Senator Warren and Congressman Cummings recently held a “Tackling Student Debt” hearing in Boston as part of their middle class prosperity project.
NCLC’s statement at the hearing highlighted concerns about government profits in the student loan programs. The bottom line is that Congress did not create federal student loans to generate profits for the federal government. We strongly agree with Senator Warren and five other U.S. Senators signing a recent letter that: “It is not the job of the Department of Education to maximize profits for the government at the cost of squeezing students who are struggling to get an education.”
NCLC’s testimony highlighted the following key recommendations to improve the student loan system and put borrower needs first:
- Create a government agency that clearly puts students first
- Establish clear student loan borrower standards and protections
- Ensure that student loan borrowers have access to relief and an opportunity to enforce their rights
- Engage in rigorous public enforcement and oversight and hold the government and its contractors accountable, and
- Provide public information and study what works.
Here is just one example of how improper servicing harms borrowers:
My client Juanita is 36 years old and is a single mother with four children. Due to disabilities, she is currently unable to work. Her only income is about $850 in monthly Social Security Disability payments. She attended a for-profit school years ago and has been unable to make a dent in repaying that debt. Although she completed the program at the school, she was never able to work in the field she was allegedly trained for. The current loan balance is around $15,000. She tried to go back to a different for-profit school a few years ago and dropped out right away when she sensed that it was an inferior school. However, that school is still coming after her for money she supposedly owes to the school.
Juanita has had a difficult time, most recently having to leave an abusive domestic situation and move to Massachusetts. She was unable to address the student loan delinquency so that by the time we met this week, she was on the cusp of default (353 days delinquent). Fortunately, the loan was not yet in default. This should have opened up the full range of pre-default relief options. Instead, when she called, the servicer representative (a government contractor) aggressively first demanded to know why Juanita was so far behind on her payments. This “blame the victim” aggressive start to the conversation was not only completely out of line, but irrelevant.
The representative then went on inaccurately to say that Juanita had to pay the entire amount due. When Juanita said she couldn’t possibly pay $15,000, the representative said that she had to make large payments to get the loan current. The representative did not even mention income driven repayment until Juanita said that she wanted to get her attorney involved in the conversation.
Juanita should be ok with her student loans, at least for now. She is working to apply for income based repayment and consider disability discharge as well. However, sadly, this is not because of anything she heard from her servicer.
Regardless of recent changes to servicer incentives to encourage default prevention, we repeatedly meet with clients who are not informed of the full range of relief options. To make matters worse, they too often receive hostile and inappropriate treatment even though they are contacting their servicers to figure out solutions.
Relying on a proprietary contract system hidden from the public and from borrowers is not appropriate in the federal student loan context. Federal student lending is not a typical marketplace. Federal student loans are government products and borrowers are entitled to various relief options by law. All borrowers should have the same access to these programs. It makes no sense that due to the vagaries of competition; only some borrowers have access to relief and comprehensive counseling.
Congress created federal aid programs to help students and their families seeking to better their lives through education. Yet time and time again, the government has failed to fully implement the relief options enacted by Congress. As the senators recently summarized in their February letter, “Congress has also acted to grant more authority to the Department of Education to ensure that borrowers who need relief can, inappropriate circumstances, receive the assistance they need…Instead of implementing more policies designed to maximize federal profits on the backs of our kids, the Department should take further steps to implement the directives it has been given by Congress to ensure that our most vulnerable young people struggling with the burden of student loan debt have meaningful opportunity to build a strong future for themselves and their families.”
NCLC lays out reform proposals in greater detail in this response to the Department of Education’s request for information and in this policy brief.
The changes to the contract incentives are a good start, but not enough. Private contracts may be part of the solution, but only if combined with clear enforceable borrower rights and rigorous government oversight. The stakes are high. Servicers are the borrower’s primary point of contact. If the servicer is competent and efficient, many financially distressed borrowers will be able to avoid default.
Our higher education system and economic productivity depend on how we resolve these issues. Access to higher education is key to help struggling families remain in the middle class and help those lower on the economic ladder to get ahead.
