    [Senate Hearing 118-744]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 118-744

                    BACK TO SCHOOL: SHEDDING LIGHT ON RISKS
                      AND HARM IN THE PRIVATE STUDENT LENDING
                      AND SERVICING MARKET

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

                                    HEARING

                                   before the

                                SUBCOMMITTEE ON
                      FINANCIAL INSTITUTIONS AND CONSUMER
                                   PROTECTION

                                     of the

                                  COMMITTEE ON
                       BANKING,HOUSING,AND URBAN AFFAIRS
                              UNITED STATES SENATE

                        ONE HUNDRED EIGHTEENTH CONGRESS

                                 SECOND SESSION

                                       ON

              EXAMINING THE RISKS AND HARM IN THE PRIVATE STUDENT
                         LENDING AND SERVICING MARKET

                                   __________

                               SEPTEMBER 17, 2024

                                   __________

      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

    62-265 PDF                WASHINGTON : 2026

                COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                           SHERROD BROWN, Ohio, Chair

    JACK REED, Rhode Island              TIM SCOTT, South Carolina
    ROBERT MENENDEZ, New Jersey          MIKE CRAPO, Idaho
    JON TESTER, Montana                  MIKE ROUNDS, South Dakota
    MARK R. WARNER, Virginia             THOM TILLIS, North Carolina
    ELIZABETH WARREN, Massachusetts      JOHN KENNEDY, Louisiana
    CHRIS VAN HOLLEN, Maryland           BILL HAGERTY, Tennessee
    CATHERINE CORTEZ MASTO, Nevada       CYNTHIA M. LUMMIS, Wyoming
    TINA SMITH, Minnesota                J.D. VANCE, Ohio
    RAPHAEL G. WARNOCK, Georgia          KATIE BOYD BRITT, Alabama
    JOHN FETTERMAN, Pennsylvania         KEVIN CRAMER, North Dakota
    LAPHONZA R. BUTLER, California       STEVE DAINES, Montana

                         Laura Swanson, Staff Director
                   Lila Nieves-Lee, Republican Staff Director

                          Cameron Ricker, Chief Clerk
                          Shelvin Simmons, IT Director
                           Pat Lally, Assistant Clerk

                                     ______

         Subcommittee on Financial Institutions and Consumer Protection

                       RAPHAEL G. WARNOCK, Georgia, Chair
             THOM TILLIS, North Carolina, Ranking Republican Member

    MARK R. WARNER, Virginia             MIKE CRAPO, Idaho
    ELIZABETH WARREN, Massachusetts      CYNTHIA M. LUMMIS, Wyoming
    CHRIS VAN HOLLEN, Maryland           J.D. VANCE, Ohio
    CATHERINE CORTEZ MASTO, Nevada       KATIE BOYD BRITT, Alabama
    TINA SMITH, Minnesota                KEVIN CRAMER, North Dakota
    JOHN FETTERMAN, Pennsylvania

                    Adam Finkel, Subcommittee Staff Director

               Ryan Adams, Republican Subcommittee Staff Director

                                      (ii)

                                C O N T E N T S

                                  ----------

                          TUESDAY, SEPTEMBER 17, 2024

                                                                       Page

    Opening statement of Chair Warnock...............................     1

    Opening statements, comments, or prepared statements of:
        Senator Lummis...............................................     3

                                   WITNESSES

    Aissa Canchola Banez, Policy Director, Student Borrower
      Protection Center..............................................     5
        Prepared statement...........................................    21
        Responses to written questions of:
            Chair Warnock............................................    62
    Beth Akers, Senior Fellow, American Enterprise Institute.........     7
        Prepared statement...........................................    44
        Responses to written questions of:
            Senator Kennedy..........................................    69
    Dalie Jimenez, Professor of Law and Director, Student Loan Law
      Initiative, University of California, Irvine School of Law.....     9
        Prepared statement...........................................    46
        Responses to written questions of:
            Chair Warnock............................................    69

                  Additional Material Supplied for the Record

    Letter submitted by CBA..........................................    70

                                     (iii)

                    BACK TO SCHOOL: SHEDDING LIGHT ON RISKS
                      AND HARM IN THE PRIVATE STUDENT LENDING
                      AND SERVICING MARKET

                                  ----------

                          TUESDAY, SEPTEMBER 17, 2024

                                   U.S. Senate,
      Committee on Banking, Housing, and Urban Affairs,
           Subcommittee on Financial Institutions and Consumer
                                                    Protection,
                                                        Washington, DC.
        The Subcommittee met at 2:30 p.m., via Webex and in room
    538, Dirksen Senate Office Building, Hon. Raphael G. Warnock,
    Chair of the Subcommittee, presiding.

             OPENING STATEMENT OF CHAIR RAPHAEL G. WARNOCK

        Chair Warnock. Good afternoon. This Subcommittee will come
    to order. Welcome to today's hearing of the Senate Banking
    Subcommittee on Financial Institutions and Consumer Protection.
        Today's hearing is in a hybrid format, but our Members and
    our witnesses are all here in person. We are grateful for their
    presence and your willingness to participate.
        Today, this Subcommittee will examine the consumer
    protection risks and harms of private student loans, including
    the roles of lenders, both banks and nonbanks, that are
    operating in this space. We will also examine ongoing
    challenges that millions of Americans are still experiencing
    with their student loan servicer.
        Today's hearing will be the first time in a decade that the
    Senate Banking Committee has focused on private student loans,
    a growing and opaque financial option that students are using
    to help pay for the rising cost of college. Collective student
    debt continues to rise with the Federal Reserve finding
    Americans collectively owe more than $1.74 trillion in debt to
    the Federal Education Department or to private lenders. $1.74
    trillion. This number has risen every year, except for 2023.
    And of that total, $133 billion is owed to private lenders in
    the form of private student loans, including more than $5.6
    billion in the State of Georgia.
        The Biden-Harris administration has recognized the weight
    that an excessive student loan burden can have on Americans
    and, to date, the Biden-Harris administration has announced
    nearly $170 billion in relief for almost five million
    borrowers. However, these are only federally backed student
    loans, and borrowers continue to report issues with their
    private loans. While we are not expecting the CFPB's
    Educational Loan Ombudsman's annual report until next month,
    information we already have shows that the CFPB received more
    than 15,000 complaints from September 1, 2023, to August 30,
    2024, related to private student loans and Federal student loan
    servicing.
        My staff and I have analyzed some of these complaints from
    borrowers. And when looking through the complaints, you are
    struck by the sheer scope and magnitude of the problem. Private
    lenders and servicers routinely misled or deceived borrowers,
    and the stories are frustrating and heartbreaking. Confusing
    processes, poor customer service, and just a genuine failure of
    many lenders and servicers to work with struggling borrowers.
    With numbers that high, it's easy to forget that there is an
    entire life and a story behind each of these complaints. These
    are real people with families, and these are real consequences.
        I'll share just one example from a borrower in Atlanta,
    Georgia, who holds private student loans. This person had
    attended a for-profit college that has been found guilty of
    misleading students about the employment and the earning rates
    of their graduates. Because of this fraud, the individuals'
    loans should have been eligible to be discharged. However,
    their lender denied their discharge. Think about that. This
    person was a victim of lies on the front-end of the process.
    They had already selected a school based on untruths about that
    institution, and then they were deceived into enrolling and
    taking out a loan based upon a false premise.
        Not only did their lender refuse to cancel their fraudulent
    loans, which the law requires, they then refused to share
    information on how to file an appeal or respond in any way to
    this Georgian in need. Real people, real problems, real
    consequences.
        And so I also submit this packet of horror stories from
    borrowers with private loans collected by the Project for
    Predatory Student Lending for the record. And without
    objection, this is so ordered.
        There are more than $10 billion in private education loan
    originations last year, an increase from $6 billion in 2011.
    Private student loans are currently estimated to be more than 7
    percent of the total student loan market. And although private
    student loans represent a relatively small portion of the
    student debt landscape, borrowers seem to have more and more
    issues with them. Taking data from October 2022 through
    September 2023, the CFPB Student Loan Ombudsman report found
    one in four complaints filed to the CFPB about student loan
    issues was from borrowers with a private student loan. So think
    about that: only 7 percent of student loan volume are private
    student loans, but those private student loans make up 25
    percent of loan complaints. That indicates a serious consumer
    protection problem in private student lending.
        Today's hearing will also touch on some of the ongoing
    challenges with student loan servicers, generally private
    companies that collect payments from and provide customer
    service for both Federal and private student loan borrowers,
    and it could not come at a more timely moment.
        Just last week, the CFPB announced Navient, a giant student
    loan servicer, would be banned from servicing Federal student
    loans again and forced to repay $100 million to borrowers the
    company harmed. Navient also must pay a $20 million penalty.
    While this settlement still must be finalized by the court, it
    sends a strong message to other servicers that they cannot
    profit from harming student borrowers.
        In April, my colleague, Senator Elizabeth Warren, held a
    hearing highlighting harmful practices by the student loan
    servicer MOHELA. This hearing highlighted a decades-long
    pattern of mismanagement and misconduct that harmed millions of
    borrowers nationwide. Because of institutional failures of
    servicers, like Navient and MOHELA, borrowers faced real-world
    consequences, including paying more than they should have, not
    being directed toward loan forgiveness programs, or even having
    their accounts mismanaged to the point that their credit scores
    lowered, making it harder for them to buy a home and build
    wealth.
        I believe that when we center the people, we make better
    public policy. So as we approach today's hearing, I think it's
    important for us to center the experiences of student loan
    borrowers and bring ourselves back to when we were looking at
    different colleges, I remember that experience, and trying to
    make likely the biggest financial decision of our lives up to
    that point. This is a real issue for all students, but, as a
    first-generation college graduate myself, I know what it's like
    to face that and face those questions.
        The process is complex and, often, these days, deliberately
    opaque. Many nontraditional students have to navigate this
    financial maze without the help or support of a parent, and
    they may, in some cases, be busy parents themselves. These are
    massive financial decisions, the equivalent of a mortgage, and
    sometimes a risky bet on their futures with massive
    consequences that may follow them for decades. We owe it to
    students to ensure that those bets pay off and that the game
    isn't rigged against them by predatory, unfair, deceptive, or
    even abusive behavior from private student loan lenders and
    student loan servicers. We owe students who are just trying to
    get ahead, trying to be productive citizens, better.
        I hope today's hearing helps improve transparency around
    student lending and that it brings accountability for the
    private lenders and student loan servicers that have too often
    misled and harmed borrowers. Indirectly, they harm us all.
        Thank you. And I will now turn to my colleague, Senator
    Lummis, for her opening statement.

             OPENING STATEMENT OF SENATOR CYNTHIA M. LUMMIS

        Senator Lummis. Thank you, Mr. Chairman. I'm sitting in for
    Senator Tillis, who was called away in a family emergency. And
    so thank you for tolerating my presence as your sidekick today,
    and thank you, witnesses, for being here.
        You know, when I came to Congress initially in the U.S.
    House in 2009, there was an entity in Wyoming called the
    Wyoming Student Loan Corporation. And it was extremely
    successful in servicing student loans and helping keep their
    delinquency rate around 5 percent and their failure to pay rate
    down around 2 percent. It was incredible, and it was because
    they'd catch students when they just were starting to miss
    payments or pay partially and they would work with them to help
    them budget and keep on track with their student loans.
        The Wyoming Student Loan Corporation was dissolved as part
    of Obamacare because, during Obamacare, that's when the current
    student loan situation was pretty much taken over by the
    Federal Government. So Wyoming's Student Loan Corporation was
    dissolved, its employees went away, and the Federal program has
    not been as successful as Wyoming Student Loan Corporation was.
    So we're back at a point where Wyoming has done a better job,
    the Federal Government is doing a dismal job, and now we're
    picking up the pieces.
        We're meeting today to examine the student loan market,
    particularly the markets and servicers for private loans. But I
    want to add some important context for this hearing. Based on
    the prepared testimony of two of the witnesses here today,
    Professor Jimenez and Ms. Canchola Banez, you may use this
    hearing to voice support for universal free higher education,
    and you're well within your rights to do so. I respect you for
    being forthcoming with your beliefs. But I want to stress that
    I really oppose this point of view. The student loan system and
    our education system more broadly is already plagued by many
    issues. Universal free higher education would accelerate these
    chronic problems.
        Take for insurance the Biden-Harris administration student
    loan executive actions. The Biden-Harris administration has
    used executive actions to invent legally dubious student loan
    forgiveness, modify income-driven repayment plans, extend and
    reextend a 41-month long repayment pause during COVID, and
    other debt relief measures.
        Combined, the Biden-Harris administration has cost the U.S.
    taxpayer $870 billion to $1.4 trillion in higher education
    expenses. In just 4 years, Biden has exceeded the $744 billion
    the Federal Government spent over the cumulative span on higher
    education from 1962 to 2019. In other words, from when I was 8
    years old until the present, all the money that was spent in
    that period of time was spent by the Biden administration in
    just 4 years. That's lighting money on fire.
        Turning to the focal point of this hearing more directly,
    the conversation around private student lending misdirects
    attention from the more significant structural issues within
    our student loan system, the Government system. These issues
    include rising tuition costs and the shortcomings of Federal
    student loan programs. From the outset, it's critical to note
    that the private student loan market accounts for only 8
    percent of outstanding loans, and a super majority of loans are
    Federal loans. Additionally, many of the laws and regulations
    in place to safeguard consumers against financial harm,
    including the Truth in Lending Act, provisions against unfair,
    deceptive, or abusive acts or practices, and many others not
    only apply to the Federal loan market or, rather, the private
    loan market but exceed the requirements on Federal student
    loans.
        Any assertion that the private loan market writ large is
    some sort of Wild West out there without rules and safeguards
    is simply untrue. While individual cases of malfeasance
    certainly exist in the private loan market, as they do in any
    market, private lenders fill a crucial gap in higher education
    financing and equip borrowers with the tools to meet the
    barriers to education in place today. Demonizing private
    lending ignores the reality that loan servicers offer tailored
    solutions for borrowers when Federal programs fall short. Put
    simply, private loan lenders provide more information about
    their products to borrowers, offer loans with greater
    constraints and risk-based metrics, and deter over-borrowing to
    a much greater degree than Federal public loans.
        The Biden administration's politically motivated and
    legally dubious student loan forgiveness schemes have
    complicated the student loan landscape, increasing confusion
    and failing to address the root causes of skyrocketing tuition.
    Loan servicers have had the rules of the programs and the terms
    of their contracts rewritten and rewritten again by the Biden
    administration month after month. No organization could
    effectively operate in such a climate.
        Instead of focusing on private lenders, Congress should
    look to improving student financial literacy, simplifying
    financial aid offers, and promoting transparency around student
    outcomes. That's why I worked with Senator Barrasso to
    introduce the Transparency in Student Lending Act, which would
    require institutions of higher education to disclose annual
    percentage rates, standard terms, and fees on Federal loans to
    borrowers before disbursements.
        The Federal student loan system is unsustainable and,
    without meaningful reform, these political piecemeal executive
    actions will continue to exacerbate the problem, not resolve
    it. Private lending is not the root cause of the student debt
    crisis but a market-demanded supplement.
        Mr. Chairman, thank you. I look forward to questioning the
    witnesses about this important topic, and I yield back to you.
        Chair Warnock. Thank you very much, Senator Lummis, for
    your opening statement. Now let us turn to our witnesses.
    Testifying today will be Aissa Canchola Banez, the policy
    director from the Student Borrower Protection Center. Next, I
    want to welcome Dr. Beth Akers, a senior fellow at the American
    Enterprise Institute. And, finally, our third witness is
    Professor Dalie Jimenez, professor of law at UC Irvine School
    of Law, director of the Student Loan Law Initiative and co-
    principal investigator at the Debt Collection Lab and the
    Financial Distress Research Project. We appreciate your
    testimony, and I look forward to our discussion.
        Ms. Banez, I will turn first to you.

      STATEMENT OF AISSA CANCHOLA BANEZ, POLICY DIRECTOR, STUDENT
                       BORROWER PROTECTION CENTER

        Ms. Canchola Banez. Thank you very much. Chairman Warnock,
    Ranking Member Lummis, Members of the Committee, thank you for
    the opportunity to testify today. My name is Aissa Canchola
    Banez, and I am the policy director for the Student Borrower
    Protection Center. Our mission is to alleviate the burden of
    student debt for millions of borrowers across the Nation. It's
    an honor to take part in this hearing today, the first in more
    than a decade solely focused on the harms of the student loan
    market.
        Combating the student debt crisis is a critical racial and
    economic justice issue. Originally created as a tool for social
    and economic mobility, student loans were supposed to grant all
    families, regardless of race and economic status, the chance to
    unlock the promise of a higher education. But for too many
    student debt has become a life sentence, holding borrowers back
    from buying a home, starting a small business, and even
    starting or growing a family.
        Yet, the national headlines have overlooked the smaller,
    yet growing, levels of private student lending and the
    companies that profiteer off of keeping families and students
    in debt. It's estimated that Americans owe more than $134
    billion in outstanding private student loan debt. While this
    amounts to, roughly, 8 percent of the total student loan
    market, it's now larger than the payday loan market and the
    balance of all outstanding past-due medical debt.
        While other consumer finance markets, like mortgage and
    credit cards, have robust data transparency, the absence of
    comprehensive data in the private student loan space has too
    often left borrowers, policymakers, and advocates in the dark.
    This has allowed for significant gaps in protections for the
    millions of Americans forced to take on private student loan
    debt and has made it harder for policymakers and law
    enforcement officials to protect borrowers.
        Lobbyists push claims that private student loan repayment
    rates and borrower outcomes are largely positive, failing to
    capture the lived experiences of borrowers, especially those
    from historically disenfranchised communities. For example,
    research has found that nearly half of Black private student
    loan borrowers with bachelor's degrees reported falling behind
    on a student loan payment, a rate ten times higher than their
    White peers. Students attending for-profit schools are more
    likely to rely on private student loans, more likely to face
    poor labor market outcomes, and more likely to struggle in
    repayment. And CFPB complaints show that older consumers who
    now make up the fastest-growing segments of private student
    loan borrowers are showing signs of higher rates of distress
    compared to their younger borrowers.
        When private student loan borrowers fall behind, they are
    left at the mercy of their lenders and struggle to access
    relief and justice. During the COVID-19 pandemic, private
    student loan borrowers were excluded from Federal relief and
    left to fend for themselves, and this is due to the lack of
    comprehensive consumer protections for private student loan
    borrowers. These borrowers have limited options to modify their
    payments during periods of distress and co-signers struggle to
    access promised release even after years of repayment. They
    also face challenges accessing relief from their lenders after
    being defrauded by their school and even after successfully
    having their loans discharged in bankruptcy.
        CFPB complaints further affirm these ongoing challenges
    that borrowers face. Last year, a quarter of all student loan
    complaints related to private student loans.
        But, unfortunately, this is only the tip of the iceberg. In
    recent years, we've seen a growing and lightly regulated market
    of so-called shadow student debt. These products have
    proliferated, seeking to capitalize on students and families
    struggling to cover the skyrocketing cost of college. Shadow
    student debt consists of personal loans, lines of credit, buy
    now pay later debt, income share agreements, institutional
    debts owed directly to schools, and several other financial
    products tied to education and workforce training. Many of
    these products stem from the desire by policymakers and schools
    to embrace innovative ways to help students and families pay
    for college, but a series of investigations and lawsuits reveal
    that this debt and credit exposed borrowers to high fees, harsh
    contract terms, and abusive collection tactics that empower
    profiteers and push families further into debt.
        It is long past time to shed light on the risks and harms
    of this market and rein in the abusive practices that have been
    allowed to go on for far too long. For families crushed by
    student debt, the stakes could not be higher. Proposals, like
    the right-wing Project 2025, seek to keep borrowers drowning in
    debt. But don't take my word for it. Take theirs. Page 285
    calls for the elimination of the Department of Education. Page
    354 calls for making it even harder for defrauded borrowers to
    have their loans discharged. Page 361 calls for the elimination
    of the Public Service Loan Forgiveness Program and income-
    driven repayment cancellation after 20 years. And page 353
    calls for the complete privatization of student lending
    programs.
        These policies will wreak havoc on borrowers, throw more
    Americans into the private market, and lock our most vulnerable
    students out of higher education altogether. Thank you.
        Chair Warnock. Thank you, Ms. Canchola Banez. Next, we will
    hear from Dr. Akers, Dr. Beth Akers.

      STATEMENT OF BETH AKERS, SENIOR FELLOW, AMERICAN ENTERPRISE
                               INSTITUTE

        Ms. Akers. Good afternoon, Chairman Warnock, Senator
    Lummis, and distinguished Subcommittee Members. Thank you for
    the opportunity to testify today on the issues and concerns
    facing private student loans and servicers, as well as the
    state of Federal student lending.
        At present, there are more than $1.74 trillion in student
    loans outstanding in the U.S. economy. This is a massive amount
    of money that represents serious liabilities for millions of
    borrowers across the United States who are grappling with the
    process of repayment. This massive amount of outstanding debt
    also represents a tremendous liability to taxpayers. This is
    the result of President Biden's efforts to cancel student
    loans, which, if allowed to be implemented, will transfer that
    enormous liability away from borrowers who took on the debt and
    on to taxpayers, many of whom never enrolled in college.
        In contrast, private student loans make up just a small
    share of that outstanding debt. At present, $133 billion of
    that total amount were borrowed from private lenders. The
    Federal student loan program and the associated portfolio of
    outstanding loans are in complete disrepair due to efforts from
    the Biden administration to cancel student loans, despite no
    legal pathway to do so. But the private student loan industry
    is a well-functioning consumer credit market. Borrowers with
    private student loans are largely successful in repaying their
    debts. Recent reports from industry suggests that the vast
    majority of borrowers are in good standing on their loans, and,
    as we all know, repayment rates on Federal student loans are
    poor.
        A loan program that fails to collect the debt it issues
    should hardly be considered a loan program. Instead, the
    Federal loan program is functioning as a convoluted and opaque
    system of subsidies that encourage inflationary pricing from
    institutions and discourages thrift among borrowers.
        Private student loan origination and servicing both for
    Federal and private loans hasn't been perfect. Lending
    institutions and those that service loans are fallible, but
    private entities supporting student lending in any capacity
    don't deserve the ire of lawmakers looking for a quick fix or
    even a scapegoat for what is happening more broadly in student
    lending. In fact, there are many ways in which the private loan
    market could offer a model for how the Federal loan program
    could be reformed to operate more effectively and efficiently.
        The private student loan market is highly regulated, as it
    should be. Young people who use student loans at high rates can
    be naive to the tradeoffs involved in different financial
    instruments, so it's imperative that lenders comply with high
    standards when it comes to consumer education and disclosure
    requirements. Private lenders are currently held to standards
    that exceed the disclosure requirements that are mandated in
    the Federal lending program. This likely contributes to the
    success in repayment seen among private student loans.
        That said, there is room for improvement. For example, we
    should reconsider the treatment of private student loans in
    bankruptcy. Student loans are somewhat remote from eligibility
    for discharge during bankruptcy. Discharge of student loans
    does happen during some bankruptcy proceedings, but the
    standards for eligibility are opaque and too strict.
        I anticipate that the tone of the hearing today will
    reflect a general skepticism about private-sector participation
    in student lending. There seems to be a persistent sense among
    left-leaning observers that profit-seeking has no place in
    education at any level. In contrast, I believe that growing the
    role of the private sector could offer a solution to many of
    the challenges we are currently facing and have written as
    much, particularly in the arena of graduate student lending in
    a recent report.
        Servicers of Federal student loans are often villainized by
    those concerned with the plight of borrowers holding Federal
    student debt, but the actions taken in recent years by the
    Biden administration have taken a difficult job and made it
    practically impossible. Like all of us, servicers and Federal
    student lenders make mistakes, some more than others. But if
    our goal is to put in place a lending program that is likely to
    succeed administratively, then the steps taken to complicate
    and manipulate the lending program, often on short notice, are
    definitely steps in the wrong direction.
        I'm deeply concerned on behalf of taxpayers about the
    exorbitant expense of these recent interventions and concerned
    on behalf of Americans about the lawless nature in which the
    Administration is attempting to enact them. But I am mostly
    deeply concerned about the trajectory for higher education in
    the U.S. The way that the Biden administration has intervened
    in the marketplace for higher education has effectively
    deteriorated any incentives that college and universities
    previously had to charge prices that are in line with the value
    that they provide. Likewise, students who were previously
    incented only to borrow what they needed and expected to repay
    would be wise to exploit the taxpayer-funded subsidies that
    are, unfortunately, now free for the taking.
        I'm grateful that the Subcommittee has taken the time to
    delve into these issues facing higher education and look
    forward to future action taken by Members of this Committee to
    pass legislation that would rectify the challenges we face. I
    thank you again for the opportunity to be here today and share
    my testimony, and I look forward to your questions.
        Chair Warnock. Thank you. Next, we will hear from Professor
    Jimenez.

      STATEMENT OF DALIE JIMENEZ, PROFESSOR OF LAW AND DIRECTOR,
     STUDENT LOAN LAW INITIATIVE, UNIVERSITY OF CALIFORNIA, IRVINE
                             SCHOOL OF LAW

        Ms. Jimenez. Chairman Warnock, Senator Lummis, and Members
    of the Subcommittee, thank you for the opportunity to speak to
    you today. My name is Dalie Jimenez. I'm a professor at the
    University of California Irvine School of Law, where I co-lead
    the UC Student Loan Law Initiative.
        Over the last decade, the private student loan industry has
    transformed. After declining during the financial crisis, the
    industry is back and reinventing itself in ways that demands
    our close attention. New financial products have emerged,
    offering alternatives to traditional loans, but they come with
    added risks that we're only beginning to understand. Many are
    offered by schools that provide dubious value in return for
    costly credit.
        One concerning practice is the explosion of tuition payment
    plans often marketed on school websites as, quote, not a loan
    and promising, quote, no debt. This is misleading. These plans
    include enrollment fees, late fees, and other charges. Some
    avoid Truth in Lending disclosures by structuring themselves as
    short-term credit while others simply disregard the law.
        Students wishing to avoid debt may choose these plans over
    Federal loans, not realizing they are sacrificing important
    protections and still incurring a debt. In some cases, they may
    be automatically enrolled if their financial aid is delayed. In
    2022, we found students at California public institutions were
    saddled with almost $400 million in institutional debts in just
    the first 2 years of the pandemic.
        When students can't repay these debts, the consequences
    escalate quickly. Institutions impose interest, prevent
    reenrollment, or withhold transcripts, hindering students from
    continuing their education or securing employment. These
    punitive actions are not just wrong, they're sometimes illegal.
    For example, despite laws banning transcript withholding due to
    debt, many schools continue to this practice, even stating on
    their websites that they withhold transcripts today.
        I also want to highlight the rise of shadow student debt
    typically associated with vocational programs and boot camps.
    We're seeing an explosion of schools promising to, quote,
    change your life in a few months. Students are urged to finance
    these programs by pledging a share of their future earnings, as
    high as 14 percent of their pre-tax income, for several years.
    Despite CFPB action against some of these income-share
    providers, new ones continue to emerge. These programs
    disproportionately target women, minorities, and those who
    started but did not complete college, groups that already face
    significant barriers to economic advancement.
        In my last few minutes, I want to highlight how abuses in
    our legal system exacerbate the challenges faced by student
    borrowers. Since 2005, private lenders have enjoyed special
    protection, making their loans difficult to discharge in
    bankruptcy, causing confusion because not all student debt is
    entitled to this treatment. Lenders may exploit this confusion
    by settling already discharged claims and forcing borrowers to
    waive future rights, as I have found in my research. Congress
    should treat student loans like other consumer debts, making
    them dischargeable when a bankruptcy judge has ordered it.
        Struggling borrowers often face State court lawsuits. Even
    when debt collectors fail to comply with legal requirements,
    judges grant them judgments, often adding high fees and
    interest. These abuses of the legal system compound borrowers'
    financial hardships and trap them in cycles of debt.
        It's crucial that we proactively address potential risks to
    consumers with private student loans. I urge the CFPB to take a
    more hands-on approach in this market. Specifically, they
    should create a registry of financial services firms involved
    in private student lending. We don't know enough. This would
    include the traditional lenders you're familiar with, as well
    as new entrants, like I've been talking about. And they should
    issue market-monitoring orders to the largest providers of both
    traditional and shadow student debt to gather information. By
    these actions and others I outline in my written testimony, we
    can better understand the risks and protect students and their
    families from unfair, deceptive, or abusive practices.
        Private student loans can be a stop gap, but they're not a
    sustainable solution if what we care about is equitable access
    to education. If what we want is everyone who wants an
    education, who wants to improve their lives, has an opportunity
    to do so, regardless of their background, regardless of how
    they were born, regardless of their wealth, their credit score,
    or the wealth of their family or the color of their skin, if
    that's what we want, if we want an educated populace, we have
    to invest in education directly, not through loans, not by
    putting the risk on students to pick a program to improve their
    lot in life when the labor market may be stacked against them.
        We must directly invest in education. We have to address
    the entrenched disparities affecting marginalized communities.
    Thank you for your time and attention, and I welcome your
    questions.
        Senator Warren. Thank you, Professor Jimenez. Now we're
    going to go to questions, and Senator Lummis is going to start.
        Senator Lummis. Thank you, Madam Chairman. And I understand
    that Ms. Jimenez was one of your students when you were
    teaching, and it's always lovely to have those relationships
    reestablished here in Washington. So congratulations to both of
    you.
        Dr. Akers, private student loans account for only about 8
    percent of the outstanding student loan payments, so how can
    they be the primary cause of the student debt crisis?
        Ms. Akers. In fact, I don't think they're the primary cause
    of the student loan crisis.
        Senator Lummis. So should we be focusing instead on flaws
    in the Federal loan programs and tuition costs?
        Ms. Akers. I think there's plenty that we could be talking
    about that are issues in the Federal student loan program that
    would go a lot farther in helping more Americans who are, in
    fact, truly struggling today. So I do believe that the focus
    today is misguided in talking about the private student loan
    market.
        Senator Lummis. OK. So name the top two, as you see it, in
    terms of issues you think are more dispositive.
        Ms. Akers. My core concern at this point is the trajectory
    of higher education pricing and borrowing based on the recent
    interventions. That is, we have made it so people can borrow
    without responsibility of repaying, which means that, as
    institutions, there's no responsibility to charge prices that
    are in line with value and there's no responsibility for
    borrowers to borrow loans that they anticipate repaying. This
    puts us on a real downward spiral, and we have major
    interventions that will be necessary to undo the damage that's
    been done.
        Senator Lummis. What do you think would be the benefits of
    looking at improving financial aid transparency?
        Ms. Akers. I think it's a fantastic step. I mean, it's a
    piece of a broader puzzle. We know that when people are
    enrolling in college they have relatively little information
    about the decisions that they're making; and, yet, they're
    signing on the dotted line anyway. Some of that is because
    we're made a culture of celebrating college as this golden
    ticket to financial prosperity that I think has done a
    disservice, so we need to encourage people to be more skeptical
    about the degrees that they're paying for and also put in front
    of them the information that would help them understand whether
    or not they're making a strong investment in their future.
        Senator Lummis. Do you think we should scale back Federal
    lending programs?
        Ms. Akers. I have major concerns about the, essentially,
    limitless nature of borrowing in the graduate student loan
    program. So if I were to be given the ability to make changes
    myself, that's where I would start and scaling back the amount
    of debt that's available to graduate students.
        Senator Lummis. And you alluded to this in response to my
    last question, ideas for promoting accountability among
    colleges to prevent these runaway tuition costs.
        Ms. Akers. So, right now, we have colleges who have
    continued access to Federal student aid, that's Pell grants,
    that's access to loan dollars, who are continually putting
    students out into the world after their enrollment without the
    ability or really the preparation to earn an income that would
    make their loans affordable to repay. We need to hold colleges
    to a higher standard. My feeling is that the Federal Government
    needs to look at the earnings outcomes, the employment
    outcomes, at institutions, at programs of study, and demand
    that institutions who are not producing results for their
    students no longer have access to those Federal student aid
    programs, so, essentially, cutting off Federal dollars to
    institutions that are not serving students.
        Senator Lummis. OK. Turning back to the student and perhaps
    their families, parents or other responsible people, working
    together, how can Congress work to help ensure that students
    and families are making informed responsible decisions about
    how much debt they can carry and whether the career path
    they're considering is going to help them pay back that loan
    eventually?
        Ms. Akers. There was a big step forward during the Obama
    administration on transparency around data and student
    outcomes. I think we need to eliminate the restrictions on the
    unit record data system that would allow us to have even better
    data to tell how previous students at different institutions
    and programs of study have fared. And so I can certainly
    imagine a bipartisan path forward that would be lifting that
    restriction and making transparency better for students and
    their families.
        Senator Lummis. One of the really difficult things in the
    ranching business that I grew up in is students that go to
    veterinary schools, the tuition is really high. And if you go
    into small animal, your dogs and cats and other small animals,
    in an urban area, you're probably going to get good return and
    be able to pay back your loan. If you're doing large animals in
    rural America, you're not. You're not going to make very much
    money.
        And so I do think it's important that there be mechanisms
    when Federal dollars are involved to help advise people that
    there are certain career paths that are just not going to pay
    in a way that allows one to have a decent lifestyle and still
    repay their student loans.
        The other thing that's going to be interesting as we go
    forward is the effects of artificial intelligence because we
    know now that AI is going to have a greater effect on white
    collar jobs than on blue collar jobs and in a good way. The
    assistance that's going to come from artificial intelligence to
    help people read diagnostics in health care is going to
    transform the ability of physicians and health care providers
    to make critical diagnoses, whereas the blue collar worker who
    is actually repairing that diagnostic machine is always going
    to be needed. And so those are the kind of things we probably
    also need to be looking at going forward.
        I do want to thank the witnesses so much for being here.
    And once again, congratulations, Student Jimenez. Your
    professor is very proud of you. I yield back, Madam Chairman.
        Senator Warren. Thank you very much. Thank you, Senator. So
    for nearly a decade, I've led investigation after investigation
    into student loan servicer Navient for its appalling
    mistreatment of borrowers. In 2015, I called on the Department
    of Education to crack down on Navient for cheating military
    families. In 2017, I raised the alarm about Navient's $155
    million expansion into the private student loan market. In
    2019, I urged the department to fire Navient. And those are
    just the highlights. Oh, and in 2021, in the first banking
    Subcommittee hearing that I chaired, I questioned Navient's CEO
    about the servicer's failed record.
        Later that year, Navient finally left the Federal student
    loan system, and I was proud to help deliver that long overdue
    win for borrowers. But that was not the end of the road.
        Ms. Canchola Banez, you're an expert on the student loan
    system. After Navient exited the Federal student loan system,
    were borrowers free from misconduct?
        Ms. Canchola Banez. Unfortunately, no, Senator. And you're
    right. The ending of Navient's Federal contract was a huge win
    for borrowers and would not have been possible without your
    fierce advocacy and fight on behalf of borrowers. But,
    unfortunately, Navient has remained a player in the private
    student loan space and continues to do so to this day. In fact,
    today, it manages private student loans for more than 2\1/2\
    million borrowers.
        Senator Warren. So in the early 2000s, Navient, which was
    then known as Sallie Mae, conspired with fraudulent for-profit
    schools to push predatory private loans onto students who
    Navient knew were likely to default. Thirty-nine State
    attorneys general later sued and Navient agreed to cancel $1.7
    billion of predatory loans, but there was a catch. The
    settlement only applied to borrowers who had already defaulted.
    So Navient got away with spending only $50 million in relief,
    having promised $1.7 billion, and they left tens of thousands
    of borrowers eating dirt.
        This year, I launched an investigation into Navient's
    failure to cancel the rest of these predatory private loans.
    And in response, Navient told me that it was, quote, committed
    to addressing valid school misconduct claims. Ms. Canchola
    Banez, you work with student loan borrowers every day, so I
    just want to ask, I'm going to ask you to put this one
    together. On a scale of 1 to 10, how would you rate Navient's
    cancellation process for these predatory loans so far?
        Ms. Canchola Banez. I would rate it a zero, Senator.
        Senator Warren. Wait. The scale was 1 to 10, so you're
    going for zero even so.
        Ms. Canchola Banez. I'm going zero. Absolutely.
        Senator Warren. OK. Explain why.
        Ms. Canchola Banez. You know, we've seen the Department of
    Education try to streamline these types of cases for misconduct
    and providing relief for borrowers with Federal student loans.
    Navient had the opportunity to create an automatic accessible
    process to provide this relief for private student loan
    borrowers. Instead, it created a process that's incredibly
    complex and that everyday borrowers struggle to access.
        Senator Warren. So there's the deal, right? They could have
    just canceled the way they promised. It would have been easy.
    But they make a lot more money if they make it really hard for
    people to cancel.
        Now, just last week, in response to my investigation,
    Navient provided data about its cancellation process for the
    first time. Navient told me that it sent applications to about
    4,000 borrowers even though at least 65,000 of its borrowers
    attended for-profit colleges. Even more shocking, of the 1,000
    applications that it has processed so far, Navient has rejected
    800.
        In defending the predatory student loans it made, Navient
    CEO said, and I quote, private student loans are made in good
    faith. Now, Professor Jimenez, you are an expert in consumer
    protection law. Is that a fair characterization of Navient's
    record on private student lending?
        Ms. Jimenez. Not at all. Not at all, Senator. Navient knew
    that it was making loans to people who couldn't repay. Their
    CEO, in 2007, is alleged to have said in court documents that
    he said, quote, if the borrower can create condensation on a
    mirror, they need to get a loan this year. They knew what they
    were doing. Navient now has the responsibility to discharge
    these loans and to do it as quickly as possible for the
    millions of students who are suffering.
        Senator Warren. Republican extremists want to return to the
    days where borrowers were just at the mercy of predatory
    servicers, like Navient. The Biden-Harris administration has a
    different vision. Last week, after years of dogged work, the
    Consumer Financial Protection Bureau entered into a historic
    settlement with Navient, delivering $100 million of relief to
    cheated borrowers and permanently banning Navient from the
    Federal student loan system. It is long past time for Navient
    to do the right thing by their countless defrauded borrowers
    and cancel out these loans for the private student loan
    borrowers, as well.
        I want to thank you for being here, and I want to thank the
    Chairman for holding this hearing. It's very important, and I'm
    going to give you back your seat.
        Chair Warnock. Thank you. Thank you very much, Senator
    Warren. Recognizing now Senator Scott.
        Senator Scott. Thank you, sir.
        Chair Warnock. The newly wedded Senator Scott.
        Senator Scott. Yes, sir. Yes, sir. Extending my time beyond
    the 5 minutes in order to respond to the statement about me
    being newly married, I will say that this ring here weighs more
    than it appears to weigh. A weight of responsibility. That's a
    great sign actually because, in fact, you take up the marriage
    process and ceremony, the wedding itself, and you come to the
    conclusion it's a weighed responsibility and I thank God
    Almighty that I've had the opportunity to engage in it at 58
    years young. It will take me a little while to get to my 50th
    anniversary, but that's OK by me. I'll be 108. Thank you so
    much, Chair Warnock.
        It's a simple concept. You take out a loan, you pay it
    back. I'm not sure where the confusion is on that. Frankly, I
    think the cost of higher education may be debatable whether
    it's good or bad, but one thing is without question: the ROI on
    your college education is pretty darn strong in America. And,
    frankly, the desire to see colleges move toward free,
    interesting concept, you look at States like Tennessee where
    you can get your first 2 years of college free at their local
    college community schools, and those assets or those credits
    transfer to the 4-year schools. In South Carolina, if you go to
    some of our local community colleges, those credits transfer to
    Clemson and Carolina or to other public schools in the State.
    That's an easy way for States to do what I believe is a State
    and local responsibility: manage the resources within their
    States and not put that onus on the backs of the Federal
    Government.
        Ms. Akers, thoughts?
        Ms. Akers. I tend to agree with you. The average net cost
    of enrollment at community college is negative based on the
    existing subsidies to higher education at this point. I think,
    in fact, the ROI is, on average, very large and positive. So,
    in fact, people who get in and go through college and finish
    their degree are getting a fantastic deal, not to say we
    shouldn't have safeguards for people who borrower and don't get
    that return. But, on average, the system should work well if we
    were supporting it with policies that, in fact--we're buying
    into the idea that we would have a lending program in place.
        Senator Scott. The low-delinquency rate for private loans,
    less than 4 percent, compared to over 12 percent for Federal
    loans, demonstrates their effective role in managing financial
    risk. Do you agree with that statement and would you----
        Ms. Akers. Yes. So part of the problem of the Federal
    student loan program is that, by design, there is no
    underwriting that takes place. What that means is that we have
    decided that we're going to make everyone eligible for the same
    amount of credit, regardless of their prospects of being able
    to pay in the future. The advantages that private student loans
    have is that, in fact, they don't make the decision, so it's
    the underwriting that ensure that these loans are, in fact,
    affordable. We haven't done that and, if there is a predatory
    lender in this space, I think there's an argument to be made
    that it's the Federal Government.
        Senator Scott. Thank you. Another question for you, Ms.
    Akers. Wouldn't it make more sense for us to focus on
    comprehensive reforms, like improving financial aid
    transparency, scaling back Federal lending programs, and
    promoting accountability among colleges to prevent runaway
    tuition costs?
        Ms. Akers. Absolutely. I feel like we are at a point today
    where we have dissolved the functioning of the program because
    of all of the incremental reform. We're overdue for a
    reauthorization of the Higher Education Act that should
    basically refine and simplify the program, put in place a
    single lending program, tough accountability standards on
    colleges, maybe even an expansion of the Pell grant program,
    but basically reinvest in this idea that people are borrowing
    to be able to make investments themselves that they can pay
    back to taxpayers in the future.
        Senator Scott. I think it was 2010 when Congress passed
    legislation that capped a borrower on the public student loans
    at 10 percent of their income. Based on that 10-percent cap,
    plus I think it was a 15-year or 20-year ultimate repayment
    window, the fact of the matter is that already in existence is
    a system where the average borrower will likely not pay back
    what they've borrowed. That unpaid balance doesn't just
    disappear like magic. It actually goes on the backs and
    shoulders of other folks.
        Ms. Akers. In fact, I think it's a misnomer to talk about
    student loan forgiveness or student loan cancellation. In fact,
    we should be using the terminology that this is a transfer of
    debt to taxpayers who are now on the hook to pay for these
    unpaid balances.
        Senator Scott. The way I look at it, and I've said this
    several times, I'm the first college graduate in my family, and
    I thank God that I've had the opportunity to go to college and
    to graduate. I think about the whole student loan debacle
    brought to us by the Biden administration of recent, trying to
    cancel a trillion dollars' worth of student loan debt, the one
    thing I keep asking myself, why is it OK for my mother who
    never made more than 20 bucks an hour to be responsible to
    carry a part of the burden for people who make six figures
    annual salaries. I don't understand the fundamental unfairness
    of transferring to someone something they never signed for or
    transferring away from someone that they actually signed up
    for.
        Ms. Akers. I think that's absolutely the case. And probably
    my fellow witnesses here at the table would be quick to point
    out that not everybody who has gone to college is, in fact, in
    that position of financial privilege. But it's worth revisiting
    what you just put on the table, that, in fact, there were
    existing programs that ensure that anybody who had a student
    loan 10 years ago that was unaffordable to them did not have to
    repay it. So, in fact, there was fairness in the previous
    system. I would argue and agree with you today that we are
    moving away from fairness.
        Senator Scott. Thank you.
        Chair Warnock. Thank you, Senator Scott. I think I'd like
    to push further on this question about repayment, bankruptcy,
    and related issues. Congress wrote the U.S. bankruptcy law, in
    part, to help people get a fresh start from loans and other
    financial obligations when borrowers cannot pay. Declaring
    bankruptcy is not an option undertaken lightly, and it does
    come with lasting consequences, like the ability to access
    credit in the future.
        Professor Jimenez, you've written extensively about the
    2005 Federal bankruptcy law that generally blocks people with
    student loans from discharging these debts in the normal
    bankruptcy process. Can you help us understand what Congress
    was thinking when it chose to strip bankruptcy rights away from
    people with student loans almost 20 years ago?
        Ms. Jimenez. Yes. Thank you. The alleged concern, as much
    as you can find on the record, was that students would get
    loans, graduate, and then file bankruptcy as quickly as
    possible. This was a boogeyman that was not based on facts at
    all. There has never been any evidence of widespread abuse by
    student debtors in bankruptcy ever. Any individual cases that
    have been pointed out to were actually found because the
    bankruptcy judges threw out the bankruptcy. That's the system
    working as it should. Student loans do not need special
    protection in bankruptcy.
        And at the time the provision was added, banks promised
    they would bring down the cost of student loans for everyone. I
    wrote two papers, as you mentioned, about this with economists
    at the CFPB, and we found that this just wasn't true. Students
    didn't save any money at all on the cost of private student
    loans, and banks just took the windfall and moved on.
        Chair Warnock. Thank you so much. I think that adds color
    and insight to this conversation, and it's particularly
    concerning when you think that it didn't save anything for
    borrowers in general. But it's particularly concerning with
    private student loans because it's not like taxpayers are on
    the hook for these debts if they're not repaid. So with all due
    respect to my colleague, in the case of private student loans,
    it's not his mother who would be taking on his debt. This 2005
    provision was simply Congress doing the bidding of rich
    lenders, rather than centering students.
        In the decade since CFPB released its 2012 report on
    private student loans, has there been any effort to restore
    bankruptcy rights for these borrowers?
        Ms. Jimenez. There have been a couple of bills. I think I
    testified at a hearing for one 5 years ago, but that's as far
    as we've gone.
        Chair Warnock. Thank you. I believe it's time for Congress
    to repeal this harmful 2005 provision, and I'd welcome my
    Republican colleagues to join us in this effort. I know my
    colleagues, Senators Durbin and Warren, have been working on
    this issue for years, and I look forward to sponsoring and
    working with them to pass legislation to repeal this harmful
    provision. It's past time.
        Study after study has shown that students of color,
    especially Black students, disproportionately borrow more often
    to pay for college, have to borrower larger amounts, and have a
    harder time repaying their loans due to institutional
    disparities in wealth. A 2021 report from the Center for
    American Progress found White households with high school
    degrees, White households with high school diplomas, have
    $150,000 more in wealth, on average, than Black households with
    a college degree.
        Routinely, in this Committee, I highlight generational
    wealth through home ownership. However, there is more to
    building wealth than owning a home, especially if you're too
    deep in student debt to buy the home in the first place.
        Professor Jimenez, who is most likely to be harmed by
    abusive practices from student loan servicers or misleading or
    opaque marketing language from private student loan lenders?
        Ms. Jimenez. It's absolutely the people who needed to
    borrow to go to school, and they needed to borrow because we
    decided that borrowing is the way that we will invest in higher
    education in this country at the same time that we essentially
    require, the labor market requires people to go to college in
    order to get ahead. And those people are much more likely to be
    Black, Brown, and also female.
        Chair Warnock. So is it fair to say that these abusive
    practices actually widen the racial wealth gap?
        Ms. Jimenez. Absolutely. Absolutely. And what's been
    proposed here by my colleague, Dr. Akers, would only ensure
    that this continues. If the Federal Government moves away from
    funding higher education, which it could do by loans like it's
    doing now or it can do in a different way, as in actually
    directly investing grants, if we leave it up to the private
    market, then the loans will be given, if they are given at all,
    with bad terms to the people who come from disadvantaged
    backgrounds.
        Chair Warnock. Thank you so much. And, again, as a first-
    generation college student and college graduate, I'm wondering
    how a private lender would have assessed my risk and ability to
    pay.
        With that, I turn to Senator Cortez Masto.
        Senator Cortez Masto. Thank you. And thank you to the
    Chairman and Ranking Member for having this hearing. I
    appreciate the comments so far from the panelists.
        I'm curious do you all agree with the fact that there is
    happening right now harmful and predatory practices in the
    private student loan market? Do you all agree with that? In the
    private market. Yes? Does anybody disagree with that? OK. I
    agree with that, as well. And as somebody who was a former
    attorney general, I saw it. And you just have to go into your
    State and talk to so many people that see the harmful
    practices.
        Now, with that said, is there room improvement in the
    Federal loan process? Absolutely. I agree with that, as well.
        One thing I want to talk about, though, and I do think
    there is a need for Federal student loans, as well, and one of
    them is the Public Service Loan Forgiveness Program. There are
    benefits to the Public Service Loan Forgiveness Program. One of
    them is what the Ranking Member talked about when she talked
    about the lack of some veterinarians in rural communities. How
    do we incentivize them to go to these rural--I know in my rural
    communities a lot of lack of professionals, health care
    professionals, as well. One way to incentivize is student loan
    forgiveness, and I think it does work.
        What I'm curious about, however, and I know for Public
    Service Loan Forgiveness Program, after 10 years of dedicated
    service, public service, it could be you're in a rural
    community giving a public service or you're an urban area
    firefighter, you're a health care worker, you're a military
    member, right, there is an opportunity to get that service, if
    you work 10 years, that loan forgiven. However, if you are
    doing a public service job and you have a student loan from the
    private market, that cannot be forgiven. Isn't that correct,
    Ms. Canchola Banez?
        Ms. Canchola Banez. That is correct, Senator.
        Senator Cortez Masto. And is there concern about the
    transparency in that? Do you think students understand that? Do
    you think individuals, when they're going and obtaining these
    loans, is there enough transparency that they understand the
    distinction between the two?
        Ms. Canchola Banez. There certainly is not enough
    transparency, and we saw this very prominently when the Biden-
    Harris administration announced its PSLF waiver back in 2021.
    SBPC heard from numerous borrowers just completely shocked,
    floored, that their private student loans did not qualify for
    PSLF. And it was life-changing for them. Maybe they had taken
    on this loan under the assumption that it would qualify for
    PLSF or were given some of this information.
        In fact, there is a Federal lawsuit currently that alleges
    that call center representatives at the student loan servicing
    giant MOHELA were actively steering Federal student loan
    borrowers into refinancing with a private company by the name
    of Laurel Road. This company conveniently works with MOHELA to
    service those refinanced loans, as well, and the plaintiff in
    this lawsuit was a public service worker who ultimately lost
    eligibility for PSLF by refinancing. She was misled to believe
    that her eligibility would remain. She didn't figure it out
    until it was too late, and she lost her complete pathway to
    relief for her student loans.
        Senator Cortez Masto. Perfect example. Harmful predatory
    practices in the private sector, correct?
        Let me jump to another area that I think is just as
    important, and, Ms. Jimenez, let me talk to you about it. In
    order to understand the impact private education loan lenders
    are having on our students, we have to understand the scope of
    the marketplace, and I know you have a lot of data there. Can
    you elaborate on the transparency or lack thereof in the
    private student loan marketplace? And what data are we missing?
    What do we need to know to help to shed light on this and bring
    this transparency and education to individuals?
        Ms. Jimenez. We need a lot. We need a lot. In 2012, the
    CFPB did a report on private student loans, and that's the last
    time we had a comprehensive look at the industry. And it has
    changed a lot since then, so over 12 years. We have estimates,
    133, 134, 94, billion dollar estimates of the market. And it
    also depends on what you define as a private student loan.
    We've been talking about shadow student debt. Those shadow
    student loans are not accounted when we're talking about the
    delinquency rates, the low delinquency rates that have been
    quoted.
        So we need a lot more information than we have now just to
    understand what we're looking at.
        Senator Cortez Masto. Well, and it's true. In school year
    2022, over $10 billion in private student loans were out there
    for students. $10 billion. $10 billion industry. And we know
    whenever there is money involved, there's going to be some sort
    of harmful or predatory activity happening.
        I appreciate the conversation. One final thing, to our
    incredible Chairman, one thing I want to highlight is,
    unfortunately, it seems to be that our military are always the
    targets because of the benefits that they get, and they seem to
    be at the top of the list of those that want to prey on them.
    One of the things that Senator Moran and I have done is to
    introduce a piece of legislation called the Ensuring Military
    Access to Higher Education Benefits Act of 2024, which
    automatically would enroll former and current servicemembers in
    PSLF so they are not taken advantage of for the very reasons
    that Ms. Canchola Banez talked about. I would welcome all of my
    colleagues to join both Senator Moran and I on that piece of
    legislation.
        Thank you again.
        Chair Warnock. Well, thank you so very much, Senator Cortez
    Masto. And Georgia is a big military State, so I share your
    concern in that regard.
        Much of what we've covered today has focused on the need
    for greater transparency, and so let me just ask the question
    directly as we prepare to close. I'll start with Ms. Banez.
    What sort of data would be helpful for Congress, regulators,
    and the public to have in order to get the clearest picture of
    the state of the market and to properly hold lenders
    accountable? We could close with that question to you.
        Ms. Canchola Banez. Of course. We need comprehensive data
    that spans bank lenders, nonbank lenders, new entrants across a
    multitude of origination, long-term outcomes, as well as debt
    collection practices, to really be able to do this apples-to-
    apples comparison that borrowers, that advocates, that
    policymakers really need in order to spot harmful trends in
    real time.
        I would also suggest that, you know, Congress consider
    legislating a national education debt registry, as my
    colleague, Dr. Jimenez, had mentioned before, so that we can
    capture everybody who is operating in this space and be able to
    really track and protect borrowers in the way that we need to
    be doing.
        Chair Warnock. Well, thank you so much. We could say so
    much, but we're out of time. So with that, all questioning has
    concluded. Thank you for all of our witnesses for being with us
    today. Thank you again to Senator Lummis for filling in, and
    Senator Tillis sends his regrets.
        Today's hearing brought light to the ongoing risks and the
    harms of private student loans and student loan servicing. What
    did we learn today? We learned that it's clear, it's clear we
    need more data to understand how to better protect borrowers in
    the private student lending market. We learned that Congress
    needs to pay more attention to what is going on. And I hope we
    don't have to wait another decade for the next Committee
    hearing on this critically important issue. And we have learned
    that the CFPB under the Biden-Harris administration has been
    and should continue to be a hero in this story. It has, under
    the leadership of Director Chopra, enforced the law and
    protected borrowers. I hope the CFPB can continue doing this
    great work in the next Administration after President Biden
    leaves office, but this Committee has a responsibility to
    ensure the Bureau has the tools and the personnel it needs to
    continue its work to protect borrowers no matter who is elected
    in November.
        The hearing also helped center a focus on the current harms
    that student loan servicers continue to inflict on borrowers. I
    hope the CFPB's latest announcement borrowing Navient from
    servicing Federal student loans and today's hearing send a
    clear message to other servicers: you cannot deceive, mislead,
    or otherwise abuse student loan borrowers without serious
    consequences.
        For Senators who wish to submit questions for the record,
    those questions are due 1 week from today. For our witnesses,
    you will have 45 days to respond to any questions.
        Again, thank you, everybody. And with that, this hearing is
    adjourned.
        [Whereupon, at 3:37 p.m., the hearing was adjourned.]
        [Prepared statements, responses to written questions, and
    additional material supplied for the record follow:]
                   PREPARED STATEMENT OF AISSA CANCHOLA BANEZ
              Policy Director, Student Borrower Protection Center
                               September 17, 2024

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                        PREPARED STATEMENT OF BETH AKERS
                  Senior Fellow, American Enterprise Institute
                               September 17, 2024
        Good afternoon, Chairman Warnock, Ranking Member Tillis, and
    distinguished Subcommittee Members. Thank you for the opportunity to
    testify today on the issues and concerns facing private student loans
    and servicers, as well as the State of Federal student lending.
        At present there are more than 1.74 trillion dollars in student
    loans outstanding in the U.S. economy. \1\ This is a massive amount of
    money that represents serious liabilities for millions of borrowers
    across the United States who are grappling with the process of
    repayment. This massive amount of outstanding debt also represents a
    tremendous liability to taxpayers. This is the result of President
    Biden's efforts to cancel student loans, which--if allowed to be
    implemented--will transfer that enormous liability away from the
    borrowers who took on the debt and onto taxpayers, many of whom never
    enrolled in college.
    ---------------------------------------------------------------------------
         \1\ Federal Reserve Board. (2024). Consumer Credit--G.19
    Historical Data. https://www.federalreserve.gov/releases/g19/HIST/cc-
    hist-memo-levels.html
    ---------------------------------------------------------------------------
        In contrast, private student loans make up just a small share of
    that outstanding debt. At present, 133 billion dollars of that total
    amount were borrowed from private lenders.
        The Federal student loan program and the associated portfolio of
    outstanding loans are in complete disrepair due to MacGyver-esque
    efforts from the Biden administration to cancel student loans despite
    no legal pathway to do so. But the private student loan industry is a
    well-functioning consumer credit market.
        Borrowers with private student loans are largely successful in
    repaying their debts. Recent reports from the industry suggest that the
    vast majority (97 percent) of borrowers are in good standing on their
    loans. And about three-quarters (72.5 percent) of them are successfully
    making payments. (About one-fifth of borrowers are not making payments
    because they are still enrolled and working toward their degrees.) \2\
    ---------------------------------------------------------------------------
         \2\ Enterval. (2024). ``Private Student Loan Semi Annual Report
    Ending Q1 2024''. Enterval Analytics, LLC. https://www.enterval.com/
    #reports
    ---------------------------------------------------------------------------
        Even before the COVID-19 pandemic and the subsequent modifications
    to student loan repayment that have undermined borrowers' likelihood of
    repaying their loans, repayment on Federal student loans was poor. In
    the 10 years preceding COVID-19--which fundamentally upset trends in
    repayment--during an average month in repayment status there was a 52
    percent chance of payments being made. \3\
    ---------------------------------------------------------------------------
         \3\ Alsalam, N., Ash, E., and Pierce, B. (2024). ``Student Loan
    Repayment, 2009 to 2019''. Congressional Budget Office. https://
    www.cbo.gov/system/files/2024-09/58963-student-loan.pdf
    ---------------------------------------------------------------------------
        A loan program that fails to collect on the debt it issues should
    hardly be considered a loan program. Instead, it functions as a
    convoluted and opaque system of subsidies that encourages inflationary
    pricing from institutions and discourages thrift among borrowers.
        Private student loan origination and servicing, both for Federal
    and private loans, hasn't been perfect. Lending institutions and those
    that service loans are fallible. But private entities supporting
    student lending, in any capacity, don't deserve the ire of lawmakers
    looking for a quick fix--or even a scapegoat--for what is happening
    more broadly in student lending. In fact, there are many ways in which
    the private loan market could offer a model for how the Federal loan
    program could be reformed to operate more effectively and efficiently.
        The private student loan market is highly regulated, as it should
    be. Young people, who use student loans at high rates, can be naive to
    the trade-offs involved in different financial instruments, so it is
    imperative that lenders comply with high standards when it comes to
    consumer education and disclosure requirements. Private lenders are
    currently held to standards that exceed the disclosure requirements
    that are mandated in the Federal lending program. This likely
    contributes to the success in repayment seen among private student
    loans.
        That said, there is room for improvement. For example, we should
    reconsider the treatment of private student loans in bankruptcy.
    Student loans are somewhat remote from eligibility for discharge during
    bankruptcy. Discharge of student loans does happen during some
    bankruptcy proceedings, but the standards for eligibility are opaque
    and too strict.
        Lenders should face the liability of loans they originate not being
    repaid. This will encourage them, even more than they currently are, to
    only make loans in instances when they expect the borrower to be able
    to repay. This accountability is good for both the sector and student
    borrowers, even those who subsequently lose access to credit as a
    result.
        I anticipate that the tone of the hearing today will reflect a
    general skepticism about private sector participation in student
    lending. There seems to be a persistent sense among left-leaning
    observers that profit seeking has no place in education at any level.
    In contrast, I believe that growing the role of the private sector
    could offer a solution to many of the challenges we are currently
    facing and have written as much, particularly in the arena of graduate
    student lending in a recent report. \4\
    ---------------------------------------------------------------------------
         \4\ Akers, B., Cooper, P., and Pitts, J. (2024). ``How Private
    Student Lending Can Repair Higher Education''. American Enterprise
    Institute. https://www.aei.org/research-products/report/how-private-
    student-lending-can-repair-higher-education/
    ---------------------------------------------------------------------------
        While the focus of the hearing today is on the subject of private
    student loans and servicers, I would be remiss not to voice my concern
    about the state of Federal student lending.
        Servicers of Federal student loans are often villainized by those
    concerned with the plight of borrowers holding Federal student debt.
    But the actions taken in recent years by the Biden administration have
    taken a difficult job and made it practically impossible. Like all of
    us, servicers of Federal student loans make mistakes; some more than
    others. But if our goal is to put in place a lending program that is
    likely to succeed administratively, then the steps taken to complicate
    and manipulate the lending program, often on short notice, are steps in
    the wrong direction.
        I am also deeply concerned, on behalf of taxpayers, about the
    exorbitant expense of these recent interventions. And concerned on
    behalf of Americans at the lawless nature in which the Administration
    is attempting to enact them. But I am most deeply concerned about the
    trajectory for higher education in the United States more generally.
        The way that the Biden administration has intervened in the
    marketplace for higher education has effectively deteriorated any
    incentives that colleges and universities previously had to charge
    prices that are in line with the value they provide. Likewise,
    students, who were previously incented only to borrow what they needed
    and expected to repay, would be wise to exploit the taxpayer funded
    subsidies that are, unfortunately, free for the taking.
        I am grateful that the Subcommittee has taken the time to delve
    into these important issues facing higher education and look forward to
    future action taken by Members of this Committee to pass legislation
    that would rectify the challenges we face. I thank you again for the
    opportunity to be here today to share my testimony and look forward to
    answering any questions.
                      PREPARED STATEMENT OF DALIE JIMENEZ
    Professor of Law and Director, Student Loan Law Initiative, University
                      of California, Irvine School of Law
                               September 17, 2024

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            RESPONSES TO WRITTEN QUESTIONS OF CHAIR WARNOCK
                       FROM AISSA CANCHOLA BANEZ

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           RESPONSES TO WRITTEN QUESTIONS OF SENATOR KENNEDY
                            FROM BETH AKERS

    Q.1. The CFPB recently sought to hold 15 student loan
    securitization trusts financially liable for restitution to
    borrowers because of the actions of their servicer. By going
    after the trusts, the CFPB is going after 401k investors,
    retirees, and other savers who should not have to bear this
    cost. Isn't it unfair and wrong to hold securitization
    investors financially responsible for the actions of third
    parties who engage in allegedly illegal behavior?

    A.1. Response not received in time for publication.

    Q.2. What are the ramifications of the CFPB's enforcement
    action against student loan trusts to the broader
    securitization market? Doesn't this threaten to negatively
    impact the availability of credit?

    A.2. Response not received in time for publication.

    Q.3. What can securitization investors, who play a critical
    role in providing capital for consumer lending, do to protect
    themselves from a CFPB enforcement action in the future if the
    CFPB seeks to hold them legally liable for actions of
    servicers? Would some type of safe harbor, exclusion, or
    exception that protects the Trusts against CFPB enforcement
    action strengthen the student loan securitization market?

    A.3. Response not received in time for publication.
                                    ------

            RESPONSES TO WRITTEN QUESTIONS OF CHAIR WARNOCK
                           FROM DALIE JIMENEZ

    Q.1. In 2005, \1\ Congress passed the Bankruptcy Abuse
    Prevention and Consumer Protection Act. The Act generally
    blocks people with student loans from discharging these debts
    in the normal bankruptcy process except in cases of undue
    hardship on the debtor or the debtor's dependents. \2\ In
    determining undue hardship, the Department of Justice considers
    the debtor's present ability to pay, future ability to pay, and
    whether they made a good faith effort in doing so. \3\
    ---------------------------------------------------------------------------
         \1\ Bankruptcy Abuse Prevention and Consumer Protection Act of
    2005, Pub. L. No. 91-190 220 119 Stat 59.
         \2\ See 11 U.S.C. 523(a)(8).
         \3\ Bankruptcy, Student Loan Borrower Assistance, https://
    studentloanborrowerassistance.org/for-borrowers/dealing-with-student-
    loan-debt/loan-cancellation-forgiveness-bankruptcy/bankruptcy/.
    ---------------------------------------------------------------------------
        James Kvaal, Under Secretary of Education has stated that
    the undue hardship standard has been very difficult for even
    deserving borrowers to clear. \4\ Do you agree with this
    characterization?
    ---------------------------------------------------------------------------
         \4\ ``Justice Department and Department of Education Announce a
    Fairer and More Accessible Bankruptcy Discharge Process for Student
    Loan Borrowers'', U.S. Department of Justice, Office of Public Affairs
    (Nov. 17, 2022), https://www.justice.gov/opa/pr/justice-department-and-
    department-education-announce-fairer-and-more-accessible-bankruptcy.

    ---------------------------------------------------------------------------
    A.1. Response not received in time for publication.

    Q.2. How does being able to discharge student loan debts during
    the bankruptcy process affect borrowers? What alternatives to
    the bankruptcy process do individual borrowers have?

    A.2. Response not received in time for publication.
                  Additional Material Supplied for the Record
                            LETTER SUBMITTED BY CBA

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