[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.
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\1\ Federal Reserve Board. (2024). Consumer Credit--G.19
Historical Data. https://www.federalreserve.gov/releases/g19/HIST/cc-
hist-memo-levels.html
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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\
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\2\ Enterval. (2024). ``Private Student Loan Semi Annual Report
Ending Q1 2024''. Enterval Analytics, LLC. https://www.enterval.com/
#reports
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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\
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\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
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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\
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\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/
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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.
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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\
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\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/.
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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?
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\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.
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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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