Related Topics in the Ref Desk: Discharge, cancellation, forgiveness; Public Service Loan Forgiveness; Income-contingent repayment plan; Third Party Servicers
By Owen Daugherty, NASFAA Staff Reporter
The issues surrounding the mounting student loan debt held by millions of borrowers, and more specifically the disproportionate burden the debt puts on Black borrowers and borrowers of color, was front and center during a Senate hearing on Tuesday.
Hosting her first hearing as chair of the Senate Banking, Housing and Urban Affairs Committee's Subcommittee on Economic Policy, Sen. Elizabeth Warren’s (D-Mass.) decision to focus on student loans underscored her emphasis on the issue as she touted a proposal she co-sponsors with Senate Majority Leader Chuck Schumer to forgive $50,000 in federal loan debt for each borrower. "It's time to act now," she said during her opening remarks.
Throughout the hearing, which featured testimony from higher education policy experts, a borrower working at a public school who holds more than $50,000 in student loan debt, and the presidents of two of the largest student loan servicers contracted by the Department of Education (ED), Democratic lawmakers hit on several of the key topics being debated as lawmakers look for reforms to the college affordability problem and student debt dilemma.
Notably, several Rebpublican members of the subcommittee were not present at the hearing Tuesday. In his opening remarks, Sen. John Kennedy (R-La.), ranking member of the subcommittee, said he looked forward to hearing about the demographics of those who hold student loan debt.
Rep. Ayanna Pressley (D-Mass.), a co-sponsor of Warren and Schumer’s proposal and a panel witness at the hearing, argued that student loan forgiveness is wise economic policy because it invests in people as opposed to corporations and would help address the racial wealth gap.
“We have to take bold action to address the inequities and disparities in our country and use every tool available to provide our communities with the relief they so desperately need,” she said.
Dominique Baker, assistant professor of education policy at Southern Methodist University, underscored just how different the outcomes are for Black borrowers and borrowers of color who are saddled with student debt, noting that 4% of white borrowers who graduate default on their loans, compared to 21% of Black borrowers who graduate.
“Black college graduates actually struggle to repay their student loan debt more than white students without degrees,” she added.
NASFAA in a letter sent to senators in 2019 — including Warren — provided ideas and policy solutions on how to address the racial disparities that exist within higher education financing and who holds student loan debt. The letter identified several areas, including the application and verification process as well as the complicated repayment system, as factors in the disparate outcomes for borrowers along racial lines.
Virtually all of the witnesses present and lawmakers at the hearing agreed that the rising cost of higher education and the student loan debt that ensues are problems worth addressing, but there was little consensus on how to do so.
In his opening remarks as a witness, Rep. Byron Donalds (R-Fla.) labeled proposals calling for loan forgiveness a “political ploy,” saying it “will not solve the problem all of us recognize needs fixing ... it will result in even higher tuition costs for students” because taxpayers will end up footing the bill for those who already took out loans to go to school.
Several of the expert witnesses who testified at the hearing argued that blanket debt forgiveness is regressive and not the best solution to the problem.
Beth Akers, a resident scholar at the American Enterprise Institute, pointed to improving the existing safety that income-driven repayment (IDR) plans provide borrowers as an alternative to widespread forgiveness, though she acknowledged the flaws in the IDR programs as they are currently constructed.
“Evidence suggests that the safety net created by these programs is falling short. This is because IDR is administered through a complex variety of programs,” she said. “The result is a system that is excessively difficult to navigate, with many borrowers not even aware of the benefits available to them.”
Constantine Yannelis, assistant professor of finance at the University of Chicago’s Booth School of Business, said expanding bankruptcy protections for borrowers who default on payments and expanding and fixing the safety net provided by IDRs make more sense as fiscally responsible policy solutions as opposed to debt forgiveness.
James Steeley, president and CEO of loan servicer Pennsylvania Higher Education Assistance Agency (PHEAA), and John Remondi, president and CEO of loan servicer Navient, were the frequent targets of critiques as Democrats attempted to paint them as corporate entities profiting off borrowers who pile up debt.
Warren and fellow Democratic Sens. Bob Menendez (D-N.J.) and Chris Van Hollen (D-Md.) knocked Steeley and PHEAA for allegations that the servicer engaged in "systematic undercounting" for borrowers who made payments toward debt forgiveness under the Public Service Loan Forgiveness (PSLF) program.
In another instance, Warren argued ED should end its contract with Navient as a loan servicer since it frequently is rated the lowest in customer satisfaction in borrower surveys.
Warren used her closing remarks to again amplify her calls to have President Joe Biden cancel $50,000 in student debt per person using his executive powers, laying out the legal argument that he has the ability to do so without having to go through Congress.
“As we speak, [ED] is currently canceling about $5 billion of debt per month in interest,” she said. “President Biden's legal authority is absolutely clear.”
Editor's Note: This article was updated at 4:00 p.m. on 4/19/21 to reflect NASFAA's 2019 letter to senators regarding the racial disparities in student loan debt.
Publication Date: 4/14/2021
Leah M | 4/23/2021 10:24:19 AM
Students need to re-pay what they borrowed. They made a choice to take on debt in order to get something they wanted. It is no different than credit card debt. Perhaps consider "forgiving" interest that has accrued on student loans, but they need to re-pay the original loan amount they chose to borrow. It is true that the entire higher education cost structure and financial aid system should be overhauled, but widespread loan forgiveness should not be part of that fix.
Some people skipped college to avoid loan debt, or made a different choice in where they attended, or took a different job than their dream, or lived somewhere more affordable -- all of these choices were made so they could avoid loan debt or pay it back within their means. If these people knew they could have borrowed unlimited loans and not have to pay them back, their choices could have been different. It is a slippery slope and a moral hazard to not hold people responsible for their actions and would set a precedent for current and future students to expect the same.
Ben R | 4/16/2021 8:12:08 AM
It seems like a conflict of interest to attack loan servicers who work for taxpayers as much as borrowers. PSLF which is just getting started already shows an average cancellation of $75,000 per borrower, so accelerating that doesn't make sense for program integrity or sustainability.
G. Susie E | 4/14/2021 3:10:52 PM
I know this is not a popular stance but here is the truth. Students signed the promissory note. They should repay the student loan. I repaid mine. The American tax payer did not sign the promissory note. Why should they repay the student loan. No name.
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