Senator Durbin Statement Following Senate Hearing on Student Loans, March 27, 2014

Says his Student Loan Borrower Bill of Rights would give help to millions of borrowers right now

WASHINGTON, D.C.–(ENEWSPF)–March 27, 2014.  U.S. Senator Dick Durbin (D-IL) today submitted a statement for a hearing of the Senate Committee on Health, Education, Labor, and Pensions on the federal student loan program and the growing student loan debt crisis which has, for the first time in history, surpassed the total amount of credit card debt in America.  According to the Federal Reserve Bank of New York, this growing pile of debt threatens current and future economic growth.  Before 2009, young people with student loan debt were more likely than others to own homes and more likely to have bought a new car.  Now, the opposite is true. 

Durbin said: “This isn’t the system of federal financial support that was designed to give everybody a fair shot at a higher education and better future.  While we may disagree about the solutions, I hope we can all agree that the status quo is not acceptable and that we can’t delay in addressing the rising student loan debt.

“Senator Jack Reed, Senator Elizabeth Warren, and I have committed to doing what we can to promote a national dialogue around these issues – one that recognizes that millions of borrowers need help now.  To help these borrowers, we have introduced the Student Loan Borrower Bill of Rights, which is also cosponsored by Senators Boxer, Gillibrand, Murphy, Blumenthal, and Merkley.

“The bill would ensure that borrowers know and understand their rights when it comes to their federal and private student loans.  It improves servicing standards for federal student loans, making sure that borrowers are aware of federal programs like income-based repayment, which provides borrowers a more reasonable repayment plan for their federal loans.  Too often, borrowers aren’t told of these options or they are automatically put into forbearance or deferment, which is not always in their best interest.”

More information on the Student Loan Borrower Bill of Rights can be found HERE.

Full text of Durbin’s statement is below:

March 27, 2014

Testimony by Senator Richard J. Durbin

“Strengthening the Federal Student Loan Program for Borrowers”

U.S. Senate Committee on Health, Education, Labor, and Pensions

I’d like to thank Chairman Harkin and Ranking Member Alexander for holding this hearing and bringing focus to one of the major issues facing American students and looming over our economy today – growing student debt.

Borrowing has long been part of the financial equation to pay for college for many low and middle income students.  Federal student loans have allowed millions to invest in their futures – taking on debt in return for an education that leads to a good paying job that allows them to repay their loans.

Unfortunately, the rising costs of college and bad actors like for-profit colleges mean that students are taking out more loans than they can often even fathom, let alone ever hope to repay.  In the last decade the number of borrowers and the amount they’re borrowing has steadily increased.  The average debt burden for a graduate in 2012 was $27,850. 

For the first time in our history, total student loan debt now exceeds credit card debt.  The cumulative student loan debt of the 40 million Americans with outstanding loans is estimated to be near $1.2 trillion.

The Federal Reserve Bank of New York warns that this growing pile of debt threatens current and future economic growth.  Before 2009, young people with student loan debt were more likely than others to own homes and more likely to have bought a new car.  Now, the Fed says, the opposite is true.  Increasingly, students are finding the investment is not worth the return.

While we know that on average those with a college education earn significantly more and have lower unemployment rates than those without a college education, recent graduates are finding that they are unable to make enough at their first job to pay their monthly student loan payments.  Furthermore, some parents are making hard choices including coming out of retirement to help another family member with high student loan debt. 

This isn’t the system of federal financial support that was designed to give everybody a fair shot at a higher education and better future.  While we may disagree about the solutions, I hope we can all agree that the status quo is not acceptable and that we can’t delay in addressing the rising student loan debt. 

Senator Jack Reed, Senator Elizabeth Warren, and I have committed to doing what we can to promote a national dialogue around these issues – one that recognizes that millions of borrowers need help now.  To help these borrowers, we have introduced the Student Loan Borrower Bill of Rights, which is also cosponsored by Senators Boxer, Gillibrand, Murphy, Blumenthal, and Merkley.

The bill would ensure that borrowers know and understand their rights when it comes to their federal and private student loans.  It improves servicing standards for federal student loans, making sure that borrowers are aware of federal programs like income-based repayment, which provides borrowers a more reasonable repayment plan for their federal loans.  Too often, borrowers aren’t told of these options or they are automatically put into forbearance or deferment, which is not always in their best interest.

Our bill creates servicing standards for private student loans to ensure that borrower’s rights are protected and borrowers are not subject to increases in loan costs.  It would push lenders and servicers to offer borrowers alternatives to default.  Unlike federal loans, most private loans don’t offer programs that link loan payments to a person’s income.  Instead, if borrowers can’t make their monthly payments they have little choice but to eventually default or to continue racking up interest in deferment.

Additionally, the bill would implement common-sense reforms to ensure federal and private student loan borrowers’ rights are protected.  The bill would require that borrowers have access to basic information about their loans including loan history and original loan documents as well as notification if their federal loan servicer changes or their private student loan is sold to another lender.  If the borrower doesn’t know who to reach out to in times of difficulty, it is nearly impossible for them to get any help.

The Borrower Bill of Rights also requires servicers to establish a process to quickly address student loan account errors and to apply monthly payments to the loan with the highest interest rate.  Borrowers should not be penalized because they cannot resolve errors related to their student loan or because their monthly payments are applied to lower interest loans first. 

Finally, the bill would require all federal and private student loan servicers to establish a Servicemember Liaison to answer questions and help make sure servicemembers get the benefits they deserve and know about repayment options they could be eligible for.  The Consumer Financial Protection Bureau issued a report, “The Next Front? Student Loan servicing and the Cost to Our Men and Women in Uniform,” in 2012 which found that servicemembers often rely heavily on their student loan servicers to guide them in making decisions about which repayment options and benefits is best for them.  In some cases, servicemembers were receiving incorrect or confusing information about available benefits, leading to thousands of dollars in additional costs.   

No matter how many rights and protections we secure for student borrowers, some people are in such bad shape and so buried in debt, sometimes several hundred thousand dollars, that they’ll never dig out.  But unlike almost every other type of personal debt in America, student loans are not dischargeable in bankruptcy.  This means that your student loans will literally follow you your entire life until you pay it off.  That’s just not fair when you consider all of the other debts that are dischargeable in bankruptcy.  I’ve introduced legislation to fix this problem.

If we are to help ensure that the investments students do make in their futures are worthwhile, we have to give schools a greater financial stake in the success of their students.  Senator Jack Reed says schools need to have “skin in the game.”  I agree.  I support his Protect Student Borrowers Act that would require schools to pay back some of the federal money they receive if large percentages of their students default on their loans.  This will help increase accountability of all schools, but especially for-profit schools.

We have to get a handle on the for-profit college industry.  This industry only enrolls 10 percent of all college students, but receives more than 20 percent of all Title IV funding and accounts for 46 percent of all loan defaults.  They cost more than public schools and leave their students with more debt on average than public or private schools.  Yet, their operations are often subsidized up to 90 percent by federal taxpayers.  Their investors rake in the profits while taxpayers foot the bill and students amass the debt. 

There is more that could be done and ideas other than those I’ve outlined that should be considered, but I commend the Committee for bringing attention to these challenges today.  I encourage the Committee to look seriously at these issues and act quickly.  An entire generation of students and the future of the American economy depend on it.

Source: durbin.senate.gov