On Tuesday, the Senate Banking, Housing and Urban Affairs Committee's Subcommittee on Economic Policy held its second hearing on the issue of student loans with members and witnesses focusing on concerns on how the impending end of the student loan repayment moratorium, coupled with the backlog on Public Service Loan Forgiveness (PSLF) program applications, along with the need to transition borrowers to new servicers by year’s end, could throw borrowers into heightened economic distress.
Chairwoman Sen. Elizabeth Warren (D-Mass.) took loan servicers to task for their oversight of PSLF citing their “nasty record” of the program’s implementation that has ultimately harmed borrowers seeking promised loan forgiveness.
“Two weeks ago PHEAA, a large student loan servicer that has badly mismanaged the Public Service Loan Forgiveness Program, announced that they will be leaving the federal student loan program. This is good news, very good news,” Warren said. “PHEAA was responsible for failures in the Public Service Loan Program that have robbed untold numbers of borrowers of the debt cancellation that they were promised.”
Warren indicated that the payment pause on federal student loans — currently in effect until Sept. 30 — has presented congress with a rare opportunity to address the student loan landscape, and rework the system in a manner that enables borrowers to better repay their loans, especially as other servicers negotiate their contracts with the Department of Education (ED).
“Let’s be clear, we need wholesale forgiveness and we need it now,” Warren said.
Significant concern was voiced over the implication of PHEAA electing not to renew its contract with ED at the end of the year, which will require nearly 9 million borrowers to be transferred to new servicers and could coincide with the resumption of loan repayments should the pause expire as planned.
“The combination of restarting repayment, along with the risks associated with large scale loan transfers by servicers with a long history of failing to adequately serve federal student loan borrowers, will have cataclysmic consequences unless meaningful consumer protections are put in place,” said Persis SiChing Yu, of the National Consumer Law Center. “Historical data from [ED] demonstrates that default rates typically spike following disaster-related forbearances. Specifically, following Hurricanes Harvey, Irma, and Maria and the California wildfires, the loans of borrowers living in those impacted areas were placed in mandatory administrative forbearance.”
While Warren further called on the administration to offer loan forgiveness — and reiterated the economic benefits highlighted in her subcommittee’s April hearing — she urged ED to extend the payment pause citing concerns from borrowers and servicers alike. Democrats have in recent weeks called on the administration to extend the pause through the beginning of 2022, with Warren urging an extension through March.
In their discussion Tuesday members also touched on affordability, with Sen. Jon Ossoff (D-Ga.) inquiring about how making increases to the Pell Grant could improve student outcomes.
“We need to lower the risks of attempting to improve your lives to get an education and have an opportunity to feed your family,” Yu said. “We need to move away from debt financing for higher education.”
Witnesses also advocated for the administration to implement forgiveness as a means of offering a fresh start to how the government oversees the federal student loan system.
“The Biden administration inherited a broken system and wisely extended the moratorium on student debt that the Trump administration enacted. Combined, the two have effectively canceled over $90 billion in student loan interest,” said Randi Weingarten, president of the American Federation of Teachers, who looked to placate concerns over whether the administration has the authority to unilaterally forgive federal student loans.
Further Weingarten faulted the previous administration’s handling of the PSLF program which has compounded the current issue.
“The dilemma now is that there's such a backlog in the kind of cases that have come up to be redeemed under PSLF that no administration, as good as the Biden administration is, is going to be able to get through a backlog of 150,000 cases,” Weingarten said. “And then on top of that, every new case that comes in every day. We're seeing a huge fail rate in terms of not being able to redeem this basic promise, a fail rate of about 98%.”
In calling for massive student loan debt cancellation Warren touted a proposal she co-sponsored with Senate Majority Leader Chuck Schumer to forgive $50,000 in federal loan debt for each borrower. Earlier on Tuesday Senate Majority Leader Chuck Schumer (D-N.Y) continued to pressure the administration to administer broad debt forgiveness.
ED has not indicated how it will approach student loan debt cancelation or when the memo on forgiveness will be released but as the Sept. 30 moratorium deadline approaches the department will need to soon indicate whether another extension will be administered to give servicers the time they need to ramp up communications with borrowers.
“This is a disaster in the making,” Warren said of the potential sudden resumption of repayments. “This student loan time bomb could drag down our entire economic recovery when it explodes.”
No Republican members of the subcommittee offered testimony or questioned witnesses present at Tuesday’s hearing. Republicans have urged ED to resume student loan repayments this fall and have balked at proposals that would broadly cancel federal student loan debt.
Publication Date: 7/28/2021