Examining Student Loan Servicers and Their Impact on Workers (U.S. Senate Committee on Banking, Housing, and Urban Affairs)

Hearing	Examining Student Loan Servicers and Their Impact on Workers
Committee	U.S. Senate Committee on Banking, Housing, and Urban Affairs
Date	May 5, 2022

 

Hearing Takeaways:

• Student Debt in the U.S.: The hearing focused on the large amount of student debt held by U.S. borrowers and policy solutions for addressing these high debt amounts. Full Committee Chairman Sherrod Brown (D-OH) discussed how 43 million Americans currently had $1.75 trillion in student debt and stated that this large amount of student debt prevented many of these Americans from purchasing homes, starting businesses, getting married, and starting families. He commented that it was no longer practical for students to pay for their colleges or universities through a part-time job. Dr. Bishop further noted how the majority of the balances for student loans issued since 2009 were increasing (instead of being paid down).
  • Explanations for the U.S.’s High Levels of Student Debt: Committee Democrats, Mr. Pierce, and Dr. Bishop attributed the U.S.’s high levels of student debt to underinvestments in public colleges and universities (which forced these schools to raise tuition) and malfeasance from the student loan servicing industry. They highlighted how Pell Grants were covering a decreasing percentage of college and university tuitions, which were driving students to take out student loans to fund their educations. Committee Republicans and Dr. McCluskey argued however that government grant programs, loan programs, and tax code preferences for college savings had made students less price sensitive to college and university tuitions, which led these schools to increase their prices. Dr. McCluskey also contended that credential inflation, which refers to when employers required degrees for jobs that previously did not require degrees, was artificially driving up demand for higher education, which led schools to charge more for tuition.
  • Role of Student Loan Servicers: Committee Democrats, Mr. Pierce, and Dr. Bishop contended that many of the U.S.’s student debt challenges were the result of widespread and chronic mismanagement by the student loan servicing industry. They accused student loan servicers of routine failures to provide proper guidance to borrowers, which often led borrowers to make excess payments and not be aware of loan forgiveness programs. They specifically named Navient, Affiliated Computer Services (ACS), Pennsylvania Higher Education Assistance Agency (PHEAA), FedLoan Servicing, and Aidvanage as bad student loan servicers. Dr. McCluskey stated however that many complaints about student loan servicers were actually about student loan programs. He mentioned how a 2019 analysis had found that only 44 percent of complaints regarding student loan servicers to the U.S. Consumer Financial Protection Bureau (CFPB) were about things that were under the control of the servicers.
  • Role of the U.S. Government within the Federal Lending Space: Dr. McCluskey remarked that the U.S. government was the dominant lender within the student lending space. He stated that federal student loans tended to not put conditions on the degree that the borrower obtains and school that the borrower attends. He suggested that a private student loan system would likely impose such conditions on borrowers in order to increase the likelihood that the loans would be repaid. Sen. Jack Reed (D-RI) and Mr. Pierce raised concerns however that higher education financing in the private sector often had subpar consumer protections.
  • Impact on Racial Minorities: Committee Democrats, Mr. Pierce, and Dr. Bishop stated that the U.S.’s student debt challenges were particularly impacting minority borrowers as minority borrowers were more likely to require students in order to afford higher education. They expressed concerns that the U.S.’s failure to address student debt issues would lead to a widening of the racial wealth gap.
  • Impact on Rural Borrowers and Communities: Sen. Jon Tester (D-MT), Sen. Catherine Cortez Masto (D-NV), and Mr. Pierce raised concerns that student debt was particularly impacting rural student borrowers and rural communities. They stated that student debt burdens were forcing many rural Americans to move to more metropolitan areas post-graduation so that they could obtain jobs that would enable them to repay their student loans. Sen. Cortez Masto highlighted how student debt burdens were leading to general practitioner shortages in rural areas.
• Specific Federal Student Loan Programs and Policies: Committee Members and the hearing’s witnesses expressed interest in the functioning of several existing federal student loan programs, as well as in making certain reforms to the federal student loan system.
  • Income-Driven Repayment (IDR) Plans: IDR plans cap the student loan payments of borrowers based on a fixed percentage of the borrower’s income. After the borrower makes payments for a set number of years, the remainder of the student loan’s balance is supposed to be forgiven. Committee Democrats stated however that student loan borrowers were having difficulty in terms of obtaining IDR forgiveness due to poor communication and mismanagement from student loan servicers. Dr. McCluskey recommended that the U.S. focus on providing a single type of IDR plan and commented that this approach would provide clarity as to who exactly would be eligible for the IDR plan.
  • Public Service Loan Forgiveness (PSLF) Program: The PSLF Program provides loan forgiveness to student loan borrowers that that dedicated ten years to public service jobs. Committee Democrats and Mr. Pierce raised concerns with how borrowers were rejected for the PSLF rate at a high rate and largely blamed student loan servicers for these high rejection rates. They applauded the Biden administration for its recent temporary PSLF program waiver to allow rejected borrowers to re-apply for forgiveness. Mr. Pierce noted however that the waiver was set to expire in October 2022 and called on the Biden administration to immediately extend the waiver. Sen. Catherine Cortez Masto (D-NV) also highlighted how a recent U.S. Government Accountability Office (GAO) report had found that military service members and civilian employees at the U.S. Department of Defense (DoD) with federal student loans were vulnerable to unjustified PSLF program rejections.
  • Temporary Pause on Federal Student Payments during the COVID-19 Pandemic: Committee Members and the hearing’s witnesses noted how the U.S. had paused federal payments on student loans during the early days of the COVID-19 pandemic. Mr. Pierce remarked that the current pause in student loan repayments was helping borrowers to weather the current inflationary environment. Dr. McCluskey contended however that the Biden administration ought to end the current federal student loan payment pause given how the U.S. no longer faced the same levels of economic uncertainty that were present at the start of the pandemic.
  • Legacy Joint Consolidation Loans: Sen. Mark Warner (D-VA) recounted how Congress had previously allowed for couples to consolidate their student loans and indicated that Congress had not permitted couples to separate the consolidated student loan in the event of a separation or divorce. He commented that this situation often led one party of the former couple to be stuck with the student loan. He noted that while Congress later stopped allowing for the issuance of consolidated student loans that could not be separated in 2006, he indicated that there remained over 14,000 outstanding legacy joint consolidation student loans. He mentioned that he had introduced bipartisan legislation to permit these legacy joint consolidation student loans to separate.
  • Proposal to Require Schools to Assume Some of the Financial Risks of Student Loan Default: Sen. Jack Reed (D-RI) and Dr. McCluskey proposed requiring schools with high student loan default rates to face some degree of financial responsibility for the student loan defaults of their students. Sen. Reed commented that this proposal would bolster the accountability of schools and dissuade them from pursuing self-serving financing schemes. Mr. Pierce stated that for-profit schools often took advantage of the current rules governing federal student loans in order to maximize their profits at the expense of students.  
• Student Debt Cancellation Proposals: A key area of contention during the hearing involved proposals to have President Biden cancel outstanding federal student debt. Committee Democrats, Mr. Pierce, and Dr. Bishop expressed support for having President Biden cancel student debts (although some Committee Democrats only expressed support for cancelling a set amount of student debt). They stated that the current student burdens faced by many students were overly burdensome and had low likelihoods of being repaid. They further highlighted how student debt cancellation was a very popular policy according to public opinion polls. Committee Republicans and Dr. McCluskey expressed opposition for having President Biden cancel student debt loads and stated that such cancellation would be unfair to Americans that did not go to college or had made financial sacrifices in order to afford college. They also expressed doubts regarding whether President Biden possessed the legal authority to cancel federal student debt.
  • Impact on Borrowers: Committee Republicans and Dr. McCluskey remarked that a cancellation of student debts would constitute a wealth transfer from taxpayers to a small subset of mostly wealthy individuals given how student debt was disproportionally held by wealthier Americans. They also highlighted how college graduates (and particularly graduates of professional schools) had significantly higher lifetime earnings than people without college degrees, which meant that these people could afford to repay their student loans. Committee Democrats, Mr. Pierce, and Dr. Bishop argued however that student debt cancellation would not constitute a giveaway to college graduates and noted how 40 percent of student loan borrowers did not ultimately receive college degrees. They stated that student loan borrowers tended to be less financially well-off and that high student debt burdens were trapping these borrowers in intergenerational poverty.
  • Potential for Moral Hazard: Committee Republicans and Dr. McCluskey contended that student debt cancellation would create a moral hazard problem as it would provide colleges and universities with little incentives to control their tuition costs. They elaborated that schools would likely increase their tuition costs under the assumption that student debts would be cancelled if student debt levels got too high. Dr. McCluskey further stated that student debt cancellation would discourage people from looking for the most efficient way to obtain the skills and knowledge that they would need for a career. Mr. Pierce and Dr. Bishop contended however that the U.S. government had acted in a predatory fashion within the student lending space and emphasized that student borrowing costs could not be fully anticipated when a student matriculated at a given school (due to annual tuition increases). They asserted that these dynamics meant that student debt cancellation would therefore not create a moral hazard.
  • Impact on Inflation: Committee Republicans expressed concerns that student debt cancellation could drive inflation as it would lead to increased consumer purchasing power with no corresponding increase in the supply of goods and services. Sen. Elizabeth Warren (D-MA) and Mr. Pierce noted however that the current pause in student loan payments during the COVID-19 pandemic was saving student loan borrowers $84 billion a year. They asserted that putting an additional $84 billion into the U.S. economy a year through the cancellation of student debt would have a relatively miniscule impact on inflation given the total size of the U.S. economy.

Hearing Witnesses:

1. Mr. Mike Pierce, Executive Director, Student Borrower Protection Center
2. Dr. Neal McCluskey, Director, Center for Educational Freedom at the Cato Institute
3. Dr. Jalil Mustaffa Bishop, Co-Founder and Assistant Professor, Equity Research Cooperative and Villanova University

Member Opening Statements:

Full Committee Chairman Sherrod Brown (D-OH):

• He discussed how 43 million Americans currently had $1.75 trillion in student debt and stated that this large amount of student debt prevented many of these Americans from purchasing homes, starting businesses, getting married, and starting families.
  • He mentioned how the Committee had recently held a listening session to better learn how student loan debt was already impacting U.S. workers.
• He commented that while the assumption of debt to pay for college should enable Americans to obtain higher-paying jobs and to enter the middle class, he asserted that current student debt amounts were too high and trapped borrowers in perpetual debt and economic instability.
  • He added that African Americans and Latinos were more likely to obtain student loans to attend college than their White counterparts.
• He remarked that the current cycle of student debt was the direct result of bad federal and state policies and stated that underinvestments in public colleges and universities had led tuitions to increase.
• He noted how more than half of all bachelor’s degree recipients from public and private four-year higher education institutions graduated with student debt in 2020 and indicated that this student debt averaged $28,000.
  • He commented that it was no longer practical for students to pay for their colleges or universities through a part-time job.
• He then remarked that many debt-forgiveness programs were mismanaged by student loan servicers.
  • He noted how the IDR program has managed to cancel the student debt of only 32 borrowers out of the 4.4 million Americans that were eligible for the program.
• He referenced a recent National Public Radio (NPR) report that found that loan servicers were failing to properly count qualifying payments and did not accurately track the progress of borrowers towards the cancellation of their student debts under existing forgiveness programs.
• He also discussed how Congress had established the PSLF program that forgave the student loan debts of borrowers that dedicated ten years to public service jobs.
  • He commented that poor student loan serving meant that 98 percent of borrowers were rejected for the PSLF program.
• He remarked that loan servicer mismanagement (particularly regarding the IDR program and the PSLF program) had resulted in borrowers having larger debt amounts for longer periods of time.
• He applauded the Biden administration for its recent temporary PSLF program waiver to permit rejected borrowers to re-apply for forgiveness and called for the Biden administration to provide more student debt forgiveness.
• He also stated that the CFPB ought to closely supervise student loan servicers to ensure that borrowers receive the forgiveness that they are entitled to under federal programs.

Full Committee Ranking Member Patrick Toomey (R-PA):

• He remarked that student loan programs were distinct from student grant programs in that student loan programs involved an expectation of repayment.
• He criticized Democratic proposals to cancel certain outstanding student loans and asserted that President Biden lacked the legal authority to cancel these loans.
• He remarked that a cancellation of student debts would constitute a “massive” wealth transfer from taxpayers to a small subset of mostly wealthy individuals.
  • He indicated that fewer than 20 percent of U.S. adults possessed federal student loan debt.
• He also noted how individuals with bachelor’s degrees or higher level degrees “overwhelmingly” make more money than people that did not possess those degrees.
  • He added that the vast majority of these people were able to repay their student loans and tended to experience “significantly” lower unemployment rates.
• He highlighted how student loan debt was primarily owed by wealthy families and graduate students, which underscored how student debt cancellation would constitute a wealth transfer to wealthier Americans.
• He then emphasized that all student debt was voluntarily incurred and noted how over half of all student debt is assumed by graduate students.
  • He commented that these graduate students were often happy to incur the debt so that they could afford to pursue high-paying careers in fields like business, medicine, and law.
  • He acknowledged however that some graduate students with student loans pursued degrees that were less financially lucrative.
• He contended that student debt cancellation would be “grossly” unfair to Americans that did not go to college or that had made financial sacrifices in order to afford college (for either themselves or their families).
  • He commented that it was almost never acceptable for taxpayers to be responsible for someone else’s voluntarily incurred private debt.
• He remarked that the cancellation of student debt would obscure the root cause of the problem, which he asserted was the rising cost of higher education.
• He stated that government grant and loan programs had made students indifferent to the prices of colleges and universities, which led these schools to increase their tuition levels.
  • He mentioned how the U.S. Federal Reserve Bank of New York had found that the majority of increases in the amount that students could take out in federally subsidized loans were passed along to students in the form of tuition hikes.
• He called for less government subsidization of the higher education sector and for more personal responsibility for student loan obligations on the part of borrowers.
• He stated that colleges and universities will have little incentive to keep their tuition at reasonable levels if they have reason to believe that the government will simply cancel student debt.
  • He commented that colleges and universities have already demonstrated a propensity to raise their tuition levels at multiples of the rate of inflation.
• He then disputed the assertion that student loan debt cancellation would ease inflation and mentioned how the Committee for a Responsible Federal Budget had found that the COVID-19 student loan repayment pause had injected roughly $4 billion of excess stimulus into the economy each month with no corresponding increase in the supply of goods and services.
  • He contended that student loan cancellation would therefore contribute to inflation.

Witness Opening Statements:

Mr. Mike Pierce (Student Borrower Protection Center):

• He remarked that the U.S.’s current student debt “crisis” was characterized by widespread economic distress, government inaction, corruption, and abuses from large financial firms.
• He stated that rising student debt levels were resulting in fewer homeowners, more credit card debt, retirement uncertainty, and widening intergenerational debt.
  • He commented that these trends were occurring in spite of the momentary pause in student loan repayments due to the COVID-19 pandemic.
• He further criticized both Democratic and Republican administrations for failing to address the disparate impacts that student debts had on people of color.
  • He commented that student debt was widening existing racial wealth gaps that were rooted in systemic racism.
• He contended that the U.S.’s current student debt “crisis” was principally due to failed public policies and was not a symptom of rapidly increasing college costs.
  • He stated that the student loan industry’s actions were contributing to the current problems.
• He also remarked that the current pause in student loan repayments was helping borrowers to weather the current inflationary environment.
• He then discussed how policymakers had long pursued student loan programs as a means of expanding access to higher education and stated that policymakers had operated under a mistaken assumption that student debt constitutes “good debt.”
• He criticized the U.S. Department of Education for its indifference to “widespread” lawbreaking by student loan companies over the previous three decades and stated that this indifference had resulted in a widening divergence between the rights of borrowers and the experiences of borrowers.
  • He noted that while federal laws promised student loan borrowers that their loan payments will be temporary and affordable, he highlighted how over one million student loan borrowers had defaulted each year on these payments prior to the pandemic.
• He remarked that the Biden administration had made “meaningful” efforts to remedy the failures impacting the student loan system and called for additional action.
  • He mentioned how a recent U.S. government audit had found that government officials had long known that the student loan industry was not taking the necessary steps to cancel student loans for the lowest income people and was covering up their inaction.
• He also discussed how private sector firms, including banks and financial technology (FinTech) companies, had constructed “minefields” of risky, expensive, and predatory debt and credit instruments.
• He noted that while the U.S. maintained various laws prohibiting lenders from offering loans that permitted borrowers to pay less than the interest charged every month, he stated that these types of loans were commonly available within the student loan space.
  • He commented that African American borrowers were more likely to receive these types of predatory loans.
• He called on the Biden administration to cancel student loan debts for all student borrowers.
  • He disputed the contention that such a cancellation would constitute a “giveaway” to college graduates and mentioned how 40 percent of student loan borrowers did not have college degrees.
  • He also highlighted how student loan debt cancellation was very popular according to public opinion polls.

Dr. Neal McCluskey (Center for Educational Freedom at the Cato Institute):

• He remarked that federal student loan programs were problematic and asserted that the problems within the student loan servicing industry were symptomatic of a dysfunctional system.
• He contended that student loan problems did not justify “drastic” actions, such as student loan cancellation.
  • He commented that such cancellation would benefit already wealthy Americans, increase tuition inflation, and create workforce distortions.
• He noted how the U.S. Department of Education hired student loan servicers and stated that the Department was therefore responsible for addressing student loan servicer performance issues.
• He remarked that the U.S. Department of Education had failed to adequately oversee student loan services and attributed this failure to the fact that the federal student loan system was often inscrutable to borrowers, servicers, and the Department itself.
  • He commented that the federal student loan system featured a “dizzying array” of loans and repayment plans that interact in confusing ways.
• He stated that many complaints about student loan servicers were actually about student loan programs and mentioned how a 2019 analysis had found that only 44 percent of complaints regarding student loan servicers to the CFPB were about things that were under the control of the servicers.
  • He indicated that the 2019 analysis had found that 35 percent of complaints regarding student loan services to the CFPB were actually about federal rules.
• He also remarked that federal student loans had “major” unintended consequences, such as exerting upward pressure on tuition levels and reducing the quality of college and university graduates.
  • He elaborated that there had occurred a decrease in the time that students spent studying and in degree holder literacy rates.
• He further suggested that federal student loans had contributed to credential inflation and noted how employers were now seeking job candidates with degrees for positions that previously had not required degrees.
  • He indicated that about one-third of non-recent graduates who were four-year degree holders were in long-term jobs that did not require the credential.
• He highlighted how the increased provision of federal student aid did not appear to have coincided with an increasing share of four-year degree holders who are low-income.
• He then contended that the ideal solution to the U.S.’s current student aid problem was to phase out federal lending.
• He recommended that policymakers not pursue mass student debt cancellation as a strategy for addressing current student loan burdens and commented that four year and graduate degrees remained good investments for people seeking to bolster their lifetime incomes.
  • He asserted that taxpayers should not be forced to fund the cancellation of student debts for people that will receive major benefits from their degrees.
• He also stated that student loan repayments were not especially burdensome for most borrowers and highlighted how student debt was disproportionately incurred by wealthier people.
  • He indicated that households within the highest income quartile hold 34 percent of all student debt while the lowest income quartile hold just 12 percent of all student debt.
• He asserted that mass student debt cancellation would encourage more borrowing and school price inflation, exacerbate the problem of credential inflation, penalize Americans that economized on their education or took financially responsible actions to pay off their student loans, and could be illegal if pursued via Executive Order (EO).
• He then remarked that Congress could improve the federal student loan system through simplifying IDR programs, eliminating the “highly problematic” parent and graduate Parent Loan for Undergraduate Students (PLUS) loans, making it easier to discharge federal student loans in bankruptcy proceedings, and requiring colleges to pay a share of student loan defaults.
  • He acknowledged however that U.S. taxpayers would bear the costs associated with making it easier to discharge federal student loans in bankruptcy proceedings.

Dr. Jalil Mustaffa Bishop (Equity Research Cooperative and Villanova University):

• He remarked that the U.S. was in the midst of a student debt “crisis” and called for the cancellation of all student debt.
  • He commented that the problem of student debt was especially impacting African Americans.
• He contended that the U.S. government had systematically overextended credit to student borrowers, despite knowing that these borrowers would be unable to repay the loans.
• He remarked that the U.S. had not developed a system for holding colleges, student loan servicers, accreditation agencies, the U.S. Department of Education, and the low paying labor market accountable for the U.S.’s current student debt challenges.
  • He asserted that only borrowers were punished for the defects within the U.S. student loan system.
• He noted how total outstanding student loans had increased significantly from less than $400 billion during the early 2000s to approaching $2 trillion today.
• He stated that there were two main issues surrounding the U.S.’s current student debt situation: default and lengthy repayment periods.
• He mentioned how the U.S. had 10 million student loan borrowers in default prior to the COVID-19 pandemic.
  • He explained how student loan borrowers in default had debt collection fees on top of their student loan balances and could be subject to lawsuits, income garnishments, and tax return garnishments.
• He also discussed how many student loan borrowers that were making student loan payments were experiencing increasing loan balances due to interest.
  • He noted how the majority of the balances for student loans issued since 2009 were increasing (instead of being paid down).
• He mentioned how the U.S. Department of Education under the Trump administration had released a report estimating that $500 billion worth of student loans would not be repaid.
  • He noted how the U.S. government had not received student loan payments during the pandemic due to the pause.
• He stated that people do not have the money needed to repay their student loans because they were unable to find jobs that enabled them to afford their repayments.
• He recounted how the U.S. previously had relied more on grants to support students in pursuing higher education and noted how Pell Grants now covered less than 33 percent of college costs for low-income students, which forced their students to take out student loans to cover the remainder of the costs.
  • He indicated that Pell Grants had previously covered the majority of college costs for these students.
• He stated that increasing Pell Grants by $6,000 annually would eliminate parent PLUS loans for 75 percent of all low-income parents.
  • He added that this proposed increase would eliminate parent PLUS loans for 85 percent of all low-income Black parents.
• He asserted that the only beneficiaries of the U.S. student loan system were the debt collectors, loan servicers, and law firms that pursued student loan borrowers for repayment.
• He then remarked that the student debt issue must be understood as a racial justice issue and asserted that student loan burdens made it impossible for communities of color to accumulate wealth.
  • He noted how 52 percent of Black households with student debt had zero or negative wealth while 25 percent of Black households without student debt had zero or negative wealth.
• He asserted that student debt constituted a debt trap for the Black community and was preventing African Americans from achieving financial freedom.
• He stated that the cancellation of student debt would not help wealthy Americans and noted how student loan borrowers tended to have payment plans, have no assets, have more debt than income, be people of color, and live in working-class census tracts.

Congressional Question Period:

Full Committee Chairman Sherrod Brown (D-OH):

• Chairman Brown expressed interest in Dr. Bishop’s testimony regarding how Black households with student debt were more likely to have zero or negative wealth as compared to Black households without student debt. He asked Dr. Bishop to project what would happen in the next five years if Congress or the President did not take action to address the student debt issue.
  • Dr. Bishop noted that the median student debt balance for Black borrowers was growing three times faster than the median student debt balance for White borrowers. He contended that the failure to cancel student debt would lead Black borrowers to continue to struggle to build wealth and escape poverty.
• Chairman Brown then highlighted how housing was generally accepted as the best means for building intergenerational wealth. He noted how the U.S. had experienced a persistent racial gap in terms of home ownership rates between African Americans and Whites. He asked Dr. Bishop to address how student debt was contributing to the racial wealth gap.
  • Dr. Bishop remarked that the U.S.’s racial wealth gap was the result of systemic racism. He acknowledged that while student loans did not create the U.S.’s racial wealth gap, he asserted that student loans were intensifying the gap. He highlighted how the homeownership rate for Black college graduates was lower than the homeownership rate for White college dropouts. He stated that most wealth in the U.S. came from inheritance and through the ability to build equity in homes. He commented that African Americans had been unable to fairly access these sources of wealth. He stated that while canceling student debt would not end the U.S.’s racial wealth gap, he asserted that such action would help to prevent the gap from widening.
• Chairman Brown expressed interest in obtaining the data underlying Dr. Bishop’s statement that the homeownership rate for Black college graduates was lower than the homeownership rate for White college dropouts. He then asked Mr. Pierce to explain how student loan servicer mismanagement had contributed to borrowers having larger student debts for longer periods of time. He also asked Mr. Pierce to discuss how the CFPB could ensure that student loan servicers were properly servicing student loans and that borrowers were being protected.
  • Mr. Pierce discussed how the U.S. government had long depended on private student loan servicer companies to advise student loan borrowers. He noted how some student loan servicers were private companies that owned federally backed student loans and other student loan servicers were government contractors. He remarked that law enforcement officials in both Democratic and Republican administrations had long alleged that both types of student loan services had routinely provided bad advice to student borrowers. He specifically discussed the practice of forbearance steering, which involved rushing borrowers through the consultation process in order to free up resources. He indicated that forbearance steering often led these borrowers to select more expensive repayment plans. He specifically criticized Navient for engaging in this practice and noted how the CFTC had ongoing litigation against the loan servicer. He also mentioned how Navient had recently entered into a settlement with a bipartisan coalition of state attorneys general for engaging in forbearance steering and for impeding the ability of borrowers to maintain affordable loan payments under IDR programs.

Full Committee Ranking Member Patrick Toomey (R-PA):

• Ranking Member Toomey posited a hypothetical scenario involving two families of modest means. He posited that one of these families had lived a frugal lifestyle in order to afford college tuition for their children while the other family had lived a less frugal lifestyle and took out student loans for their children so that they could afford college tuition. He asked Dr. McCluskey to address whether it was fair to force the frugal family to subsidize the college tuition of the less frugal family’s children through their taxes.
  • Dr. McCluskey called it problematic to force people that pursued frugal lifestyles in order to afford college tuition for their children to subsidize the college tuition for families that pursued less frugal lifestyles. He noted how student loan borrowers were not exclusively low- and middle-income families and stated that students from high-income families often took out loans in order to afford higher education. He asserted that the cancellation of student debt would set a dangerous precedent that loans could be taken out without any expectation of repayment. He commented that this precedent would incentivize families to adopt less frugal lifestyles and to not save for education.
• Ranking Member Toomey remarked that the logic underlying debt cancellation proposals suggested that student loan programs ought to be converted to grant programs. He further stated that it would be difficult to forgive the student loans of people that graduated before a certain date while not forgiving the student loans of people that graduated after that date.
  • Dr. McCluskey expressed agreement with Ranking Member Toomey’s statements. He remarked that student loan cancellation absent student loan program reforms would create incentives for future student borrowing with the assumption that said borrowing would be forgiven.
• Ranking Member Toomey then discussed how college tuition had increased by 183 percent between 1998 and 2018, which was three times the rate of general inflation. He asked Dr. McCluskey to address the extent to which this significant increase in college tuition was related to increases in government contributions. He also asked Dr. McCluskey to project the impact that student loan debt cancellation would have on college tuition levels.
  • Dr. McCluskey remarked that there existed “strong” evidence that student aid programs had enabled price inflation in college. He recounted how the U.S. had experienced a noticeable uptick in college tuition levels during the late 1970s when access to student loans had been greatly expanded. He remarked that a cancellation of student debt would create strong incentives for students to increase their borrowing and for schools to raise their tuition levels.
• Ranking Member Toomey then mentioned how his commonwealth of Pennsylvania had many skilled blue-collar jobs that paid more than the average jobs available to recent college graduates. He asked Dr. McCluskey to address how having taxpayers cover college expenses for students would distort the jobs market.
  • Dr. McCluskey remarked that such a policy would lead more students to attend college and employers requiring new credentials for jobs that previously did not require said credentials. He stated that employers might use credentials as a crude screening tool for prospective job candidates. He commented however that this credential inflation would lead to an inefficient labor market and could force people to spend time obtaining unnecessary degrees when they could instead be receiving on-the-job training.

Sen. Robert Menendez (D-NJ):

• Sen. Menendez stated that student loan servicers had long perpetrated “irreparable financial harm” on many of his student loan borrower constituents and their families. He asserted that these servicers routinely provided inaccurate information to borrowers, failed to disclose and explain fees charged to borrowers, and made it more difficult for borrowers to pay off their loans. He highlighted how public servants often experienced challenges with student loan servicers. He remarked that the actions of student loan servicers had cumulatively cost student loan borrowers billions of dollars in interest and additional payments and noted how borrowers were often forced to remain in the workforce for longer periods of time in order to pay off their student loans. He expressed frustration with how these problems resulting from student loan servicers could be prevented and mentioned how the U.S. Department of Education had long been aware of these problems. He added that these student loan servicer problems were especially prevalent within the PSLF program. He specifically criticized ACS for its poor performance, particularly with regard to the PSLF program. He mentioned how Mr. Pierce’s organization had released a 2020 report detailing ACS’s repeated failures. He asked Mr. Pierce to discuss how ASC had mishandled the accounts of student loan borrowers. He also asked Mr. Pierce to address the impact that this mishandling had on borrowers (especially PSLF program participants).
  • Mr. Pierce noted how ACS had been the sole student loan servicer for the PSLF program during the program’s first couple of years in existence. He also mentioned how ACS had also been a major market participant in servicing student loans that had been previously owned by large banks. He stated that ACS had committed more than 5 million individual errors on borrower’s accounts during its time as a government contractor. He also mentioned how the New York Attorney General, the Massachusetts Attorney General, and the CFPB had brought enforcement actions against ACS for its servicing of private sector loans. He stated that ACS was responsible for many of the underlying problems that led 98 percent of PSLF program applicants to be rejected for the program.
• Sen. Menendez asked Mr. Pierce to indicate whether the U.S. Department of Education’s temporary PSLF program waiver and student loan forbearance would rectify all of ACS’s “egregious” missteps (especially those related to the PSLF program).
  • Mr. Pierce commented that the U.S. Department of Education’s recent actions constituted a start to rectifying ACS’s past missteps. He mentioned how more than 100,000 public service workers had experienced student debt cancellations since October 2021, which was about seven times more in program debt relief than in the previous 14 years. He asserted however that this temporary PSLF program waiver was not enough. He stated that there were public service workers that would likely miss out on this opportunity to have their student debts forgiven due to a lack of awareness or due to misguidance from their student loan servicers regarding their rights and options.
• Sen. Menendez noted how the PHEAA had replaced ACS as the U.S.’s largest servicer of PSLF program loans in 2014. He mentioned how Massachusetts and New York had recently reached settlements with PHEAA regarding their student loan servicing (especially with regard to the PSLF program). He asked Mr. Pierce to discuss how PHEAA had mishandled borrower accounts.
  • Mr. Pierce remarked that PHEAA had engaged in a “range” of different abuses against student loan borrowers. He indicated that PHEAA is a private sector company that was created by the commonwealth of Pennsylvania and had the implicit backing of Pennsylvanian taxpayers. He stated that PHEAA had routinely mishandled the paperwork of its borrowers, provided its borrowers with bad information, and engaged in forbearance steering. He commented that these actions collectively had led to the collapse of the PSLF program before President Biden’s intervention.
• Sen. Menendez asked Mr. Pierce to indicate whether the U.S. Department of Education’s temporary PSLF program waiver and student loan forbearance would rectify all of PHEAA’s missteps.
  • Mr. Pierce remarked that the U.S. Department of Education’s recent actions were not enough to rectify all of PHEAA’s missteps. He called for the Biden administration to cancel all student debt in order to support all of the borrowers that have been wronged.

Sen. Tina Smith (D-MN):

• Sen. Smith noted how Full Committee Ranking Member Patrick Toomey (R-PA) had asserted that student loan forgiveness would create a moral hazard problem through providing financial benefits to less frugal families at the expense of families that had been more frugal. She asked Dr. Bishop to respond to Ranking Member Toomey’s assertion that student loan forgiveness would create a moral hazard problem.
  • Dr. Bishop testified that his research on student loan borrowers had not found that these borrowers obtained student loans due to a failure to save money. He highlighted how college tuition costs had increased “rapidly.” He asserted that policymakers should not conflate the need to have colleges control their tuition costs with a failure on the part of student loan borrowers to responsibly save money. He mentioned how the U.S. provided tax-advantaged college savings accounts and commented that wealthier families were typically the only families that could take advantage of these accounts. He stated that the U.S. spent more than $55 billion annually to subsidize these accounts and noted that this was more money than was being spent on Pell Grants for low-income students. He commented that this dynamic was advantageous to wealthy families and harming low-income families.
• Sen. Smith then discussed how Pell Grants were becoming less able to support college tuition costs, which was leading many students to take out student loans so that they could afford their tuition costs. She asked Dr. Bishop to discuss what was driving this dynamic and how increasing the emphasis placed on grants would impact the affordability of college tuition (especially for minority students).
  • Dr. Bishop discussed how the U.S. previously had a grant-driven system for supporting students that wanted to pursue higher education. He noted that the U.S. subsequently transitioned to a loan-driven system for supporting students that wanted to pursue higher education during a period when many African American students, Latino students, and low-income students had started to pursue higher education. He indicated that while the majority of African American and Latino students were now eligible for Pell Grants, he stated that these students lacked access to Pell Grants that would fully cover the cost of college and university attendance. He remarked that this situation meant that communities of color were more reliant on student loans to afford college and commented that student loans impacted borrowers throughout the duration of their lives. He elaborated that student loan debt often impacted borrower decisions regarding jobs, family planning, savings, and retirement.
• Sen. Smith referred to the U.S.’s current student loan situation as a “debt trap” and commented that the purported benefits of a higher education degree were often outweighed by the debt required to obtain the degree. She also discussed how many students needed to take out loans to afford college while also working multiple jobs in order to financially support themselves. She further highlighted how many students took on student loans and did not finish their degrees, which meant that they had student debt without the benefit of a degree.

Sen. Elizabeth Warren (D-MA):

• Sen. Warren remarked that the policy of student debt cancellation was very popular with the American public and indicated that this popularity was present across both individuals with student loans and individuals without student loans. She theorized this popularity was attributable to the fact that very few Americans knew someone that was not adversely impacted by student debt. She disputed the contention that student loan borrowers tended to be very wealthy. She asked Dr. Bishop to discuss the demographic profiles of the types of people who take out student loans in order to attend college.
  • Dr. Bishop remarked that student loan borrowers were generally not wealthy individuals and noted how more than half of student loans were held by families with zero or negative household wealth. He highlighted how almost 90 percent of Black students took out student loans as compared to 68 percent of White students.
• Sen. Warren asked Dr. Bishop to indicate whether most student loan borrowers took out the loans in order to attend elite schools or business schools.
  • Dr. Bishop answered no. He highlighted how only 0.3 percent of student loan borrowers attended Ivy League schools.
• Sen. Warren emphasized that over 99 percent of student loan borrowers did not attend Ivy League schools. She then noted how critics of student debt cancellation policies argued that such policies would benefit people that earned high incomes and that would be able to afford to pay off their student debts. She asked Dr. Bishop to assess this argument and to address whether all student loan borrowers were well-positioned to pay off their student loans after graduation.
  • Dr. Bishop noted how 40 percent of student loan borrowers possessed student debt and no college degree. He also stated that many student loan borrowers were increasingly parents with more limited lifetime earning potential. He noted how most Black students owed more in student loans than they had originally borrowed a decade out post-graduation. He further indicated that these students had only paid down 5 percent of their student loan principals on average two decades out post-graduation.
• Sen. Warren emphasized how 40 percent of student loan borrowers did not graduate college and commented that these borrowers had the student debt without the benefits of a college degree. She further highlighted how many Black student borrowers were actually deeper in student debt 12 years post-graduation.
  • Dr. Bishop noted how 66 percent of Black student loan borrowers were deeper in debt one decade after they graduated college. He attributed this situation to the facts that Black students were more likely to require loans in order to afford college and were more likely to attend for-profit, predatory, and lower-resourced higher education institutions.
• Sen. Warren commented that Black student loan borrowers likely faced additional headwinds in the labor market.
  • Dr. Bishop noted how the U.S. had persistent racial employment and income gaps. He stated that the obtaining of additional degrees did not always translate into higher wages for African Americans.
• Sen. Warren contended that the opponents of student debt cancellation were overly privileged and maintained misperceptions regarding the actual demographics of student loan borrowers. She emphasized that student loan issues were particularly impacting Black student loan borrowers. She remarked that student debt cancellation would help to narrow the racial wealth gap, support families that were struggling with rising education costs, and expand access to economic opportunities.

Sen. Mark Warner (D-VA):

• Sen. Warner mentioned how Congress had allowed for couples to consolidate their student loans during the early 1980s and indicated that couples could obtain a more favorable rate for the consolidated student loan. He noted however that Congress had not permitted couples to separate the consolidated student loan in the event of a separation or divorce. He commented that this situation often led one party of the former couple to be stuck with the student loan. He asked Mr. Pierce to indicate whether he was aware of the existence of any student loan products in which parties that took on debts separately could not separate the consolidated debts at a later date.
  • Mr. Pierce answered no.
• Sen. Warner noted how Congress in 2006 had stopped allowing for the issuance of consolidated student loans for couples whose terms did not permit the couples to separate the loans in the event of a separation or divorce.  He mentioned how a constituent who had a consolidated student loan with her ex-husband had raised this issue with him. He noted how this constituent was forced to shoulder the financial burden of the consolidated student loan when her ex-husband had stopped making payments on the loan. He indicated that there remained over 14,000 outstanding legacy joint consolidation student loans according to the U.S. Department of Education. He indicated that these legacy loans had a total outstanding balance of about $800 million. He asked Mr. Pierce to discuss how these legacy joint consolidation student loans were burdening their borrowers. He noted how many of the parties that were holding these student loans had survived abusive relationships. He mentioned how he had introduced bipartisan legislation that would permit the parties in these legacy joint consolidation student loans to separate their student loans.
  • Mr. Pierce remarked that legacy joint consolidation student loans were especially problematic when there was domestic violence in the previous relationship or when one partner has decided to shirk their repayment responsibilities. He stated that Sen. Warner’s legislation would help to dissolve these loans and enable the people involved in these loans to access the PSLF program and obtain more appropriate IDR plans.
• Sen. Warner remarked that his legislation had broad bipartisan support and indicated that a hold on the legislation was currently impeding its advancement.

Sen. Chris Van Hollen (D-MD):

• Sen. Van Hollen discussed how he had a constituent that was a 12-year employee at the DoD and noted how this constituent’s student loan payments had not been counted toward their PSLF program eligibility. He indicated that this failure had originated when the constituent’s student loan was transferred from one servicer to another servicer. He stated that the Biden administration’s temporary PSLF program waiver had enabled this constituent to qualify for the PSLF program. He raised concerns however that there were millions of other borrowers that were not receiving student loan relief. He mentioned how he had another constituent that should have been eligible for the PSLF program and that had made regular loan payments for ten years. He noted that this constituent was denied relief under the PSLF program because the constituent’s student loan servicer had failed to inform the constituent that their Federal Family Education Loan (FFEL) was ineligible under the PSLF program’s requirements. He indicated that his Office was currently working with the constituent to address this issue. He mentioned how the Biden administration was currently reviewing the federal student loan process and considering new student loan servicers. He asked Mr. Pierce to discuss whether the U.S. would be able to adequately address areas of the federal student loan process that had previously experienced shortcomings. He also asked Mr. Pierce to address whether the new federal contracts with student loan servicers were including affirmative obligations on the loan servicers to ensure that student loan borrowers were fully informed of their loan repayment statuses.
  • Mr. Pierce remarked that the Biden administration had taken “major steps” to hold student loan servicers accountable and highlighted how President Biden had appointed former CFPB Director Robert Cordray to lead U.S. Federal Student Aid (FSA). He asserted however that the Biden administration still needed to do more on the issue. He commented that while it was a positive development that companies like Navient and FedLoan Servicing were leaving the student loan servicing market, he expressed concerns that new entrants into the market, including Aidvanage, were showing signs of inadequate servicing and illegal practices.
• Sen. Van Hollen then expressed receptiveness to having the U.S. provide limited student loan forgiveness. He commented that the concerns that student loan forgiveness would provide “windfalls” to wealthy families were overstated. He noted how Pell Grants had previously covered about 80 percent of the costs of college attendance when they were first devised during the 1970s. He indicated that Pell Grants now only covered under 30 percent of the costs of college attendance. He commented that this situation meant that students that could not afford to attend college on their own needed to take out student loans to make up for the costs not covered by Pell Grants. He referenced a 2019 report from Pew Charitable Trusts that found that over half of student loan borrowers had experienced negative amortization on their student loans 12 years post-graduation. He asked Dr. Bishop to identify the available remedies for people with student loans whose balances exceeded their principals.
  • Dr. Bishop noted how the balances of outstanding student loans had been successively increasing in every year since 2009. He commented that this trend was even present within IDR programs. He expressed doubts that these outstanding student loan balances would ever be repaid in full. He contended that the U.S. ought to therefore immediately cancel student debt so that students would not have to continue making student loan repayments on loans that would never be repaid in full.

Sen. Jon Tester (D-MT):

• Sen. Tester first remarked that the current generation of college students were being saddled with too much student debt. He commented that it was no longer possible for students to pay for their own college degrees through a summer or part-time job. He attributed the growing necessity for students to take out loans in order to afford college to reduced public support for schools. He remarked that affordable higher education would be critical for ensuring the U.S.’s continued global leadership. He asserted that the need for students to take out large amounts of debt in order to afford college would deter many people from attending college. He stated that while students should have some responsibility for covering their college costs, he contended that students currently had too much responsibility for covering these costs. He then expressed frustration with the current operations of the PSLF program. He asked Mr. Pierce to provide recommendations for improving the PSLF program.
  • Mr. Pierce remarked that the Biden administration should use its existing authorities in order to write stronger rules for ensuring that public service workers would actually be able to obtain loan forgiveness after a decade of public service work. He asserted that the PSLF program’s rules contained “tricks and traps” that prevented many public service workers from accessing the debt forgiveness that they were entitled to. He stated that while the Biden administration had taken laudable actions to enable many public service workers to obtain debt relief, he lamented how these actions remained limited and temporary. He noted how the current limited waiver for public service workers to apply for the PSLF program was set to expire in October 2022. He called on the Biden administration to immediately extend this waiver and to rewrite the rules governing the program in order to ensure its proper functioning moving forward.
• Sen. Tester then stated that rural student loan borrowers (particularly young farmers) face unique challenges in repaying their student loans as compared to student loan borrowers that move to metropolitan areas. He asked Mr. Pierce to identify the drivers of these challenges for rural student loan borrowers and to provide recommendations for policymakers for addressing these issues.
  • Mr. Pierce mentioned how the U.S. Federal Reserve Board of Governors had found that student debt was driving rural Americans to metropolitan areas, which was causing rural communities to struggle. He discussed how modern farms required sophisticated operators with higher education degrees and stated that high levels of student debt were dissuading people from pursing farming careers. He commented that this dynamic was resulting in less vibrant, less resilient, and less robust rural communities.

Sen. Raphael Warnock (D-GA):

• Sen. Warnock remarked that canceling student debt would be the most impactful action that President Biden could take to help his constituents and reduce the racial wealth gap. He specifically expressed support for proposals to cancel up to $50,000 in federal student debt and commented that such a course of action would support the U.S. economy, create jobs, and spur small business formation and home ownership. He mentioned how he had personally benefited from low-interest student loans and Pell Grants. He asked Dr. Bishop to discuss the common misconceptions surrounding the demographics of student debt holders.
  • Dr. Bishop remarked that there existed a false narrative that wealthy Americans were the primary holders of student debt because they tended to have high incomes. He stated that there was a key difference between wealth and income and noted how student debt was “overwhelmingly” concentrated among borrowers with zero or negative wealth. He then remarked that proposals to cancel $10,000 in student debt would still leave 83 percent of Black student loan borrowers with student loans whose balances exceeded their principals. He highlighted how Black borrowers were more likely to take out large student loans in order to afford their college tuition. He stated that while canceling $10,000 in student debt would provide some relief to borrowers, he asserted that the cancellation of this amount would not meaningfully address the student loan challenges faced by Black borrowers.
• Sen. Warnock mentioned how the majority of student loans were held by people with no household wealth. He noted how 86 percent of Black students took out federal student loans to attend college while only 68 percent of White students took out federal student loans to attend college. He then mentioned how there were concerns that student debt cancellation would be very unpopular amongst people that had already paid off their student loans and people that had not attended college. He asked Mr. Pierce to indicate whether there existed evidence to support these concerns.
  • Mr. Pierce answered no. He mentioned how Data for Progress had recently released a poll showing that large majorities of the public were supportive of having President Biden cancel student debt. He added that this poll had found that 53 percent of people without debt and 57 percent of people that did not attend college were supportive of student debt cancellation.
• Sen. Warnock asked Mr. Pierce to address whether people that did not need student debt cancellation and people that did not attend college would benefit from student debt cancellation.
  • Mr. Pierce answered affirmatively. He stated that student debt cancellation would result in a more robust economy, which would benefit everyone.
• Sen. Warnock reiterated his support for canceling student debt and stated that outstanding student debt was impeding home ownership and new business formations.

Sen. Steve Daines (R-MT):

• Sen. Daines called President Biden’s student loan policies misguided and unfair. He stated that these policies would force people that did not go to college or that worked diligently to pay off their student loans to pay off the student loans of many high-income professionals. He remarked that the chief beneficiaries of the student debt cancellation policies under consideration would be people with advanced degrees that often had high incomes. He asserted that student debt cancellation would expand the size of the government, increase the national deficit, and exacerbate inflation. He stated that student debt cancellation would not address the root problem of “ballooning” tuition levels. He remarked that student debt cancellation could instead encourage colleges and universities to increase their tuitions because they might believe that the federal government would again cancel student debt at a future date. He asked Dr. McCluskey to indicate whether it was fair for the federal government to cancel the student debts of people that voluntarily took out student loans and accepted obligations to repay said loans.
  • Dr. McCluskey remarked that U.S. taxpayers would ultimately bear the costs of student debt cancelation and noted how student loan repayments constituted a revenue source for the federal government. He further stated that student debt cancellation would discourage people from looking for the most efficient way to obtain the skills and knowledge that they would need for a career. He elaborated that people might be less price sensitive in choosing their colleges and universities if they believed that their student loans would eventually be canceled. He also noted how students often choose their colleges and universities based on amenities (rather than based on academics).
• Sen. Daines asked Dr. McCluskey to address what student debt cancelation would mean for people that did not attend college.
  • Dr. McCluskey remarked that student debt cancellation would incentivize more people to go to college, which would likely exacerbate credential inflation problems. He explained that credential inflation referred to when employers required degrees for jobs that previously did not require degrees. He stated that credential inflation often led people to pursue unnecessary degrees and to forgo years of work (and the associated income).
• Sen. Daines remarked that the U.S. was currently experiencing a labor shortage problem. He raised concerns that student debt cancellation could lead some people to abstain from the workforce. He then asked Dr. McCluskey to indicate whether he had studied the long-term impacts of student loan servicers exiting the federal loan servicing program since the federal student loan payments were paused during the COVID-19 pandemic.
  • Dr. McCluskey indicated that he had not studied the issue.
• Sen. Daines asked Dr. McCluskey to indicate what the economic indicators ought to be for the Biden administration to end the current federal student loan payment pause.
  • Dr. McCluskey contended that the Biden administration ought to end the current federal student loan payment pause. He commented that the U.S. no longer faced the same levels of economic uncertainty that were present at the start of the pandemic.

Sen. Catherine Cortez Masto (D-NV):

• Sen. Cortez Masto noted how a recent GAO report had found that approximately 94 percent of military service members and DoD civilian employees that had previously applied for PSLF program relief had been denied such relief. She mentioned how she had written a November 2021 letter to the U.S. Department of Education requesting that the U.S. Department of Education match data from the DoD in order to automatically count the years of service of military members towards PSLF program requirements. She asked Mr. Pierce to discuss the progress being made on this effort.
  • Mr. Pierce noted how only 124 military service members had their student debts canceled under the PSLF program prior to the Biden administration’s recent actions. He mentioned how the Washington Post had found that about 1,500 military service members had since had their student debts canceled under the PSLF program. He commented however that there remained hundreds of thousands of people that were potentially eligible for student debt cancellation under the PSLF program. He stated that the U.S. government had not appeared to deliver on its promise to match DoD data with federal student loan data so as to more seamlessly cancel the student debts of eligible military service members under the PSLF program.
• Sen. Cortez Masto noted how the GAO report had also found that the poor public perceptions surrounding the PSLF program’s implementation had led the DoD to not market the PSLF program for recruitment and retention purposes. She expressed interest in working to ensure that military service members could make use of the PSLF program. She then mentioned how the GAO had issued another report that looked at the gaps in IDR plans. She noted how the GAO report had found that the U.S. Department of Education and its loan servicers were failing to adequately communicate information to student loan borrowers about their progress toward forgiveness and their repayment histories. She asked the witnesses to indicate whether Congress should provide a statutory requirement defining what would constitute proper communication from the U.S. Department of Education and its loan servicers to student loan borrowers.
  • Dr. Bishop noted how the U.S. Department of Education had experimented with several IDR plans and indicated that the U.S. Department of Education was currently working to roll out a new type of IDR plan. He remarked that the U.S. should learn from the mistakes of previous IDR plans related to communication and complexity. He suggested that benefits could be offered as borrowers paid off their student loans rather than be provided all at the end of repayment period. He also recommended that policymakers consider stronger accountability mechanisms for student loan servicers so that student borrowers and the U.S. did not have to pursue lengthy litigation in order to hold the servicers accountable. He commented that student loan servicers often did not collect accurate information because such collection efforts would be more expensive to pursue to pursue.
  • Dr. McCluskey remarked that the U.S. should work to simplify the number of available IDR programs. He stated that there currently existed a myriad of IDR programs and that this situation confused many student loan borrowers. He recommended that the U.S. focus on providing a single type of IDR plan and commented that this approach would provide clarity as to who exactly would be eligible for the IDR plan. He mentioned how the U.S. was currently phasing out the FFEL program and stated that many borrowers had been confused by the difference between the loans under the FFEL program and direct loans.
  • Mr. Pierce expressed agreement with the comments from Dr. Bishop and Dr. McCluskey. He asserted that Congressional action should not be necessary for fixing the challenges associated with student loan communications. He noted how the Biden administration possessed the authority to rewrite the rules governing IDR plans.

Full Committee Chairman Sherrod Brown (D-OH):

• Chairman Brown remarked that the Biden administration’s changes to IDR plans and temporary PSLF waiver were “good first steps” for ensuring that borrowers receive the loan forgiveness promised by Congress. He stated however that the application process for these loan forgiveness programs remained difficult to navigate. He asked Dr. Bishop and Mr. Pierce to discuss the economic impact that “meaningful” student debt cancellation would have on low-income and minority borrowers.
  • Dr. Bishop remarked that the cancellation of student debt would eradicate a “race-driven debt trap” for communities of color and asserted that such immediate cancellation would prevent future challenges from arising.
• Chairman Brown asked Mr. Pierce to respond to his previous question and to address how the CFPB could ensure that student loan servicers were adhering to recent federal student loan policy changes so that borrowers could actually access debt forgiveness.
  • Mr. Pierce first stated that 40 percent of student loan borrowers would struggle to afford basic needs (such as food and water) if the current pause on student loan payments was ended at the end of August 2022. He further indicated that 60 percent of student loan borrowers would make “major changes” to their saving and spending patterns if the current pause on student loan payments was ended. He then remarked that the CFPB should play a key role in providing oversight of student loan servicers.
• Chairman Brown stated that the CFPB should coordinate their communication efforts with the U.S. Department of Education to ensure that student loan borrowers would be notified if they might have been misled about their student loan repayment and forgiveness options.

Full Committee Ranking Member Patrick Toomey (R-PA):

• Ranking Member Toomey contended that government subsidies were driving college tuition prices up. He noted how the U.S. subsidized college education through the U.S. Tax Code by providing tax-advantaged college savings accounts. He expressed receptiveness towards ending these accounts if the savings were used to fund marginal income tax rate deductions for all income brackets. He commented that the current policy of enabling tax-advantaged college savings accounts was regressive. He remarked however that student debt cancellation would be an even more regressive policy. He asked Dr. McCluskey to estimate the percentage of students that were forced to take on student debt and to estimate the percentage of students that voluntarily took on student debt.
  • Dr. McCluskey commented that many students might feel forced to take on student loans because student aid had exerted upward pressure on college tuition prices.
• Ranking Member Toomey asserted that the assumption of student debt was entirely voluntary in nature and stated that people take out student loans because they believed such loans would be in their best interest. He then asked Dr. McCluskey to confirm that over half of all student loan debt was held by graduate students.
  • Dr. McCluskey confirmed Ranking Member Toomey’s statement. He stated that people voluntarily took on student debt because college and advanced degrees were shown to greatly increase a person’s lifetime earning potential. He highlighted how graduate school degrees (especially professional schools) were particularly associated with higher lifetime earning potential.
• Ranking Member Toomey noted how Americans with college degrees earned on average $1 million more over the course of their lifetimes than people without college degrees. He referenced a University of Chicago study that had estimated that two-thirds of the benefits of full debt cancellation would be captured by the top 50 percent of income earners. He asked Dr. McCluskey to address how student debt cancellation did not constitute a regressive policy.
  • Dr. McCluskey noted how the top decile of income earners have $46,700 in student debt while the bottom quartile of income earners has $26,000 in student debt. He stated that the majority of the benefits that would come from student loan forgiveness would flow to the high-income earners. He asserted that these high-income earners ought to be financially responsible for their own student loans.

Sen. Elizabeth Warren (D-MA):

• Sen. Warren stated that Republicans had argued that student debt cancellation would exacerbate the U.S.’s current inflation problems. She expressed her disagreement with this argument. She recounted how former President Trump had paused all federal student loan payments during the early days of the COVID-19 pandemic and noted how these student loan payments were still paused. She commented that the federal government had effectively canceled student loan payments for the past two years with this pause. She asked Mr. Pierce to discuss how this pause in federal student loan payments had impacted inflation.
  • Mr. Pierce noted that while the current pause on federal student loan payments was providing borrowers with additional cash to spend, he stated that this amount of money was relatively miniscule when compared to the overall size of the U.S. economy. He indicated that the previously referenced Committee for a Responsible Federal Budget study did not find that the current pause was contributing substantially to inflation. He attributed the U.S.’s current inflationary environment to other causes, including the current war in Ukraine, supply chain challenges, and corporate greed.
• Sen. Warren noted how the U.S. Federal Reserve Bank of New York had found that the recent pause in federal student loan payments had saved borrowers $84 billion per year. She asked Mr. Pierce to explain why this $84 billion amount was not contributing to more inflation.
  • Mr. Pierce reiterated that the $84 billion amount was relatively miniscule when compared to the size of the U.S. economy. He stated however that this pause in student loan payments was “life changing” to borrowers and their families.
• Sen. Warren remarked that ending the current pause on student loan payments would have no meaningful impact on inflation. She then asked Mr. Pierce to discuss the impact that “meaningful” student debt cancellation would have on the finances of families and the broader economy.
  • Mr. Pierce remarked that the U.S. had effectively canceled student loan payments for two years in its pausing of payments. He stated that the Student Borrower Protection Center’s published research had found that the average family of student loan borrowers saved $200 a month as a result of this pause. He indicated that 43 percent of these borrowers had used this money to pay down high-cost credit card debt. He stated that the people with the worst credit had experienced the greatest gains from this pause.
• Sen. Warren asked Mr. Pierce to address how the people that were currently paying down the long-term principals of their student loans were benefiting.
  • Mr. Pierce remarked that the ability of student loan borrowers to pay down the long-term principals of their student loans would enable the borrowers to pursue home ownership, save for retirement, and reduce intergenerational student debt. He elaborated that student borrowers with lower student debt burdens would be better positioned to pay for the college tuitions of their children.
• Sen. Warren remarked that student debt cancellation would unlock opportunities for Americans, help to reform the U.S.’s “broken” student loan system and would not cause inflation.

Sen. Jack Reed (D-RI):

• Sen. Reed discussed how student loan servicers had long failed to keep track of borrower payments. He asked Mr. Pierce to provide recommendations for Congress for reforming the administrative aspects of federal student loan programs.
  • Mr. Pierce remarked that Congress could restore bankruptcy rights to student loan borrowers, reform the student loan system, and make college free. He stated however that the Biden administration already possessed the requisite tools and legal authority to address the challenges within the federal student loan system. He commented that the Biden administration could address these challenges through action from the U.S. Department of Education and the CFPB.
• Sen. Reed then mentioned how he had long supported requiring schools with high student loan default rates to face some degree of financial responsibility for the student loan defaults of their students. He stated that this requirement would lead schools to focus on preparing students so that they would be well-positioned to repay their student loans. He also commented that this proposal would ensure that schools did not use federal student loans to simply boost their finances. He asked Mr. Pierce to provide his opinions on this proposed requirement.
  • Mr. Pierce expressed support for Sen. Reed’s proposed requirement that schools with high student loan default rates face some degree of financial responsibility for the student loan defaults of their attendees. He stated that there were unaccountable schools (particularly for-profit schools) that had long taken advantage of the federal student loan system and had caused many student loan defaults. He noted that while only 10 percent of U.S. students were enrolled in for-profit colleges, he indicated that for-profit colleges accounted for more than one-third of student loan defaults. He commented that U.S. taxpayers were ultimately forced to cover these student loan defaults when they occurred.
• Sen. Reed raised concerns that proposals to cut back federal student lending could drive people to pursue higher education financing in the private sector. He commented that some private sector lenders were solely focused on making money and not on enhancing the lives of students.
  • Mr. Pierce expressed agreement with Sen. Reed’s concerns. He mentioned how there had been multiple scandals involving student lending from Wall Street and FinTech firms and asserted that these firms often designed their loans to fail. He also mentioned how for-profit colleges had knowingly designed their own private lending schemes to disadvantage borrowers. He further noted that these for-profit colleges used their privately issued loans in order to gain access to federal student loans.

Sen. Catherine Cortez Masto (D-NV):

• Sen. Cortez Masto asked Mr. Pierce and Mr. Bishop to respond to the arguments that people that had voluntarily taken out student loans had an obligation to repay the loans and that canceling student debt would be unfair to the people who worked hard to pay off their own student loans.
  • Mr. Pierce first noted that the rules governing student loans had been rewritten after many borrowers had taken on their debts. He also stated that poor advice from student loan servicers had led many student loan borrowers to accumulate higher levels of debt. He added that student loan servicers had particularly harmed Black borrowers. He asserted that the U.S. government had acted as a predatory lender within the student lending space and that student debt cancellation was therefore warranted.
  • Mr. Bishop expressed agreement with Mr. Pierce’s response. He also remarked that student loan borrowers were unable to fully project their student loan obligations when they obtained their loans due to constantly changing rules and costs. He stated that students in the middle of a degree program often faced higher costs that required additional borrowing. He commented that students that decided to abandon their degree programs would still need to repay the student debts that they had already accumulated (without receiving the benefit of a college degree).
• Sen. Cortez Masto asked Dr. McCluskey to address whether there existed predatory lenders within the student lending space.
  • Dr. McCluskey remarked that the U.S. government was the dominant lender within the student lending space. He stated that federal student loans tended to not put conditions on the degree that the borrower obtains and school that the borrower attends. He suggested that a private student loan system would likely impose such conditions on borrowers in order to increase the likelihood that the loans would be repaid. He remarked that the U.S. government’s role in the student lending space was to improve access to higher education for Americans and asserted that policymakers had not assessed the unintended consequences associated with this goal. He commented that the unintended consequences included tuition inflation and credential inflation. He stated that U.S. taxpayers were ultimately financially responsible for federal student loans. He then discussed how approximately two-thirds of Americans did not possess bachelor’s degrees. He indicated that people that did possess bachelor’s degrees earned $1.2 million more over the course of their lifetimes than people without bachelor’s degrees. He added that people with professional degrees earned even more money over the course of their lifetimes than people without professional degrees. He remarked that the holders of bachelor’s degrees and professional degrees ought to repay U.S. taxpayers for their federal student loans. He commented that U.S. taxpayers were not involved in the issuance of student loans and were not involved in the establishment of the federal student loan system.
• Sen. Cortez Masto mentioned how her state of Nevada lacked general practitioners. She stated that high levels of student debt often drove physicians to become specialty physicians (who tended to make more money). She commented that this situation was especially harming rural communities. She mentioned how the U.S. maintained programs that encourage physicians to practice in rural communities through waving their student debts. She stated that policymakers must address the unintended consequences associated with student debt, particularly as these consequences related to health care.