules, they do
work hard.
Go to college? Check. Get a job? Check. Work hard? Check.
But instead of achieving the American Dream, borrowers are trapped
in debt and economic instability.
The debt trap is even worse for borrowers of color.
Ninety percent of Black students and 72 percent of Latino students
borrow to attend college, in comparison to 66 percent of White
students.
This isn't an accident. This cycle of debt is a direct result of
bad policies.
We haven't invested in public education the way we used to--pushing
tuition higher and higher, and pushing students to take on more and
more debt.
In 2020, more than half of all bachelor's degree recipients from
public and private 4-year institutions graduated with student loan
debt, and owed an average of $28,000.
The days that some of us remember are long gone, when hard work at
a part time job could put you through school.
Too many of the debt-forgiveness programs that students are told
they'll be able to count on are mismanaged--or not really managed at
all--by student loan servicers.
The Income-Driven Repayment program is supposed to erase eligible
borrowers' debt after making enough payments. Yet it has only canceled
the student debt of 32 out of 4.4 million Americans who are eligible.
Not 32 thousand. Not 32 hundred. Just 32 people, out of 4.4
million.
Many of these borrowers have been enrolled and making payments for
20 or 25 years.
According to a recent NPR report, loan servicers failed to properly
count qualifying payments and did not accurately track borrowers'
progress towards cancellation for millions of people.
Those are some pretty big mistakes.
We created this program to protect people from being trapped in
debt forever.
Clearly it isn't working.
Congress also created another program designed to forgive student
loan debt: the Public Service Loan Forgiveness program.
We promised these students that if they dedicated 10 years to
public service, their loans would be forgiven.
Yet, because of poor servicing, 98 percent of eligible borrowers
are rejected for public service loan forgiveness. 98 percent.
One of those rejected was Deborah Harburger from Maryland. Deborah
has been a social worker for the State of Maryland more than 18 years.
She should have had her debt forgiven 5 years ago, yet she was
rejected for public service loan forgiveness in 2017.
That's 5 years of monthly payments that could have gone to her
savings, her retirement, her college savings for her two children.
Servicer mismanagement, particularly of these two programs, has led
to borrowers having larger debt for longer periods of time.
The Biden administration recently implemented a temporary PSLF
waiver to allow rejected borrowers to re-apply for forgiveness.
That allowed Emily Robinson, a teacher from Georgia, to finally
have the remaining $22,000 of her student loan debt forgiven.
She has taught for 17 years, and was rejected for loan forgiveness
once before. Emily told us that she finally received her ``Thanksgiving
miracle'' when all her student loans were forgiven. She said when she
saw the remaining balance on her loans at zero dollars, she started
crying.
Now that her loans are forgiven, Emily says she can start saving
for retirement. That's after 17 years as a public servant.
This was an important first step by the Biden administration.
But it's not enough. The Biden administration has the power to
change the financial lives and future of millions of borrowers by
forgiving meaningful portions of student debt.
The CFPB has a role here as well.
Student loan servicers need to be closely supervised to ensure
borrowers receive the forgiveness they earned, through the programs
that Congress established.
Under the Trump administration, the CFPB was not concerned with the
average worker. But under the leadership of Director Chopra, the CFPB
is finally working to hold these student loan servicers accountable.
Americans should not be trapped by a system that was supposed to be
their opportunity to work their way into the middle class.
I'm calling on the Biden administration to think about borrowers
like Emily, Rae, Megan, and Deborah who have worked hard their entire
lives and are still drowning in debt.
You have the power to reform this broken system, to give people
power and agency in their lives again, and to unleash the potential of
a generation of Americans.
______
PREPARED STATEMENT OF SENATOR PATRICK J. TOOMEY
Thank you, Mr. Chairman.
When Congress created universal student loan programs, it didn't
call them student grant programs. In fact, there are separate grant
programs, like Pell, for low-income students. Congress created the
student loan program with the same expectations as any other loan
program: the loans would be paid back.
Now some of my Democrat colleagues want the President, despite his
lacking the authority, to cancel many of these outstanding loans--
effectively converting them into grants of potentially tens of
thousands of dollars per borrower.
Let's be clear about what ``canceling'' student loan debt means.
It's a massive wealth transfer from taxpayers to a small subset of
mostly wealthy individuals.
First, fewer than one in five adults even have Federal student loan
debt. That means that 210 million American adults have no Federal
student loan debt. Why do 80 percent of American adults have no student
loan debt? Because many of them never went to college, or they went to
college without taking on student loans and just paid as they
progressed, or they took out student loans and paid them back.
Second, individuals with a bachelor's degree or higher
overwhelmingly make more money than people who don't. The vast majority
of them are perfectly able to repay their loans. They have
significantly lower unemployment rates. And on average, earn a million
dollars more over their lifetimes than non-college graduates.
Third, student loan debt is primarily owed by wealthy families and
graduate students. Even the Washington Post's left-leaning editorial
board has blasted the President's plan as a transfer to the wealthy,
writing that ``a broad cancellation would offer huge, undeserved
benefits'' to individuals in high-paying fields, and correctly pointed
out that ``the vast number of American taxpayers lacking university
degrees would subsidize well-heeled, white-collar professionals.''
All student debt is obviously voluntarily incurred. Over half of
all student debt is taken by graduate students, many of whom happily
incur the debt because they are entering high-paying fields like
business, medicine, and law. Of course, some grad students have degrees
that are not highly valued by the labor market.
As the Wall Street Journal wrote, ``doctorate recipients in the
humanities in 2019 earned $53,000 on average. Machinists make more.''
This begs the question, why should a machinist ever have to pay off the
loans of an art history Ph.D. let alone a medical doctor?
Beyond being a massive wealth transfer to the well-off and well-
credentialed, student debt cancellation is grossly unfair to every
other American. Frankly, it's a slap in the face to the machinist, to
the taxpayer, to anyone who didn't go to college, and to anyone who
works for a living, making financial sacrifices so they can pay their
own or their kids' college bills--they saved instead of going on
vacation or splurging on gadgets.
Those people don't have student loans, but they have other debt.
Should the Government ``cancel'' their mortgages, car loans, and credit
card bills? Of course not. It's almost never acceptable for the
taxpayer to be responsible for someone else's voluntarily-incurred
private debt.
Cancellation of student debt obscures the root cause of the
problem: the rising cost of higher education. For decades, the
Government showered students with cheap debt and grants to go to
college. With Government paying so much of the cost, students are
largely indifferent to the price.
Understanding that price didn't matter to their customers, colleges
responded by raising tuition. According to a study by New York Fed
economists, anytime there's an increase in the amount that a student
can take out for a Federal subsidized loan, 60 percent of that increase
is passed through as a tuition hike.
The solution is obvious--less Government subsidization and more
personal responsibility. But it seems some have forgotten these
immutable economic truths.
Colleges have little incentive to keep prices reasonable if they
believe Government will ``cancel'' debt. They have already demonstrated
that they are willing to raise prices at multiples of the rate of
inflation because they can.
If Government starts canceling everyone's debt, then we can expect
another surge of higher ed inflation. With the Government expected to
issue roughly $1 trillion in new student loan debt over the next
decade, we will soon be back in this same position.
I'll conclude by dispelling an argument you may hear today: that
student debt cancellation will ease inflation. The opposite is true.
Through May 1 of this year, the nonpartisan Committee for a
Responsible Federal Budget, or CRFB, estimated that the COVID student
loan repayment pause has already effectively canceled $5,500 per
borrower, and thereby pumped roughly $5 billion of excess stimulus into
the economy each month with no corresponding increase in the supply of
goods and services.
The CRFB estimates that full debt cancellation could raise
inflation by between one-third and one-half a percent. In addition to
being egregiously bad and unfair policy, Americans simply can't afford
it.
______
PREPARED STATEMENT OF MIKE PIERCE
Executive Director, Student Borrower Protection Center
May 5, 2022
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
PREPARED STATEMENT OF NEAL MCCLUSKEY
Director, Center for Educational Freedom at the Cato Institute
May 5, 2022
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
PREPARED STATEMENT OF JALIL MUSTAFFA BISHOP
Cofounder and Assistant Professor, Equity Research Cooperative,
Villanova University
May 5, 2022
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
RESPONSES TO WRITTEN QUESTIONS OF SENATOR ROUNDS
FROM NEAL MCCLUSKEY
Q.1. Prior to 2010, the majority of students acquired Federal
aid through the Federal Family Education Loan (FFEL) program
(guaranteed loans). In 2010, the Student Aid and Responsibility
Fiscal Act was incorporated into the Affordable Care Act (ACA)
and ultimately shifted the responsibility of Federal loans from
private lenders to the Federal Government. This was done with
the understanding that it would be less costly to taxpayers.
Has that been the case?
A.1. The change from FFEL to Direct Loans almost certainly
saved money on fees and other costs paid to lenders by the
Federal Government, which also guaranteed lenders against loss.
FFEL was Federal student lending with an added layer of middle-
men making profits on the taxpayer dime. That said, the Federal
student loan programs, now all Direct, are estimated to be
major money losers for taxpayers. The Biden administration
recently estimated that the Federal Government will lose $68
billion on student loans, due largely to rising college prices
(inflation that Federal loans partially fuel) and generous
forgiveness programs. An estimate done for the U.S. Department
of Education under Sec. Betsy DeVos predicted much bigger
losses: Around $1 trillion.
Moving to Direct Loans likely did save taxpayers some
money, but the student loan programs are nonetheless a major
drain on American taxpayers.
Q.2. According to Title IV of the Higher Education Act, an
Expected Family Contribution is used to determine Federal
financial eligibility. The information that students provide on
the Free Application for Federal Student Aid (FAFSA) is used in
this formula. The complexity of the FAFSA has put a significant
strain on students attempting to acquire financial aid. What
can be done to simplify this process?
A.2. Many questions on the FAFSA were difficult to answer and
the form was hard to complete. But FAFSA was substantially
revised in 2020 as part of COVID relief. The legislation
reduced the number of questions from 108 to about 40 and
allowed automatic importing of many answers from one year's
FAFSA to the next. It also replaced Expected Family
Contribution with the Student Aid Index, though this was
largely a change in name only. That said, I have not studied
the FAFSA in great detail, and do not believe its level of
complication is a core problem in student lending. The root
problem is easy access to taxpayer subsidies itself, especially
without any meaningful effort to assess a prospective
borrower's demonstrated ability to complete college-level work
in a field that likely to enable a borrower to comfortably
repay his or her loans.
Q.3. In South Dakota, a number of middle income families have
struggled to access Federal subsidized and unsubsidized loans.
According to the CollegeBoard research organization, total
education borrowing declined for the tenth consecutive year in
2020-21. In 2020-21, total education borrowing declined by $9.8
billion (9 percent) after adjusting for inflation, the largest
1-year decline after annual borrowing peaked in 2010-11. While
some attribute this to declining enrollment rates, what other
factors may contribute to this lack of access?
A.3. I believe the primary drivers of declining borrowing are a
strong economy, which typically sees more people working and
fewer in college pursuing new credentials; a growing
recognition that the price of college, including graduate
education, has in some cases been outpacing the value of the
degree; and concern that student debt was becoming too high,
which encouraged people to economize in education. All these
factors are signs that allowing a market to at least somewhat
work--subsidies following students instead of going directly to
schools--can enable some corrections to past excesses.
There are also potential systemic access problems,
especially students in high schools with low college-going
having less access to information about enrolling in college
than students in other high schools. That, though, does not
explain the recent overall enrollment drop. Rather, it helps to
explain longstanding socioeconomic gaps in attendance. Also,
lower-income students will tend to be more intimidated than
higher-income students by high college sticker prices, in many
cases inflated because student aid enables colleges to raise
prices at rates often well in excess of inflation.
Additional Material Supplied for the Record
STATEMENT SUBMITTED BY DEBORAH HARBURGER
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
STATEMENT SUBMITTED BY JONATHAN HAMMOND
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
STATEMENT SUBMITTED BY RAE PICKETT
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
STATEMENT SUBMITTED BY MEGAN BAILEY
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
STATEMENT SUBMITTED BY EMILY ROBINSON
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
``WHY DO BLACK COLLEGE GRADUATES HAVE A LOWER HOMEOWNERSHIP RATE THAN
WHITE PEOPLE WHO DROPPED OUT OF HIGH SCHOOL?'', JUNG HYUN CHOI, LAURIE
GOODMAN, URBAN INSTITUTE, FEBRUARY 27, 2020
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
``FACT CHECK: THE TRUTH ABOUT MAXIMUS/AIDVANTAGE STUDENT LOAN ACCOUNT
SERVICING''
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[all]