Lawmakers Debate Who's to Blame for Issues Within the Federal Student Loan System

By Joelle Fredman, NASFAA Staff Reporter

Following reports this year that highlighted a lack of oversight of federal student loan servicers, the House Committee on Financial Services Tuesday gathered higher education experts and consumer advocates to discuss issues within the federal student loan system. While Democrats blamed federal loan servicers for mistreating students, Republicans faulted Congress and the Department of Education (ED) for failing borrowers, arguing that student lending did not fall under the committee's jurisdiction.

During the four-hour hearing — titled “A $1.5 Trillion Crisis: Protecting Student Borrowers and Holding Student Loan Servicers Accountable” — lawmakers heard from a series of panelists including Seth Frotman, the executive director of the Student Borrower Protection Center and former student loan ombudsman at the Consumer Financial Protection Bureau (CFPB); Persis Yu, a staff attorney at the National Consumer Law Center; Ashley Harrington, senior policy counsel at the Center for Responsible Lending; Jason Delisle of the American Enterprise Institute; and Hasan Minhaj, the writer and host of the Netflix television series, “The Patriot Act,” which recently aired an episode on student debt. Prior to the hearing, Democratic committee staff outlined nine pieces of legislation they are considering related to consumer protections for student borrowers.  

Committee Chair Rep. Maxine Waters (D-CA) opened the discussion by stating that this hearing, which she called “long overdue,” is the first of its kind.

“It appears that this may in fact be the first ever full committee hearing in its history focused on student lending and the many financial ramifications it has for student borrowers,” Waters said. “Trump’s Education Secretary Betsy DeVos has consistently taken actions that are harmful for those with student loans. ... Congress and this committee have a responsibility to take action to ensure that student loan borrowers are well protected.”

Earlier this year, ED’s Office of Inspector General (OIG) released a report that found a host of issues regarding the Office of Federal Student Aid’s (FSA) oversight of federal student loan servicers. Specifically, OIG wrote that service representatives did not sufficiently inform borrowers of all available repayment options, and that servicers did not correctly calculate income-driven repayment (IDR) amounts, among other issues.

Democrats on the committee and the panelists they brought in argued that students need more consumer protections to shield themselves against these practices.

“Borrowers come to my office, they are in default, they have a series of these forbearances, they’ve never heard about [IDR],” Yu told the committee. “Many of these borrowers would have qualified for $0 [IDRs] but instead they defaulted because they exhausted their forbearance through these default management companies. Servicers are required to reach out to borrowers, and for too many borrowers that’s not happening.”

Frotman told the committee that they “cannot continue to be lobbied into believing that the companies getting rich off the millions of Americans are not part of the problem.” 

“We cannot continue to ignore this trillion dollar black hole in our financial markets. This committee must protect those chasing the American dream from those who only seek to prey on its pursuit,” he added. 

However, Rep. Patrick McHenry (R-NC), ranking member of the committee, blamed Congress and “Democrat policies that have nationalized the student debt lending in this country” — referring to the move from the Federal Family Education Loan (FFEL) program to direct lending almost a decade ago — and said that “as a consequence of those actions we’ve saddled a generation with unaffordable debt and an education that does not outmatch the cost of that education.”

He added that while “we have to fix the law, and ensure that the federal student debt is much like the private student debt markets,” student lending issues are not included within the scope of the committee.

Many Republican members echoed McHenry on this point, and in his argument that Congress was at fault for not ensuring that federal student loans are underwritten. Rep. Ann Wagner (R-MO), for example, said that without underwriting “it seems some federal borrowers are set up for failure by the rules put in place by Congress.” In response to a question from Wagner about to prevent overborrowing, Delisle said ED should stop offering Parent PLUS loans.  

Delisle reemphasized to the committee that loan servicers are not entirely at fault for allegedly misleading borrowers, because the terms related to how they handle loans are set by Congress.  

“All of the perceived mistreatment that we are talking about today, the crushing debt, the misleading information, the confusion — the source of that may actually be Congress and [ED], not the servicers,” he said.

Nearing the end of the lengthy hearing, Rep. Alexandria Ocasio-Cortez (D-NY) — who said that she made a payment on her more than $20,000 in student loan debt during the discussion — argued that while many Republicans said that the committee is not responsible for federal loan servicer failures, members must work to protect students. 

“This is our job,” Ocasio-Cortez said.

 

Publication Date: 9/11/2019


Angela H | 9/16/2019 11:42:04 AM

I agree with Sen. Ann Wagner, , Parent Plus Loans should be off the table. This loan adds to much weight to the borrowers overall financial well being. At some point, students and family must prepare for college and get off this never ending cycle of occurring student loans as way to pay for college,

G. Michael J | 9/11/2019 12:19:22 PM

This question will likely showcase my ignorance, but - did the move to 100% Direct Loans really contribute to increased indebtedness? If so, how?

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