[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]
A $1.5 TRILLION CRISIS: PROTECTING
STUDENT BORROWERS AND HOLDING
STUDENT LOAN SERVICERS ACCOUNTABLE
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTEENTH CONGRESS
FIRST SESSION
__________
SEPTEMBER 10, 2019
__________
Printed for the use of the Committee on Financial Services
Serial No. 116-46
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
______
U.S. GOVERNMENT PUBLISHING OFFICE
42-314 PDF WASHINGTON : 2020
HOUSE COMMITTEE ON FINANCIAL SERVICES
MAXINE WATERS, California, Chairwoman
CAROLYN B. MALONEY, New York PATRICK McHENRY, North Carolina,
NYDIA M. VELAZQUEZ, New York Ranking Member
BRAD SHERMAN, California PETER T. KING, New York
GREGORY W. MEEKS, New York FRANK D. LUCAS, Oklahoma
WM. LACY CLAY, Missouri BILL POSEY, Florida
DAVID SCOTT, Georgia BLAINE LUETKEMEYER, Missouri
AL GREEN, Texas BILL HUIZENGA, Michigan
EMANUEL CLEAVER, Missouri SEAN P. DUFFY, Wisconsin
ED PERLMUTTER, Colorado STEVE STIVERS, Ohio
JIM A. HIMES, Connecticut ANN WAGNER, Missouri
BILL FOSTER, Illinois ANDY BARR, Kentucky
JOYCE BEATTY, Ohio SCOTT TIPTON, Colorado
DENNY HECK, Washington ROGER WILLIAMS, Texas
JUAN VARGAS, California FRENCH HILL, Arkansas
JOSH GOTTHEIMER, New Jersey TOM EMMER, Minnesota
VICENTE GONZALEZ, Texas LEE M. ZELDIN, New York
AL LAWSON, Florida BARRY LOUDERMILK, Georgia
MICHAEL SAN NICOLAS, Guam ALEXANDER X. MOONEY, West Virginia
RASHIDA TLAIB, Michigan WARREN DAVIDSON, Ohio
KATIE PORTER, California TED BUDD, North Carolina
CINDY AXNE, Iowa DAVID KUSTOFF, Tennessee
SEAN CASTEN, Illinois TREY HOLLINGSWORTH, Indiana
AYANNA PRESSLEY, Massachusetts ANTHONY GONZALEZ, Ohio
BEN McADAMS, Utah JOHN ROSE, Tennessee
ALEXANDRIA OCASIO-CORTEZ, New York BRYAN STEIL, Wisconsin
JENNIFER WEXTON, Virginia LANCE GOODEN, Texas
STEPHEN F. LYNCH, Massachusetts DENVER RIGGLEMAN, Virginia
TULSI GABBARD, Hawaii
ALMA ADAMS, North Carolina
MADELEINE DEAN, Pennsylvania
JESUS ``CHUY'' GARCIA, Illinois
SYLVIA GARCIA, Texas
DEAN PHILLIPS, Minnesota
Charla Ouertatani, Staff Director
C O N T E N T S
----------
Page
Hearing held on:
September 10, 2019........................................... 1
Appendix:
September 10, 2019........................................... 75
WITNESSES
Tuesday, September 10, 2019
Delisle, Jason, Resident Fellow, American Enterprise Institute... 11
Frotman, Seth, Executive Director, Student Borrower Protection
Center......................................................... 4
Harrington, Ashley, Senior Policy Counsel, Center for Responsible
Lending........................................................
.......................................................
Minhaj, Hasan, Writer, Producer, and Host........................ 10
Yu, Persis, Staff Attorney, National Consumer Law Center......... 6
APPENDIX
Prepared statements:
Delisle, Jason............................................... 76
Frotman, Seth................................................ 86
Harrington, Ashley........................................... 110
Minhaj, Hasan................................................ 130
Yu, Persis................................................... 132
Additional Material Submitted for the Record
Loudermilk, Hon. Barry:
Letter from the Consumer Bankers Association, dated September
9, 2019.................................................... 184
Letter from the Consumer Bankers Association, dated September
10, 2019................................................... 187
Tlaib, Hon. Rashida:
Letter from James Sancricca.................................. 190
A $1.5 TRILLION CRISIS: PROTECTING
STUDENT BORROWERS AND HOLDING
STUDENT LOAN SERVICERS ACCOUNTABLE
----------
Tuesday, September 10, 2019
U.S. House of Representatives,
Committee on Financial Services,
Washington, D.C.
The committee met, pursuant to notice, at 10:11 a.m., in
room 2141, Rayburn Office Building, Hon. Maxine Waters
[chairwoman of the committee] presiding.
Members present: Representatives Waters, Maloney,
Velazquez, Sherman, Meeks, Scott, Green, Cleaver, Perlmutter,
Himes, Foster, Beatty, Heck, Vargas, Gottheimer, Gonzalez of
Texas, Lawson, San Nicolas, Tlaib, Axne, Casten, Pressley,
McAdams, Ocasio-Cortez, Wexton, Lynch, Adams, Dean, Garcia of
Illinois, Garcia of Texas, Phillips; McHenry, Posey,
Luetkemeyer, Huizenga, Duffy, Stivers, Wagner, Barr, Tipton,
Williams, Hill, Emmer, Zeldin, Loudermilk, Mooney, Davidson,
Budd, Kustoff, Gonzalez of Ohio, Rose, Steil, Gooden, and
Riggleman.
Chairwoman Waters. The Financial Services Committee will
come to order.
Without objection, the Chair is authorized to declare a
recess of the committee at any time.
Today's hearing is entitled, ``A $1.5 Trillion Crisis:
Protecting Student Borrowers and Holding Student Loan Servicers
Accountable.'' I now recognize myself for 4 minutes to give an
opening statement.
Good morning. Today, this committee convenes for a hearing
to examine the student loan debt crisis. It appears that this
may, in fact, be the first-ever Full Committee hearing focused
on student lending and the many financial ramifications it has
for student borrowers. Given the scale of the crisis at hand,
it is long overdue. I thank Congressman Al Green, chairman of
our Subcommittee on Oversight and Investigations, for convening
the subcommittee hearing on this subject earlier this year, and
I look forward to building on the insights from that hearing
during our conversation today.
According to the Federal Reserve, Americans collectively
have $1.6 trillion in student loan debt. That is more than
credit card debt and more than car loan debt, trailing only
mortgage debt. More than 44 million people carry student debt
averaging almost $33,000. Around 9 million borrowers with
Federal student loans are currently in default. The burden of
student loan debt is preventing young people from saving for
retirement, starting small businesses, starting families, and
becoming homeowners. This crisis is affecting people across the
country, and ultimately, it negatively affects our entire
economy.
Nevertheless, Trump's Education Secretary, Betsy DeVos, has
consistently taken actions that are harmful for those with
student loans, and the Trump Administration's appointees to the
Consumer Financial Protection Bureau have also undermined key
protections. Just last month, the Trump Administration
appointed as student loan ombudsman, a former executive of a
major student loan servicer that is being investigated by
several State attorneys general for illegal student loan
servicing practices.
I am pleased that we are joined by an outstanding panel of
witnesses today, including witnesses who have personally dealt
with student loans, who have used their positions to raise
awareness about the student crisis, or who have fought on
behalf of consumers against the harmful practices of student
loan servicers. The Education and Labor Committee has an
important role to play in this matter, but this committee does
as well, given the need to strengthen protections for student
loan borrowers and conduct oversight in the area of student
loan servicing.
Today, we will discuss a series of bills that are designed
to help student loan borrowers in a variety of ways, including:
creating a comprehensive student borrower bill of rights;
strengthening credit reporting standards; stopping private debt
collectors from going after vulnerable student borrowers;
protecting private student loan borrowers; and helping
borrowers with student debt to purchase their first home.
Congress and this committee have a responsibility to take
action to ensure that student loan borrowers are better
protected.
I now recognize the ranking member of the committee, the
gentleman from North Carolina, Mr. McHenry, for 4 minutes for
an opening statement.
Mr. McHenry. Thank you, Madam Chairwoman, and I appreciate
the opportunity to discuss the student loan crisis.
Let's rewind. It is 2009. It is 2010. There were
supermajorities by the Democrats in the U.S. House and the U.S.
Senate, and a Democrat in the White House. And at that moment,
in the midst of the Affordable Care Act, the nationalization of
our student lending was added to that bill as a pay-for. It is
a consequence of Democrat policies that have nationalized the
student debt lending in this country, and as a consequence of
those actions, we have saddled a generation with unaffordable
debt, and an education that does not match the cost of that
education.
This is a crisis, but it is a crisis that Congress created
and foisted upon a generation, yet without that generation
actually having the decision-making nor the Federal Government
the underwriting standards to ensure that good decisions were
made, and that we were going to give them a loan that they
would be able to repay. So if you think about the consequences
of the mortgage crisis that led to the financial crisis, part
of that was constitutional lawmaking, yes. But most of that was
in the private sector.
This matches that mortgage crisis, but it was Federal
action on the whole that has foisted debt upon a generation. It
is unconscionable that Congress would do that. We have to fix
the law and ensure that the Federal student debt market is much
more like the private student debt markets.
Although we don't have jurisdiction over the Department of
Education where this is primarily done, we know the statistics.
Nearly 43 million individuals, 1 in 6 Americans, have Federal
student debt, and according to the Institute for College Access
and Success, the Class of 2018 averages almost $30,000 of debt
per student. The Federal loan portfolio now exceeds $1.4
trillion, and 5.2 million borrowers of the 43 million total
Federal student loan borrowers have loans in default.
A significant portion of that debt is at risk of default as
well, and not only is the Federal Government the lender of
these loans, it is now the largest consumer lender in the
nation.
[Disturbance in the hearing room.]
Mr. McHenry. They are not cheering for what I just said in
the hallway, trust me.
[laughter]
But think about that, the largest consumer lender in the
nation. We don't adhere to the same laws that we demand of the
private sector in how we foist this debt upon students and
young people.
The Federal Government is the largest consumer lender, and
the folks responsible for the stability of these loans are in
the Department of Education, which does not issue student loans
or issue any type of underwriting standards. The Federal
Government must become a responsible lender as we demand of the
private sector. And we have to make sure the costs match the
benefits in education.
We cannot address the student loan crisis in higher
education unless we also talk about the cost of higher
education. That, too, is not within our jurisdiction, but it is
important for us to agree that it is something that we should
discuss and debate. Student loan servicers do not set interest
rates or loan terms. Student loan servicers are subject to
strict rules and regulations. Mechanisms exist to ensure they
are held accountable. That isn't the case for the loan
originator, the Federal Government. We have to fix this.
I look forward to hearing from the witnesses and, again, I
would highlight the fact that the jurisdiction of student
lending is not within this committee's jurisdiction. I yield
back.
Chairwoman Waters. Thank you. I now recognize the Chair of
our Subcommittee on Consumer Protection and Financial
Institutions, Mr. Meeks, for 1 minute.
Mr. Meeks. Thank you, Madam Chairwoman, for holding this
very important hearing. The rapidly increasing growth of
student debt is indeed a national crisis, and it is not
something that we should be playing politics with at all. It is
something that we should be focused on doing something about,
because young people today make decisions that affect their
lives because they are in debt, many of them. Eighty-five
percent of African-American young folks who have bachelor's
degrees are in debt. It causes them to have to make decisions
to not be able to buy a home or start a family or take a job
they want to just because they need a job to pay back the debt.
It also causes them to be in a situation where they cannot
achieve the American Dream.
We must stop this pointing of fingers and trying to figure
out what is going on, and blaming this one or that one. We have
to fix this problem because a whole generation of Americans,
young Americans, are not going to have the benefit of the
United States of America and that American Dream. It is time
for us to fix it, Democrats, Republicans. Don't let our young
people suffer because of our own disagreements. I yield back.
Chairwoman Waters. Thank you. I now recognize the ranking
member of the subcommittee, the gentleman from Missouri, Mr.
Luetkemeyer, for 1 minute for an opening statement.
Mr. Luetkemeyer. Thank you, Madam Chairwoman. The
foundation of the American Dream is the idea that a free market
economy will allow entrepreneurs, businesses, and workers to
succeed. Time and time again, competition and innovation in the
private market have provided American consumers with the best
possible products and services.
A decade after the government takeover of student lending,
the Federal Government is the largest consumer owning or
guaranteeing 92 percent of all student loans, or $1.4 trillion
of student debt. The reality is the Federal Government has
taken over a massive loan portfolio without practicing anything
that even resembles sound lending. The government is lending to
millions of students without adequate underwriting, resulting
in 22 percent of Federal borrowers being seriously delinquent
in comparison to 1.5 percent of private loans, according to the
Frazer Bank of New York.
I can tell you as someone who made student loans 30-plus
years ago, that we tried to help students, not hurt them. The
system today is broken. In my opinion, the government doesn't
need to be in the business of direct lending at all, and there
are numerous mitigating factors that contribute to student debt
today. We must start looking and start producing some reforms
that actually help our students and our citizens. With that, I
yield back.
Chairwoman Waters. I want to welcome today's distinguished
panel: Mr. Seth Frotman, executive director, the Student
Borrower Protection Center; Ms. Persis Yu, staff attorney at
the National Consumer Law Center; Ms. Ashley Harrington, senior
policy council, Center for Responsible Lending; Mr. Hasan
Minhaj, writer, producer, and host, who has shed light on the
issue of student loan servicing; and Mr. Jason Delisle,
American Enterprise Institute.
Without objection, all of your written statements will be
made a part of the record. Each of you will have 5 minutes to
summarize your testimony. When you have 1 minute remaining, a
yellow light will appear. At that time, I would ask you to wrap
up your testimony so we can be respectful of both the
witnesses' and the committee members' time.
Mr. Frotman, you are now recognized for 5 minutes to
present your oral testimony.
STATEMENT OF SETH FROTMAN, EXECUTIVE DIRECTOR, STUDENT BORROWER
PROTECTION CENTER
Mr. Frotman. Chairwoman Waters, Ranking Member McHenry,
members of the committee, thank you for the opportunity to
testify today.
Over the course of the last decade, I have traveled all
across this country talking to thousands of people in big
cities, small towns, and nearly every slice of America in
between. And from these conversations, I have found that one
aspect of life cuts across interweaving those communities with
seemingly little else in common: the fallout from
extraordinarily high student debt. I have heard this in town
halls across the Bible Belt, in State capitals coast-to-coast,
and in quiet corners amid hushed conversations.
Sixty-thousand consumer complaints tell the same story:
borrowers who did everything right--went to school, took on
debt, got the degree. Now, they are desperately trying to pay
it back, but are derailed at every turn. And in each story, a
common question: how could this happen to me after I did
everything I was supposed to do? The answer is one we are often
too unwilling to acknowledge: we encouraged millions of
students to take on billions in debt. And then to add insult to
injury, we sent them into a market with a piecemeal consumer
protection framework that buckled under the weight of this
historic burden. This is the story of our nation's student debt
crisis.
We must put aside the notion that simply because investment
bankers are not lining the sidewalk of 7th Avenue while holding
the contents of their desks in boxes, that somehow this not a
crisis, that somehow our nation does not need to act. Action
should not be triggered only when a market is deemed as
systemically risky, such as subprime mortgage-backed
securities. The call to action lies with the impact student
debt is having on our neighbors and neighborhoods. It lies in
the collective weight of $1.6 trillion.
Last year, more than 1 million borrowers defaulted on a
student loan. That is more than the population of each of your
districts. In fact, every 28 seconds, another borrower
defaults. That is every 28 seconds of every hour, every day,
every week, every year. However, it is more than that. It is
also the 3 million borrowers who are at least 2 payments
behind. It is the impact that student debt is having on
everything from starting a family to buying a home. It is the
way that student debt is hurting rural communities, driving
income inequality, and propelling the racial wealth gap.
Like kerosene on a fire, student debt is driving the
systemic economic and racial inequality that is tearing our
communities and our country apart. But it is more than
ballooning balances. It is also the bullseye we have placed on
the backs of 44.7 million people. The student debt crisis is a
consumer protection crisis because too many, for too long, have
allowed predatory players to have nearly free rein to prey on
the struggle of student loan borrowers.
You should know the names of the companies that have
targeted your constituents: Aequitas, Bridgepoint, Citibank,
Conduit, Corinthian Colleges, Discover Bank, Higher One, ITT,
National Collegiate Student Loan Trusts, Navient, PHEAA,
QuinStreet, Sallie Mae, SoFi, TransWorld, Wells Fargo, and the
list goes on. Throughout America, big banks and small scams
hurt millions of borrowers at every single point of their
financial lives, from the day a student receives her first bill
until the day she pays off her last loan. Regulators, law
enforcement officials, scholars, and consumer advocates have
all documented how student loan borrowers have less rights and
fewer protections than exist in other markets.
I will say it again: the student debt crisis is a consumer
protection crisis, and that is where this committee comes in.
From credit cards to debt collection, credit reporting to
mortgaging servicing, this is the committee that has taken a
stand when consumers are getting ripped off. This committee's
actions have helped consumers avoid billions of dollars in
credit card fees, and have kept tens of thousands of families
in their homes. In all of these instances and in so many
others, this committee took decisive action on behalf of the
American people. The 44 million Americans with student debt and
the millions more who are affected by it need you to do the
same.
That is what this hearing and the legislation before you
today is about, creating the protections and accountability
that millions of Americans who receive a student loan bill
deserve. This is the unfinished work of financial reform, the
unwritten chapter that 44 million Americans need Congress to
write.
I would just like to close with this: We cannot continue to
be lobbied into believing that the companies getting rich off
the misery of millions of Americans are not part of the
problem. We cannot continue to ignore this trillion-dollar
black hole in our financial markets. As it has done time and
again, this committee must protect those chasing the American
Dream from those who only seek to prey on its pursuit. Millions
of Americans across this country need you to act. Thank you.
[The prepared statement of Mr. Frotman can be found on page
86 of the appendix.]
Chairwoman Waters. Thank you, Mr. Frotman. Ms. Yu, you are
now recognized for 5 minutes to present your oral testimony.
STATEMENT OF PERSIS YU, STAFF ATTORNEY, NATIONAL CONSUMER LAW
CENTER
Ms. Yu. Thank you. Chairwoman Waters, Ranking Member
McHenry, and members of the committee, thank you for inviting
me to testify today regarding how to protect student loan
borrowers and hold student loan servicers accountable. I offer
my testimony here on behalf of the low-income clients at the
National Consumer Law Center (NCLC).
Borrowers are struggling. As the director of the NCLC's
Student Loan Borrowers Assistance Project, I see and hear the
human toll of the tattered student loan safety net. Vulnerable
students, like our clients, attempting to better their lives
and better provide for their families through education, face
severe consequences if they default on their student loans.
Loan servicers play a critical role in ensuring student loan
borrowers are aware of their options for repayment and can
avoid default.
Unfortunately, as has been extensively documented, the
student loan servicing industry has been rife with misconduct.
When servicers act abusively and deceptively, the harm can be
long term and irreparable. The devastating consequences are
intensified for Federal student loan borrowers because the
government has collection powers that far exceed the collection
powers of most unsecured creditors. The government can garnish
a borrower's wages without a judgment, seize tax refunds, such
as the earned income tax credit, and portions of Federal
benefits, such as Social Security. Racial disparities in
default rates disproportionately expose borrowers of color to
these government offsets and other damaging collection
practices, which systemically strip wealth from families and
communities that are already economically disadvantaged.
The amount the government seizes using these tools is often
far greater than the amounts borrowers would be required to pay
under an income-driven, or IDR, plan. Borrowers who might
otherwise qualify to have a zero-dollar payment in IDR could
have hundreds of dollars seized from their wages or thousands
taken from vital tax credits. IDR is critical for keeping
Federal loans affordable, but remains inaccessible for too many
borrowers. Many borrowers never learn about IDR and are steered
into forbearances or deferments. At NCLC, most of our clients
were in a series of forbearances and deferments prior to
defaulting on their loans.
Even borrowers who do learn about IDR have trouble staying
enrolled in the program, with more than half of borrowers
failing to recertify on time. Critically, servicer misconduct
is not limited into income-driven repayment. Borrowers struggle
to access vital loan cancellation programs because servicers
fail to provide them with critical information or improperly
deny their applications.
Unlike other credit products, there are few laws
specifically governing student loan servicer conduct for either
Federal or private loans. This lack of protection has
exacerbated the now well-documented problems borrowers face
accessing public-service loan forgiveness. One common problem
borrowers are experiencing is errors in counting their
qualifying payments. Unfortunately, borrowers do not have easy
access to basic payment histories that could help correct these
errors. NCLC has been working with one such client since
February just to get her full payment history and determine how
many qualifying payments she has made on her loans.
There are some protections in the contracts that the
Department signs with its servicers. However, borrowers rarely
know about these rights or have any way to enforce them. Those
who are able to find a lawyer to assist them still face an
uphill battle because the Higher Education Act provides no
explicit right of action. Borrowers can raise State law claims,
including those based upon fraud, and misrepresentation, but
contrary to much of the State law, the servicers and the
Department of Education claim that those claims are preempted
by the Higher Education Act. Fairness and justice requires that
servicers have the ability to enforce their rights when these
rights have been breached by servicers.
Problems are even greater in the private loan market.
Without comprehensive Federal laws requiring private student
lenders to offer flexible repayment options, borrowers are at
the mercy of their creditors. A few lenders claim to offer
disability cancellation programs, but in our experience those
programs can be hard to access, and, critically, there are no
standards for these programs for private loans. Importantly,
even where private student loan borrowers do have rights under
State law, they are prevented from raising those claims in open
court because of forced arbitration clauses. These clauses
deprive people of their day in court when a company violates
the law, and force victims into a system that is often biased,
secretive, and lawless.
In conclusion, the problems facing individual borrowers are
often symptoms of systemic problems to which systemic responses
are required. These problems threaten the financial security of
some of the most vulnerable student loan borrowers and keep
them from fully participating in the economy. Accountability is
critical to ensuring that borrowers receive qualify servicing.
Borrowers need real rights and consumer protections, and they
need the legal tools to enforce those protections.
Thank you for the close attention you are paying to the
student loan servicing market, and for the bills that you are
considering today. I appreciate the opportunity to provide this
testimony, and I look forward to your questions.
[The prepared statement of Ms. Yu can be found on page 132
of the appendix.]
Chairwoman Waters. Thank you, Ms. Yu. Ms. Harrington, you
are now recognized for 5 minutes to present your oral
testimony.
STATEMENT OF ASHLEY HARRINGTON, SENIOR POLICY COUNSEL, CENTER
FOR RESPONSIBLE LENDING
Ms. Harrington. Good morning, Chairwoman Waters, Ranking
Member McHenry, and members of the committee. Thank you for the
opportunity to testify today about the nation's student debt
crisis. With more than 44 million borrowers carrying almost
$1.6 trillion in outstanding student loan debt, Congress has
the responsibility to do its part to solve this crisis.
Just a decade ago, we all watched the devastating ripple
effect of the 2008 financial crisis. People lost their homes,
pensions and savings accounts were wiped out, and a generation
of family wealth was gone almost overnight, and college
graduates, many with a mountain of student loan debt, were
entering a bleak job market. A key lesson from the Great
Recession is that skillful loan servicing could have
dramatically mitigated the impact of foreclosures and their
spiraling spillover effect on neighborhoods and the economy.
Despite this relatively recent lesson, the principles we
learned seem to have already been forgotten as we face the
current student debt crisis.
Student loan servicers have consistently failed to fulfill
their obligations and have engaged in a variety of abusive
practices that have long-term negative consequences for
borrowers. While servicing reform is not the sole answer to the
student debt crisis, servicing failures contribute
substantially to the growing student debt burden and the
creation of undue harm to millions of borrowers.
Today, 2 in 5 borrowers are in default or seriously
delinquent, and many borrowers are not reducing their principal
even after almost a decade of repayment. Twenty-seven percent
of borrowers who entered undergraduate higher education in
2003-2004 had defaulted on their student loans by 2016. Up to
40 percent of this cohort are projected to default by 2024.
When we spend $700 million on collection activities and more
than $800 million on loan servicing activities annually,
Congress can and should require more from these contractors.
We should also have concerns that the student debt crisis,
already a byproduct of the racial wealth gap, is also further
entrenching these inequities and perpetuating the cycle of
poverty and economic instability that results from systemic
lack of access to resources, capital, and affordable credit.
Rather than creating a pathway to opportunity, student
borrowers of color are more likely to default and take longer
to pay back their loans. For instance, for Black students who
entered undergraduate higher education in 2003-2004, almost 49
percent had defaulted by 2016. Up to 70 percent of this cohort
is projected to default by 2024. Nearly half of Black graduates
with a bachelor's degree owe more on their undergraduate
student loan after 4 years than they did at graduation,
compared to 17 percent of white graduates.
Student loan servicers have been notorious for putting
borrowers into deferment or forbearance. These practices have
led to billions of dollars in extra interest and fees being
added to the principal balances of already-indebted borrowers.
They have also prevented borrowers from accessing affordable
repayment plans that will allow them to take part in other
wealth-building activities. Servicers should enroll struggling
students in income-driven repayment plans, not forbearance.
While reforms are definitely needed, IDR plans are an essential
tool for preventing delinquency and default.
Despite these documented failures, the current Department
of Education has revoked existing policies meant to protect
student loan borrowers. It has acted to the benefit of private
companies over students and taxpayers, and it has attempted to
prevent Federal and State enforcement of consumer protections.
States that have passed reforms hold nearly 30 percent of the
$1.5 trillion in outstanding student loan debt. States have
historically played a critical role in protecting consumers
from abusive and predatory practices, from mortgage servicing
to payday lenders.
Student loan servicing is no different. Since 2015, 11
States and D.C. have passed laws to oversee student loan
servicers. This is combined with multiple State enforcement
actions against servicers like Navient and PHEAA. Their
approach to addressing this crisis will shape the lives of
millions of borrowers and the health of our economy for decades
to come. Federal efforts must complement these State-level
actions, not preempt them.
Many of us in this room can attest that good servicing
makes a real difference in borrower outcomes. This is
especially true for student loan servicing where there are
already many options to help students avoid default and be
successful in repayment. By failing to hold servicers
accountable to basic consumer protection laws and
responsibilities, we increase the likelihood of more defaults
and that this crisis will worsen. Rather than repeat mistakes
from the mortgage crisis, we should learn from that experience
and work to achieve a sounder, more effective student loan
system. Congress must ensure that Federal dollars are truly an
investment, not just a payout. Our nation's future depends on
it. Thank you.
[The prepared statement of Ms. Harrington can be found on
page 110 of the appendix.]
Chairwoman Waters. Thank you, Ms. Harrington. Mr. Minhaj,
you are now recognized for 5 minutes to present your oral
testimony.
STATEMENT OF HASAN MINHAJ, WRITER, PRODUCER, AND HOST
Mr. Minhaj. Thank you so much. I want to thank Chairwoman
Maxine Waters for the opportunity to testify, and I would like
to thank Ranking Member Patrick McHenry for taking the time to
Google who I am.
[laughter]
Mr. McHenry. Cute. Very cute.
Mr. Minhaj. My name is Hasan Minhaj. I am a Muslim, and I
condemn radical Islamic terrorism. That has nothing to do with
anything. I just want that on the record. It is good to get
ahead of these things.
[laughter]
Chairwoman Waters invited me here today because I host a
political comedy show on Netflix called Patriot Act, which
means I may owe some of you guys royalties. DM me, we can talk
later. We recently did an episode on the student loan crisis,
and it really hit home with our audience, because 44 million
Americans owe more than $1.6 trillion in student loan debt. In
fact, the day we shot our episode, we polled our studio
audience. It was only about 200 people. And that room alone had
over $6 million of student loan debt. Now, granted, our
audience is mainly unemployed poli-sci majors, but that is
still a lot of money.
[laughter]
This issue is sidelining millions of Americans. People are
putting off marriage, kids, home ownership, and retirement,
especially my generation. I am 33, and growing up it was
drilled into our heads that you have to go to college if you
want a middle-class job. And we even tell kids today, look, if
you don't go to college, you might as well get a face tattoo.
And then they point to Post Malone, and we are like, okay, that
is one guy. He is a very popular musician.
[laughter]
But it is true: two-thirds of all jobs in America require
at least some college. This is the standard now, and that
wasn't the case when most members of this committee were in
school, and you paid far less for your degrees. That is not
speculation. We looked up where the 60 members of this
committee went to college and what your school's tuition was at
that time. Even adjusting for inflation, college cost way less
across the board.
So, Chairwoman Maxine Waters, your tuition at Cal State
L.A. in 1971 was the equivalent of about a thousand dollars a
year. Today, Cal State costs well over $6,000. That is more
than a 500 percent jump. Congressman King, right, in 1965,
Congressman King paid the equivalent of almost $10,000 a year
at St. Francis College. Today, St. Francis costs over $25,000.
On average, this entire committee graduated from college 33
years ago and paid an inflation-adjusted tuition of $11,690 a
year. Today, the average tuition at all of your same schools is
almost $25,000. That is a 110-percent increase over a period of
time when wages have gone up only 16 percent.
So people aren't making more money, and college is
objectively way more expensive. Do you see what has happened?
We have put up a pay wall to the middle class. And if there is
one thing Americans don't deserve more of it, is pay walls.
That is why we put up our entire show for free on YouTube. It
is also because you can't really find anything on Netflix.
[laughter]
It is like the lost-and-found bin of entertainment. You are
like, great, another show about people who love cake.
[laughter]
Now, despite these numbers, you often hear the idea that
these kids wouldn't be in trouble if they just took some
responsibility. But they are trying to be responsible. They are
investing in education. They are trying to pay their loans
back, and yet many borrowers are still treated like deadbeats
because the government has put their financial futures in the
hands of predatory, for-profit loan servicing companies.
Companies like Navient and other companies you will hear from
today, have a history of misleading borrowers and pushing them
into repayment plans that in some cases have cost individual
borrowers tens of thousands of dollars in unnecessary interest.
And the worst part is borrowers don't even get to choose
their loan servicer. The Department of Education chooses for
you, so there is no competition that makes these companies
provide better service. Now look, we know the deck is stacked
against student borrowers in ways that it wasn't 10 or even 15
years ago, and they deserve some basic protections. Americans
should not have to go bankrupt pursuing higher education, and
they should never be preyed upon by underregulated loan
servicing companies.
So, members of this committee, we know that government is
capable of stepping in during a financial crisis. All I am
asking today is, why can't we treat our student borrowers the
way we treat our banks, because 44 million Americans, that is
too big to fail. Thank you so much for your time, and I will
now go back to where I came from.
[laughter]
[The prepared statement of Mr. Minhaj can be found on page
130 of the appendix.]
Chairwoman Waters. Thank you, Mr. Minhaj. Mr. Delisle, you
are now recognized for 5 minutes to present your oral
testimony.
STATEMENT OF JASON DELISLE, RESIDENT FELLOW, AMERICAN
ENTERPRISE INSTITUTE (AEI)
Mr. Delisle. Chairwoman Waters, Ranking Member McHenry, and
members of the committee, thank you for the opportunity to
testify today. My testimony today represents my own views and
not those of AEI, which does not take any institutional
positions.
We have heard a lot today that there is a problem with the
Federal Student Loan Program, that private companies, servicers
that the Department of Education has hired to run this
government program are cheating borrowers out of benefits,
confusing them, and giving them subpar advice, leaving them to
incur additional costs. But this common narrative we have heard
today seems to assume the problem is entirely due to factors
that are under the servicer's control.
But I want to remind the committee, given that the Student
Loan Program is not under the committee's jurisdiction, that
all of the terms of the Federal Student Loan Program are set by
Congress or the Department of Education, and servicers don't
own these loans. They also don't get paid more if borrowers owe
more. So what this means is the source of all of the perceived
mistreatment that we are talking about today--the crushing
debt, the misleading information, the confusion--may actually
be Congress and the Department of Education, not the servicers.
Now, servicers can make mistakes, absolutely. I am not denying
that. They can get things. They can be sloppy. But I want to
give you some examples of what I am talking about, where the
terms of the program actually sow confusion and resentment
among borrowers.
The Consumer Financial Protection Bureau (CFPB) operates a
complaint database where borrowers can lodge complaints against
their Federal student loan servicers. I am going to read you
one. It reads as follows: ``I have repeatedly requested that
all overpayments get applied directly to principal, but my loan
servicer, Nelnet, continually advances the due date. Then, they
tell me that I don't know how payments work. I then have to
educate a willfully ignorant rep on how compound interest
works, that advancing my due date is not in my best interest.''
So, I agree this looks strange. Make a larger payment on my
loan, and my due date goes out into the future. Where did this
come from? Well, it came from the Department of Education. This
is the policy: The loan servicer is required to advance the due
date if a borrower makes an overpayment. What a strange policy.
Where did this come from? Well, like all of these things,
someone was trying to help. They were trying to give borrowers
extra flexibility in when they needed to make their next
payment if they made an overpayment.
This is not necessarily an example of a servicer
mistreating the borrower, but that is what it looks like to the
borrower. In fact, that is how many of the people on this panel
describe the situation. I don't think it is quite accurate.
Let me give you another example. Borrowers often complain
that their servicer had misled them--you heard that today--and
they are caught off guard by some term of their loan. I want to
show you the Department of Education's application form for the
Income-Based Repayment Program. I can't quite get it to fully
extend to the floor.
These are the terms of the Income-Based Repayment Programs.
It runs some 10 pages. You will see on pages 7 and 8, there is
a 60-cell matrix comparing all the terms. Is it fair to expect
borrowers to understand all of that information? No. Is it fair
to expect servicers to explain all that to the borrowers and
make sure they understand it? I don't think so. But why do we
have a 10-page form listing all of the terms? Because Congress,
and the Department of Education, egged on by many of the
advocates, required all of these terms. So, borrowers are
utterly confused, but they are blaming servicers when it is
really the terms of the program.
I have many more examples of this in my written testimony.
Those are just two. There are many. But I want to conclude
today by telling you what I think Congress can do to solve this
program. I think we need a much more straightforward student
loan program. Now, this is not going to be easy. It is going to
require tradeoffs. It is probably going to require fewer
benefits, and fewer options. These are the things that are
confusing borrowers. Or we could simply provide the most
generous benefits to everybody all the time. That is going to
cost a lot of money and probably isn't the best use of scarce
resources.
But here is what I want to say that is really important.
These tradeoffs exist, and excellent student loan servicing is
not going to make them go away. Blaming student loan servicers
for the terms of the loan program is not going to make these
tradeoffs go away. Congress is going to have to make them. It
is up to lawmakers to ensure that borrowers are not misled or
mistreated by the Federal Student Loan Program. Thank you.
[The prepared statement of Mr. Delisle can be found on page
76 of the appendix.]
Chairwoman Waters. Thank you very much. I will now
recognize myself for questions, and I am going to address my
first question to Mr. Frotman.
In March, you testified before this committee that the lack
of action on behalf of student borrowers by the CFPB,
``reflects a fundamental lack of seriousness in the work that
Congress tasked the Bureau to perform and willful negligence in
addressing the deep, systemic problems that plague borrowers
owning the second-largest class of consumer debt in this
nation.''
Instead of vigorously enforcing the law to protect student
borrowers, it appears the only notable thing that the Trump
Administration has done is to install a high-ranking official
from one of the nation's largest student loan servicers to be
your successor at the CFPB.
This committee and others are examining the activities of
the CFPB, the Department of Education, and student loan
servicers, and today's hearing appears to be based on records
my staff reviewed going back to 1995, when the first Full
Committee hearing was held on the topic of student lending.
Mr. Frotman, given how student debt can affect a borrower's
life, including their ability to get a home or start a new
business in the broader economy, is the CFPB doing enough to
help student borrowers, or is the Bureau coming up short and
failing in its job? Are there particular areas that the CFPB
and the Department of Education should be prioritizing when it
comes to enforcement?
Mr. Frotman. Thank you so much for the question, Chairwoman
Waters. The student debt crisis is a big problem impacting all
of your constituents. The student debt crisis knows no Party,
knows no ideology, knows no Administration. And what we have
seen is that the historic amount of debt is hurting all of your
constituents in their ability to buy a house, or start a small
business. And we see how student debt is driving folks out of
rural counties.
We usually talk about this in the form of ballooning
balances, but it is more than that. It is a bullseye placed on
the back of nearly 45 million Americans who are subjected to
predatory tactics from the day they take out their loan until
the day they pay it back. And what we have seen is that student
loan borrowers have less rights and fewer protections than
nearly any other type of borrower. You have more protections if
you are paying back your credit card or your mortgage.
While I was at the Consumer Financial Protection Bureau,
this is an issue we worked on a lot, which was, there are big
banks, Federal student loan servicers, you name it, up and down
the line who are viewing the student debt crisis as their
chance to get rich. I am proud of the work we have done. We
were able to give back $750 million for student loan borrowers,
and we worked with anyone and everyone, and sometimes we worked
with the Obama Administration. Sometimes, we didn't make them
happy, but that was the job.
And what you see now at the Consumer Financial Protection
Bureau is just walking away from that mission, walking away
from the job to stand up for your constituents, when the only
thing they have done wrong is taking on debt to chase the
American Dream. And I think that is why this hearing and this
legislation is so important because the CFPB is one piece of
the puzzle. Borrowers need the same rights and protections they
would have if they were paying back a credit card and a
mortgage. They need to be able to enforce those themselves.
They need their States to be able to enforce them because they
are really struggling.
Chairwoman Waters. Thank you very much. I wanted to get
into a little bit about the disparities for minority student
borrowers, and I will just get to Ms. Harrington in the short
time that I have left on this question. The Center for
Responsible Lending published its own report early this year on
borrowers of color and the student debt crisis. In trying to
help student borrowers of color, your report recommends that we
improve repayment options, provide debt relief, strengthen
servicing standards, and prevent abuses by for-profit
institutions. Do you think the bills we are considering today,
including the Student Borrower Bill of Rights, would
successfully help student borrowers of color?
Ms. Harrington. Absolutely, Chairwoman Waters. These bills
go a long way in the right direction to ensuring that consumer
protections are available to student loan borrowers, and that
is particularly important for student borrowers of color who
disproportionately take out student debt and take out higher
levels of student debt than other populations. They have to go
to college, and they have to have loans to go to college due to
the systemic inequities that we have seen since the founding of
this country. So, any extra work that can be done by this
Congress to improve that system for everyone, but especially
borrowers of color, is essential.
Chairwoman Waters. Thank you very much. And now, I will
recognize the gentleman from North Carolina, Ranking Member
McHenry, for 5 minutes.
Mr. McHenry. Thank you. And, look, I do think there is a
commonality among the full panel here across perspective. The
question of affordability of the institution is an important
question. It is. I think we all agree on that. Now, how we
resolve that becomes a bit of a challenge, but that is the
nature of where we are in our society.
Mr. Minhaj, as you outlined in your show, the question of
cost is a fundamental issue, too, and you addressed that, and
you also addressed the servicers. So you go from the question
of the debt, but the key question as well is, and you get to
this in some ways, but underwriting. There is no underwriting
for a loan. There is a no question of a student being informed
enough about the decision they are making that is a life-
changing decision.
And we have the Federal Government creating a mechanism and
then using private-sector folks to then service their decision,
right? You don't say, ``underwriting,'' but you get at it, that
these students are given way too many choices for their
financial literacy basically, and don't have an understanding
of what that will mean to their life for a decade, 2 decades,
or 3 decades, and that the decisions they make as a 17-, or 18-
, or 19-year-old will have an impact on their ability to buy a
house, or a car, or have children, or get married, and the
societal impact of that. So, you do a great job of highlighting
that, I have to say.
Mr. Minhaj. You are a fan of the show.
Mr. McHenry. I don't want to do that to you because it is
probably not helpful.
Mr. Minhaj. I will get you that tee shirt.
Mr. McHenry. I will watch you right after I finish watching
the Chappelle special, so we will move from there. Mr. Delisle,
as you outlined, too, the question of affordability is a
fundamental question, too. The form you outlined, you showed
there, is massive. One example I would give you is until the
CFPB attempted to rewrite how student debt servicers interact
with their clients, servicers could not text the people they
are trying to interact with. You ask the average 25-year-old if
they answer their phone. Not a chance, right? So, texting is a
very reasonable and responsible thing. They can't do it because
the rules by which they are servicing the debt do not permit
them to, and the regulations out of the CFPB have not been
modernized so that they can do that. So, one simple change like
that could make a major impact on the ability to service it.
But, Mr. Delisle, let's talk about underwriting. What
underwriting is done before this debt is given to students?
Mr. Delisle. Basically none. It is almost a no-questions-
asked loan. It is an entitlement. There is no income check, no
means testing. It is basically open-ended.
Mr. McHenry. And does that mean there are no ramifications
if they don't pay?
Mr. Delisle. There is a ramification if they don't pay.
They will accrue additional interest. They could have their tax
refund seized. Most of the time, the government is able to get
the money back.
Mr. McHenry. How clearly is that outlined in the contract
for these students?
Mr. Delisle. It is listed in the master promissory note,
which is about as long as this other form that I showed you.
Mr. McHenry. So, there is no clear box like on a mortgage
that gives you the key ingredients of what you are about to
sign for?
Mr. Delisle. Not really, no. The terms of the loan are
listed there, but because of the sort of strange nature of
student loans, it doesn't look like or walk like another loan.
So, for example, the interest rate that you are going to borrow
at is not listed on your master promissory note. That is
because we don't actually know the interest rates that you are
going to borrow at going forward because the interest rate is
different each year you borrow because you take out a new loan
every year. So, trying to make these things work and look like
traditional financial products doesn't really work that well
because we are trying to serve a sort of different market.
Mr. McHenry. How do you reform the program to mitigate
those risks?
Mr. Delisle. I don't think there is a huge sort of
affordability crisis in student debt, contrary to what everyone
has said here. I think there is a lot of available--
Mr. McHenry. What do you mean by that?
Mr. Delisle. Well, I don't see sort of a widespread
inability of people to pay their student loans. I hear a lot of
complaining about it, but in terms of are people actually
financially unable to pay the loan, I don't think that is as
widespread as a lot of people believe.
Mr. McHenry. But you admit there is a broader societal
impact for this level of debt they are coming out of college
with?
Mr. Delisle. Yes, I am sure there is, but also, it is
financing an asset. It is financing higher education, so all
the concern about student debt, if student debt is harming
people, it means higher education is harming people. That is
what it paid for.
Chairwoman Waters. Thank you. The gentlewoman from New
York, Mrs. Maloney, who is also the Chair of our Subcommittee
on Investor Protection, Entrepreneurship, and Capital Markets,
is recognized for 5 minutes.
Mrs. Maloney. Thank you, Madam Chairwoman, and I thank all
of the panelists. The price of college education increased 8
times faster than wages between 1989 and 2016. College tuition
costs more than many people earn a year. And while we must
address the underlying cost of college, student loans have
become so unsustainable that millions of people are now putting
off buying homes, starting families, or even starting their
careers. That is why I support full loan forgiveness, and I am
a co-sponsor of Senator Bernie Sanders' House companion bill,
H.R. 3448, the Student Debt Cancellation Act.
These solutions might fall out of the jurisdiction of our
committee, but we do have oversight of student loan servicers.
Student loan servicers don't own loans, set rates, or control
the cost of college, yet they are a critical point of contact
for borrowers repaying direct loans, and they are responsible
for engaging with the borrowers experiencing difficulties
making these payments.
We recently held a hearing on student loan servicers, and
one of the troubling things we heard was that some schools
engage consultants to push forbearances to keep their default
rates down even when other options are better for the borrower.
That is because schools would lose access to Federal aid if
their default rate is too high. And I would like to know, and I
would like to ask Persis Yu, how often does this manipulative
practice push borrowers into forbearance when it might not be
in their best interest? Shouldn't the best interest of the
borrower be the only factor that is considered, not
artificially inflating numbers? And what role do the servicers
play here?
Ms. Yu. Thank you, Congresswoman. In the experience of the
borrowers that I work with, many of them have attended
predatory schools that have made big promises about the career
goals that they will get and the big salaries they will get,
and those promises fall through. Unfortunately, many of those
schools also engage with default management companies that push
borrowers into deferments and forbearances, and we see the
fallout of that.
Borrowers come to my office. They are in default. They have
a series of these forbearances. They have never heard about
income-driven repayment. Many of these borrowers would have
qualified for zero-dollar income-driven repayments, but instead
they defaulted because they exhausted their forbearances
through these default management companies and now are in
default. Servicers have the role of informing borrowers of
income-driven repayment. Servicers are required to reach out to
borrowers, and for too many borrowers, that is not happening.
And that is why we are here today, and we are encouraged by the
bills that are being offered by this committee.
Mrs. Maloney. Also, the Department of Education recently
withdrew a set of student loan servicing standards, and many
States have since passed their own strong standards and
procedures, including restricting forbearance steering and
creating a compliance department. Wouldn't everyone, especially
borrowers, benefit from a common set of minimum industry best
standards that the draft Student Loan Servicing Reform and
Consumer Protection Act calls for? Again, Ms. Yu?
Ms. Yu. Absolutely. Thank you for this question. There is a
desperate need for basic consumer protections for student loan
borrowers. Borrowers do not have basic rights to dispute
resolution solutions, to timelines for processing payments, for
ensuring that borrowers are getting the best options presented
to them. The bills that are presented, especially the Borrower
Bill of Rights, which would present basic consumer protections,
are vitally needed by the borrowers I work with.
Mrs. Maloney. And in cases of forbearance, in many cases,
it just adds to the cost and is not in the best interest of the
borrower. Would you like to elaborate on that, Ms. Yu?
Ms. Yu. Absolutely. There are some very limited
circumstances where forbearances can be useful. However, for
the most part, they add to the cost of the loan. The interest
is capitalized, meaning the principal balance grows, and then
interest is charged upon interest. Importantly, that time is
not applied towards forgiveness like it would be under an
income-driven repayment plan. Therefore, the loans become more
expensive and it extends the life of those loans.
Mrs. Maloney. Thank you. My time has expired. Thank you.
Mr. Casten. [presiding]. The gentlewoman from Missouri,
Mrs. Wagner, is recognized for 5 minutes.
Mrs. Wagner. I thank the Chair. Let's be clear here. The
Federal Government is responsible for almost $1.5 trillion of
the overall $1.6 trillion in student loan debt, around 92
percent of all debt. It is my understanding that only just over
$100 billion of this debt is in private loans, which have a 98
percent repayment rate. Meanwhile, stats from the Federal
Reserve Bank of New York suggest that Federal borrowers are not
faring well, as more than 20 percent of all borrowers are
seriously delinquent or in default, and a large number of
Federal borrowers are seeing their loan balances grow, not
decrease, post-graduation.
Mr. Delisle, given this bleak outlook for Federal
borrowers, shouldn't more be done to protect consumers from
assuming more Federal student loan assistance than they can
reasonably pay back?
Mr. Delisle. Yes. I think the place to look for a solution
like that most obviously is in graduate school lending. For
undergraduates in the Federal Student Loan Program, there is a
limit. Congress sets a limit on how much people can borrow,
recognizing the kinds of things that you are talking about. A
dependent undergraduate can only borrow $5,500 their first year
of school. When it comes to graduate school, Congress had the
infinite wisdom to decide to lend unlimited sums to people to
go to graduate school, and this is where the big problems are.
Mrs. Wagner. Well, let's explore that for a minute, Mr.
Delisle. Does the Federal Government evaluate a borrower's
ability to repay a loan before issuing a loan?
Mr. Delisle. No.
Mrs. Wagner. A student who receives a needs-based Pell
Grant could also have their parent take out a $100,000 Parent
Plus Loan, even though they have demonstrated that they don't
have the means to repay. Is that correct?
Mr. Delisle. That is right. In fact, the Federal Government
will assess your ability to repay using the financial aid
application determining an expected family contribution for
your child's education. And even if that number is zero, the
Federal Government has determined you can contribute zero
towards your student's education--
Mrs. Wagner. Stunning.
Mr. Delisle. --and then, they will lend you an unlimited
amount to pay for your child's education.
Mrs. Wagner. Stunning. It seems some Federal borrowers are
set up for failure from the start by the rules put in place by
Congress. What recommendations, briefly, would you make to
Congress to prevent students and their parents from
overborrowing?
Mr. Delisle. I think they probably should restore some
sensible limits to the amount that graduate students can
borrow, and I think there is really no good public policy
purpose served by having the Parent Plus Loan Program that we
were talking about.
Mrs. Wagner. The Federal Government took over the vast
majority of student lending from private lenders in March 2020,
as we have discussed. How does the design of these Department
of Education contracts impact the ability of Federal loan
servicers to provide individualized service to borrowers?
Mr. Delisle. They have to carry out the terms that are set
in law, so it can't be that individualized because they have to
provide the borrowers the terms that they are entitled to. But
because of all the different options and different situations
that borrowers could find themselves in, people on the left and
the right have decided that it is better that servicers have
some discretion in how they counsel borrowers. So, there is
some flexibility for servicers to make decisions.
I actually think one of the sort of unintended consequences
here of some of these debates, and I look at some of the
legislation that was posted today for the hearing, and there is
a tendency to want to be more prescriptive of how servicers
operate. And I am just a little bit concerned about that,
because I am not sure I would supplant lawmakers' judgment for
servicers' judgment in the best way to handle each student's
individual situation.
Mrs. Wagner. Private student lenders make at least 18
disclosures on 3 separate occasions before a loan is made,
providing much clearer information than is provided for Federal
direct loans. Would disclosures for Federal loans, like those
private student loan borrowers make, lead to better outcomes
for student loan repayment perhaps?
Mr. Delisle. I don't really think this is an information
problem. I held up the form today, the 10-page form with the
60-cell matrix, and people still complain. There are thousands
of complaints in the CFPB database about people saying they
weren't informed.
Mrs. Wagner. Let me ask this: Would it help to have
disclosures of accumulating debt made during the course of
study rather than just when a student first enrolls and
graduates?
Mr. Delisle. It may. The reason why, typically, the
Government and Congress have shied away from doing exactly that
is they were worried it would scare people from continuing to
borrow and finish their education. So, I don't know what the
right direction is on that.
Mrs. Wagner. My time has expired. I yield back.
Mr. Casten. The gentlelady's time has expired.
The gentleman from Georgia, Mr. Scott, is recognized for 5
minutes.
Mr. Scott. Thank you very much, Mr. Chairman. It seems to
me that we have a profound question here of, why? In an
article, the very distinguished publication, Forbes, mentioned
last year that that the price of a4r-year college education has
nearly doubled since the 1980s, even though the average annual
growth weight in wages and salaries over that same period
increased only 3 percent. This means that the cost of this 4-
year college education has increased 8 times as rapidly as
people working on their jobs earning wages and salaries.
That, to me, is where we need to really pull the covers off
and ask, why? Why did the cost of a college education explode
over this period at a rate 8 times greater, if we are going to
really get to the answers of how we solve this? And further, as
a matter of fact, the cost of a 4-year college education--in a
more narrow window between 2003 and 2017, the cost a 4-year
college education rose nearly 50 percent--48 percent. But
between this same smaller window, a 15-year period, wages and
salaries rose only 6 percent. This means that the cost of a 4-
year college education has increased 9 times as fast as
salaries.
So, ladies and gentlemen, why? What has caused this? I
think if you each could tell us quickly, if you could put your
hand on one thing, so that we would know what to zero in on,
because we can put legislation out forever and no one hand-
made, let's give free education, because nothing is free. But
the issue here is what is causing this abnormality? Teacher
salaries? Professor salaries? What has happened? Can we go
quickly, and let's try to get on the record why, if you all
could put your finger on just one thing, maybe you can give us
five things that we can address.
Mr. Frotman?
Mr. Frotman. I think in many ways the answer is those five
things, but there is one thing that this committee can do to
tackle that, which is stop the predatory players that add
zeroes to individual borrowers' bills. In the lawsuits against
a company, Navient, in courthouses coast to coast, they
documented how this company's practices added $4 billion of--
Mr. Scott. Okay. Predatory lending. Great point. We can hit
that.
Ms. Yu?
Ms. Yu. I don't have the one answer, but to the borrowers
that we work with, certainly the fact that the Pell Grant has
not kept up has been hurting the borrowers that we see, and has
made it so that our borrowers have to take out loans in order
to go to school, that it is not a choice for them to take out a
loan. They are forced to take out the loans if they want an
education, which they need.
Mr. Scott. All right.
Ms. Yu. And which is why, again, we need these vital
consumer protections.
Mr. Scott. Forced to take out the loan. All right.
Ms. Harrington?
Ms. Harrington. I think overall, we need to reframe
education as an investment in our future, and that looks like
many things--all of the things that my colleagues have said but
also accountability for for-profit colleges, Federal-State
partnerships that really invest in equitable higher education,
and an ability for students across different backgrounds to
really access higher education in an affordable way.
Mr. Scott. All right.
Ms. Harrington. And affordability at the front end and the
back end.
Mr. Scott. All right.
Mr. Minhaj. Yes. One of the things we covered on the show
is the fact that when a student borrower calls their loan
servicer, say, Navient, Navient will rush you off the phone,
oftentimes in 7 minutes or less, and they will advise you to go
into loan forbearance instead of an income-based repayment
plan, which would probably be better for you.
So that simple misinformation is a problem, and I think
student borrowers need a basic bill of rights, like a
protection to not let that perpetuate.
Mr. Scott. All right. Thank you.
Mr. Delisle. I get the sense you would complain, though, if
Navient kept them on the phone.
Mr. Minhaj. No. You wouldn't even tolerate that from United
Airlines.
Mr. Delisle. And read all of these terms to them to make
sure they knew exactly what they were getting into. I guess
people would be very upset about that too.
Mr. Minhaj. But they want their best option, not a CVS
receipt.
Mr. Scott. All right. Thank you. That's very helpful. I
think that is very informative. Thank you.
Mr. Casten. The gentleman from Florida, Mr. Posey, is
recognized for 5 minutes.
Mr. Posey. Thank you, Mr. Chairman. I am wondering why
there have been no oversight hearings in the Education and
Labor Committee on the role of the U.S. Department of Education
in managing its loan servicing agents, and I just wonder if the
panelists, beginning on the far right, would give me their
comments on that?
Mr. Delisle. Am I on the far right?
Mr. Posey. Yes, you are far right.
Mr. Delisle. I think the sort of nature of my testimony is
actually probably why the Education Committee would have a hard
time really going after loan servicers and blaming them for the
problem, because so many of the things that are frustrating
borrowers are actually terms that that committee put into the
loan program themselves.
I think that is one of the reasons why the loan servicing
issue just is not--they sort of recognize it for what it is,
which is not the major problem here.
Mr. Posey. Thank you.
Mr. Minhaj. What was the question again? What is the major
problem?
Mr. Posey. Yes. What are your thoughts on the role of the
U.S. Department of Education in managing its loans?
Mr. Minhaj. Just the fact that they outsourced it to
private loan servicers?
Mr. Posey. Your general thoughts?
Mr. Minhaj. My general thoughts are this--are you familiar
with the rapper Lil Uzi Vert?
Mr. Posey. No.
Mr. Minhaj. I think it is a huge problem that the youth of
America have to bombard their favorite rapper, a pop musician,
and ask them to pay back their student loans. They are not even
asking for selfies anymore.
Are you a fan of Taylor Swift? Are you a Swiftie, because
even her fans have gone up to her and said, ``Will you please
pay back my student loans?'' That is how desperate student
borrowers are.
Mr. Posey. All right. Next?
Ms. Harrington. I think there is absolutely a role for the
Department of Education in this, but there is also a role for
the consumer agency that we have, which is the CFPB. Student
loan borrowers are consumers and they are taxpayers, and they
should be protected by the CFPB, and the CFPB should be
required to have mechanisms to do so.
And I think there hasn't been a lot of discussion about
what the Department can do. Particularly, they can have better
oversight and accountability for the bad actors in the system,
and that servicers would also for-profit colleges. There are a
few mechanisms that the current Department has actually rolled
back that would have held these groups accountable--the
borrower defense to repayment rule, the gainful employment
rule, which would have gotten bad actors out of the system and
lowered defaults--because defaults are actually directly
correlated to the for-profit college growth and decrease. So,
we need to look at the people--at the actors that are actually
responsible for some of the burdens in the system.
Ms. Yu. Thank you. I agree with my colleagues. We
absolutely need the Department of Education to do a better job
at protecting student loan borrowers, but as Ms. Harrington
said, the current Administration has been shielding servicers
from liability and rolling back consumer protections at every
opportunity. Oversight by the Department of Education is
necessary but not sufficient to solve the student loan crisis.
These are private companies, working with borrowers in the
second-largest credit market. We need strong consumer
protections to protect all student loan borrowers from the
private companies that are profiting off of their student loan
debt.
Mr. Frotman. I agree with all of my colleagues. There is a
critical role for the Department, oversight of the Department,
but we should remember that under--the FSA has called
themselves the largest special-purpose consumer bank in the
world, and this is the committee that deals with banks and
regulation of financial services companies. And this isn't just
a higher education policy issue. This is a consumer finance and
a consumer financial protection issue, and borrowers need your
help when they are ripped off, when they are trying to pay back
their debt.
Mr. Posey. Okay. I saw where the collections on the private
is much greater than the public, and I am just concerned
about--we can go back through again--the role of the borrowers
in creating the problem.
Mr. Delisle. I am not sure that the borrowers are really
creating a problem here. I think what I see is borrowers
frustrated with the terms of the loan program. And so I think
that, really, what borrowers are saying is they want something
simpler. We talked a little bit about people saying, oh well,
they are steering people to the wrong option. Well, how do you
know what the wrong option is? A lot of people would disagree
on what the right situation is. There are so many options.
There are so many different situations. It is almost impossible
to tell.
So I don't really think the borrowers are really to blame
here. I think it is this sort of really crazy program that we
are putting them into.
Mr. Posey. Okay. And so the correct way to address that
problem, you think, best, would be--
Mr. Delisle. For example, one of the things you could do is
stop--one of the repayment plans that people complain about--it
is a benefit--sorry, lost my time.
Mr. Casten. The gentleman from Washington, Mr. Heck, is
recognized for 5 minutes.
Mr. Heck. Thank you, Mr. Chairman. I want to follow up on
some of the lines of questioning that Congressman Scott engaged
in, but before I do that, I want to be very clear, very
explicit, very up front, by stipulating to the need to a
substantial increase in a consumer protection regimen to deal
with this problem. It, in fact, just seems like common sense to
me that absent those protections in a $1.6 trillion
circumstance, that we can and should act.
But there is this issue of the writ cause of the cost of
higher education going up at a multiple of inflation. I have
read 100 percent since 2000. We have specifically cited 50
percent between the years of 2003 and 2016. The subsequent
amount of overall student debt has skyrocketed as well. We know
that wages have not kept up.
The writ cause here seems to be wages aren't keeping up to
the increased cost of tuition, and the cost of tuition has,
frankly, skyrocketed way beyond inflation adjusted. In fact,
that very chart there suggests that a decline in State funding
is part of the culprit here. I would like to personally attest
to that and offer kind of a framework for why this is
happening.
What happens in the west, where higher education is the
principal delivery mechanism, is that when economies have
recessions, State legislatures reduce their support for higher
education and supplant that support with board of trustee
increased tuition setting authority. And as a consequence,
every time we hit a downturn they pull back on their support
and say to the colleges and universities, ``It's up to you. You
can increase tuition or you can cut your enrollment and reduce
staff,'' the latter which is obviously not very tenable.
So boards of trustees have hiked tuitions very
significantly in the last 20 years, and even longer. This
occurs every time we hit a recession. And lest you think that I
am just trying to lay the blame off and point the finger at
State legislatures, I happen to have been a member of the board
of trustees of one of those institutions during the last
significant downturn, and, yes, I raised my right hand in
support of a substantial increase in tuition to compensate for
the reduction in State legislative support. This is going to
continue to happen if we don't come to grips with what overall
tuitions are.
One of the most insidious effects--and I am so grateful to
those of you who have mentioned it--is that the substantial
increased student loan debt burden has resulted in a
significant deferment of home purchasing options. It is just
one of the problems, but this is a big one, and this is one I
want to point out. Ordinarily, what I would be sitting up here
doing is telling you we have a housing crisis in this country,
and it is a crisis of supply, and you know what? That is true.
We don't have enough units. It messes with the market. There
aren't enough starter homes for these young people who are
debt-burdened. Rents are going up because people can't get out
of their apartments into their starter homes. So, I would tell
you it is a supply problem.
There is this portion of the market, however, where it is a
demand problem, and what I mean by that is that student debt is
creating a material impediment for them to begin their home
ownership. Here is why that is so important and how we have to
view this holistically and keep this in mind, frankly, I think
above and beyond just student loan servicers, which is a
problem we ought to attack.
Defined contribution pension programs in this country have
fallen off the table. The increase has been in defined
contribution levels. And as a consequence, the number one
investment for the average American for their retirement
security is home ownership, and they are being compelled to
defer the beginning of the compounded interest that that
investment, that asset provides them with toward their senior
years. And this is, in no small part, being brought about as a
consequence of increased student debt, which is driven by wage
growth being inadequate and tuition skyrocketing.
And I seek to highlight this, and consume all my time and
none of yours, for which I apologize, because I think a
dimension of this that should be considered, above and beyond
the student servicing consumer protection reforms, which I hope
we will enact in this committee, is how, in particular, to deal
with the home ownership question for those who seek to do it?
They are deferring it, far fewer are engaged in it, and it is
going to hurt them in their retirement, and it is a ticking
time bomb.
Please give that some consideration. Thank you for your
time.
Mr. Casten. The gentleman from Missouri, Mr. Luetkemeyer,
is recognized for 5 minutes.
Mr. Luetkemeyer. Thank you, Mr. Chairman. As I indicated in
my opening remarks, I may be the only guy, or if not, maybe one
of two on this committee who actually has made student loans,
30-plus years ago, so I know a lot about student loan programs
years ago as well as what is happening now.
Years ago, our student loan past-due problem, collection
problem, was similar to what is in the figures today, and
according to New York Bank, less than 2 percent of the private
loans have problems, where 22 percent of the Federal loans have
problems. So it goes back, in my mind, to underwriting.
Mr. Delisle, what kind of underwriting standards does the
Department of Education have? Do they have any at all or are
they like the no-doc loans that we got in trouble with during
the Great Recession?
Mr. Delisle. Right. It is a Federal entitlement, so you are
entitled to the loan if you are enrolled in a school.
Mr. Luetkemeyer. We had an example back in the crash of
2008, where low-doc, no-doc loans were a huge problem, because
you put people in housing who couldn't afford it. And now, you
have people with student loans who can't afford them.
One of the things that we did in my bank when we were there
is, we would sit and advise people. It is kind of like if they
are a youngster, 16 years old, and want to buy a brand-new
Cadillac, and they can only afford a used Honda or whatever,
what do you do? You sit there and explain to them what they can
afford and what they can't afford. That kind of financial
literacy, that kind of financial oversight, that kind of
financial help is not there, I would assume, whenever they take
out a student loan today.
So, Mr. Delisle, can you tell me the process when somebody
takes out a student loan today?
Mr. Delisle. Yes. I think the way that the program has been
designed to try to get at that is to impose some limits on how
much undergraduates can borrow. So rather than saying, what is
the right amount, they say, ``Look, if you are a dependent
undergraduate, your first year of school is $5,500. That is
it.'' It is fairly blunt and unsophisticated, but that is the
policy we have for dealing with that. And as I pointed out
before, for parents and graduate students, there are no limits,
and that is where the problem is.
Mr. Luetkemeyer. By the same token, though, if they go into
an area of study that when they get a job in the real world,
they are going to have difficulty paying back a $5,500-per-year
student loan, they need to be told that. Do you not agree?
Mr. Delisle. Yes. That is the thing.
Mr. Luetkemeyer. And they need to understand what their
ability to actually earn in the real world is there, so they
understand how they can actually pay back these loans. There is
not that kind of explanation in place today, is there?
Mr. Delisle. No. There are some efforts to make more
earnings information available to people who are attending
institutions, but in terms of--no, nobody sits down and says
exactly how much you are going to make. There is no requirement
that they do that. Although, I am a little bit--I wouldn't
imagine that writing something like that in legislation would
be the best way to go either, because--
Mr. Luetkemeyer. Well, I agree. I am old enough that I have
the gray hair to prove it. I remember back in the 1970s, when
the Federal Government was in the business of direct lending to
farmers. That was an absolute total disaster. It absolutely
ruined agriculture for 10 years, absolutely ruined it, because
the government was making direct loans to whomever could walk
in and sign their name, regardless of whether they could
qualify, because if you walked in and you were breathing, you
could qualify, and that is basically what you have here. It is
ruining the student loan lending business, and it has put the
taxpayers on the hook for lots of dollars.
I would argue that whenever you have a blank check and you
can hand it to the--you know, Mr. Heck and Mr. Scott were
arguing here a little bit about the cost of education. Whenever
you walk into a school and say, ``I have a blank check. Do you
want to help fill it out, and let me know what it is like to
get into school here?'', if there is no accountability on the
school's part, or there is no ability of the consumer, the
student, to go out and choose based on cost, what school they
want to go to.
I wanted to go to a better school that cost more. I
couldn't afford it, so I went to a school that cost less, so
that I didn't have this huge burden of debt. That is something
that students need to be told, need to have explained to them,
given to them as an option, and say, ``Look, when you get out,
this is the problem you are going to have with this huge amount
of student debt, or you can go to this school over here which
is not going to charge you that much, and you will have the
ability to repay much more quickly,'' and then they can go buy
the house that Mr. Heck was talking about.
A quick question for you also, Mr. Delisle, with regards to
the contracted services by the servicers. Who sets those
parameters in the contract?
Mr. Delisle. The Department of Education does, but, by
extension, Congress does as well because the servicers have to
carry out--
Mr. Luetkemeyer. I know some of the concerns were about
repayment. I have a chart in front of me that has 50-plus
repayment options that are given to the students--if I am not
mistaken, I have 2 seconds yet. I think this delays, to me, the
question of what we--if we need to put some more options in
here, fine, but they already have over 50 repayment options. If
that is not enough, let's talk about it. But I think we have a
lot of them in there that they can fall into those categories,
that they should be okay.
I yield back.
Mr. Casten. The gentleman from Colorado, Mr. Perlmutter, is
recognized for 5 minutes.
Mr. Perlmutter. Thank you, Mr. Chairman. I want to start
where Mr. Heck left off with his soliloquy and ask you, Mr.
Frotman, what do you and your study see to be the impact on
housing of young people coming out of school with a big burden
of debt around their necks?
Mr. Frotman. The impact of student debt is more than just
what appears on your bill every month, and a significant piece
of that is the impact this is having on housing. There is one
study that showed for every additional $1,000 of student debt a
borrower takes on, they put off buying a house for 2\1/2\
months. We have raised a lot more than $1,000, obviously. And
the impact of student debt isn't shared equally. So, you see a
tremendous impact when it comes to African-American borrowers,
and Hispanic borrowers. And I think as Congressman Heck pointed
out, this is a tremendous way that people build wealth in this
country, and when student debt is impacting their ability to do
so, it should cause us all to think broader about the scope of
this problem.
Mr. Perlmutter. Thank you. And I kind of agree with a
couple of things the gentleman from Missouri, Mr. Luetkemeyer,
had to say--choose how big a loan, whether you can repay it,
make some intelligent decisions at the beginning. But much of
this occurred in the recession when people couldn't find a job
and figured they should go retrain themselves so that they
could find a job. And so, there are--the cohort is much broader
than it used to be, of people seeking student loans, and it was
at a time when jobs weren't available.
I would like to turn to you, Mr. Minhaj, and ask you, in
your investigations and your expos, what sharp practices,
deceitful practices, deceiving practices, manipulative
practices did you all see in connection with the servicing? So
we start with should anybody have taken out the loan in the
first place, and we can disagree about that, and the cost of
higher education. But in terms of servicing, what did you see
where there were improprieties?
Mr. Minhaj. Specifically we saw, when it came to servicing,
when a student who was actively trying to find the best
possible option to repay, when they would get on the phone with
their loan servicer, they oftentimes were given misinformation.
So instead of telling them, ``Hey, you should probably do an
income-based repayment plan,'' because they were trying to get
them off the phone within 7 minutes or less they would say,
``Go into loan forbearance.''
So that is actively students are given bad advice that will
hurt them later on down the road, and they think they are doing
the right thing because the person on the phone told them to;
the expert told them to.
Mr. Perlmutter. Did you find any particular servicers to be
more abusive than others, or maybe not abusive but--
Mr. Minhaj. Navient was really bad. Do you have Comcast?
Navient is like the Comcast of loan servicing. Do you ever feel
that frustration when you are like, ah, they are the worst? You
have no choices because the Department of Education put you in
this arranged marriage that you can't get out of.
Mr. Perlmutter. Okay. Because there are several different
servicers, and we really want to get to the bad apples and to
the sharp practices, or the practices that really hurt the
students. Because first the debt is bad enough, and then to
pile it on gets really impossible, because that gets me to my
third question, and to the lawyers on the panel.
In 2005, we made it very difficult for individuals to
discharge their student loans in a bankruptcy, and actually we
have seen the rise in sort of delinquencies go straight up from
2005. So I would just turn to you, Ms. Harrington, or you, Ms.
Yu, I don't know if you are both lawyers or not, but you seem
like it, so I am going to choose you two to start on that
question.
Ms. Yu. We absolutely believe that there needs to be more
discharge rights for student loan borrowers, and this is one of
the ways in which student loan debt is treated differently than
any other type of consumer product, and borrowers need the
right--they need protections. They need bankruptcy protections
and they need consumer protections, and right now, student loan
borrowers don't have them.
Mr. Perlmutter. Anybody else?
Mr. Minhaj. For what it is worth, I was waitlisted to go to
law school.
Mr. Perlmutter. You were?
Mr. Minhaj. Yes.
Mr. Perlmutter. I could see why.
[laughter]
Because your professors would have had to take you on all
day.
Mr. Minhaj. Actually, I think I was a great student. And
for what it is worth, my fingers are still crossed. I am
waiting. It has been 12 years, but you never know.
Mr. Perlmutter. All right. I yield back to the Chair. Thank
you.
Mr. Casten. The gentleman from Kentucky, Mr. Barr, is
recognized for 5 minutes.
Mr. Barr. Thank you, Mr. Chairman, and Mr. Delisle, since
the theme of today's hearing is holding student loan servicers
accountable, and since some of your colleagues on the panel
seem to be blaming the student loan servicing industry for the
$1.5 trillion student loan crisis in this country, I wanted to
drill down a little bit on the actual role of student loan
servicers in contributing or being part of this crisis that we
are here to discuss today.
Do student loan servicers advise students as to which
school to attend or which degree to pursue?
Mr. Delisle. No. The servicer isn't involved on the front
end of the loan disbursement.
Mr. Barr. Do student loan servicers set tuition rates?
Mr. Delisle. No.
Mr. Barr. Do student loan servicers advise a student as to
how much money to borrow?
Mr. Delisle. No.
Mr. Barr. Do student loan servicers underwrite student
loans at origination?
Mr. Delisle. No.
Mr. Barr. Do student loan servicers actually issue loans to
students?
Mr. Delisle. No.
Mr. Barr. Do student loan servicers set the terms of the
loan?
Mr. Delisle. No.
Mr. Barr. Do student loan servicers set the interest rate
for the loan?
Mr. Delisle. No.
Mr. Barr. Do student loan servicers create the income-based
repayment plan?
Mr. Delisle. No.
Mr. Barr. Who did that?
Mr. Delisle. Congress did, and--
Mr. Barr. Congress did.
Mr. Delisle. --the Department of Education.
Mr. Barr. Did the student loan servicers, and that
industry, did they create the graduated repayment plan?
Mr. Delisle. No.
Mr. Barr. Who did that?
Mr. Delisle. It is in statute, so Congress.
Mr. Barr. Did the student loan servicing industry create
the extended repayment option?
Mr. Delisle. No.
Mr. Barr. Who did that?
Mr. Delisle. It is in statute, so Congress.
Mr. Barr. Did the student loan servicers create the
forbearance option?
Mr. Delisle. No.
Mr. Barr. Who did that?
Mr. Delisle. Congress.
Mr. Barr. Do student loan servicers get paid more for
informing students about the forbearance option?
Mr. Delisle. No.
Mr. Barr. Do they get paid less for informing students
about the forbearance option?
Mr. Delisle. They are paid less when students are enrolled
in a forbearance--
Mr. Barr. So, student loan servicers are actually not
financially incentivized to inform student loan borrowers about
forbearance?
Mr. Delisle. My understanding is that is how the contract
is structured right now.
Mr. Barr. Data show that 9 out of 10 borrowers who were at
risk of default can get back on track with their payments if
they respond to servicer outreach in a timely manner. What
impact has vilification of student loan servicers had on a
borrower's willingness to engage with the servicer?
Mr. Delisle. Well, we have actually seen evidence in the
Consumer Financial Protection Bureau's database of borrowers
being advised to take a forbearance when it is pretty clear
they should, and they don't because they don't trust their
servicer, and they have heard bad things about forbearance. So
they don't do it, and then they default.
Mr. Barr. Okay. So if student loan servicers are not the
problem, let's explore what actually is the problem. Since the
Democratic Congress and the Obama Administration orchestrated
the government takeover of student loans in 2010, the total
amount of student loan debt has exploded. The Federal
Government is now the largest consumer lender and owns or
guarantees 92 percent of the more than $1.5 trillion in student
loans. The remaining roughly $100 billion are private loans.
The number of Federal student loan borrowers has exploded by 50
percent since the government takeover. At the end of 2018, 70
percent of college students graduated with student loan debt.
Private loans, in contrast, with underwriting standards
that actually involve underwriting, that allow lenders to
determine whether or not a borrower has the ability to repay,
have a repayment rate of 98 percent. And, meanwhile, data from
the Federal Reserve suggest that approximately 20 percent of
Federal borrowers are seriously delinquent or in default.
Actually, about 36 to 40 percent that are not fully in
repayment are Federal loans, not private loans.
So, Mr. Delisle, to what do you attribute the difference in
the default rates of private loans versus Federal loans?
Mr. Delisle. The Federal loans are open access. Even
people--for example, if you lose your job, you become
unemployed, you become an excellent candidate for a Federal
student loan.
Mr. Barr. I think all--
Mr. Delisle. On the one hand, that makes sense--
Mr. Barr. I just think all of this--if I could editorialize
for a minute here--I think all of this is Exhibit A, of not
just the total incompetence of the Federal Government but the
victimization of students by Congress, by the Federal
Government, by the U.S. Department of Education.
I know everybody wants a boogeyman, and the student loan
servicers are a convenient boogeyman. But guess what? Look in
the mirror, Congress. Congress created this crisis. Congress
created the forbearance option. Congress gave loans to students
and didn't even care whether or not they had the ability to
repay, and encouraged them to do so.
Meanwhile, we have a dramatic shortage in the skilled
trades. We have a dramatic shortage of nurses. We have a
dramatic shortage of welders. We need to be reorienting
workforce development and career and technical education to
say, look, a 4-year college may be good. We need critical
thinking skills. I am a product of a liberal arts college. But
you know what? We need nurses. We need cybersecurity experts.
We need welders and construction tradespeople. Let's graduate
these people at $100,000-a-year jobs with no student debt. That
might be a better solution than trying to blame an industry
that is just following Federal law created by Congress.
I yield back.
Mr. Casten. The gentlewoman from New York, Ms. Velazquez,
is recognized for 5 minutes.
Ms. Velazquez. Thank you, Mr. Chairman. Mr. Frotman, last
month the CFPB announced the appointment of Robert Cameron to
serve as the private loan ombudsman. Until recently, Mr.
Cameron had been deputy chief counsel and vice president of
enterprise compliance at the Pennsylvania Higher Education
Assistance Authority.
In a statement, you were quoted as calling Mr. Cameron's
appointment ``outrageous.'' Can you elaborate on your statement
and explain why you believe this appointment is outrageous?
Mr. Frotman. It is outrageous but not surprising. We have a
Secretary of Education who has used every tool at her disposal
to shield student loan companies from accountability, and now
the Consumer Financial Protection Bureau has hired, as the top
student loan official, someone from compliance at a company
that is at the center of every scandal that has ripped off
borrowers for a decade.
We have heard a lot today about blaming borrowers or
blaming Congress. Congress or borrowers did not force Sallie
Mae to rip off 77,000 servicemembers. Congress and borrowers
didn't force ACS to lie to public servants. Congress and
borrowers didn't force public teachers to have their loans
turned to grants, in violation of their rights.
And I think what is happening across this country is that
people took on debt to try to get a better life for them and
their families, and some of the largest financial services
companies in America have been ripping them off for too long.
And I think the bills before this committee and this hearing
show that those days need to end.
Ms. Velazquez. And do you have any concern that the Trump
Administration only seems to focus on private student loan
servicers?
Mr. Frotman. Absolutely. I think what we have seen now is
private sector companies, where you have borrowers in all of
your States who have alleged that they have been ripped off,
and this Administration has used every tool at their disposal
to say that the Federal Government can oversee these companies.
Your State attorneys general can oversee these companies.
If this was 7 years ago, and Arne Duncan told your State
AGs that that they were unable to investigate a company for
ripping off servicemembers, you would be outraged, and you
should be. But that is what is happening today, is the Federal
Government is trying to shield private sector companies from
accountability for ripping off millions of people.
Ms. Velazquez. Ms. Yu, do you have any comments?
Ms. Yu. I absolutely agree. The fact that the Department of
Education is shielding servicers from liability, both from the
State AGs and from private borrowers who are attempting to
protect their own rights, I think is outrageous, as Mr. Frotman
said, and I think that is why it is so important for the
borrower bill of rights and the other bills that this committee
is considering today.
Ms. Velazquez. Thank you. Ms. Harrington, in May the
Federal Reserve produced a report on the economic well-being of
U.S. households in 2018, which, among other things, discusses
the state of student loans and other educational debt on the
U.S. economy. The report found that individuals who did not
complete their degree, or who attended a for-profit
institution, are more likely to struggle with repayment than
those who completed a degree from a public or private, not-for-
profit institution, even including those who took on relatively
large amounts of debt. Do you have any sense as to why this is
the case?
Ms. Harrington. Absolutely. Non-completion is a big problem
in this country, particularly, as you mentioned, in the for-
profit college industry. And so what you have is students who
have the debt but not the degree, so they don't have the
ability to then translate that into the job or the income
increase that they hoped, because they were unable to complete.
That students were unable to complete for various reasons is
disproportionately a problem for low-income students who have a
lot of other things that they are battling as they are trying
to attend college. They are caretakers. They are single
parents. They have to have a job as well. So, we have to be
cognizant of the fact that that is absolutely a big issue, and
there is a big issue particularly in the for-profit college
sector.
Ms. Velazquez. Thank you. I yield back.
Mr. Casten. The gentleman from Texas, Mr. Williams, is
recognized for 5 minutes.
Mr. Williams. Thank you, Mr. Chairman, for holding this
important hearing to help to deal with the trillion-dollar
student debt crisis.
In 2010, the government took over student lending. At that
time, the Congressional Budget Office (CBO) predicted that
federalizing this program would generate $58 million in revenue
for the government. This initial prediction by the CBO has
proven to be wildly inaccurate. The student loan debt crisis is
now estimated to cost taxpayers $306.7 billion over the next 10
years. This was a massive miscalculation made by the Obama
Administration. While we can try to single out student loan
servicers for contributing to this problem, the simple fact is
that there are deep-rooted structural flaws that have allowed
the crisis to grow to these levels.
Mr. Delisle, what miscalculations were made back in 2010,
when the government took over student lending?
Mr. Delisle. It relates to the Obama Administration's
decision and a Democratic Congress to dramatically increase the
generosity of the income-based repayment program. Under the
prior version of the program, borrowers paid 15 percent of
their discretionary income, and had their loans forgiven after
25 years. Under the Democratic Congress and the Obama
Administration, in 2010 they changed that to 10 percent of
income and 20-year loan forgiveness.
Here is what that has done to the annual cost of that
program. In 2009, it was about $1 billion a year. Today, it is
$14 billion a year, and that is not what the Obama
Administration promised us. The President's top domestic policy
advisor went on MSNBC and said these changes will not cost
taxpayers any money, and they have gone from $1 billion to $14
billion.
Mr. Williams. All right. Thank you. I think this is a prime
example of the government trying to expand their influence in
areas where the private sector can actually perform the task
better. Many individuals on the other side of the aisle have
been calling for greater government control over larger
segments of the economy, such as allowing the post office to
offer banking services. I hope everyone will see the disaster
that has unfolded when we have allowed the Department of
Education to become the largest consumer lender in the country.
Mr. Delisle, do you think the private sector or the
government is better equipped to handle lending?
Mr. Delisle. I think on the graduate school side, the
private market could do a much better job. In fact, I think
students who already have college degrees, by definition, are
excellent candidates for private lending. And in the parent
loan program, I don't think the Federal Government has done a
very good job at all there.
Mr. Williams. So it would be safe to say you are a
capitalist?
Mr. Delisle. Yes, I am a capitalist.
Mr. Williams. All right. Thank you.
In a recent Bloomberg analysis, it was discovered that
borrowers are collectively paying down about 1 percent of their
Federal debt every year. At this rate, it would take 100 years
to repay the loans. Some people in Washington think that simply
forgiving student debt would solve the issue. However, I think
it is a short-sighted approach to a much more complicated
issue.
I am a small business owner back in Texas, and in my world,
if you borrow the money, you pay the money back. Pure and
simple. So do you think that forgiving current student loan
debt will do anything to ensure that we will not be in this
exact same position for the next generations who take on these
loans, and what message do we send that it is okay to borrow
but not to pay back?
Mr. Delisle. Yes. I think the real problem here, again, is
graduate school. The Department of Education shows that about
66 percent of the borrowers who are using this income-based
repayment program, the one that is supposed to be a safety net
for struggling borrowers, borrowed to go to graduate school.
Many of them are projected to earn incomes of $100,000 and
above.
So this loan forgiveness program that was supposed to help
struggling borrowers has essentially become a tuition
assistance program for high-income graduate students, and that
is another example of where the estimates from the Obama
Administration were wildly off. They never told us that that is
what was going to happen.
Mr. Williams. Like I said, , borrow the money, and pay it
back. Pretty simple formula.
Mr. Delisle, on page 7 of your testimony you talk about how
the forbearance lawsuit against Navient from the CFPB is
misguided. Can you please elaborate on this statement?
Mr. Delisle. Yes. I think there are many instances where
forbearance is superior to income-based repayment. Many of the
panelists today have told you it is one or the other. In fact,
here is the amazing part. You can actually get a forbearance
while using income-based repayment. You can use them
simultaneously. In fact, many borrowers call their servicer,
and they are using income-based repayment, and they say, ``I
still can't afford it.'' And what do they do? The servicer
offers them forbearance. In fact, the servicer can see that the
borrower is already using forbearance. On the kinds of phone
calls that you are listening to, you are not privy to that
information. So the servicer is actually making the right
decision, realizing there is no more option to lower this
person's payment. Forbearance is the best option.
Mr. Williams. Thank you. I yield back.
Mr. Casten. The gentleman from California, Mr. Sherman, is
recognized for 5 minutes.
Mr. Sherman. Our prestigious and elite educational
institutions are revered. They house the smartest and most
articulate professors and administrators our society has. So,
no smart politician would attack or criticize these revered
institutions.
Fortunately, this committee includes at least one low IQ
member, so let me say that tuition is too damn high. It has
doubled, in real terms, adjusted for inflation, since 1989. Is
it any better? Health costs have also gone up faster than
inflation, but at least, you live longer. At least, the
operations are better. Are today's professors any better? I
don't know. From 2003 to 2017, a 48 percent increase in
tuition.
Now these elite universities, and others, are able to
create a self-perpetuating model that claims that they are
accomplishing a lot. They admit only the folks they think are
the smartest, the most likely to succeed, and then they brag
that their graduates are smarter and more likely to succeed
than the people who weren't admitted to their institution. And
then they say that is because they provided them with such an
outstanding education.
Maybe we could do a test and just take all those admitted
to Harvard and put them on an island for 4 years, take them
back, they continue to be smart, they continue to, in most
cases, be well-connected, from rich families, and guess what?
Twenty years later, they are going to be rich people.
Community colleges in California, for in-State students,
charge $1,000 a year, in today's money; it was less back when I
went to community college. The education is just as good. But
what they suffer from, as the employers know, is that all of
the best students are trying to get out of community college
and get into something more prestigious.
This is the investor protection committee. If some outfit
got people to invest $100,000 in Zimbabwe currency, we would be
all over them. If some outfit gets them to invest $100,000 in
an art history degree, we think that is fine. We just want to
make sure that the Federal Government ultimately pays for it.
And finally, there are the struggles of families with
student debt. What about the families who don't go to college
at all? They are making less money. They, too, are delaying
starting a family, buying a house, and they are from families
who are less wealthy than those who are struggling with student
debt.
So we have a lot of issues, but we have limited
jurisdiction here. Our jurisdiction is over the servicing
process. One idea I will throw out there is, why don't we allow
people, borrowers, to choose another servicer? If you are
assigned to one servicer and that servicer isn't doing a good
job, you should be allowed to say, ``I want this other
servicer.'' Let the servicers compete.
But, believe it or not, I have a question for Mr. Delisle.
Private student loan lenders make 18 disclosures on 3
separate occasions before the loan is made, providing more
personalized information than is provided to those borrowing
Federal direct loans. They are going to be on the hook for the
loan either way so you would think the borrower would benefit
from disclosures, whether they owe the money to one outfit or
another.
Would disclosures for Federal loans like those made to
private student loan borrowers lead to better outcomes, and
would it make sense to have disclosures on the Federal loans be
made during the course of study rather than just at the
beginning and the end?
Mr. Delisle. We have a lot of disclosures already. I showed
you the forms.
Mr. Sherman. Yes. I am talking about the distinction
between the Federal loans and the private loans.
Mr. Delisle. I don't think you are going to do much good in
providing borrowers more information at this point. I think we
are at information saturation in the Federal loan program.
Mr. Sherman. So should we provide less to those who have
the private loans, or more to those who have the Federal loans,
or should we continue to have the disparity?
Mr. Delisle. Well, look. A borrower right now in the
Federal loan program has to sit for 70 minutes of entrance and
exit counseling.
Mr. Sherman. Okay. I will ask another witness. Mr. Frotman?
Mr. Frotman. What I have seen is that people are taking on
debt because it is the only way they could get the degree. This
isn't a bootstrap moment. This isn't a tightening the belt.
People are taking on debt because they are going to school, and
this is the only way they can.
Mr. Sherman. I agree. Come to Pierce College, $1,000. I
yield back.
Mr. Casten. The gentleman from Arkansas, Mr. Hill, is
recognized for 5 minutes.
Mr. Hill. I thank the chairman. And I thank the witnesses
for being here on this issue. Certainly, all of us sympathize
with the challenges that student lending has brought to a lot
of families across our country. I agree with a lot of the
comments today that this really isn't the jurisdiction of this
committee, and that this kind of debate really should be held
firmly over at the Education Committee. And to paraphrase Mr.
Frotman, you should know the names of who owes apologies to
these families across the country. That is important.
First of all, State legislatures. State legislatures, who
don't fund higher education as they had over the entire post-
war environment. State legislatures, who instead of doing that,
have regressive taxes called lotteries, and hand out
scholarship money.
The Congress and the Education Committee, and the
Affordable Care Act proponents that sold a bill of goods to the
American taxpayers and the American people, saying that this
was a reform that would benefit families and pay for the
Affordable Care Act. They promised $58 billion over 10 years to
positive contribution to pay for the ACA. What is it? It is
costing us $306 billion negative. So a $306 billion negative is
what CBO says the student loan system has contributed.
An apology from colleges and universities, who aren't
educating people in that student aid office or in that
admissions office about the cost of college and all of the ways
to go about it. They don't do financial literacy training,
which is why I support that bill so strongly with my friend,
Bill Foster, from Illinois, for Pell and non-Pell, and all the
student loan people that they have some sense of where they are
going with this. Those people, our families are owed an apology
for that group of people who have contributed over a long
period of time to this crisis.
I will also say that families bear a responsibility for
sort of knowing what they get into. I agree with you that this
is presented, for a lot of families, as this is the only way
they are going to go to higher education or a 2-year school. I
agree.
And this gets into the comments we have all had about
rising tuition at these rates. The rate of higher education
since 1975, per annual income, is higher than the health care
per annual inflation rate that we had collectively complained
about as families. It is higher. And I would submit that
scholarship lotteries, taking away State legislatures' support,
promoting money with no strings attached, all of those things
subsidize what? Higher tuition.
So I admire people like Mitch Daniels at Purdue who says,
``We are freezing tuition. We are going back to basics to try
to make sure we are doing a better job.'' And so, our
administrators owe us that.
But fundamentally, there is no underwriting in these loans.
I was at a panel yesterday talking about algorithmic lending,
credit underwriting, and someone said, ``Boy, we have a
terrible, atrocious problem with our student lending. We try to
underwrite the loans on the back end, because there is no
underwriting on the front end.'' And that is why these
servicing companies have so many complaints about it.
And finally I will say, as a community banker for a long
time, nothing broke my heart more than a story. A nurse came to
me. Her dad had asked her to come see me. She made $38,000 a
year, working 4 days a week as a nurse at one of our big
hospital systems. She went to the University of Arkansas,
Little Rock, and she was a single mom, with a child. She lived
with her mom, so she doesn't have a housing expense. She had
$170,000 of student loan debt. Why? Pay for your rent. Pay for
your child care. Pay for your food. Pay for room and board. Pay
for all of these expenses plus tuition and books.
So that is why I think financial literacy is so, so
important here, and that personal responsibility.
This is an interesting hearing. I thank you for bringing
these subjects. I am sure the CFPB can do more about
transparency. Maybe we can improve the forms that accordion
out. We were promised, in 2009, that that would be a principal
mission of the CFPB--transparency, shortening forms, and making
it easier for consumers.
But the fundamental issue, Mr. Chairman, is this should be
dealt with in the Education Committee. We need to reform this
plan and we need to let families get out from underneath this
crushing misdirection of government policy in student lending.
I yield back.
Mr. Casten. The gentleman from New York, Mr. Meeks, who is
also the Chair of our Subcommittee on Consumer Protection and
Financial Institutions, is recognized for 5 minutes.
Mr. Meeks. Thank you, Mr. Chairman.
This is a very, very important subject matter for me. Being
a kid who grew up in public housing, not having any family
member prior to me able to go to college, parents not making
much money. I think my dad at the time might have made $125 a
week. But they had hope for their son, their oldest son, to
break the barrier and go to college.
They surely couldn't pay for it. Had I gone to a bank at 18
years old and said, ``Give me a loan,'' and they were going to
go through a whole lot of pieces about whether or not I could
pay it back, I would not have gotten a loan. I would not have
had a chance at getting an education. At 18 years old, never
worked in my life, parents poor, can't contribute anything, I
would have been denied an education and, therefore, would not
be sitting here today because the most significant thing to me
is an education.
I left, and I apologize, because there was a ceremony going
on. That's why I have this Kente cloth on. About 400 years,
when the first indentured Africans were brought here as slaves
and talked about one of the first things that they were denied
was the right to read and get educated. Anything to keep them
enslaved was to prevent them from having an education, and that
is ultimately what this is about.
If you are rich, you are going to qualify for a loan. You
wouldn't need to get one, but you will qualify. You will meet
every metric. But if you are poor, you are in trouble.
And I see every other nation focusing on their young to try
to make sure they are doing everything that is possible so that
they get an education because that is the key to their future.
And we talk about being in a competitive world, if we are
leaving the majority of our individuals uneducated because they
can't afford an education, then we are endangered as a country.
I think all of you on the panel will agree that when we
talk about the current student debt, it is a crisis. Is that
not correct? It is a crisis. It is a crisis for America.
Mr. Frotman, let me ask you, and I hear my colleagues on
the other side talking about all this. But if this was a
crisis--and I think it is a crisis for us--right now, the
Government of the United States is spending, and I guess they
call them socialists, but it is $18 billion to farmers because
of tariffs and other policies of the Administration. What would
$18 billion do to help the crisis of student debt?
Mr. Frotman. It is a great question, Congressman. I have
traveled coast to coast talking to student loan borrowers in
blue States and in red States, and they don't want apologies,
they want help. They don't want to hear about a President who
hasn't been in office in 3 years or policies from a decade ago.
They are struggling now.
And this is the committee that ensures that those who took
on the debt don't get ripped off, and they are getting ripped
off. They are calling their student loan company and getting
bad information. They are getting harassed by debt collectors.
So, $20 billion, sure. But this is the committee that
stands up for those people who have taken on debt to try to
make a better life, and student loan borrowers need you to do
it again.
Mr. Meeks. Would it help, because the FHA does not adjust
to an income-driven repayment plan, which allows borrowers to
pay a reduced amount for their student loans each month based
on their income and family size. Instead, debt-to-income ratios
are calculated using debt figures higher than the actual figure
people are paying. This makes it difficult for many student
borrowers to obtain an FHA mortgage.
Shouldn't the FHA base debt-to-income ratios on the amount
student borrowers actually pay?
Mr. Frotman. Yes.
Mr. Meeks. Ms. Yu?
Ms. Yu. Absolutely.
Mr. Meeks. Ms. Harrington?
Ms. Harrington. Yes.
Mr. Meeks. Mr. Minhaj?
Mr. Minhaj. Sure.
Mr. Meeks. Mr. Delisle?
Mr. Delisle. Well, I think this is a good illustration of
two complicated Federal programs not working well together
because they are complicated, right? That is the source of this
problem.
Mr. Meeks. I will go back to my other issue because the
focus is--and I see I am out of time. So I am not going to get
a chance to do it, because he is anxious to bang that gavel.
[laughter]
Mr. Meeks. I yield back the balance of my time.
Mr. Casten. The gentleman from New York, Mr. Zeldin, is
recognized for 5 minutes.
Mr. Zeldin. Thank you, Mr. Chairman, and Ranking Member
McHenry.
And I actually am going to want to pick up where Mr. Meeks
just left off in a moment. I don't think anyone disputes that
there is a student loan crisis in our country. A recent study
in my home State of New York shows that the average graduate is
graduating with approximately $30,000 in student debt.
The Federal Government nationalized student lending as part
of the Affordable Care Act in 2010. Since then, the Federal
Government has become the largest lender in the nation because
it owns or guarantees, as been pointed out earlier, $1.6
trillion in student loans, and as has been said by others, only
8 percent is held by private lenders.
At home in my district on Long Island, we have the next
generation trying to achieve the American Dream to be able to
start their family, to buy a home, to afford a car that would
get them to work. The burden of student debt certainly is a
huge obstacle.
It is clear we have a problem. Students are borrowing
exorbitant amounts of money, and many don't fully comprehend
what they are getting into in the first place. I would use this
opportunity to put in a good word, as Brad Sherman was pitching
a local college, we have the State University of New York. We
have the City University of New York. In my home county, we
have Suffolk County Community College.
I was actually recently at a graduation ceremony for a 2-
year graduate at Suffolk Community College, and because he made
the most of his experience, he was actually transferring to
Cornell on a full ride, and he was going to have an Ivy League
degree because he applied himself well at this great community
college locally.
There are an incredible number of requirements placed upon
lenders in the private sector when they originate loans in
consumer credit markets, notably the requirement that the
lender approve a borrower's ability to repay at the time of
origination. It doesn't make sense to me that we wouldn't hold
the Federal Government to the same standards. The Federal
Government lends to anyone without regard for their ability to
repay.
Disclosures for key loan terms, like APR or future monthly
payments, are not required on Federal student loans either. I
thought Andy Barr's line of questioning was great, as was
French Hill's recent remarks. Though it is not in this
committee's jurisdiction to pass here, I introduced the ExCEL
Act, H.R. 4079. This is where I want to be able to pick up
where my colleague from New York, Gregory Meeks, just left off.
I believe that the system should allow people to be paying
off their loan based on their ability to repay. For some
people, they will be able to repay in a shorter amount of time
than others will.
There are periods of low income or unemployment over the
course of your career. This is where you can rack up a lot of
defaults where you owe a lot of money. We need to help people
get through those periods of low income or unemployment so that
they are not defaulting and that they are able to more quickly
get back up on their feet.
Also, as people are seeing increases, if we were able to
move into a better system of factoring in ability to pay, as
somebody is getting a promotion and they are getting more of a
salary, you want to make sure that the increase that they might
be paying towards their student loan is one that doesn't remove
the incentive for being able to get that step-up in salary. So,
there should be an increase there.
Also, people need time to get their feet under them. You
graduate, you get your job, and your first bill quickly comes
due. But your ability to make that first payment in Year 1 or
Year 2 is not the same as your ability to be able to make that
payment, say, in Year 7 or Year 10 because now you are further
along the career ladder. So, this flexible repayment approach
focuses on the student's ability to repay loans based on their
income to ensure the student is not being set up to fail.
Everyone benefits when borrowers and lenders operate under
a rational incentive structure, especially when it comes to
servicing and loan repayment. Borrowers, servicers, and the
taxpayer all benefit when borrowers stay current with their
payments.
This committee may not have--well, this committee does have
purview over private student loans and their servicers. As
French Hill pointed out, there is a lot that needs to get done
under the jurisdiction of the Education and Workforce
Committee.
Mr. Delisle, I know you may not be able to comment
specifically on the merits of the ExCEL Act, but what kind of
lessons can the Federal student loan originating servicing
market learn from the private loan originating servicing
market?
Mr. Delisle. I want to get at something you mentioned about
the need for flexible repayment options in the student loan
program. And I should point out that we have them. We have this
income-based repayment program.
But ironically, it is actually why we are having--my
understanding is, why this hearing was called. Many of the
borrowers who are complaining about student loan servicing are
actually complaining about the terms of the income-based
repayment program.
They say, ``I have been making payments for years on time.
I have never missed a payment, but my balance keeps going up.''
And they think the servicer is pulling a fast one on them. That
is actually how this program was designed to work.
Mr. Zeldin. I am out of time. But I just want to point out
that we need to make some changes to that because it is not
working for the government, it is not working for the
borrowers, and many others.
I yield back.
Mr. Casten. The gentleman from Texas, Mr. Gonzalez, is
recognized for 5 minutes.
Mr. Gonzalez of Texas. I don't have a lot to comment. We
shot arrows at each other and talked about all the issues that
are wrong. If I had to ask one question, it would be, what is
the solution?
And I will ask Mr. Frotman. If you had to come up with a
solution to the grave issue that has impacted everyone--I was a
student loan recipient. I wouldn't have been able to go to
school without one. I had $100,000 in student loan debt when I
got out of law school, and had to live in a matchbox apartment
and really just hunker down to eventually pay that debt. And
you know, I did it with much gratitude because I certainly
wouldn't be here if it hadn't been for that opportunity.
But clearly, something is really screwed up in this country
when it comes to student loan debt, and I don't know that we
have the answers to it. Maybe some of you do. So, I want to
hear your opinion and others on the panel.
Mr. Frotman. Quickly, I think there is some truth to the
fact that a lot of this problem doesn't rest with this
committee, but a lot does. I think what we have seen is that
student loan borrowers are getting ripped off. And one of the
reasons why they are getting ripped off is because they don't
have the same rights and protections as if they were paying
back a credit card or paying back a mortgage.
We have heard a lot about how servicers are just doing the
right thing. Part of the lawsuit with all the States and the
CFPB against Navient documents the incredible incentives that
these companies have to try to drive a profit. There was one
employee at Navient who described it this way, ``Do I help this
borrower and answer their questions, or do I rush through it
and afford my groceries?''
These are the incentives that the call reps at these
companies have to give bad information, no information, or
little information at all. And borrowers need rights and
protections that are enforceable so when they get ripped off,
they can stand up for themselves.
Ms. Yu. I absolutely agree. I think that there are numerous
problems, and I sincerely do hope that we solve the tuition
crisis. However, likewise, the borrowers that we work with,
they took on this debt because they wanted to improve the lives
of their families, and now they are saddled with that debt.
Today, there is a hearing in the 11th Circuit where Great
Lakes is arguing that they don't have to be held accountable
when they commit fraud and misrepresentation because it is
preempted by the Higher Education Act. And I think what this
committee needs to do is to say that borrowers should not be
cheated and lied to.
Ms. Harrington. I would agree with my colleagues. I think
that student loan borrowers deserve and need the same
protections that all consumers are entitled to in this country.
I think that the solution to the student debt crisis is working
on both front-end and back-end affordability, and that is what
we are talking about here.
And affordability absolutely includes at the back end
strong servicing protections and quality servicing for all
borrowers. We do need to increase the amount of the Pell Grant.
We do need to increase investment in HBCUs and MSIs. We do need
to do a lot on the front end, but this committee has a big part
to play in making sure the CFPB can actually protect student
loan borrowers.
Mr. Gonzalez of Texas. Thank you.
Mr. Minhaj. Mr. Gonzalez, I am very passionate about this
issue because I am lucky. When I left college, I didn't have
any student loan debt because I have immigrant parents, and
they made me live at home with them.
So, I don't have crippling student loan debt. I have
crippling emotional debt. And Congress has yet to stand up--
Mr. Gonzalez of Texas. We all do.
Mr. Minhaj. --and do anything about it and stand up to my
parents and say what you did was wrong. But you don't have to
have crippling student loan debt to have empathy for people who
are investing in their futures, and that is why I am here
today.
Mr. Gonzalez of Texas. Thank you.
Mr. Delisle. I mentioned in my testimony that I think we
need a simpler system. The program has too many options, too
many overlapping features that are just too complicated, even
for Congress to anticipate the confusing way they interact and
trip up borrowers. And actually, many of them almost look like
the borrower is being scammed, where a borrower says, for
example, ``Wait, my payment increased, and I didn't even know
it was going to do that. How come I have been paying the same
payment for months, and all of a sudden, my payment
increased?''
Those nasty student loan servicers. Actually, it turns out
that the borrower is in the graduated repayment plan that is
spelled out in statute, where their payment increases every 2
years. The program has been designed to look like a scam to
borrowers. So, I think the big solution is to stop blaming
servicers and get busy fixing the terms of the program.
Mr. Gonzalez of Texas. Thank you. I yield back.
Mr. Casten. The gentleman from Georgia, Mr. Loudermilk, is
recognized for 5 minutes.
Mr. Loudermilk. Thank you, Mr. Chairman.
And truly, this is a crisis. We are seeing and hearing it
all around. Before I start my questions, Mr. Chairman, I would
ask unanimous consent to insert into the record two letters
regarding the student loan crisis by the Consumer Bankers
Association identifying the crisis and some suggested solutions
to it.
Mr. Casten. Without objection, it is so ordered.
Mr. Loudermilk. Thank you.
I was meeting with some constituents about 3 years ago back
in my district, and we were talking about the void we have in
jobs in the nation. And I was talking about the need for a lot
of technical skills.
And after I got done, this young lady came up to me, and
she said, ``Look, I have a twin sister. We both graduated high
school at the same time. I went to a tech school, and went
right into the workforce. In 4 years, I have made more than my
sister has in student debt at this point.'' It was incredible
to me that after 4 years in a professional field, that this
young lady who went to tech school, now has made more than her
sister had in student debt.
I started looking into it more often and realized that we
truly do have a crisis, and there is a lot we have to do.
Mr. Frotman, you said something earlier that I want to
follow up on. You said students have to have a loan to go to
college. Is that true?
Mr. Frotman. Sorry if I wasn't clear enough. I was saying,
when I talk to people over the last half decade, that is what
they feel like. I think Hua Sun said this best, which is people
don't feel like they have a choice. For as long as I can
remember, and I am sure for as long as many of you can
remember, it was go to school, take on the debt.
Mr. Loudermilk. Right.
Mr. Frotman. And I think what is happening is that for
enormous swaths of American society, that decision is premised
on whether or not you take out a loan.
Mr. Loudermilk. So it is more that people feel than
actually--do we happen to know what percentage of students
actually graduate with no debt? Does anybody know what that is?
Ms. Harrington. In a 2016 class, 70 percent of graduates
had student loan debt. So this is a--
Mr. Loudermilk. Okay. So about 30 percent?
Ms. Harrington. This is a vast majority of students, and it
is something that is no longer a choice. Sixty-five percent of
jobs by just next year are going to require some form of
postsecondary education. That is only going to go up.
Mr. Loudermilk. Okay. I was just wondering because of that.
I started thinking about how 2 of my 3 children graduated 4-
year college institutions with zero debt and no scholarship.
They actually worked--I couldn't pay for it. They actually
worked and paid for their tuition, even from some colleges you
would recognize.
Mr. Delisle. Congressman, if I might add to that statistic?
Mr. Loudermilk. Yes.
Mr. Delisle. Many of the people who take out student loans
come from high-income families, which should tell us that
people aren't necessarily taking out student loans because they
have to. They are making choices. They are maybe making choices
to attend more expensive schools. They may think the government
is offering such an incredible deal, that they can't turn it
down.
So I think it is important that we tend to cast student
debt as this thing that only low-income people take on, and it
is this huge burden, but many high-income families are choosing
to use it.
Mr. Loudermilk. Let us follow on what you are talking about
there. So in their truth-in-lending that they have received--I
assume they receive a truth-in-lending statement so they know
what the repayment requirements are. You are talking about
people calling back and saying, ``Why did my cost go up?'' Are
they receiving documentation showing the requirements that they
have to repay this loan?
Mr. Delisle. Yes, they are receiving an overwhelming amount
of documentation. They also need to sit for about 30 minutes of
entrance counseling and about 30 to 40 minutes of exit
counseling to get the loan, sign a master promissory note. And
then any time they use a different repayment plan, they are
also signing another form.
So, we don't have an information deficit. We have as much
information as we have options in this program, which is way
too many.
Ms. Harrington. Sir, could I add something?
Mr. Loudermilk. Yes.
Ms. Harrington. Yes, there are high-income individuals who
do take out student loans. But there are a significant number
of low-income individuals who have to take out student loans,
and that is where the issue lies. Ninety percent of the
defaulters are low-income students who were eligible for Pell
Grants. So, those are the folks who are struggling to pay the
most, and that continues to be the case because the student
debt has not taken them to where they are supposed to go. We do
have issues with this system.
Mr. Loudermilk. Do you agree with Mr. Delisle that they do
know going into it what the requirements are of repayment,
their interest rates, their payment, the escalating payments?
Is there enough disclosure there?
Ms. Harrington. I don't think this is a question of
personal responsibility or more disclosure. This is a question
of how we make sure that private actors are acting in the best
interest of consumers and students and, therefore, taxpayers.
Mr. Loudermilk. I think it is in a sense if--I was under
the impression that they were just being given loans by statute
or whatever, and they didn't know what they were getting into
and the requirement to repay. So, that would be my question.
When you buy a house, the TRID requirements are so
expansive with the truth-in-lending that we have to have
software to do it.
But anyhow, I see that I am out of time. I can submit the
rest of my questions for the record.
Thank you.
Mr. Casten. The gentleman from Florida, Mr. Lawson, is
recognized for 5 minutes.
Mr. Lawson. Thank you, Mr. Chairman, and witnesses, welcome
to the committee.
This is very interesting to me because I have probably over
100,000 students throughout the Fifth Congressional District,
so I talk to students all the time about problems they have. I
didn't have any student loans because I was an athlete, but a
lot of my friends who were in the dorm at night would be
talking about what is going to happen to them and how they
would have to pay it back.
I have taken a great deal of interest in this particular
area, and I don't think the Federal Government caused any
problem because--and Congress because we are the good guys, and
everybody else is bad. But I have introduced several bills to
address various angles of the student loan problem.
These include a bill to refinance Federal loans with a
fixed interest rate, excluding income of dependent students in
the expected family contribution calculation, and most
recently, a bill to extend the interest-free grace period for
Federal loans. And the reason why I introduced those is because
6 months after the student graduates from college and they
don't have a job, they are expected to pay. So, hopefully, we
can delay it for at least a year so you can give them the
opportunity to get a job.
And also, you can refinance just about everything. So, they
should be able to refinance student loans. I would like to hear
the panel discussion on delaying student loans for at least a
year so they can find a job and the ability to refinance
student loans.
And I will start with you, Mr. Frotman.
Mr. Frotman. I think we often get stuck in this mindset
that you need to have a silver bullet to solve every problem.
There is no silver bullet to solve a $1.5 trillion student loan
problem. So I think bills like these should be encouraged. I
think we need to try to attack all of the different ways that
student debt is not only impacting individuals, but our larger
society.
I would love to learn more about these bills and work with
you.
Ms. Yu. Thank you for your question.
Certainly, borrowers need more assistance getting off the
ground. Interest rates for some borrowers are way too high, but
also, for the borrowers that we see, it is the fact of their
debt. It doesn't matter if it is $5,000 or $50,000, whether or
not it is a 5 percent or 10 percent interest rate. The
borrowers that we work with are just struggling with debt all
around, and they need to make sure that they are able to access
the programs that already exist.
They would greatly benefit from income-derived repayment.
They would greatly benefit from a lot of the cancellation
programs that already exist, and they are just not able to
access those because of lack of consumer protections.
Ms. Harrington. I would agree with my colleagues, and I
would just add that there definitely does need to be
streamlining and improvement of the income-based repayment
program, to make it actually affordable, based on 8 percent of
discretionary income, not 10 percent, and increasing the line
above which income starts to 250 percent of the poverty line.
There are a number of things we can do, making it one plan.
But again, all of that only matters if students actually can
access these programs and plans, if their servicers are
actually doing their job and if they have the information they
need to be successful.
Mr. Minhaj. I am not an expert when it comes to
refinancing, although I am very good with Microsoft Excel and
macros.
Mr. Delisle. You can refinance a Federal student loan. A
Federal student loan has no prepayment penalty. So you are free
to go out into the private market and shop for a better rate,
obtain the better rate, use all the proceeds from the new loan
to pay off the old loan, and you have refinanced exactly like
you would refinance a mortgage.
I don't know why it is this common misperception that you
can't refinance a student loan. It is actually happening all
the time. It is happening right now.
There is a company called SoFi sending out mail all over
the place saying, refinance your Federal student loan with us.
You wouldn't build a whole company around something you can't
do, right? So I think there is ample evidence that you can
actually refinance a Federal student loan.
Mr. Lawson. With everything that I have heard from you this
morning, you all are the good guys because it seems like
everything that has been discussed here, students don't know
about it, and the people who have been on this panel and
talking about it, and even some of the Members, have no idea
about all the things that are available for student loans.
What I have heard is oftentimes, they are not able to
refinance a student loan, and the Federal Government should not
be making a profit off the backs of students. And I know I am
running out of time. I would like to have more discussion with
you in the future.
And with that, I yield back.
Mr. Casten. The gentleman from Ohio, Mr. Davidson, is
recognized for 5 minutes.
Mr. Davidson. I thank the witnesses, and I thank the
committee for talking about a major problem in the country, the
student debt crisis. We have seen it accelerate in the past
decade, and I think we can go back and pinpoint the point in
time when the rate of growth of the problem began to
accelerate.
The question is, do we have the resolve to actually go to
the root cause, or do we want to do things the way Congress
normally does, which is akin to the fire department showing up
at a burning building and looking at the building burn while we
blame one another or try to figure out whose fault it is. We
just need to put out the damned fire.
And so when you look at it, how do we do that? The
structure in Congress actually prevents getting to the root
cause. We have a committee that can only deal with the
jurisdiction of servicers. We are sitting here talking about
the issue of how--Mr. Barr highlighted the very limited ability
of servicers to actually end this problem. We are spending
hours talking about servicers here instead of talking
holistically about the root cause of the problem and how do you
deal with that.
What we did is, as a country, we decided that we wanted
students to be able to get loans that the private sector
wouldn't make because the default rates would be too high. When
I was a young person, and I looked at how much debt I would
need to take on, and I looked at the alternatives I had, one of
the reasons that I loved my options--one of the reasons I chose
to march for free college back in the day is because the Army
had the College Fund. And I was able to go to the Army and have
a path to not go into debt as my first act as an adult, but to
defend our country.
And that led me to go to the United States Military
Academy, and all that is part of why I am here today. So I do
want to thank the American taxpayers who paid for me to have a
great, high-quality education.
I think when we think about the taxpayers of America, we
need to forget about the forgotten men and women who are
actually being defrauded here, and it is the taxpayers. Because
they are fronting all this money for no sound underwriting to
people who do not have a realistic expectation of paying the
money back.
Now that doesn't mean that those students are committing
fraud, though some may be. But they do not have a realistic
prospect of repaying the loan. And when you have market
principles at work, people don't make the loan. They don't.
They say, you know, I love you, it is not about you as a
person, it is that you do not have a realistic expectation of
paying for this.
And when we lost those principles, that is how we crashed
the housing market in the United States, and that is how we are
crashing the education market in the United States. There are a
lot of people being hurt because lawmakers are making half-
baked solutions to real problems because the way this place is
structured with jurisdictions doesn't allow solutions to the
whole problem.
We should be structuring and say, the student debt crisis
is a problem. We have a committee for that. That committee has
jurisdiction to deal with the whole problem.
We should talk about healthcare and say, the status quo is
broken. We should have a healthcare committee. It is 20 percent
of the U.S. GDP, 20 percent. And instead, we divvy it up
amongst three committees.
You look at immigration, same story. So on and so forth,
the spending problem, the broken welfare system, the means-
tested programs, the poverty assistance that we have, divvied
up amongst 12 of 16 committees. You can't even get a bill to
holistically deal with it to appoint a commission, four
Republicans, four Democrats. You can't cut spending. You can't
launch new programs, but you could refine it to fix the benefit
cliffs that are in there. No one can convene it because there
is not a single committee with jurisdiction.
And yet, Congress sits here. We demonize each other. We
point cameras and say, see, here is the problem. That is the
problem, but we don't go to the trouble to put out the fire and
solve the problem.
If we want to do it, colleagues, we have to change the
structure of the way this place works and do bills that get to
the root cause because the American people are being defrauded.
We are going to bankrupt our country by spending more money
than we have the same way these students are being bankrupted
right out of the gate, the earliest stages in life, by taking
on more debt than they can afford. That is exactly what this
nation is doing today, and we need to change the broken status
quo, and that starts right here in this body.
I yield back.
Chairwoman Waters. Thank you.
The gentleman from Guam, Mr. San Nicolas, who is also the
Vice Chair of the committe, is recognized for 5 minutes.
Mr. San Nicolas. Thank you so much, Madam Chairwoman.
I don't think anybody's hands are clean in all of this. I
don't think anybody's hands are clean. I think that politics
has a way of making us try and pigeonhole the problem and make
it be the previous guy's problem or try and identify some other
reason why things are the way they are. But the reality is that
our entire system is kind of designed to create this mess that
we have here today.
Ms. Harrington, when you say 90 percent of the defaulters
are low-income Pell Grant recipients, I think that speaks
volumes to how systemic this problem is. We have people in this
country who are looking for opportunities. They see education
as the way to go, which is how we are all raised. We are all
raised and told to go and get a good education. It is going to
open doors for you, and it is going to create a better life
than the life that we have now.
We have these, as Mr. Sherman pointed out, institutions of
higher learning that see all this money available, and they
keep increasing tuition rates. As a local lawmaker back home, I
remember trying to introduce legislation to reduce the amount
that our students had to pay for tuition. And one of the
individuals in the university said, ``We don't want to drop it
below the Pell Grant rate because that is free Federal money
that we are bringing in, and we want to bring that money into
the territory.''
And you kind of sit back and you look at how the system is
almost designed to make the pursuit of capital on the front end
the priority and the pursuit of the American Dream for all
those people trying to find whatever way they can to get to
where they want to go kind of falling into that trap. And of
all things, I think that this is ultimately an indictment on
our inability to provide significant financial literacy
education in our community so that people don't make these
individual choices that are hurting them.
But when the whole system is almost designed where you need
to go and you need to attend the best possible university you
can just get accepted into so you can possibly get the best job
that you are going to be able to get after you graduate, and
then you borrow as much money as you need to borrow in order to
get from here to there, it is that classic case of the ends
justifying the means.
Unfortunately, what has resulted from all of that is $1.5
trillion in student loan debt and a lot of people who took that
option trapped. They are trapped because now they have this
debt, and it is affecting the debt-to-income ratios. They are
not able to go out and borrow for a car to drive to work or to
borrow to buy the home that they are dreaming of for their
families.
And as much as we talked about systemic risk in this
committee, and as much as this committee has done so much work
to address it when it was affecting the big banks, we need to
really ask ourselves the hard question: Is it systemic risk for
an entire generation to be lost to student debt and to hold
them all back because they fell into a trap that our society
has kind of created for them?
So, we have asked the question of what can we do, and I
know that the committee has kind of stayed focused on the
servicers. And definitely, there is a service gap that we need
to fill. But I wanted to ask the $1.5 trillion question, and
this is the political question that I think a lot of people are
talking about.
There are some broad-stroke solutions that people mention,
who are running for higher office, but I wanted to ask you
folks, what would you do about the $1.5 trillion, I don't want
to say elephant or donkey in the room, but just the $1.5
trillion giant that we are all facing here? How do we address
that?
Mr. Frotman. I think it starts, first off, in hearing rooms
like this. I think for years, when we started doing this work
at the Consumer Financial Protection Bureau and you would talk
about the impact of student debt, everything would always
revert back to, let me tell you how we are going to make
college more affordable for the next guy. An entire generation
felt like we were writing them off.
I am not trying to evade the question at all, but we just
need to talk about the impact that this debt is having and then
come together and realize that it is just an unacceptable
outcome for 45 million Americans who have seen their chance at
the American Dream hampered by student debt. And I think it
starts there.
It starts by talking about housing, impact on buying cars,
on racial wealth gap, on income inequality. Because I think we
hear about this issue sometimes talked about as like a
generation eating too much avocado toast, right? And nothing
could be further from the truth. The fastest-growing segment of
student loan borrowers are older Americans.
I think we need to come together and realize that this is
impacting huge swaths of the American population and the
American economy.
Mr. San Nicolas. Well, I am almost out of time. Does
anybody have a solution? We were talking about forgiving
student loan debt, hitting the reset button. Does anybody here
advocate for that or something similar?
Ms. Harrington. Absolutely. We just put out a recent report
with the NAACP, Unidos, the Leadership Conference on Civil and
Human Rights, and the Urban League, where we argue for broad-
based cancellation, even of $10,000 across-the-board, which
would have a significant impact for many borrowers, especially
borrowers of color.
Mr. San Nicolas. So, not full forgiveness, but even just
partial would give the breathing room necessary.
Ms. Harrington. Even just--because that is actually full
forgiveness for a significant amount of people who are most at
risk. The 90 percent of defaulters who are low income are--the
median amount they are defaulting on is less than $10,000.
So even at $10,000, we would have a significant impact on
the lives of millions of borrowers, and we would help lift them
out of poverty.
Chairwoman Waters. The gentleman from Tennessee, Mr. Rose,
is recognized for 5 minutes.
Mr. Rose. Thank you, Chairwoman Waters.
I am a graduate of Tennessee Tech University in my hometown
of Cookeville, Tennessee. And fortunately, I graduated from
Tennessee Tech with no student debt and just recently was
looking at the statistics for that university and see that
still today, 48 percent of their graduates graduate from the
university without student debt. The cost is very reasonable,
and it is a great university.
It seems to me, and I think others have made this point
today, but I want to bear down on it, that we are here swatting
at something that is really not the problem. And this
committee, unfortunately--or fortunately, depending on your
perspective--doesn't have the jurisdiction to deal with the
problem.
I look back to July 2010 when the Affordable Care Act was
signed into law, and since that time, all new Federal student
loans have been made through the Federal Direct Loan Program,
administered by the Department of Education. Today, nearly $1.4
trillion of the $1.5 trillion in student loan debt is owed or
guaranteed by the Federal Government, a Federal Government who
did it explicitly because they thought they could make money
and use that money to offset the cost of a new entitlement.
And I think what we see, unfortunately, here in Washington
is over and over again, the Federal Government occupies a space
that the private sector was handling fairly effectively and
turns it into a giant mess. Now, here we are trying to swat at
the symptoms of this ill, and I am really kind of mystified by
why we think beating up on the servicers is somehow the answer
to this problem.
By that logic, it is the people who work at the servicers
who are the problem. It is those dastardly individuals who get
on the phone with you that we should be blaming and we should
be sanctioning because how dare they mistreat student loan
borrowers when they have them on the phone? And so, I am just
kind of mystified by this approach to the problem.
Mr. Delisle, what is the relationship between the
Department of Education and the student loan servicing
companies?
Mr. Delisle. It is a contract. The Department of Education
hires them on contract to basically run the entire Federal
student loan program according to the terms that are spelled
out in the law.
Mr. Rose. And what is the process by which the terms and
conditions of those contracts of loan servicing are set?
Mr. Delisle. It is the standard government contracting
process. The Department takes bids and has an amount of money
that Congress determines how much it can pay for these
contracts and, using that amount of money, spells out what the
servicers should do.
Mr. Rose. And who sets the terms of the loan, such as the
interest rate and the loan terms that the borrowers borrow
under?
Mr. Delisle. Congress does. They are set in statute.
Mr. Rose. Do you think the majority of borrowers are aware
that Congress sets those terms?
Mr. Delisle. It is hard to say. There are certainly some
who are unaware of that, who, in fact, the only entity they are
interacting with is their servicer. So I think it is
reasonable, although incorrect, for them to blame the servicer
when they are frustrated with this process. It is the only
entity they are interacting with.
But as you can see in my testimony, I give a lot of
examples where the servicer is just doing what they are
supposed to do, and it looks like a scam to the borrower.
Mr. Rose. And a servicer's role is ensure that the
borrowers are acting according to their repayment plan or to
suggest a better option. It is the duty of the servicer to
inform the borrower of all of his or her repayment, deferral,
and forbearance options. What is the process for choosing a new
plan?
Mr. Delisle. A borrower is entitled to choose any plan for
which they are eligible pretty much whenever they want. They
can get the information from the Department of Education's
website. They can get the information from the servicer who
will send them forms, and they can decide which one they want
to use. They can ask the servicer about the options.
Servicers generally aren't in the position of telling you
which one is best for you. That is a really difficult kind of
calculation. I am an expert in this. I would have a hard time
determining what the ideal option is for every borrower in
every circumstance.
Mr. Rose. Is there any connection between the compensation
structure for the company's employees, the servicer's
employees, and the repayment plan that the borrower chooses?
Mr. Delisle. It is mostly based on, are you in good
standing, are you in forbearance, or are you delinquent? My
understanding is the contract is less about which plan you
choose. It is more about whether or not you are in good
standing on the loan.
Mr. Rose. Thank you. I yield back.
Chairwoman Waters. The gentlewoman from Michigan, Ms.
Tlaib, is recognized for 5 minutes.
Ms. Tlaib. Thank you so much, Madam Chairwoman.
I sincerely appreciate this conversation, especially
because my district, the 13th Congressional District--I call it
13 districts strong--is the third-poorest congressional
district in the country. And it is very dangerous when we start
blaming borrowers unfairly, when the system is really set up
against them and set up for complete failure.
There was a 52 percent increase in college debt in Michigan
from 2007 to 2017; I'm just putting that out there. What is
really hard in these conversations is we forget about the human
impact. And I think, Mr. Frotman, you were trying to put that
forward, and so have you been, Ms. Harrington, you have been
trying to put that forward as something that needs to be in
this room because doing nothing has consequences on real
people's lives.
A Redford Township resident in my district came up to me,
and he said he is so concerned about what is happening with his
college debt. He is in his late forties, and he wants to buy a
home, and he can't because of college debt. Another young woman
who just graduated from law school said,`` I don't want to go
into the court. I want to do free, legal pro bono work.''
And she said, desperately, ``What can I do? Because I hear
all these horror stories about people doing the forgiveness
loan program if you do public service for 10 years, and I just
saw a number that 99 percent of those applicants were being
denied.'' Again, these are teachers, these are public servants,
these are people who are giving back to the community that
raised them.
One of the things that we keep forgetting is that these are
not people buying Ferraris--this is an education. These are not
people buying fur coats, which I would prefer people--I have
asked them not to buy those. But I am saying, that these are
not luxury items.
One of the most successful anti-poverty programs in this
country is education. And so we have to continue to try to put
the human face on this issue and not try to get so much into
the technicality of it because I feel like when we do do that,
because there are these different solutions to this, that we
get far away from actually saying that there is a crisis here.
And Madam Chairwoman, if I may, later on, I plan on
submitting several letters for the record regarding this
crisis.
Chairwoman Waters. Without objection, it is so ordered.
Ms. Tlaib. Thank you.
We saw in the mortgage crisis that doing nothing had
consequences, and all of a sudden, our residents and our
families were getting preyed on. And that is what is happening
with college debt right now.
Today, you cannot go on Facebook without seeing one of
these ads. You cannot listen to a radio without hearing some
sort of pitch. You cannot go for 48 hours without getting a
robocall or text message congratulating you on the opportunity
of a lifetime to help you with your college debt, right?
And we have companies like the Pennsylvania Higher
Education Assistance Agency already being paid hundreds of
millions of dollars to service these loans and help borrowers.
But all of a sudden, these folks are coming in, a lot of my
colleagues will call them businesses. I am going to call them
scams. They are scam artists. They are scams, period.
We cannot deter from the fact that they are trying to prey
on the most vulnerable because, guess what, we made them very
vulnerable because we are doing nothing about this crisis.
Mr. Frotman, do you think the reason that these student
loan debt relief scams are so prolific, I mean just increased,
is because servicers are failing to give borrowers the help
they need?
Mr. Frotman. Absolutely. I think one of the downstream
consequences of the widespread abuses and mismanagement by
student loan servicers is just this abundance of scams, of
companies willing to prey on the most vulnerable borrowers and
steal their last dollar.
Ms. Tlaib. And then, Mr. Frotman, you know, Facebook,
Google, Bing, Yahoo!, and others have allowed these con
artists, scams to use their advertising platforms and search
engines to target struggling borrowers. To what extent do you
have concerns that these search engines are in large part
responsible for profiting off of the abuses of student loan
borrowers and making this crisis worse?
Mr. Frotman. Without question, companies like Facebook and
other technology companies are making a whole lot of money on
ads by scammers, of people preying on student loan borrowers,
and I think this is, to go back to a prior question, the
building is on fire. The building is on fire now, and there are
things that the committee could do to help constituents, your
constituents across the country, and this is what is happening.
To your point, this is the human face of people getting ripped
off.
Ms. Tlaib. And to what extent, and when you think of that
list of legislation before us, what extent do you think that we
can be doing here to protect them? Because it is going to be
hard to get some of my colleagues really on both sides of the
aisle to really try to handle this crisis because doing
nothing, again, for so long, this is what you have before us.
For me, I am a mom, and so I am trying to--even if band-
aids don't work, I am trying to stop the bleeding right now,
and now I have so many of my residents falling into the trap of
trying to refinance and do all these things.
And by the way, Mr. Delisle, you keep saying that it is not
a scam. If it looks like a scam and it acts like a scam, it is
a scam. But one of the things that is really distressing is--
and I am so sorry, Madam Chairwoman. I can submit my questions
later, but I really want to ask you what we can do in regards
to these platforms and how we can protect our residents from
scams like this.
Chairwoman Waters. The gentleman from Wisconsin, Mr. Steil,
is recognized for 5 minutes.
Mr. Steil. Thank you, Madam Chairwoman. I appreciate you
calling today's hearing to highlight what is a really serious
issue. We have a $1.5 trillion student loan problem. Today's
hearing, though, I think, digs into a false premise as to where
the problem is.
The problem is in the underlying cost of the education
product in the first place that is driving students into debt.
Misdirection works really well in comedy. It is not terribly
effective at actually solving what is a very serious problem.
When I was on the University of Wisconsin Board of Regents,
what we did to address the student debt issue was we actually
froze the cost of tuition, froze it dollar for dollar. And that
allowed the cost of tuition to become more affordable for
students in the State of Wisconsin. It had a direct impact on
the total student loans that students were taking out and
actually allowed students to come out with less debt than if
they would if we just casually increased the cost of tuition.
It is a real solution to a real problem.
We see States go around and sue big, bad corporations
because where you can't legislate and get the cost under
control of the underlying product in the first place, you
litigate. If you can't legislate, you litigate.
And what we need to do is actually have a real, honest
conversation about what the underlying cost of the product is
that is driving students into debt in the first place. And if
you kind of think through just our panel that is here today, I
would ask you. at your alma mater, which is I think where we
started off at the very beginning of this hearing, what the
underlying cost of tuition is?
Mr. Frotman, at the University of Michigan, do you know
what the in-State tuition is for a student?
Mr. Frotman. I'm not sure.
Mr. Steil. It is $15,000. If you are out of State, it is
$51,000.
Ms. Yu, at Holyoke College, do you know what the cost of
tuition is? It is $52,000.
Ms. Harrington, at UNC-Chapel Hill, do you know what in-
State tuition is? It is actually pretty darned good. It is less
than $9,000. That is solid work by the University of North
Carolina and the University of North Carolina system that is
getting that done.
Mr. Minhaj, do you know what the cost of in-State tuition
is currently at UC-Davis?
Mr. Minhaj. Go, Aggies. Yes. So, 2003-2004, my freshman
year--
Mr. Steil. No, no, no. Today. Do you know what the cost is
today?
Mr. Minhaj. Today, it is $14,490.
Mr. Steil. Boom. Do you know what the out-of-State--
Mr. Minhaj. Do I get points for that?
Mr. Steil. Bonus points, absolutely.
Mr. Minhaj. Thank you.
Mr. Steil. Do you know what the out-of-State tuition is?
Mr. Minhaj. I don't know what the out-of-State tuition is.
Mr. Steil. It is $44,000, and I think it is relevant.
Mr. Minhaj. I don't think that is worth it, though, if you
are out of State. I think you do what I do, and you just stay
at home. You call it.
Mr. Steil. I only have only so much time.
Mr. Minhaj. You invest in the next case, and you just call
it--
Mr. Steil. Mr. Delisle, do you know what the cost of
tuition is at Lawrence University?
Mr. Delisle. For a poor student, I believe it is zero.
Mr. Steil. And do you know what the cost would be--what is
the sticker price, which is--
Mr. Delisle. I don't--well, for a really high-income
student, I hope it is really high.
Mr. Steil. So, the sticker price?
Mr. Delisle. Thirty thousand?
Mr. Steil. It is $49,000.
Mr. Delisle. If they are high income, good.
Mr. Steil. And so there is a disparity between sticker
price--I think you identify a good point there. There is a
significant disparity between sticker price and the cost that
students are paying. For the published rates that are the most
easy to obtain and what is causing a problem for access for
students is the sticker price in part.
Mr. Delisle. But only high-income people pay those sticker
prices.
Mr. Steil. Absolutely. At the University of Wisconsin-
Madison, if you are below the median income in the State of
Wisconsin, tuition and fees is zero dollars. Not one dollar,
zero dollars. It is covered between a combination of the
Federal Government, the State, and private donors.
That actually addresses the underlying cost of the product
in the first place. And so, where we are having a lot of
misdirection into the processors because there are big, bad
companies--and I am not telling you that they are perfect. I am
telling you it is a misdirection to try to find a bogeyman for
what is the underlying problem. And the underlying problem is
the folks who are running these universities, whether or not
they are State legislators, State senators, governors, boards
of regents, they need to come in and address the underlying
problem, which is the rising cost of tuition and fees, let
alone as you get into housing and other issues.
And so what we did in Wisconsin was to actually put forth a
real program that addressed the problem, driving down the
underlying cost of tuition, which brings down the debt level.
It is darned effective.
And in areas where States continue to see their cost going
up, where they can't legislate or they can't put policies in
place that actually help students be able to live out the
American Dream, we litigate, we sue all these companies, we
misdirect, we make a bunch of noise, it is not effective. It is
pretty darned frustrating.
And I yield back the remainder of my time.
Chairwoman Waters. Thank you, Mr. Steil.
The gentleman from Illinois, Mr. Casten, is recognized for
5 minutes.
Mr. Casten. Thank you, Madam Chairwoman.
And thank you so much to our panel.
Mr. Minhaj, you mentioned in your initial comments that the
median income is up 3 percent over the last 33 years. I think
you are far too optimistic.
Census data came out with information this week. The median
income last year was $63,000. That is exactly the same as it
was in 1999. To the extent it is up over 33 years, that was a
creature of the 1990s. It isn't true anymore.
Now during that period, as many have noted, tuition is up
over 100 percent. Cost of housing is up 34 percent. The price
of a gallon of milk is up 30 percent.
We have about $1.5 trillion worth of debt. My colleagues
across the aisle last term blew a $1.5 trillion hole in the
economy so that we can remove the pain that the ultrawealthy
have so they don't have to decide between their milk and their
college tuition. The nation's 1 percent thank you.
Meanwhile, we still have this problem. And while there are
a whole lot of issues beyond the jurisdiction of this committee
that are underlying that, and of course, we will look into all
that, I think we have created a fiction that markets are
perfectly efficient, and there is no emotion in decision-
making, and therefore, the entire marketing industry must be a
sham.
But we do have distortions in the system. The 2005
bankruptcy bill says that you cannot discharge your debt in
bankruptcy if it is debt associated with a student loan
program. You can discharge your credit card debt. You can
discharge your mortgage debt. You can discharge all sorts of
other debts.
Ms. Yu, can you talk about how that affects the
underwriting process? If you know that underwriting a loan in a
world where the median income is not keeping up with tuition
growth, is effectively never going to default?
Ms. Yu. I think that it is driving a lot of the abuses that
we see in the private loan market because we know that
borrowers are not going to get out from under their debt. So,
low-income students are struggling to make payments, and
lenders have no incentives to provide them with more flexible
repayment options because they are going to be on the hook most
likely for the rest.
Mr. Casten. So when Mr. Delisle made the comment that,
essentially, we are not doing underwriting for student loans,
is it safe to say that the underwriting process has been
distorted by the 2005 bankruptcy bill?
Ms. Yu. I think that is right.
Mr. Casten. Okay.
Mr. Delisle. I was speaking about the Federal student loan
program, not private loans.
Mr. Casten. Fair enough. There are distortions in the
system--
Ms. Yu. Which also has no bankruptcy--
Mr. Casten. I will get to you in just a moment, Mr.
Delisle. There is a separate narrative going on, and we have
heard it across this panel, and we have been talking about this
for years that if you subsidize the cost of the loan, you will
distort economic efficiency. If you give people access to debt
that exceeds their ability to repay, they are going to make
unwise financial decisions.
And that sounds logical. We all took freshman economics.
And yet, as Raj Chetty has pointed out in his sort of
magisterial work on wealth and income inequality, the single
best predictor that you are going to find yourself in the top
quartile of income in your peak earning years is whether your
parents were in the peak quartile of income when you were born.
Some of us were so smart that we chose our parents wisely. Some
of us were too dumb to do that.
If it is the case that the access to an affordable
education distorts your rationality, it makes you more prone to
do foolish things, it makes you more prone to enter into
careers that don't generate a useful income, if affordable
education is so distorting, why are the children of the
ultrawealthy so darned irrational?
Mr. Delisle, you described yourself as a capitalist. Why is
it that the ultrawealthy don't enter into lines of work that
don't pay them an income?
Mr. Delisle. I am not sure that is necessarily the case.
Mr. Casten. I would note quite to the contrary. The best
predictor that you are going to be in the top quartile of
income--not wealth, although wealth is also true--is that your
parents were born that way.
We do not see data that people who have access to zero-cost
loans and never have to repay them, get total loan forbearance,
we see no evidence that those people are going into foolish
lines of work. Why are they so irrational?
Mr. Delisle. We see evidence that they are actually--they
are doing quite well, which is why I think it is such a waste
of money to forgive their loans, which is actually the current
policy that we have.
Mr. Casten. I am asking a different question. People who do
not have to have a loan at all, the reason why they don't have
to have a loan at all is because their parents were so wealthy.
I am not talking about whether or not those families chose to
take out loans they could afford to repay. Why isn't Donald
Trump, Jr., working in a shoe store as a philosophy major
writing poetry?
Mr. Delisle. I think the data show--since we will talk
about data and evidence here--that high-income families take
out student loans.
Mr. Casten. That is not the question I have asked.
Mr. Delisle. You said, why don't they? And I am saying--
Mr. Casten. I am asking why people who do not have the need
to take out loans violate your theories of economics that
assume everybody is rational?
Mr. Delisle. I don't assume everybody is rational.
Mr. Casten. I yield back.
Chairwoman Waters. The gentleman from Wisconsin, Mr. Duffy,
is recognized for 5 minutes.
Mr. Duffy. Thank you, Madam Chairwoman.
As a father who has his kids now going through school, I've
got to tell you, the student loan system is jacked. It's a
horrible system, and I think what it does is, if you're poor,
you get great subsidies and college is more affordable, and if
you're wealthy, you have parents who will help you pay. I think
the middle class gets crushed in the way that this system
works. That's just my personal opinion from going through the
process.
Would the panel agree that probably the smarter the kid,
the better school they get into, and maybe the less smart the
child, the not-so-great school they get into? Do you all agree
with that? No?
Ms. Harrington. I don't agree with that, given the history
of racial injustices in this country and the fact that we have
disparities across K-12 schools that are concentrated in low-
income neighborhoods, neighborhoods of color, and we haven't
adequately prepared our students and so the smartness level
which is usually measured by grade point average or SATs or
things like that are inherently biased and they don't determine
who is smarter. They determine who had wealthier parents who
could put them in certain schools and give them access to
certain programs.
Ms. Yu. And even the data with those SAT programs show that
there's also a mismatch between students who have the ability
to get into higher schools but then don't for other reasons.
Mr. Duffy. Great points. But the higher the SAT and the
higher the GPA, the better the school, and the lower the GPA
and the lower the SAT, it will be the lower-rung schools. Is
that a fair assessment? Whether that's intelligence or
smartness, I think you make a good point. Is that fair enough?
Ms. Yu. Like I said, there is no--
Mr. Duffy. If you have a 20 on your SAT, you're probably
not going to Harvard.
Mr. Minhaj. Or if your mom is Aunt Becky, you can just pay
your way. What are we talking about here?
[laughter]
Mr. Duffy. Hold on a second here. What are we talking about
here? But what I--
Mr. Minhaj. You and I, we're both former MTV stars.
Mr. Duffy. Let me tell you what.
Mr. Minhaj. I was the star of Season 5. You know what it's
like. We can't afford--
Mr. Duffy. Mr. Minhaj, I'm going to claim my time.
Mr. Minhaj. Okay.
Mr. Duffy. I know you think it's a joke. It's not a joke
but you think it is and you want to come in here and make light
of a serious situation. I don't think it's funny. So, you can
sit here and do your film and make people laugh, but we're
trying to have a serious conversation and I only have 5
minutes.
Mr. Minhaj. Okay.
Mr. Duffy. So, leave it alone. My point is, we do have a
problem, and I would agree with my colleagues that the problem
belongs with the cost of education, okay, and if you're going
to let me go to your school and you're going to charge me
$50,000 or $60,000 a year and give me a degree that I can't
make a living with to pay the loans back, what skin in the game
does the school have for letting me in, charging me the money,
giving me the debt, and I can't pay it back? Who pays? Does the
school pay? Mr. Frotman?
Mr. Frotman. No. I think--
Mr. Duffy. And should they? Should they have skin in the
game?
Mr. Frotman. I'm actually happy that you're trying to talk
about solutions. I think--
Mr. Duffy. So do they have skin in the game?
Mr. Frotman. I think that--
Mr. Duffy. Should we claw back some of that money?
Mr. Frotman. I think that there needs to be more--
Mr. Duffy. I have to hurry up. I only have a minute and a
half. Should we claw back money from the schools? If you give
me a degree that I can't pay back my loans with, why should the
taxpayers--
Ms. Harrington. There actually were a couple of rules that
would have ensured that the worst-performing schools would have
had to return that money--
Mr. Duffy. So you agree--
Ms. Harrington. --under the repayment rule and the gainful
employment rule, which the Department--
Mr. Duffy. So we should claw money back from the schools?
Ms. Harrington. We should hold schools accountable--
Mr. Duffy. Thank you.
Ms. Harrington. --especially the worst actors, the for-
profit schools. It's not about clawing money back. It's about
holding schools accountable for the fact that they have low-
quality programs that cost a lot of money--
Mr. Duffy. I think this problem exists with all of the
schools.
Ms. Harrington. --with poor outcomes and target schools of
color better than--
Mr. Duffy. Whether you're going to the best schools, medium
schools--it's my time. All schools have this problem and so we
should claw money back from all the schools that give kids
degrees with high debt and they can't pay it back, Number 1.
Number 2, I think we should look at the endowments. You
have billions of dollars in endowments and we're talking about
what giving loan forgiveness to all students. So, University of
Wisconsin, Marathon County, $5,000 a year to go there for 2
years, then you go to the University of Wisconsin, Madison, for
$18,000 a year. That's a really smart choice. Those are kids
making really smart decisions for their financial future versus
the kid who goes to Dartmouth and pays $58,000 a year.
So why should those who became a union welder and went to a
union welding school or the kid who went to UWMC pay for the
kid who went to Dartmouth and has the pathway of Dartmouth?
That's fundamentally unfair if you set up a system where you
have kids getting great degrees and making big money and we,
the taxpayers, or we, the union members, are going to pay back
their school. That's insane. I yield back, Madam Chairwoman.
Chairwoman Waters. The gentlewoman from Massachusetts, Ms.
Pressley, is recognized for 5 minutes.
Ms. Pressley. I just want to say I'm very disturbed as we
perpetuate the fiction that we live in a meritocracy and that
people advance based simply on acumen when we are in the midst
of quite literally some very high-profile people who have their
children's SAT scores fixed and things like that have been
going on by the powerful and the few for a very long time.
Okay. So I want to say thank you, Chairwoman Waters, for
your continued leadership, for making sure that this committee
stays focused on those issues of care and consequence to the
American people. I especially appreciate the frame and the
titling of this hearing.
Several months ago, when Director Kraninger of the CFPB was
before this committee, I asked her whether or not we were in
the midst of a crisis, and I could not get her on the record to
even characterize student loan debt as a crisis when, in fact,
it is.
When we talk about the chokehold of this debt, and I've
just spent 6 weeks in my district, the Massachusetts 7th,
hearing from families who are struggling to put food on the
table, to pay the rent, to take care of aging parents, to pay
for childcare, and what does all this mean ultimately? It means
that people are alive but not living. This debt is not just
choking at our ability to build wealth or our purchasing power;
it is quite literally choking people.
We had a hearing in Oversight and Reform on trauma, and we
learned that suicides are on the rise for many reasons, and one
of those reasons is debt despair. So this is choking at the
promise of our country, and quite literally, we are losing
lives because of the debt that folks are burdened by. So it is
a crisis, and for those across the aisle who perhaps think that
we are being dramatic, you cannot overstate $1.6 trillion in
debt crushing close to 45 million borrowers. You cannot
describe that as anything less than a crisis.
So I thank the chairwoman for her leadership, and for those
across the aisle who question whether or not this committee is
germane to this issue, when you overlay this with
discriminatory policies like redlining, and then Ms. Harrington
shares with us that 90 percent of defaults are
disproportionately borne by students of color, there's no way
that there's not an interconnectedness and intersectionality
from homelessness to housing to many of the issues that this
committee tackles and so this is exactly what we should be
addressing as a committee.
The facts of this crisis, and again it is a crisis, require
no exaggeration. We are past the point of just paying
attention. It's time to act.
Madam Chairwoman, I'd like to ask unanimous consent to
submit for the record a statement from Student Debt Crisis, a
nonprofit organization dedicated to combating this crisis.
Chairwoman Waters. Without objection, it is so ordered.
Ms. Pressley. Thank you. Mr. Frotman, you led the team at
the CFPB whose sole responsibility was to watch out for all
student loan borrowers and younger consumers. What were some of
the trends that you and your team noticed?
Mr. Frotman. Unfortunately, what we saw, just like we saw
in the mortgage context, was when servicers fail, it hits the
most vulnerable borrowers the most, and in the student loan
context, these are borrowers of color.
So we see now even holding for constants like income, and
degree attainment, African-American borrowers have double-digit
rates of default, and with that in mind, the Bureau announced
that we were going to be looking at whether or not student loan
servicers and student loan companies were in compliance with
the nation's Fair Lending laws.
Ms. Pressley. During your time there, did the CFPB begin to
look into potential discrimination in the student loan
servicing industry in violation of the civil rights laws,
including the Equal Credit Opportunity Act?
Mr. Frotman. In April of 2017, the CFPB announced that it
would be prioritizing in our supervision work whether or not
student loan companies were complying with the laws, the
nation's fair lending laws, in particular whether or not
borrowers based on their race were more likely to have
difficulty getting an income repayment plan.
Ms. Pressley. Okay. And to your knowledge, has the Bureau
continued to look into these issues?
Mr. Frotman. Unfortunately, not. Based on your own
conversation with Director Kraninger, it appears as if the
Bureau has just dropped this work.
Ms. Pressley. Thank you. Madam Chairwoman, I'd like to
request unanimous consent to include a letter from civil rights
organizations, including the NAACP and the Leadership
Conference of Civil and Human Rights, urging the CFPB to look
into racial disparities in student loan outcomes and potential
discrimination in loan servicing market.
Chairwoman Waters. Without objection, it is so ordered.
Ms. Pressley. Mr. Frotman, our friends across the aisle
have mentioned that student loan servicers are supposedly not
incentivized. Student loan borrowers have forbearance and that
they are not financially incentivized to give borrowers poor or
outright incorrect advice.
Yet, an audit released by the DOE in February of this year
found that more than 60 percent of the Department's oversight
report contained examples of servicers acting improperly. If
our friends across the aisle are correct and loan servicers are
not incentivized to make mistakes and give poor advice, then
why is this consistently happening?
Mr. Frotman. Because they're wrong, because they are
incentivized to give bad advice, they're incentivized to get
their call reps off the phone as quickly as possible, which we
see across the industry, leading to the outcomes we have today.
Ms. Pressley. Thank you.
Chairwoman Waters. The gentlewoman from Virginia, Ms.
Wexton, is recognized for 5 minutes.
Ms. Wexton. Thank you, Madam Chairwoman, for yielding, and
thank you to the panelists for coming and for sticking with us
throughout this very long hearing.
I want to speak for a moment about the Public Service Loan
Forgiveness Program, because this is something that's very
important to a lot of my constituents. As you know, this
program was intended to reward borrowers for public service,
and the deal was if you spend 10 years in public service as a
teacher, a nurse, a police officer, somebody working in a
qualified nonprofit, make 120 monthly payments against your
student loans, and the government would forgive what's left.
Now obviously, it's not working out that way. We have
evidence that 99 percent of those people who applied for
forgiveness were rejected over what most of us would view as
technicalities and things that should not be.
So, Ms. Harrington, can you speak a little bit to the
problems with the program and in particular the role of
FedLoan, which administers the program for the Department of
Education?
Ms. Harrington. Absolutely. There are definite improvements
that could be made to any of the programs the Department
administers and right, but again it goes back to whether
students have access to the plans and whether servicers are
putting them in the--giving them the right information to make
sure they are properly enrolled, that they are making the right
payments, and that they are proceeding according to the
requirements of the law so that they can receive that relief,
and most of that information again comes through their
servicer, whom they rely on to make sure they are in good
standing.
Ms. Wexton. And they didn't get that information on the
front end, most of them, is that correct?
Ms. Harrington. It's a big problem, yes.
Ms. Wexton. Okay. Ms. Harrington, do you know who Kathleen
Smith is?
Ms. Harrington. Yes.
Ms. Wexton. Who is Kathleen Smith?
Ms. Harrington. She is a Senior Administrator at the
Department of Education.
Ms. Wexton. She was, but did you know that she's been hired
by the Pennsylvania Higher Education Assistance Agency?
Ms. Harrington. I had forgotten but, yes, I did know that.
Ms. Wexton. Okay. So now she's their Director of Federal
Relations, is that correct?
Ms. Harrington. Yes.
Ms. Wexton. So she's now a lobbyist for that private
entity.
Ms. Harrington. Yes.
Ms. Wexton. In fact, FedLoan is a subsidiary of the PHEEA--
EAA--
Ms. Harrington. Yes.
Ms. Wexton. --that administers this faulty program, is that
correct?
Ms. Harrington. Yes.
Ms. Wexton. Okay. And how about Robert Cameron, do you know
who that is?
Ms. Harrington. Yes.
Ms. Wexton. Who's that?
Ms. Harrington. He is the new student loan ombudsman at the
CFPB.
Ms. Wexton. Where was he before becoming the new student
loan ombudsman?
Ms. Harrington. He was also at PHEAA.
Ms. Wexton. Okay. And now, he's overseeing consumer
protection. Can you talk just very, very briefly about some of
the things that the Department of Education has done, and the
CFPB has done to stymie State attempts to hold student loan
servicers accountable?
Ms. Harrington. Absolutely. The Department has revoked a
few memorandums that would have shared information with the
CFPB and other agencies. They have attempted to preempt State
enforcement and regulation of student loan servicers trying to
curtail the States' ability to enforce consumer protection and
protect their own citizens.
The CFPB under this Administration got rid of the Office of
Students and now it has hired again, as you said, a person with
direct ties to one of the loan servicing companies and so
there's a major problem and that's just the tip of the iceberg
for action the Department has taken that kind of undermines our
confidence that they are working to achieve their mission of
supporting students and providing access to high-quality
education, and that the CFPB is assuming its mission of
protecting consumers, and student loan borrowers are consumers.
Ms. Wexton. And are you aware that PHEAA's 10-year, $1.3
billion contract expires in December of this year?
Ms. Harrington. Yes.
Ms. Wexton. The Department of Education and the CFPB have
made it harder for States to go after bad actors. They have put
a former executive from one of the bad actors in charge of
enforcing consumer protection, right?
Ms. Harrington. Yes.
Ms. Wexton. And now a former top DeVos aide has gone into
government relations with that bad actor, is that correct?
Ms. Harrington. Yes.
Ms. Wexton. Thank you, Madam Chairwoman. I'll yield back,
but that sounds pretty swampy to me.
Chairwoman Waters. The gentleman from Ohio, Mr. Gonzalez,
is recognized for 5 minutes.
Mr. Gonzalez of Ohio. Thank you, Madam Chairwoman.
First, I want to submit for the record the Federal Reserve
Bank of New York's Staff Report entitled, ``The Credit Supply
and the Rise in College Tuition: Evidence from the Expansion in
Federal Student Aid Programs.''
Chairwoman Waters. Without objection, it is so ordered.
Mr. Gonzalez of Ohio. Thank you.
I guess one good thing about this hearing is that there
does seem to be almost universal agreement that the effects of
massive debt on young professionals' balance sheets has a
horrible effect on their ability to (1) start families, and (2)
buy homes, basically to get started in the American Dream.
I have a constituent whom I talk to a lot about this and
she went to my alma mater for law school, took out a bunch of
student loans, and she and her husband are making real trade-
offs as far as, can we afford to have another child, can we
afford to buy a home, and I think her story is indicative of
stories all over the country, again somebody who did everything
right, who continues to do everything right, but just can't
quite get out from under the crushing debt.
One interesting thing, though, is we seem to be focusing on
what I think is just a weird--like the very end of the
spectrum, the very final stage, which is the loan servicer,
whereas all these other things happen in advance that lead to
higher tuition, that lead to the fact that we can't refinance
these loans, and so for some reason we're focusing here--I
guess that's the only part that we have jurisdiction over, but
it strikes me as just a strange place.
So to summarize, Mr. Delisle, just quickly, and I know this
has been said a lot, but no underwriting standards?
Mr. Delisle. Right. That's right.
Mr. Gonzalez of Ohio. Okay. The Federal Government is
essentially guaranteeing the loans?
Mr. Delisle. They're making them directly.
Mr. Gonzalez of Ohio. And then all of this that we're
talking about is fully controlled by Congress?
Mr. Delisle. That's right.
Mr. Gonzalez of Ohio. Okay. So, clearly, it's a problem
that we have created. I want to focus on the rising tuition
costs, which is why I submitted this for the record.
Mr. Delisle, are you familiar with the study that I just
mentioned?
Mr. Delisle. Yes.
Mr. Gonzalez of Ohio. Okay. So correct me if I'm wrong, but
the premise of this study or the conclusion of this study is
that as the Federal Government has taken over these loans, as
they've increased caps, that has in fact resulted in
skyrocketing tuition?
Mr. Delisle. That's right. So more lending, higher tuition,
that's the finding of that paper.
Mr. Gonzalez of Ohio. Right. So the fact that we have
gotten into this industry hasn't done a thing about the cost of
tuition. All it essentially has done is transferred the debt
over to the student.
Mr. Delisle. Yes. I would say, though, that the tricky part
with those analyses is that we know that student loans allow
more people to go to school.
Mr. Gonzalez of Ohio. Right.
Mr. Delisle. So it raises tuition, but more people can go,
and we know that when people get loans versus people who don't,
they can finish and they tend to get better grades. So there's
been a lot of complaining about student debt here but sort of
fundamentally, it is a sound policy.
Mr. Gonzalez of Ohio. Yes. I think that gets into the
return on investment (ROI), right? Like that a big investment
is okay if there's a real ROI there, and you're right, we
haven't talked much about that.
But I want to ask you specifically about an area that I
know you researched, which is income-share agreements.
Mr. Delisle. Yes.
Mr. Gonzalez of Ohio. The thing I find interesting, that I
like about them, is it sort of shifts the risk, right? So
instead of the student taking out the debt, now the university
or the institution is taking out the debt, if you will, and
saying we will provide this education up front, provided you
pay us XYZ over time.
I guess from your research, my question would be, where
have you seen this work best? As we're legislating or thinking
about it, what should we be thinking about in terms of, these
are best practices that are doing well by students and the
universities?
Mr. Delisle. Yes. I think you have it right, and I think it
gets to what Congressman Duffy was talking about, that sort of
the beauty of an income-share agreement where it is being done
right is when the school is making it.
Mr. Gonzalez of Ohio. Right.
Mr. Delisle. When the school makes it, now the school has
the risk. They have the skin in the game and the great part is,
we talk a lot about sort of free tuition. An income-share
agreement is a way to not charge students tuition, give them an
income-share agreement, and they only have to pay it back if it
works.
Mr. Gonzalez of Ohio. Right. If it works and then you build
in certain protections, which I know Purdue University, for
one, has done, and I think again the beauty of that is, you
graduate and you have no debt. You have a liability. You have
to pay the income, but in fact when it comes to borrowing for
other things, whether that's a house, a car, whatever, what is
currently on people's balance sheets has now moved off. Great.
With that, I will yield back.
Chairwoman Waters. The gentlewoman from North Carolina, Ms.
Adams, is recognized for 5 minutes.
Ms. Adams. Thank you, Chairwoman Waters. Thank you for
convening the hearing today, and to the witnesses, thank you
very much for your testimony.
As a former educator and somebody who educated primarily
first-generation low-income students of color, this is a very
personal issue for me. Student debt is a problem for all young
people but particularly for low-income students who are
predominantly people of color who look at a higher education
degree as their ticket into the middle class, and that's the
promise that we make to our young people, and so as Members of
Congress, we need to start keeping our promises.
Ms. Harrington, thanks for appearing before the committee.
I want to thank you for your work on the Center's report
detailing the student debt crisis in my home State of North
Carolina.
The report shows that of the 44 million Americans who hold
$1.5 trillion in student loan debt, 1.2 million of those live
in North Carolina, holding a debt tab of about $44 billion.
You'll hear my friends on the other side of the aisle blame
the Obama Administration's elimination of the Federal Family
Education Loan Program as the cause for the student debt
crisis, but can you explain what the Center's report showed are
the key causes of the dramatic increase in the debt in North
Carolina?
Ms. Harrington. Our report showed that there are a number
of key causes. Yes, tuition has risen, but there's been a
drastic disinvestment at the State level in higher education.
The purchasing power of the Pell Grant has been drastically
reduced.
I think we should remember that the Federal loan program
was never meant to be the cornerstone of the HAE. It was meant
to be the Pell Grant. It was meant to be actual grants, not
loans, but we never allowed the Pell Grant to keep up with the
cost of college and to keep up with the proportion that it
should have covered from the beginning.
It's the rise of for-profit colleges that again have
disproportionately targeted low-income students and students of
color with programs that are low quality and high cost and
students are more likely to drop out of those programs. There's
a completion crisis, and this is particularly concerning again
in North Carolina where we have a number of alternate
institutions that serve students of color and low-income
students much better, namely our Historically Black Colleges
and Universities (HBCUs).
Ms. Adams. All right. Thank you. I'm HBCU-strong. You
detail in your testimony that students of color are at the most
risk due to ballooning student loan debt and in the report, you
also mention how North Carolina's HBCUs do well in educating
African-American students of limited resources.
First of all, what impact does a high student debt burden
for young people of color have on HBCUs?
Ms. Harrington. Wwe've seen that across-the-board, the
student debt levels of HBCU graduates are higher and that's
because they disproportionately serve more low-income students
and students of color.
Over 70 percent of students at HBCUs are low income. Over
80 percent are African American, and the biggest indicator of
whether you're going to take out a student loan is how much is
your Pell Grant eligibility, and so by disproportionately
serving these students but serving them well, they are taking
on students who have to take on more debt, so on the back end,
it takes students of color, particularly African-American
students, more debt and longer to pay it back and they are more
likely to default, even when they have a degree.
Ms. Adams. So what impact does it have on alumni giving?
Ms. Harrington. It has an impact on the amount that
students have of available resources to give back to their
school and so I think we can--and this corresponds to the
wealth gap in higher education as a whole. So if you already
are serving low-income students who will continue to be low
income because of the way the system is set up, they often have
fewer resources to give back.
HBCUs on average have much lower endowments than larger
institutions. That also contributes to the fact that students
have to take on more debt and that these institutions continue
to struggle unnecessarily.
Ms. Adams. Okay. I'm running out of time, but can HBCUs
actually be a part of the solution to decreasing the student
debt burden, in your opinion?
Ms. Harrington. Absolutely. And there is much we can do to
better fund these institutions to make sure that they become a
cornerstone of the way we address student debt and the way we
address higher education in this country.
Ms. Adams. All right. Great. Thank you, Madam Chairwoman.
I'm just about out of time. I'll yield back.
Chairwoman Waters. Thank you very much.
The gentleman from New Jersey, Mr. Gottheimer, is
recognized for 5 minutes.
Mr. Gottheimer. Thank you, Madam Chairwoman, and thank you
all for being here today. We're all grateful.
The Federal Reserve recently published a new report about
home ownership which found that roughly 20 percent of the
decline in home ownership among young adults can be attributed
to the hefty increase in student loan debt. This is felt
particularly hard in my home State of New Jersey.
According to a 2018 study, 61 percent of 2017 college
graduates in New Jersey graduated with student loan debt.
Concurrently, recent Census data shows that the number of
homeowners under 35-years-old in New Jersey decreased from 7.7
percent from 2007 to 2016, and 47 percent of 18- to 34-year-
olds in New Jersey are living with their parents, the highest
percentage in the country.
Home ownership can be an incredible way, as you know, to
achieve the American Dream, and I'm worried that not enough
households are building wealth through home ownership due to
increasing student loan debt.
Mr. Frotman, if I can start with you, sir, one idea put
forth by the committee is to direct the Department of Housing
and Urban Development to work with the Consumer Financial
Protection Bureau and the Federal Housing Finance Agency to
review the barriers to home ownership for borrowers with
student loan debt and make recommendations for policy changes
that will responsibly reduce or eliminate hurdles.
What do you think are some of the biggest barriers that
HUD, CFPB, and FHFA should immediately address?
Mr. Frotman. I think one of the issues that I've seen is
the back end credit reporting system where borrowers are
getting their payments reported to a credit reporting agency
and it's all over the map and then when lenders go to try to
figure out DGI calculations, they're also unnecessarily
hamstringing borrowers.
So, I think this is a perfect example of how this is this
committee's job. I think there's an opportunity to reduce
barriers that are being put in place because of these back-end
problems, and I think, as you mentioned, that this bill is a
good start.
Mr. Gottheimer. Ms. Yu, you're nodding. You agree with
that?
Ms. Yu. Yes. One of the issues is, how do we consider
negatively amortizing loans when we're looking at housing, for
example, and borrowers have the right to an income-drawing
payment plan, but then how's the housing market looking at that
in terms of what the borrower can afford?
Mr. Gottheimer. Thank you very much.
According to the CFPB, 71 percent of student loan
complaints between August 2016 and September 2017 involved
complications to the lender or servicer, as we've heard about
today. The servicers' misrepresentations of information related
to the servicing of a loan are increasingly common, as you've
all pointed out.
Earlier this year, the Inspector General of the Department
of Education reported that between 2015 and 2017, Federal
student aid found instances of servicer representatives failing
to adequately inform struggling borrowers about their available
repayment options, which is very frustrating obviously, if
you're not even presenting all of the options.
Ms. Yu, I'll ask you this question. How would creating
clear rules of the road prevent student loan servicers from
omitting or misrepresenting loan servicing information to
benefit student loan borrowers?
Ms. Yu. Well, a couple of different ways. First of all, as
the Borrower Bill of Rights proposes, we want to make sure that
borrowers are informed about income-drawing payment options
prior to forbearances. Even if a forbearance is ultimately the
best decision, we need to make sure they're getting those
options first.
We also need dispute resolutions. Part of the problem is
that borrowers are frustrated because things are going wrong,
paperwork's getting lost, and they don't have a single source,
a single point of contact to try to resolve those errors.
Mr. Gottheimer. Thank you. I hope I have time for one more
here. Some academics who work closely on the issue of student
loans argue that there's not only a student loan debt crisis
but also a student loan repayment crisis, and by forcing
students to start paying back their loans right after
graduation, we're setting our graduates up for failure.
A 10-year repayment plan is the most common student loan
repayment plan, but it could take several years at least after
graduation to reach a point where a degree is paying financial
dividends.
Ms. Harrington, if I can ask this question to you, has the
Center for Responsible Lending put any thought into potential
solutions to this repayment crisis?
Ms. Harrington. Absolutely. We recently released a report
with several civil rights groups where we talk about ways to
improve the income-driven repayment system, how to streamline
it into one plan, how to decrease the repayment term to 15
years rather than 20 or 25 years, to base the payments off of 8
percent of discretionary income, and set it at 250 percent
above the poverty line rather than 100 percent above the
poverty line.
These are all important reforms that make it actually
affordable for borrowers to pay back their loans and do other
things, like buy homes, start businesses, and save for
retirement.
Mr. Gottheimer. Thank you so much. Thank you all for being
here. I yield back. Thank you.
Chairwoman Waters. Thank you very much.
The gentlewoman from Iowa, Ms. Axne, is recognized for 5
minutes.
Mrs. Axne. Thank you, Madam Chairwoman, and thank you also
to the witnesses for being here today. We appreciate it.
Just yesterday, I heard from Liz, she's a teacher in
Urbandale in my district, about the issues that she's had with
her loan servicer. In 2007, Liz began teaching and, of course,
that's when the Public Service Loan Forgiveness (PSLF) Program
began. So, she called her servicer to see what she needed to do
to be eligible and was told she didn't need to worry about the
paperwork yet and wouldn't be eligible for about 10 years or
so, and to send in the verification forms when it gets a little
bit closer to that date.
Then, when she followed up closer to that date, 5 years
later--she actually tried to get on top of it by calling in
another 5 years--to make sure she was eligible, she was told
her loans were now ineligible for the PSLF because they had
been serviced by other loan entities, unbeknownst to her.
I want to right here tell you a little bit about what she
said. Liz further said that she was told there was nothing that
could be done and that very few of her payments qualified and
then she said, ``For a while, I thought I was the only one in
that situation. I never grew up with money. I came from a
single family household. I remember being so cold in the winter
and going hungry. Nothing in my life was easy. So I figured
this was just one more thing to add to my long list of unfair
things to happen to me but put your head down, work harder,
work longer, and somehow maybe you'll come out just a little
bit ahead.''
So, I thank you all for being here because this is truly
impacting people's lives, as we've discussed, and, Mr. Minhaj,
since you recently did a story on this and you pointed out in
your opening testimony that the borrower does not control who
their servicer is, does this story that I'm hearing from Liz
sound familiar to anything that you heard when you were
researching your show?
Mr. Minhaj. Yes.
Mrs. Axne. Can you tell me another story briefly that you
may have heard that's similar?
Mr. Minhaj. I can't say the name of the loan servicer
provider that they were switched to, but it's very similar to
that. It's very similar to the story that you mentioned where,
because of misinformation, and they were told the wrong
information, they were led down a path that was not beneficial
to them in the long term.
Mrs. Axne. Yes, thank you, and I'd ask any of you, because
Liz has contacted me and I don't know what to do to help Liz at
this point, and I'd ask any of you for this teacher of 13 years
who literally never had a late payment, what can be done now to
help her?
Mr. Frotman. I think, unfortunately, we hear these stories
all the time, and I think we've heard about consumer protection
being a smoke screen or a distraction. This is the problem, is
that borrowers are reaching out to private sector companies and
they're getting lied to.
We've seen the nation's largest teachers' union sue Navient
for the exact practices that you are talking about. These
companies have to follow the law. Just being an Education
Department contractor doesn't mean you get to have a free ride
in this country. You have to follow Federal law and State law
and I think that borrower has rights, but I think there's more
that this committee could do to make sure that this doesn't
happen again.
Mrs. Axne. So we've all heard, and I know this was
discussed earlier, that more than 99 percent of PSLF
applications are now being rejected, despite Congress
explicitly expanding the program last year and, as discussed,
President Trump just appointed Robert Cameron, who worked for
an at-profit student loan servicer, to serve as the student
loan ombudsman.
Mr. Minhaj, does this seem like an Administration that's
putting private companies ahead of the interests of its
borrowers?
Mr. Minhaj. I just think it's terrifying that the head of
the predatory loan servicing company is now in charge of this
thing that's supposed to protect you.
Mrs. Axne. Moving on, I'd like to address another issue
that we're facing and, Mr. Frotman, you brought this up
earlier. I'm encouraged about the fact that we're having this
discussion on both sides of the aisle, but Americans now owe
more than $1.6 trillion in student loan debt and I think there
are two ways that this debt impacts the overall economy
explicitly.
You mentioned many, but I wanted to get into housing
briefly here. Do you feel, Mr. Frotman, that student loan debt
is keeping borrowers from buying homes?
Mr. Frotman. Absolutely.
Mrs. Axne. Thank you. One estimate found that at least
400,000 less Americans own homes because of this student loan
debt. Does that sound reasonable?
Mr. Frotman. That's correct.
Mrs. Axne. Okay. And this is exactly why I joined my
colleagues, Ms. Kaptur and Mr. Clay, to introduce the
Transforming Student Debt to Home Equity Act. It's a
legislation that creates a pathway for college graduates to
purchase a home and then roll that loan into a lower-interest
home mortgage rate.
I am also encouraged, of course, by the discussion draft
we're considering in this hearing to instruct Federal
regulators to study the barriers to home ownership that student
loan is creating.
Ms. Yu, do you think these two bills will help students
make the transition to home ownership?
Ms. Yu. I think it's incredibly encouraging that we're
talking about how to make home ownership more available to
student loan borrowers.
Mrs. Axne. Okay. Thank you so much.
Chairwoman Waters. The gentlewoman from Pennsylvania, Ms.
Dean, is recognized for 5 minutes.
Ms. Dean. Thank you, Madam Chairwoman. I appreciate the
chance to talk about this really important subject.
I come at it through the lens of a mother and a
grandmother. Also, I was a university professor for 10 years in
Philadelphia at LaSalle University before I got into public
service. I met with students regularly who were worried about
being closed out of their own education based on debt and the
interest on that debt, and I worry about the chilling effect
that has on students coming up.
I met with students at my area high school, Norristown Area
High School, shortly after I was sworn in this year and they're
bright, they're engaged, they're inquisitive, and I asked them
what are you doing next, you're seniors, and many of them said,
``I cannot imagine taking on the burdensome debt that college
would require. I see my own parents still struggling with their
own student debt.''
So I heard some conversation about what is the foundation
of the American Dream. My parents taught me and I believe it
for my own children that the foundation of an American Dream is
an education. That's where it all begins because with that
education, one that we can afford, that our children and our
grandchildren can afford, that's how we become fully engaged
members of the economy, and so many of you have so aptly
described how we have saddled young people with debt such that
they cannot fully engage in our economy.
Ms. Yu, I wanted to talk to you. Early on in my tenure, we
had a constituent come in our office. Her daughter had
burdensome student loans, and became permanently disabled. The
mother is now the full-time caregiver, and the student loan
that they had was with a private lender, and while the daughter
is forgiven from her debt, the mother as the cosigner is not.
So now, she has the full-time economic and emotional
responsibility of caregiving, and I've introduced legislation
that I think you've talked about which would require private
loan disability discharge.
Can you talk about that and the inequities in the private
loan system?
Ms. Yu. Yes, absolutely. Private loan cancellation programs
are absolutely at the discretion of the lender. Some private
lenders offer discharge programs, and others don't. There's no
standard, there's no clear standard between lenders, and even
within lenders sometimes there's disparities between one loan
program or the other.
One of the first student loan borrowers that I ever worked
with when I was a Legal Aid attorney was totally and
permanently disabled due to complications from breast cancer.
Her Federal loans were fully discharged because she qualified
for that loan program and her private lender actually had a
press release saying that they had a disability discharge
program available for private loans, but when we went to apply
for it for this borrower, they were only willing to offer her
to waive interest. They weren't willing to waive any of the
principal, which--she was totally and permanently disabled, she
couldn't work, she was living on Social Security--didn't make a
dent for her.
Ms. Dean. So requiring private lenders to mirror the
Federal requirement, which is discharge in the case of debt to
permanent disability, you think that's the right way to go?
Ms. Yu. Absolutely.
Ms. Dean. Thank you. I have another bill that would end
forced arbitration, the pre-agreement to arbitrate a dispute
that has not yet appeared.
Can any of you talk to me about how that would be helpful
to our borrowers?
Mr. Frotman. Sometimes, we overlook the private student
loan market because it's only 7 or 8 percent, but 7 or 8
percent of $1.6 trillion is a whole lot of money and there's a
whole lot of borrowers who are getting ripped off in this
market.
We've seen private lenders make loans they know are going
to fail, with literally 65 percent default rates. We've seen
predatory practices from for-profit schools who have private
student loan programs, and in each of these instances, these
borrowers were ripped off and they can't access a courtroom to
try to seek justice, and I think this is a considerable step.
This committee took this step with regard to certain mortgages
in terms of banning forced arbitration, and I think it makes a
ton of sense in the private student loan market, as well.
Ms. Dean. And just quickly, if I could follow up with you,
can you describe some of the practices in terms of lack of
repayment options that you had described with the private
lenders?
Mr. Frotman. In many ways, a private student loan is just a
straight 10-year amortizing loan, and despite what you hear
about industry talking points about charge-off rates, there are
a lot of private student loan borrowers who are really
struggling. The delinquency rates are much higher than what
they advertise, and what we saw in the complaints is that
people take on this debt kind of on the path to a better life
and then something happens.
They have a special needs child or they become totally and
permanently disabled, a spouse loses a job, and they're really
stuck, and we've seen time and time again that borrowers aren't
getting repayment options. They're trying to pay something and
a lot of this goes back again to the lack of protections and
bankruptcy.
Ms. Dean. Thank you, Madam Chairwoman. And thank you, sir.
Chairwoman Waters. The gentlewoman from Texas, Ms. Garcia,
is recognized for 5 minutes.
Ms. Garcia of Texas. Thank you, Madam Chairwoman, and thank
you for holding this hearing. It was quite astonishing to hear
from you when you utter the words that this was the first time
we've had a hearing on this in the Congress. It just baffles me
that we've not really done anything to wrestle with this
problem.
Quite frankly, after listening to all the questions and
listening to the testimony, I think we're all to blame, and I
think it's time for us to take action.
So my question to all the panel members is, rather than
repeal and replace, say we just get rid of the whole darn thing
and start all over with a white board, what is the first thing
that you would want to put on the white board, and let's keep
it short because I only have 5 minutes and there's five of you?
So, you have a minute each.
Mr. Frotman. I think that the Student Loan Borrower Bill of
Rights is where I would start. It's simply taking the
protections that exist for other borrowers and making sure
student loan borrowers have them. That shouldn't be
controversial.
Ms. Garcia of Texas. Borrowers' rights. All right. Ms. Yu?
Ms. Yu. I think you need to target servicers towards the
most vulnerable borrowers and then make sure that they're
protected if they have to take on debt.
Ms. Garcia of Texas. Vulnerable borrowers based on what?
Financial ability to pay, income status, what?
Ms. Yu. I think, income status. I think, race and gender.
We see that borrowers of color, women, veterans, they have to
take on more debt to go to school and I think we need to make
sure that education is available for all of our students.
Ms. Garcia of Texas. Okay. Ms. Harrington?
Ms. Harrington. I agree with the Student Loan Borrower Bill
of Rights targeting servicers to the most vulnerable, including
low-income people and people of color. I think we also have to
make sure that both Federal agencies and State agencies have
the ability to enforce these rights as well as students have
the ability to enforce their own rights and protect themselves.
Ms. Garcia of Texas. Okay. Mr. Minhaj?
Mr. Minhaj. I agree with everything they've said. I think
it would be great if we could just go, ``Tools, Clear History''
on everyone's debt, and I also think we should have a digital
clock in here. I think that's a bipartisan position we can all
agree on. I don't know what time it is right now. For a second,
I thought it was 7:10 and I started freaking out.
[laughter]
Ms. Garcia of Texas. Does it say 7:10?
Mr. Minhaj. Well, it was--so if you follow the short hand,
technically it's 1:40.
Ms. Garcia of Texas. All right. We'll order a Mickey Mouse
clock next time.
Mr. Minhaj. Thank you so much.
Ms. Garcia of Texas. Thank you.
Mr. Delisle. I actually have a paper where I've laid out a
complete redesign of the Federal Student Loan Program. It was
published by the Manhattan Institute. I would convert the whole
thing to an income-share agreement where you pay back one
percent of your income for every $10,000 you borrow and then
you pay it back on your income taxes. I think this would
dramatically simplify the program. I would cap the amount
people could borrow at $50,000, but--
Ms. Garcia of Texas. You would put a cap at $50,000?
Mr. Delisle. $50,000.
Ms. Garcia of Texas. Have you seen tuition rates around the
country?
Mr. Delisle. What I've heard from the members of this
committee is that people are being crushed by their debt. So I
think the best way to solve the problem is to limit how much
they can take out.
Ms. Garcia of Texas. Do you know how much my law school
cost me?
Mr. Delisle. Sure. But people who--law school is a good
bet, right, and those people should be able to get loans in the
private market, if it's a good bet. If it's a bad bet, they
won't get loans--
Ms. Garcia of Texas. Well, I think it's always a good bet.
Mr. Delisle. --and they're better off.
Ms. Garcia of Texas. Well, no. So what else did you say
now? You said the income-sharing thing?
Mr. Delisle. An income-share agreement, so you pay back one
percent of your income for every $10,000 you use in the
program. So if you use $30,000, you would be signing up to pay
back 3 percent of your income on your income taxes for a set
period of time. So, we don't have all the different options.
In fact, the amazing part about this plan is, if you pay
the loans on your taxes, you get rid of loan servicers. They're
gone.
Ms. Garcia of Texas. I just think it's about time that we
go ahead and start rethinking the whole thing.
Ms. Harrington, one thing that I would want to make sure of
is that when we're talking about vulnerable populations, I know
that you talked a little bit about the disparate treatment, if
you will, or the impact on African-American communities.
Does it number differently for the Latino community, the
Asian community, or how do we fare in all of this?
Ms. Harrington. There are definitely a number of issues
across the various communities. Latinos have struggled with the
fact that they have higher rates of non-completion which then
makes it harder for them to pay back their loans and they do
have higher default rates than their white counterparts.
We've also seen a high rate of student debt for Native
American populations. Women tend to take out more student loan
debt and take longer to pay it back and that also goes back to
the income gap and how we pay for it. We've seen a
disproportionate impact on older borrowers now who are seeing
their Social Security benefits offset.
Ms. Garcia of Texas. Is there a difference between
community college debt, you know, junior college, 2-year
schools, versus a 4-year university?
Ms. Harrington. Yes, but what's driving the default is
really the for-profit college industry and their issues, and
also the lack of consumer protections with the servicing level.
Ms. Garcia of Texas. Thank you, Madam Chairwoman. I yield
back.
Chairwoman Waters. The gentlewoman from New York, Ms.
Ocasio-Cortez, is recognized for 5 minutes.
Ms. Ocasio-Cortez. Thank you, Madam Chairwoman, and thank
you to all of our witnesses here today. It's been a very long
hearing, with some specious claims, I would add, but it's also
been a very hard and long hearing for anyone who has student
loan debt.
I literally made a student loan payment while I was sitting
here in this chair. I looked at my balance and it is
$20,237.16, and I just made a payment that took me down to
$19,000. So I feel really accomplished right now, but the thing
is, is we saw two main arguments from the Republican side over
and over again.
One is the idea that this issue is not germane to this
committee, that student loans are not germane to the Financial
Services Committee, and it seems completely ridiculous, that
loans are somehow--you know, this is not our job and I look at
all the things that are going on right here and just article
after article.
Sure, there's some aspects that are not our job, like, one,
what certainly seems like a very large amount of corruption
coming out of the Department of Education but also in
conjunction with the Consumer Financial Protection Bureau.
I have an article right here from the Washington Post,
``Education Department Awards Debt Collection Contract to
Company with Ties to Betsy DeVos.'' Another one, ``Student Loan
Behemoth Tightens Its Ties to Trump and Betsy DeVos,'' the
company that rejected all but one percent of popular Federal
student loan forgiveness is beefing up its already close ties.
The third, ``Inside Investigations Inside the Education
Department's Effort to Obstruct Student Loan Investigations.''
What could they be obstructing? What investigations could
they be obstructing? Well, in 2009, Sallie Mae's CEO said, ``If
a borrower can create condensation on a mirror, they need to
get a loan this year in order to put their subprime lending in
place.''
Navient forwarded wrong information to credit reporting
agencies saying that permanently disabled veterans had
defaulted on their loans when they hadn't. Then, you have ITT
Credit Union issuing and using financial aid staff to rush
students through an automated application process when they
knew that they had projected default rates as high as 64
percent, is that correct, Ms. Yu?
Ms. Yu. Yes, that's right.
Ms. Ocasio-Cortez. They knew that they were issuing loans
that had a default rate of 64 percent?
Ms. Yu. Yes.
Ms. Ocasio-Cortez. So, they were setting people up to fail.
Ms. Yu. They were.
Ms. Ocasio-Cortez. And I'm hearing people on this committee
saying, it's not our job. This is our job.
Mr. Delisle, you are the Republican or Minority witness and
we appreciate that you're here testifying at the Republicans'
request.
One of the things, the other argument that they say is that
this is Obama's fault, #Obama. It's Congress' fault,
congressional Democrats. One of the things that they say is
that it's the congressional Democrats' fault and that ending
the Federal Family Education Program and moving to the Direct
Loan Program, that it's our fault that we're creating the $1.6
trillion in student loan debt.
Do you agree with those claims?
Mr. Delisle. I think the terms of the loans for borrowers
were identical under both programs.
Ms. Ocasio-Cortez. So, that's a no?
Mr. Delisle. I don't think we know, but borrowers were
eligible for identical amounts of debt prior to the change.
Ms. Ocasio-Cortez. Okay. Mr. Delisle, it seems like you
knew in February 2007, in your report entitled, ``Private in
Name Only'', where you stated even in the executive summary
that, ``Critics also assert that the complete switch to the
Direct Loan Program in 2010 led to record levels of outstanding
student debt and defaults, a claim with no causal basis.'' You
went on to emphasize that, ``Perhaps the most outrageous of all
are the claims that the Direct Loan Program is to blame for the
record level of outstanding student debt and a spike in student
loan defaults.''
So, I'll ask you again. Is it unfair to characterize the
2010 policy changes leading directly to the record $1.6
trillion in debt?
Mr. Delisle. It wouldn't make sense that they caused an
increase in debt. That's right.
Ms. Ocasio-Cortez. Thank you very much, Mr. Delisle. I
appreciate that.
And with just a few seconds left, does anyone else have any
closing commentary that they weren't able to get in today?
[No response.]
Ms. Ocasio-Cortez. All right. Thank you very much.
Chairwoman Waters. Thank you.
The gentleman from Texas, Mr. Green, who is also the Chair
of our Subcommittee on Oversight and Investigations, is
recognized for 5 minutes.
Mr. Green. Thank you, Madam Chairwoman.
I am especially thankful that you approved our having the
Oversight and Investigations Subcommittee hearing in Houston,
Texas. I'd like to report that it was well-attended. Many
Members had other places to be and I well understand, but I do
want to thank Ms. Tlaib, Mr. Cleaver, Mr. Meeks, and Ms.
Garcia, for being in attendance.
I am a little bit concerned about persons who believe that
you can somehow pass a skin test. We just left the Visitors
Center where we were commemorating some 400 years since the
first slaves arrived here and many persons talked about the
vestiges of racism, invidious discrimination, slavery, lawful
segregation, and how it impacts us today.
At one time, as you well know, Black people were not
allowed to learn, not allowed to get an education, and so we
have a system now that requires people to do things that they
can do. Great strides have been made, but there's still
invidious discrimination.
It exists, and unfortunately we don't like to acknowledge
it, but it does. I'll give you one example that doesn't relate
to education, but when Kareem, also known as The Center, was
accepted into UCLA, they changed the rules. They changed the
rules. They outlawed dunking the ball because they didn't want
to see this Black man score all of these points. It's the
truth. They changed the rules. The rules change for us all the
time, but we've learned to live with it. Literally, I accepted
it unfortunately for us.
So I'm saying to you there's still a skin test and it can
fail even our best. We find ourselves sending tax dollars to
schools we can't get into but they benefit from our tax
dollars, very unfortunate.
Today, I hear people complaining about why we're having
this hearing. Let me just share one piece of information,
intelligence that the staff has accorded me, and the staff does
great work. This piece of intelligence reads, ``Borrowers first
became eligible for loan forgiveness under PSLF in September
2017, 10 years after the program began. As of April 2018, the
Department of Education had approved only 55 of 19,321
applications--some things bear repeating: 55 of 19,321
applications--for loan forgiveness under PSFL or 0.0028
percent.'' That's reason enough.
This number alone justifies some sort of intervention. You
cannot justify 0.0028 percent. We have to do something. I'm
concerned about persons who get degrees and can't pay their
loans back, but I'm also concerned about people who don't get
degrees and can't pay their loans back.
If you get a degree, look, I'm concerned about you. Please
don't misunderstand, but you're more likely probably in my
world to be able to pay it back than the person who doesn't
have the degree, who can't get bankruptcy, who's going to have
to live with this and work with this throughout life sometimes.
So quickly, if someone could just tell me this, there's
some debate about whether or not persons who don't have degrees
qualify for the forgiveness program, that there's some opinion
that the law doesn't specifically allow it. If you think the
law does allow persons who do not have degrees to participate
in the forgiveness program, please raise your hand. I'd just
like to get a quick survey if you think the law does allow it.
Mr. Green. Okay. All but--well, maybe you don't know, sir.
Mr. Minhaj. I don't know the answer.
Mr. Green. Okay. That's good enough. Okay. Look, I am very
much concerned about those who don't get the degrees.
Thank you, Madam Chairwoman. I'll yield back.
Chairwoman Waters. Thank you very much.
I'd like to thank all of our distinguished witnesses for
their testimony today.
The Chair notes that some Members may have additional
questions for this panel, which they may wish to submit in
writing. Without objection, the hearing record will remain open
for 5 legislative days for Members to submit written questions
to these witnesses and to place their responses in the record.
Also, without objection, Members will have 5 legislative days
to submit extraneous materials to the Chair for inclusion in
the record.
This hearing is now adjourned. Thank you.
[Whereupon, at 1:55 p.m., the hearing was adjourned.]
A P P E N D I X
September 10, 2019
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]