In letters sent last month, Outgoing Senate Banking Committee Chair Tim Johnson (D-SD) urged several federal agencies to address issues in the student loan market, including debt collection and student loan servicing.
The letters, dated December 17, 2014, were sent to Department of Education (ED) Secretary Arne Duncan, Treasury Department Secretary Jack Lew, and Consumer Financial Protection Bureau (CFPB) Director Richard Cordray.
Noting that student loan debt in the U.S. currently stands at $1.2 trillion and is now the largest form of consumer debt, Johnson wrote in the letters that over 72 percent of South Dakota’s students graduated with an average debt of $25,750 in 2013. Student loan default rates are also reaching all-time highs, with recent ED data showing three-year cohort default rates of 13.7 percent, he adds.
Johnson asked in the letters that the three agencies “undertake a serious study of the market for refinancing student loans and develop a plan to enable borrowers to take advantage of the current low interest rate environment.” He also asked that the agencies “coordinate to ensure that borrowers’ rights are prioritized and that taxpayers’ investment in higher education is responsibly managed.”
While the letters are similar in content, they include specific recommendations each agency can take on to address student loan issues. For example, Johnson urged Treasury Secretary Lew to make public the findings of a 2015 pilot program expanding the role Treasury plays in collecting student loan debt.
Regarding ED, Johnson largely focused on the agency’s role in contracting student loan servicers and disbursing Title IV funds. He urged ED Secretary Duncan to “conduct meaningful and regular oversight over the servicers with which it contracts.” Specifically, ED “must ensure servicers that violate the terms of its contracts are held responsible,” and that borrowers are treated “fairly and transparently, which includes ensuring loan information is correct, fees are accurately assessed, and borrowers are given all relevant information about their loans,” Johnson said.
Other recommendations to ED include:
In his letter to CFPB Director Cordray, Johnson also touched debt collection, noting that is one of the top complaints the agency receives in its Consumer Complaint Database. He urged the agency to “implement a strong rule on debt collection that covers all debt collectors, including PCAs that may collect on federal student loans.” He also requested that CFPB and ED work together to oversee PCAs and ensure that current protections “are safeguarded and enforced.”
“I also ask,” he wrote to Cordray, “that you consider requiring more transparent disclosures to students before taking on student loan debt, mandatory certification for private student loans, release of co-signers upon the death or disability of a borrower, and improved credit reporting for education loans.”
Publication Date: 1/7/2015