Transcript: Testimony of Lee University Student Financial Aid Director Marian Dill on strengthening the federal student loan program for borrowers

Partial transcript of Marian Dill, Director of Student Financial Aid, Lee University, Cleveland, TN, on strengthening the federal student loan program for borrowers. The Senate Health, Education, Labor & Pensions Committee hearing was held on March 27, 2014:

Thank you, Chairman Harkin, Ranking Member Alexander, and members of the committee. Thank you for inviting me to testify today.

I currently serve students at Lee University…located in East Tennessee with an enrollment of almost 5,000 students.

In 2013, 55% of our students participated in the federal direct loan programs, and the average per borrower indebtedness for graduates was just over $29,000.

Today, I want to give you some practical insights from my experience, and I will divide my comments into two parts – first, focusing on student success strategies and second, focusing on simplification and reduction of nonessential administrative burdens.

First, student success strategies.

Currently, the federal government, through regulations, prohibits schools from requiring additional loan counseling for students who appear to be over-borrowing or who, by statistical indicators, appear most at risk for defaulting. Statistical indicators may include marginal academic performance or borrowing beyond direct costs.

Also, schools are not allowed to limit part-time students from borrowing at full-time rates.

Based upon research and discussions with my fellow aid administrators, I submit the following recommendations:

Number one, institutions should be allowed to require additional counseling for students meeting those various identified risk factors before any loan disbursement, not just the first. Currently, schools can offer additional counseling but we can’t require it. Additional counseling would reinforce key borrower responsibilities. Educating the borrower while they’re still in school is key to successful repayments. Institutions need the authority to require such training in order to promote student success and to reduce default rates.

Number two, institutions should be allowed to limit borrowing based upon broad categories of students. For example, those students who are enrolled part-time and still able to borrow the annual loan amounts. In doing so, they can exhaust their aggregate limits prior to completing even half of their academic programs. As an aid administrator, this is alarming. Yet, we have no authority over borrowing thus no practical tools to stop this from occurring. This over-borrowing pattern can have severe consequences for the student, the institution, and the federal program.

Number three, Parent PLUS loans should be held to a more restrictive underwriting standard. Currently, PLUS approvals are based solely upon creditworthiness and are blind to the ability to repay.

Moving to direct lending, I observed a drastic increase in PLUS loan approvals. I recall one conversation with a single mom living solely on various forms of public assistance. She was approved. She didn’t have bad credit. She just had no credit. And was thus approved. And she said to me, “What are they thinking? I cannot pay this back.”

Number four, income-based repayment should be considered the automatic repayment plan for borrowers. This would provide a simplified process and ensure that no borrower’s repayment amount would ever exceed their ability to repay and therefore reduce the probability of default.

Next, I believe there are some practicable administrative shifts that would both strengthen the loan program and reduce the unnecessary administrative burden.

Number one, Congress should mandate the creation of a single web portal where institutions and students can go and easily access information about all federal, private, and institutional loans. The non-profit organization – National Student Clearinghouse – currently provides a free service…which has the capacity to meet this objective. The Department’s directive is needed to achieve reporting of all student loan information.

Number two, the Department should overhaul entrance and exit counseling to provide clear, concise information which meets the legislative requirements. This generation is dependent on social media and is accustomed to sound bites and YouTube videos. The Finance Your Way to Awareness counseling tool is well-designed and student-friendly, but it doesn’t satisfy the legislative requirement. This resource needs to be enhanced to meet those standards.

Number three, the primary responsibility of default management should shift back to the federal servicers or the former guarantee agencies. This responsibility shifted to the schools in the transition to FFELP to DL – direct lending. Schools are now faced with the need to hire additional staff to oversee the process, hire costly third-party servicers, or risk the penalty of rising cohort default rates. We do not have the system resources to conduct skip-tracing, robocalling, or other means formerly employed by the FFELP lending community.

Finally, I hope that my testimony provides insight into how our current student loan policies could be enhanced to better serve our students. Thank you for your time, and I’m happy to answer your questions.


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