[Congressional Record (Bound Edition), Volume 160 (2014), Part 7]
[Senate]
[Pages 9884-9885]
[From the U.S. Government Publishing Office, www.gpo.gov]




                           STUDENT LOAN DEBT

  Mr. GRASSLEY. In fiscal year 2014, the U.S. Department of Education 
will make about $112 billion in Federal direct loans to students. The 
Federal Government already holds more than $1 trillion in student loan 
debt. So that makes the U.S. Department of Education one of the 
country's largest lenders. Total student loan debt in the United States 
is now second only to mortgage debt, and about 90 percent of all 
student loans happen to be issued by the Federal Government.
  When elected officials say we have a student loan crisis because too 
many students owe more than they can afford to repay, we have to keep 
in mind who it was and is that made those loans to students in the 
first place.
  It was, in fact, Uncle Sam.
  What is one of the first things a Federal regulator looks at when a 
private bank issues a loan? They look at whether the bank has confirmed 
the ability of the borrower to repay. Federal student loans are given 
out without a credit check or any analysis of the student's ability to 
repay the loans in the first place.
  The fastest growing category of student loans is Federal unsubsidized 
student loans, which are given out regardless of need. That means that 
students across this country get an award letter from their college 
saying they are eligible for thousands of dollars in Federal loans, 
even though in many cases they may not need all of those loans to cover 
their tuition and other costs. Colleges are required to offer the full 
amount of Federal student loans for which the student is eligible even 
if a financial aid counselor at that university knows that a student is 
borrowing more than the student needs and even if that counselor 
realizes they will have trouble repaying. If a private bank followed 
these same tactics and gave out loans on these terms, that bank would 
be accused of predatory lending. These easy-money policies may even be 
helping fuel tuition increases, which then obviously makes the problem 
even worse. A Federal government trying to help a student and at the 
same time maybe giving incentives to increase tuition actually is not 
helping that student in the long run.
  Between Federal student loan policies that effectively encourage 
over-borrowing and the lack of good jobs for college graduates in this 
current economy, it is no wonder that so many college graduates find 
themselves in over their heads with student loan debt.
  Unfortunately, for all the concerns we have heard expressed on the 
Senate floor about excessive student loan debt, my colleagues on the 
other side of the aisle decided to play election-year politics with 
this issue rather than tackle any of the root causes of the problem. In 
fact, when it comes to economic growth and job creation, the first rule 
ought to be do no harm. By including yet another massive tax increase, 
the bill the Senate declined to take up would have only added to the 
list of tax and regulatory burdens currently choking our economy.
  We should be intensely focused on removing burdens to economic growth 
and as a result have some job creation. Instead, the policies we see 
from the other side of the aisle seem to be based on the old European 
model of accepting anemic economic growth and trying to make up for it 
with debt-financed government handouts for as long as possible.
  I just referred to an old European model because many countries in 
Europe have already rejected this failed approach and instead have 
sought to reform entitlements, cut spending, and reduce taxes--measures 
we ought to be taking right here in the United States. Our goal should 
be to expand opportunities for young people and the middle class and 
not add them to the welfare state.

[[Page 9885]]

  Incidentally, the President's recent so-called Executive action on 
student loans shows that he shares the same outlook of assuming a 
stagnant economy for the foreseeable future. He is talking about making 
people who graduated years ago retroactively eligible for programs 
enacted in 2010 that allow students to lower their monthly payments if 
they have a lower income. First of all, that happens to be a very 
transparent admission that many students who graduated near the 
beginning of President Obama's first term in office still don't have 
good-paying jobs halfway through the second term. What he doesn't tell 
you is that when you lower your student loan payments, you will pay off 
your loan more slowly and obviously accumulate more interest. In other 
words, you will eventually end up paying a lot more to Uncle Sam than 
you otherwise would have. When banks were offering adjustable-rate or 
interest-only mortgages, they were criticized for taking advantage of 
borrowers who would be faced with bigger payments down the road.
  The pay-as-you-earn program may be useful tools short term for those 
in distress, but it will cost every one of them in the long term; that 
is, assuming you ever get a job that pays well. However, the second 
part of the program says that if you still haven't found a job that 
pays well enough to pay off your loan after 10 years, your loan will be 
forgiven if you work for the government or a nonprofit or after 20 
years if you work in the private sector, which apparently is considered 
less worthwhile. And who foots the bill when these people get their 
loans forgiven? The American taxpayer will pay for those people's 
college loans.
  Creighton University Professor Ernie Goss has analyzed the 
President's plan and thinks it is a poor use of taxpayer funds. This is 
what he said:

       A lot of these men and women that are out there working 
     don't have kids in college, won't have kids in college, and 
     it's a big transfer of income to those of us who have 
     university educations or particularly those of us who are in 
     university education.

  So increasing Federal subsidies for colleges at the expense of the 
American taxpayers who work hard to pay for their own bills just 
encourages colleges to keep increasing tuition.
  Furthermore, expanding a program designed to help student loan 
borrowers who still cannot afford their student loan payments 10 or 20 
years after graduation looks a lot like planning for further economic 
stagnation typical of the last 4 or 5 years rather than focusing on 
improving economic growth and resultant job creation.
  The political messaging bill the Senate declined to take up today 
would also do nothing to address the problems of students borrowing 
more than they will be able to afford to repay in the first place. I 
have a bill that will help with that problem.
  The Higher Education Act already contains a requirement for colleges 
to provide counseling to new borrowers of Federal student loans; 
however, the current disclosures in the law do not do enough to ensure 
that students understand what kind of debt they will face after 
graduation. My bill, which I have entitled ``Know Before You Owe 
Federal Student Loan Act,'' strengthens the current student loan 
counseling requirements by making the counseling an annual requirement 
before new loans are disbursed rather than just for first-time 
borrowers.
  My bill adds several key components to the information institutions 
of higher education are required to share with students as part of loan 
counseling. Perhaps most significantly, colleges would have to provide 
an estimate of a student's loan debt-to-income ratio upon graduation. 
This would be based on the starting wages for that student's program of 
study and the estimated student loan debt the student will likely take 
out to complete the program. That way, students will have a very real 
picture of the student loan payments they will face and whether they 
will be able to afford those payments with their likely future income.
  Students will also be provided with information about the higher risk 
of default if they have a projected loan debt-to-income ratio greater 
than 12 percent. They will be told that they should borrow only the 
minimum amount necessary to cover expenses and that they do not have to 
accept the full amount of the loans offered.
  Students will also be given options for reducing borrowing through 
scholarships, reduced expenses, work-study or other work opportunities.
  Because adding an extra year of study can significantly increase 
student loan debt, an explanation will be provided about the importance 
of graduating on time to avoid additional borrowing and the impact of 
adding an additional year of study to the total indebtedness.
  Finally, the bill requires that a student manually enter either in 
writing or through electronic means the exact dollar amount of the 
Federal direct loan funding the student desires to borrow. The current 
process almost makes borrowing the maximum amount the default option. 
If you want to borrow less than you need to borrow, you have to ask for 
less. Students may wrongly assume that the Federal Government has 
determined this is the appropriate amount for them to borrow when in 
fact the government doesn't know anything about that student's 
situation. Surely the Federal Government would not lend them more than 
they can afford to repay, right? No, that is wrong. This provision will 
ensure that students make a conscious decision about how much they 
borrow rather than simply accepting the total amount of Federal student 
loans for which they are eligible.
  I should add that good college financial aid counselors can and do 
advise students not to borrow more than they need, but the process 
itself needs to be reformed to give them the proper tools.
  In fact, the reforms I have outlined were inspired by efforts already 
underway in my home State of Iowa. Grand View University in Des Moines, 
IA, has a financial empowerment plan where students and families 
construct a comprehensive 4-year financing plan. Under this plan, 
borrowing is based on the student's future earning potential in the 
student's field of study. The 4-year plan also helps ensure students 
graduate on time, and tuition is capped at 2 percent a year over those 
4 years.
  Iowa Student Loan--our State-based nonprofit lender--also has a 
program called Student Loan Game Plan, which is an online, interactive 
resource that calculates a student's likely debt-to-income ratio. It 
walks students through how their borrowing will affect their lifestyle 
in the future and what actions they can take now to reduce their 
borrowing. As a result, in the past year over 15 percent of the 
students who participated decreased the amount they had planned to 
borrow by an average of $2,536, saving Iowa students over $1 million in 
additional loan debt.
  Finally, my own alma mater, the University of Northern Iowa, has a 
program called the Live Like a Student Program. This involves a number 
of resources to help students learn to manage their finances better, 
including 3-week courses, one-on-one counseling, and workshops.
  We often tell prospective college students that they will earn on 
average $1 million more during a lifetime. It is true that college 
generally is a good investment; however, when a student's academic 
dreams become a nightmare--and usually upon graduation that happens 
because they borrowed more from the Federal Government than they can 
afford to repay on their starting salary--they understandably feel that 
they have been had. And by whom? Their own government.
  The Federal Government, as the lender making these loans, has a 
responsibility to at least ensure that students know what they are 
getting themselves into before they get in over their heads. This 
legislation I described that will be introduced will do that.
  I would urge my colleagues to take a look at that piece of 
legislation. I would ask them to support it and join as a cosponsor so 
collectively we can help prevent more students from drowning in Federal 
student loan debt.
  I yield the floor.
  The PRESIDING OFFICER. The Senator from Rhode Island.

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