Transcript: Sen. Tom Harkin’s Q&A on strengthening the federal student loan program for borrowers – Part I

Part I. Partial transcript of Sen. Tom Harkin’s (D-Iowa) Q&A on strengthening the federal student loan program for borrowers. The Senate Health, Education, Labor & Pensions Committee hearing was held on March 27, 2014:

Sen. Tom Harkin (D-Iowa):
…So we have two divergents here. Dr. Cooper, you said that – you discussed the need to streamline current repayment options. You recommended also maintaining the standard repayment plan and offering a single income-based plan, which allow borrowers to benefit if they experienced extended financial hardship. You go on to note “the single income-based plan would aim to target protections to borrowers in the most need.” I think Ms. Dill is saying the income-based system ought to be basically everybody. Am I wrong in that?

Marian Dill, Director of Student Financial Aid, Lee University, Cleveland, TN:
I’m suggesting that income-based be the automatic plan that students are assigned to, but that the students still be allowed to opt into the standard repayment plan.

Sen. Tom Harkin (D-Iowa):
You said that we should maintain the standard. Why would you disagree with this?

Dr. Michelle A. Cooper, President, Institute for Higher Education Policy:
So, the issue about making the income-based repayment plan automatic or universal, I think, is an interesting concept, and it’s a concept that we at IHEP have recently studied in depth with five other organizations. And from the conclusion of our work with those other organizations, we as an organization came out of it believing that while we should study it and it might be viable, there are just too many things about it right now that don’t make it ready yet.

For example, some of the problems are that some students may end up actually borrowing more over time. That’s not something that we want. We don’t want them to – not borrow more – repay more. We don’t want that. Actually some will pay longer than they would pay under the standard repayment plan. We don’t want that either. And the third thing is without the proper institutional reforms in place, we might be incentivizing bad actors to really take advantage of the most vulnerable students.

So while I definitely believe that there is some promise in this maybe down the road, until we work out and refine these kinks, that could ultimately hurt students more. I’m not ready to say full scale that we should make it automatic just yet.

Sen. Tom Harkin (D-Iowa):
Ms. Dill. Do you have a response? I understand from your testimony, 70% of the students at Lee are in the standard repayment plan.

Marian Dill, Director of Student Financial Aid, Lee University, Cleveland, TN:
Yes, sir.

Sen. Tom Harkin (D-Iowa):
It seems like you don’t have any kind of exorbitant default rate here. Your default rate seems to be right in place with everybody else. So it appears that most of those borrowers are repaying their loans. If that’s the case, why would we – that’s the current default system right now – why would we want to change it? I’m just trying to figure this out. I don’t have a dog in this fight one or way or the other.

Marian Dill, Director of Student Financial Aid, Lee University, Cleveland, TN:
Sure. Well, my goal is student success not just in the classroom but once they graduate from the classroom. And by allowing the income-based repayment to be the initial – the automatic repayment plan – it ensures that no student would have a loan repayment that would exceed their ability to repay, therefore reducing the default rate. It simplifies the process. It makes it more user-friendly for the borrower, and it ensures their ability to repay.

Sen. Tom Harkin (D-Iowa):
This is something I’ll have to take more of a look at. I like income-based repayment, but should it be the default or should it be one in an arsenal of different things. The problem that I have with it is sometimes people will take the easiest course out, which means they lower their payment. Even though they can pay more, they stretch it out, and what do they do over the time, they wind up paying more in interest charges rather than on the principal. That’s only kind of problem I kind of personally see with it.

Marian Dill, Director of Student Financial Aid, Lee University, Cleveland, TN:
Sure.

Sen. Tom Harkin (D-Iowa):
Ms. Loonin, can you just explain a little bit on the issue of – and you mentioned in your testimony – collection agencies and how they operate? I think you were very provocative here, saying something about doing away with them or something? How can you do that?

Deanne Loonin, Director at National Consumer Law Center:
Well, I don’t know if I mean do away with them completely in the world but specifically obviously on student loan issues. It isn’t the case that all government agencies use third-party private collectors to collect debts. The IRS, for example, tried it for a while and changed their minds, and went back to using other internal collections. So what I’m saying is that from my experience at having dealt directly with the collection agencies myself on behalf of the clients for years, it’s not a typical collection model. It’s not just about collection; it’s about the Higher Education Act, and I don’t think it works.

Sen. Tom Harkin (D-Iowa):
And I’ve had experience in that area too, and I’ve seen where a collection agency writes one letter and they get to keep 18% to 20% for doing almost nothing. And I know that’s the trial lawyer thing that we got into earlier today but it seems to me that that’s an outlandish kind of thing. Plus, the hounding that goes on from these collection agencies. I think we need to look at that.

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