Transcript: Testimony of National Consumer Law Center Director Deanne Loonin on strengthening the federal student loan program for borrowers

Partial transcript of Deanne Loonin, Director at National Consumer Law Center, 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, Sen. Alexander, and other members of the panel. Thank you for inviting me to testify here today.

I’m here today on behalf of my low-income clients. They’re a diverse group, really representing or reflecting the broad faces of student loan borrowers today, and it’s important to keep that in mind when we look at this issue because the idea – the concept of an 18-year-old going to college and finishing at age 21 is actually more of an anomaly now than what happens in the current environment where non-traditional students are actually the majority of students today.

But there is one common thread of all the clients I’ve worked with over the years and that’s that they’ve all sincerely wanted to go to college to better themselves and to better the lives of their families. It may not have been the outcome, but that was their sincere intent.

And the great advantage of our system is the opportunity for all to get a college education, but it should be about investing in students most of all, not about government and private profit.

Under the current system, schools may be profiting as tuition continues to increase. Private servicers and collectors may be profiting due to borrower distress. And even the government appears to be profiting but it’s on the back, largely, of students who are asked to take on nearly all of the risks.

We can do better for borrowers and we can do it within the structure of the direct loan program. The structure is not the problem. The problem is lax oversight, lax management, and misaligned incentives.

I believe we need a multi-faceted approach and not assume that there’s just one solution to all of this. I just want to mention a few and I have more details in my testimony.

The approach starts with school accountability. As Dr. Cooper mentioned, the best way to prevent defaults is to help students succeed.

And then we also want to look at simplifying the student loan system and focusing it more on borrowers.

With servicing, which we’ve talked quite a bit about, the focus on private contractors, on profits, plays out in that servicers too often steer borrowers to the easiest options. My clients, much of the time, don’t even know about IBR [income-based repayment] or were told about IBR, don’t know about the optimal options for them. And I believe there are ways we can streamline servicing, perhaps with competition. Some competition is likely healthy, but create a system that’s about putting borrowers first not ensuring that private companies get every opportunity to promote their brands.

I also discuss collection in greater detail in my testimony, but in a nutshell the government has given the private collection industry a dispute resolution and counseling role with borrowers. Instead – in my experience working for many years with clients – the collection agencies routinely violate consumer protection laws and prioritize profits over borrower rights. It doesn’t work for borrowers. It doesn’t work for taxpayers. And I think it’s time to end the experiment with private collection agencies.

We’ve been giving examples of these problems for years to government agencies, but we haven’t had much response. In fact, as has been mentioned, the Department for the most part – the Department of Education has kept renewing contracts even for those servicers or collectors where there’s been evidence of offenses.

The problems are now more public, with the GAO and Inspector General reports, and I believe we can fix this.

The administration was able to mobilize and implement the transition to full direct lending a few years ago. Now, I think they can put the same level of commitment to fixing the servicing and collection system and use all of the available resources – use the CFPB, which has very much improved complaint system, oversight of servicers, and of course use congressional oversight too.

Ultimately, it’s about giving students the best chance to succeed and recognizing that as with all investments some don’t work out the first time around. We need to give borrowers another chance – more than one chance at rehabilitation, more than one chance at consolidation – the programs that we have to get out of default.

Instead, unlike businesses, under current policy, we hammer student borrowers frankly until they die. We take Earned Income Tax Credit. We take Social Security. We limit bankruptcy rights. We basically eviscerated the safety net.

We can do much better for borrowers. It’s not just for borrowers. It’s for society so that clients like mine who want to go back to school can go back to school, succeed, repay their loans, and enter the workforce. I believe we can do better.


Learn More:

Leave a Reply

Your email address will not be published.