Chairwoman DeLauro Statement at Oversight Hearing on Student Loan Servicing
Congresswoman Rosa DeLauro (D-CT), Chair of the Labor, Health and Human Services, Education, and Related Agencies Appropriations Subcommittee, delivered the following remarks at the Subcommittee's hearing on "Protecting Student Borrowers: Loan Servicing Oversight":
The subcommittee will come to order.
Good morning. I would like to welcome everyone to the Labor, HHS, and Education Appropriations Subcommittee’s oversight hearing of student loan servicing.
I want to thank our distinguished witnesses. We have two excellent panels. The first panel will feature Bryon Gordon, Assistant Inspector General for Audit in the Office of the Inspector General at the US Department of Education. The second panel will feature:
- Joanna Darcus, Massachusetts Legal Assistance Corporation Racial Justice Fellow at the National Consumer Law Center
- Shennan Kavanagh, Deputy Chief of the Consumer Protection Division, Office of Massachusetts Attorney General Maura Healey
- Colleen Campbell, Director of Postsecondary Education at Center for American Progress, and
- Preston Cooper, Higher Education Research Analyst at American Enterprise Institute
To each of you, thank you for offering your testimony this morning.
It will surprise no one to say that there is a student debt crisis: 44.7 million people owe $1.5 trillion in federal student loans, more than credit card debt or car loans.
But less well known is this. We are facing a student loan servicing crisis.
Servicers are a critical link between borrowers and lenders. These intermediary companies manage accounts. They process monthly payments. And, they help borrowers who are suffering financial hardship find the right repayment plan.
In short, they are paid by the Department of Education to serve our students. But, we are increasingly seeing evidence that they do not. A new report by the Inspector General found that these loan servicers are failing, even cheating borrowers. And the Department of Education is asleep at the wheel.
According to the IG’s report, the servicers failed to tell borrowers about all of their repayment options. They miscalculated how much the students should be paying through income-based repayment. Two servicers, Navient and the Pennsylvania Higher Education Assistance Agency also known as PHEAA (pronounced “FEE-ah”), put borrowers into forbearance without first informing them of other, less costly options.
Julie Roberts is a 52-year-old woman fighting stage 4 breast cancer. She owes $80,000 in student loans and asked for a cancer deferment, which the Congress mandated by law through the Labor-HHS bill last year. However, her loan servicer told her no. The servicer said the bill had not passed. (It had). And that she did not qualify (she did). Only after she went to the press did the servicer comply with the law.
So, this is a serious problem. And as the IG indicated, it is not an isolated incident. The IG found that between 2015 and 2017, most (61%) of the recorded (343) interactions were out of compliance (with the law).
As the subcommittee that provides funding for the Department of Education and student loan servicers, we have a duty to address this issue. In fiscal year 2019, we provided $1.7 billion for the Student Aid Administration. Of that amount, almost $1 billion went to servicing contracts. And that budget has increased by over $500 million in five years, while other education priorities have been flat or even eliminated.
It is imperative that we get to the bottom of these issues.
Of particular concern to me is what the IG deemed to be inconsistent oversight at the Department of Education.
According to the IG’s report,
Quote, “FSA management rarely used available contract accountability provisions to hold services accountable for instances of noncompliance.”
And secondarily, quote, “By not holding servicers accountable for instances of noncompliance with Federal loan servicing requirements, F-S-A [Federal Student Aid] did not provide servicers with an incentive to take actions to mitigate the risk of continued servicer noncompliance that could harm students.”
So as a result, quote, “Taxpayers might not have been protected from improper payments.”
The Department of Education let servicers off the hook. The worst offenders continue to get loan portfolio. In fact, the Department’s performance metrics for these companies does not take compliance with the law into account. You could be breaking it, and continue to get contracts.
I will also note, that right now, borrowers do not have a choice with regards to their loan servicing company. They have a choice of college on the front end. But, they do not have options for loan servicers when they leave school. That takes away their leverage and the incentive for servicers to try and keep their business.
Now, the Department of Education has claimed that they are fixing these problems. But, we cannot simply take their word for it. We have an oversight responsibility.
Secondarily, the problem goes even further than what the IG has uncovered. That is because Secretary DeVos is preventing states from stepping in to help.
States have enacted Student Loan Bills of Rights. My home state of Connecticut was the first state to do so. But, Secretary DeVos is claiming the Higher Education Act (HEA) preempts States from enforcing those consumers protections for students.
In a March 2018 “Statement of Interest” in the Federal Register, the Secretary said, quote, “the servicing of Direct Loans is an area ‘involving uniquely Federal interests’ that must be ‘governed exclusively by Federal law.’” In other words, not only do States have no business trying to protect individuals within their boundaries, but they are prohibited from doing so by Federal law.
Let me say, that is false. Nothing in the H-E-A even suggests Congress intended to curb state law on this issue. Nothing in federal law gives the Secretary of Education the authority to broadly supersede state law in this area. And I will note, it is written into the loan servicer contracts that they will uphold state law.
I do not believe I need to preach the merits of contract law or federalism to my Republican colleagues.
The courts have dismissed Devos’s interpretationin California, Massachusetts, Washington, Illinois and Pennsylvania.
And, the Secretary’s actions have drawn bipartisan rebukes: from the National Governors Association, State bank regulators, Republican and Democratic Members of Congress, and a large bipartisan coalition of Attorneys General, including in Colorado, Illinois, Kansas, Kentucky Montana, Tennessee, Texas and many more.
It is our duty as the subcommittee which funds the Department of Education to ensure that we are supporting Americans’ in their quest for higher education and solid footing in the middle class. And secondarily, we must ensure the programs we have in place to do so, are serving public, not corporate interests.
I am looking forward to hearing from our witnesses on how we can make the loan servicing system, and the Department’s oversight and policies, work for our students.
Now, let me turn it over to my good friend from Oklahoma, the Ranking Member, Mr. Cole, for any opening remarks he cares to make.