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UNITED STATES DEPARTMENT OF EDUCATION

OFFICE OF POSTSECONDARY EDUCATION

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PUBLIC HEARING

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TITLE IV NEGOTIATED RULEMAKING FOR

HIGHER EDUCATION 2014-2015

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THURSDAY

OCTOBER 23, 2014

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The Public Hearing convened in the 8th Floor Conference Center, 1990 K Street, Washington, D.C., at 9:00 a.m., Lynn Mahaffie, Acting Assistant Secretary for Postsecondary Education, presiding.

DEPARTMENT STAFF PRESENT:

LYNN MAHAFFIE, Acting Assistant Secretary 

for Postsecondary Education

TED MITCHELL, Undersecretary of Education

BRIAN SIEGEL, Office of the General Counsel

TABLE OF CONTENTS

Welcome and Opening Remarks,

Lynn Mahaffie3

Opening Remarks, Ted Mitchell4

Speakers:

Jasmine Hicks, Young Invincibles13

Chuck Knepfle, Director of Financial Aid,

Clemson University19

Cheryl Smith, Senior Vice President, Public

Policy & Government Affairs, UNCF25

Maggie Thompson, Campaign Manager, Higher 

Ed, Not Debt30

Keagan Buchanan, Legal Fellow, High Ed, Not

Debt40

Sarah Audelo, Policy Director, Generation 

Progress, Center for American

Progress46

Sheila E. Isong, Policy Manager, Generation

Progress, Center for American

Progress50

Charlotte Hancock, Digital Director, High Ed, Not Debt53

Luke Waters, American Progress59

Rebecca Thiess, Americans for Financial

Reform62

Pauline Abernathy, The Institute for College

Access & Success68

Jessica Herrera, Center for American 

Progress73

Lauren Koehler, Center for American

Progress75

Connie Kim Briggs76

Kristen O'Brien, American Medical 

Association81

Taylor DesRosiers, American Medical 

Association 85

Jennifer Blum, Divisional Senior Vice 

President, External Relations and

Public Policy, Laureate Education,

Inc.91

Karen McCarthy, NAASFA96

Alexis Goldstein, The Other 98%103

Justin Habler, United States Student 

Association112

Mary Lyn Hammer, President and CEO, Champion

College Services, Inc. 116

Adjourn 

P-R-O-C-E-E-D-I-N-G-S

9:02 a.m.

MS. MAHAFFIE:  Good morning.  My name is Lynn Mahaffie.  I'm the Acting Assistant Secretary for Postsecondary Education.  And I am joined here today by two of my colleagues: Dr. Ted Mitchell, our Undersecretary of Education; and Brian Siegel, who works for our General Counsel's Office.  He's an attorney there.

There's a number of other Department of Ed staff in the audience.  Can I ask you to raise your hands so people know who you are?

During the course of the day we will have some other people up at the table, so you will see some other faces during the day.  

To kick us off, Dr. Mitchell, who, I mentioned, is our Undersecretary, will give some opening remarks.  He's been our Undersecretary since May, and before joining the Department of Education he had a very distinguished career in education.  He's the former CEO of New Schools Venture Fund, the former President of the California State Board of Education, and the former President of Occidental College.

MR. MITCHELL:  Thanks, Lynn, and welcome.  I'm glad to see you all this morning.  Thanks for making time for this important hearing.  I'm pleased to welcome you.  I think you know that this is the first of two public hearings that we're convening to gather input regarding the regulatory effort and support of President Obama's announced extension of the Pay As You Earn repayment plan to those borrowers who borrowed direct loans prior to 2008, and to solicit suggestions for additional issues that we should be considering for regulatory action by the Negotiating Committee.

As background, and I think we all know this, a college education remains the single most important investment that Americans can make in their futures, and it's one of the most significant investments that we as taxpayers can make in our nation's future.  Postsecondary education produces higher earnings, lowers the risk of unemployment, but unfortunately for many low- and middle-income families, college is slipping out of reach.  Over the past three decades, the average tuition at a four-year public institution has more than tripled while the typical family income has increased only modestly over the same period.

More students than ever are relying on loans to pay for college.  Today, 71 percent of those earning a bachelor's degree graduate with debt, and that debt averages $29,400 per student.  While most students are able to repay their loans, many feel burdened by debt, especially as they seek to start a family, buy a home, launch a business, or save for retirement.

Over the past several years, the Administration has worked to ensure that college remains affordable and student debt manageable.  This administration has raised the maximum Pell Grant by nearly $1,000.  It has created the American Opportunity Tax Credit and extended access to student loan repayment plans where monthly obligations are calibrated to a borrower's income and debt.

These income driven repayment plans, like the Pay As You Earn plan that we'll discuss today, cap a federal student loan borrower's payments at ten percent of income.  They can be an effective tool to help individuals manage their debt and pursue their careers while avoiding the consequences of defaulting or remaining delinquent on federal student loans.

While this administration has made significant strides in extending repayment options available to borrowers and building awareness of income-driven repayment plans, more needs to be done.  Currently, not all student borrowers are eligible to cap their monthly loan payments at ten percent of income.  Therefore, the President has directed the Department of Education to implement four substantive initiatives that will extend support to struggling federal student loan borrowers.  

The first of these will extend the President's Pay As You Earn plan to allow additional borrowers who borrowed Federal Direct Loans to cap their loan payments at ten percent of their income regardless of when they borrowed.  No existing repayment options will be affected and the new repayment plan will also aim to include new features to target the plan to struggling borrowers.

Today, we look forward to hearing the perspectives of the higher education community, student and consumer advocates, and a wide cross-section of stakeholders to assure that our regulatory efforts support the proposal's intent to ease the burden that some borrowers are experiencing in managing their student loan debt.

To fulfill the second initiative, the Department will develop, evaluate, and implement new targeted strategies to reach borrowers who may be struggling to repay their federal student loans to ensure that they have the information that they need to select the best repayment option for them and to avoid future default.

In addition, this focus on borrowers who have fallen behind in their loan payments, our efforts will focus on borrowers who have left college without completing their education, which we know is the number one predictor of loan default.  These borrowers, along with borrowers who have missed their first loan payment, will be the targets of our special efforts aimed at helping them rehabilitate their loans with income-based monthly payments.

Our third effort includes partnerships with tax preparation companies, H&R Block and Intuit, the makers of TurboTax, to better educate borrowers about income-based repayment plans during the 2015 tax filing season.  Building off of our prior work, the Departments of Education and Treasury are collaborating to develop effective ways to inform borrowers about their repayment options as they file their 2014 federal income taxes, and on an ongoing basis, through personalized financial management tools.

Finally, the Departments of Education and Treasury will work together to ensure that students and their families have the information they need to make informed borrowing decisions.  The Administration has directed us to work with researchers to test the effectiveness of loan counseling resources, including the Department's financial awareness counseling tool.  

On September 29th, I convened the first of several calls with higher education experts and student debt researchers to identify ways to evaluate and strengthen loan counseling for federal student loan borrowers, and I look forward to more of the same.  

As I said at the beginning, this is the first of two hearings we'll conduct on the new Pay As You Earn plan and solicit suggestions for additional issues that should be considered for regulatory action by the Negotiating Committee.  Based on the public comments gathered, the Department will draft a list of topics to be considered by one or more rulemaking committees.  We anticipate that any committee established after the public hearings will begin negotiations in February 2015, and a Federal Register notice seeking nominations for negotiators will be issued in advance of that date.

Again, thanks for your time and your dedication in being here today.  We rely on your expertise to inform this process.  I look forward to a productive dialogue and I will now take my seat.  Thanks.

MS. MAHAFFIE:  Thanks, Ted.  A couple logistics before we get started.  Many of you have preregistered to speak.  We will be starting with people who preregistered.  If there's anybody here who would like to speak who did not register, please let them know at the table.  And there are plenty of time slots left, so we can accommodate you easily.

We're going to limit initial remarks to five minutes.  And I have Barbara who is going to keep us on-task.  So if you run over the five minutes I will ask you to wrap up.  If there's time after everybody has had an opportunity to speak, we will take people who have already spoken who would like to add additional remarks.

We have a few breaks scheduled; ten minute breaks in the morning and the afternoon at 10:30 and 2:30.  And we will break for lunch from noon to one.  I also want to remind everybody that this hearing is being transcribed, and the transcription will be made available to the public on regulations.gov fairly soon after the hearing.

So, with that, if Jasmine Hicks will start us up.  Thank you.

MS. HICKS:  Good morning.  My name is Jasmine Hicks.  And I am the Higher Education Campaign Director at Young Invincibles.  At Young Invincibles, we're working to expand economic opportunity for young people and elevating the voices of 18 to 34 year olds on issues like healthcare, higher education and jobs.  Thank you for allowing me to testify on the administration's effort to expand Pay As You Earn.

Income-driven repayment plans like Pay As You Earn are critical for student loan borrowers, but not everyone has access to Pay As You Earn.  We want to see the Administration solve this.  Default and delinquency rates show that more and more borrowers are having a difficult time repaying their debt.  Over one-in-seven federal student loan borrowers default on his or her student loan shortly after entering repayment.  Recent data from the New York Fed suggests that more people are falling behind on their payments.  With more students and families borrowing to make up for the rising cost of college and more borrowers struggling to repay their debt, flexible repayment plans like Pay As You Earn can help borrowers better manage their debt.

To improve Pay As You Earn and protect borrowers, we at Young Invincibles suggest the following seven solutions.  One, expand Pay As You Earn to all borrowers, regardless of when they took out their loans.  Two, eliminate the partial financial hardship requirement for enrolling in Pay As You Earn. Three, eliminate the standard repayment cap in Pay As You Earn.  Four, target expansion of Pay As You Earn to borrowers who would otherwise struggle to repay their loans.  Five, pilot test in-house debt collection of federal student loans.  Six, provide relief to borrowers who have been defrauded by institutions and take steps to prevent institutions from engaging in fraud.  And seven, prohibit mandatory arbitration requirements in Title IV.

We at Young Invincibles urge the Department and the Administration to fully explore expanding and improving Pay As You Earn and these related reforms.  Negotiated rulemaking on Pay As You Earn is a welcome opportunity to strengthen and streamline federal student loans for consumers.  We believe that it's also a chance for the Department to take action to right wrongs within the federal student loan market on behalf of students and families.

Now we'll talk about the most important solutions we've outlined, and we'll submit the full to regulation.gov.  Our first recommendation is that the Administration expand Pay As You Earn to all borrowers regardless of when they borrowed.  This could allow the program to reach many more millions of struggling students and families across the country.  Capping payment at ten percent would also help lower-income borrowers in particular, many who are still trying to recover from the recession.  

Currently, for all borrowers who took out loans before 2012, the next best option available to them is income-based repayment, which caps student loans at 15 percent of monthly discretionary income.  For example, a married, recent graduate with two kids who has the average amount of student loan debt would see her monthly payment drop from $130 per month to $87 per month on the Pay As You Earn as compared to income-base repayment.

For a mother of two, these savings are critical.  This could mean an extra trip to the grocery store, a child care payment, or savings for the family.  For these reasons, we applaud the Administration's proposed expansion of Pay As You Earn to all borrowers regardless of when they borrowed.

Next, we have several ideas of how to target borrowers who would struggle to pay down their debt without Pay As You Earn.  Our ideas include targeting borrowers who have, one, submitted employment certifications for public service loan forgiveness; borrowed student loans, but did not complete a postsecondary program; borrowed both federal and private student loan debt; have declared bankruptcy; have defaulted or are on deferment or forbearance; or, lastly, have filed for unemployment.

Finally, we are very concerned about harmful and deceptive tactics at predatory institutions.  We joined more than a dozen other organizations, state attorneys general and eight U.S. Senators in urging the administration to modify its regulations and take action to prevent predatory institutions from evading the law at the expense of students and taxpayers.  

The Department must also provide relief for students who attend failing schools.  Our preferred solution is for the Department to discharge the debt of students who attended the worst institutions, reinstate any lost Pell Grant eligibility, and recollect as much lost funding as possible from the institution.

The Department should also grant group discharges when an institution is proven to have committed widespread abuse.  We are open to alternative avenues to achieve this end as well.  We at Young Invincibles look forward to working with the Department and the Administration as it gears up for expanding Pay As You Earn and for its work on behalf of students and families.  Thank you very much for your time.

MS. MAHAFFIE:  Thank you.  Chuck Knepfle.

MR. KNEPFLE:  Hello.  My name is Chuck Knepfle.  I'm the Director of Financial Aid at Clemson University.  I'm also chair of the National Direct Student Loan Coalition, a grassroots organization comprised of schools dedicated to the continuous improvement and strengthening of the direct loan program.  Our members are practicing aid professionals working at participating institutions.

I'd like to thank the Secretary for the opportunity to provide the Department of Education with comments on the federal student loan programs that may be addressed in negotiated rulemaking early next year.  

First and foremost, the Coalition wants to extend its thanks and congratulations to the staff of the Department of Education, and especially at Federal Student Aid, for recently renegotiating the contracts with the larger federal loan servicers to provide greater incentives for keeping borrowers in repayment.

To ensure that the Federal Direct Student Loan Program continues to be a strong and viable source of loan funding for students, I wish to address regulatory issues in the following areas.  First, expand participation in the Pay As You Earn repayment plan.  As has already been discussed in the first comments, we support President Obama's proposal to expand the number of borrowers eligible to participate in Pay As You Earn.  The Coalition has recommended that income-driven repayment plans be the default repayment plan for all borrowers in the Federal Direct Loan Program, with options to select other plans if the circumstances allow.

The current menu of repayment options, though well-intentioned to address borrower choice, add a layer of complexity to the program that many borrowers find confusing.  To the extent possible, we urge the Secretary to consider regulations that would establish one income-driven repayment plan open to the largest number of student borrowers possible.  

Second, offer incentives to consolidate existing loans to take advantage of the Pay As You Earn repayment plan.  Currently, eligibility for participation in Pay As You Earn is limited to new borrowers as of 2007.  To increase the pool of borrowers who would be eligible, we encourage the Secretary to offer loan consolidation to borrowers who may not be able to take advantage of this plan as a result of borrowing in the FFEL program or in the Direct Loan Program prior to the established date.  Expanding loan consolidation options could have the added benefit of reducing the outstanding FFEL portfolio and reducing costs for the taxpayers.

Next, simplify federally-held loan servicing environments.  The current direct loan servicing environment is fraught with confusion and frustration for student borrowers.  There's an inherent flaw with the current multiple contractor environment.  Borrowers do not understand who holds their loans.  Until another means of repaying student loans is available, such as IRS payroll reduction, the following changes are needed to restore clarity and simplification.  Borrowers must have a single point of contact for all loan repayment activities.  Borrowers should be given one web portal and phone number for loan servicing with behind-the-scene technology routing the borrower to their contractor.  Service levels, loan terms, and borrower benefits must be equal and uniform.  Consistent processes and forms for common requests like deferment and forbearance should be the same for all contractors and available electronically.  Calculation of interest fees, interest capitalization, and application of payments to principle and interest should all be standard and consistent among the contractors.  

We support healthy competition among a limited number of contractors, but too many contractors increase the complexity of the system and taxpayer cost.  Healthy competition can be managed in a way that is invisible to the borrower.  

Next, require that all federal loan servicers use white-label branding.  Initially, the Direct Loan Program had one contractor identified as the U.S. Department of Education to borrowers.  We believe that environment can be replicated in the current multiple servicer environment.  We also believe that it will reduce borrower confusion and defaults.  Current technology will support this approach.  

To simplify the repayment process, we urge the Secretary to require that the identity of the contractor be invisible to borrowers.  The contractor should be mandated to use only Department of Education logo and name on any communication to the borrower.  And contractor branding and other marketing of the contractor to the borrower should be prohibited.

Next, we propose to eliminate interest capitalization.  Regulations allow for, but do not require, interest capitalization each time the borrower changes status, beginning with the end of the grade period.  Interest capitalization increases the principle amount of the loan and total cost of borrowing.  Elimination of capitalization will help borrowers reduce their cumulative debt, which could affect the amount of monthly payments and the ability to participate in other economic activities, such as home purchases or retirement investments.  Capitalization is not required in federal law.  It's a holdover from the previous FFEL program.  

In closing, I'd like to thank you again for the opportunity to present this testimony on behalf of the Direct Loan Coalition.  Many of our members were the first schools to implement the Direct Loan Program over 20 years ago and have years of expertise in operational and policy issues, as well as compliance with the regulations for the program.  We look forward to participating in the upcoming negotiated rulemaking process next year.  Thank you.

MS. MAHAFFIE:  Cheryl Smith.

MS. SMITH:  Good morning.  I'm Cheryl Smith, Senior Vice President for Public Policy and Government Affairs at UNCF.  Thank you for the opportunity to present UNCF's views on the Pay As You Earn plan that will be subject to negotiated rulemaking next year.

UNCF commends the Obama Administration for advancing Pay As You Earn and hopes that expanded options can be made available to parent borrowers as well as to all student borrowers.  Now in its 70th year, UNCF has always had college access and completion for students of color, especially African-American students, as its mission.  UNCF provides financial support to 37 historically black colleges and universities and supports over 60,000 students at these and other institutions across the country.  

Success in access and completing college for students of color means both being able to pay for college and repay loans after completion.  Pay As You Earn, income-based repayment, and income-contingent repayment are critical tools for students to manage their loan debt based on their post-college income.  This is a particularly important issue for students at HBCUs who must borrow to attend college at greater rates than other students.  Seventy-nine percent of full-time, first-time undergraduates receive student loans at four-year HBCUs compared with sixty percent at all four-year public and private nonprofit colleges.

Moreover, income-driven repayment options can help to boost college-going rates for students of color who might otherwise choose not to attend college for fear of falling into a lifetime of debt.  Thus, we see Pay As You Earn as an essential strategy to help boost the number of college graduates in the U.S. by the year 2020.

UNCF believes that Pay As You Earn can and should be expanded to allow parents to utilize this repayment option in repaying Parent PLUS loans for dependent students.  With inadequate grant and work study assistance, parents of low-income students, and students of color, are relying on PLUS loans to help close the gap.  This is especially true at HBCUs, where nearly 13 percent of undergraduate students rely on PLUS loans compared to approximately 5 percent at all colleges and universities.

Students and their parents at HBCUs have always had to struggle to find the resources necessary to pay for college, but that struggle intensified over the last several years.  Fortunately, today the Department has finalized a new underwriting standard for PLUS loans.  Thank you for that.  That was a critical step forward.  

However, the PLUS Loan crisis at HBCUs has reminded us of the need to ensure that all college debt financed through federal student loan programs has affordable repayment options.  Unfortunately, the existing multiple repayment options not only are confusing to parents and students alike, they also unfairly differentiate benefits based on what type of loan was taken out, when the loan was taken out, and whether it was taken out by the student or parent.  With PLUS loans, loan proceeds are used to pay for students' tuition fees and other education-related expenses, all costs that students could finance through Stafford Loans if limits on these loan programs did not exist.

Whether the education loan is a Stafford Loan, a PLUS graduate loan or a Parent PLUS Loan, these education loans are investments that pay significant dividends and better futures for students.  However, parents are restricted from accessing Pay As You Earn and income based repayment options even though these plans have better benefits than standard, extended, or graduated repayment plans.  Parents should not be forced to risk financial peril to educate their children any more than should the students themselves.

Some may argue, as the Department did in its 2012 regulations establishing Pay As You Earn, that statutory changes are needed to allow Parent PLUS loans to be included under Pay As You Earn.  We challenge the Department to think outside the box.  Much as the Department has been creative in looking for ways to expand Pay As You Earn to additional students, we urge the Department to take a strong look at its statutory and regulatory authorities in this area and devise a plan to further level the playing field for parents with PLUS Loan debt.

Again, thank you for the opportunity to speak.

MS. MAHAFFIE:  Maggie Thompson.

MS. THOMPSON:  I have something to hand out.  My name is Maggie Thompson.  I'm the campaign manager for Higher Ed, Not Debt.  We're a national campaign with dozens of partners all working to bring the student debt crisis to a halt.  Our aligning principle across all of our organizations is that higher education is a public good that should be affordable and accessible to all without the burden of debt or financial hardship.  So we're very excited for this opportunity to come and speak to you all today, because this is something our members care deeply about.

That petition is a petition that we launched over 48 hours ago with our partners: Student Debt Crisis, Working America, National Education Association and others.  And in just over 48 hours, we have over 25,000 signatures on that petition and counting.  And that petition outlines some of the asks I just wanted to walk through today.

I just wanted to bring those.  And I’d highlight for you that we had people sign the petition but also, in signing that, thousands of them shared their stories about how they're struggling with student debt.  So you can go through and read those stories and that petition and it's just incredibly compelling to see the issues, the different types of issues that our borrowers, our members are struggling with.

The first ask that we had as part of this petition is simply for programs like Pay As You Earn, other repayment plans, loan forgiveness programs, that simply we just want these to be easy to enroll in.  So many people aren't enrolling in these programs.  They don't even know that they exist.  And I can't reiterate enough what Chuck said about these programs being easy to find online, and there should be an app or something where people can easily enroll in these programs, and for people that are eligible for these programs to be actively contacted by the Department to let them know that they're eligible.  Too many people are struggling with their loans while doing great work as a teacher or other occupations like that for them not to be contacted to know about these programs.

The second ask that we had was, that we preserve for the Pay As You Earn program the cap on discretionary income of ten percent for payments.  We think that that's an integral part of this program and one of the reasons that we were so excited when the President started his program.  

Just one of our petition signers, Amy from Michigan, I'll just read what she wrote.  She said, "I received a master's in human services.  I'm serving the neediest populations.  Unfortunately, the salary of someone in human services averages around $35,000 a year.  It is extremely difficult to pay my current living expenses and have anything left to pay the monthly amount I've been asked to pay for my student debt.  I simply can't afford what is being asked of me."

Ashley from New Jersey wrote: "I wanted to be a lawyer so I could make a meaningful difference in the lives of people in my community.  I didn't become a lawyer to get rich.  That said, I assumed in the long run I would not be financially worse off for having become a lawyer.  In 2012, I graduated from a prestigious and expensive law school.  Over two years later, despite extensive efforts, I am working at a salary well below average for my profession and living with my parents at the age of 31.  I am fortunate that my parents can help me with some expenses, but struggle to afford the rest.  I am on the income-based repayment plan.  On the plus side, I receive a bill for zero dollars every month and don't risk going into default.  However, the interest continues to build at the rate of over $1500 per month.  Usually, I can pay my interest that accrues each month, and as much over that amount as I can, which is often not a lot.  It's disheartening to see that when I pay, for example, $2,000 a month towards my loans, which is nearly all of my disposable income, not even $500 of that payment goes towards actually paying off my principal.  The high interest rates on my loans make me feel like I'm trying to bail out a sinking ship with a teaspoon.  The simple black and white truth is this: if I weren't in debt, or my interest were lower, I would be looking into buying a home, getting married, having children, buying a car and doing all sorts of other activities that contribute to the nation's economy.  But this story just isn't just about me.  It's about millions of bright, educated people who could be contributing to our nation's economy and society, but cannot do so in a substantial way, nor can they for many years to come."

So, as you can see, many of our petition signers share their stories in a very compelling way, and this really spoke to them, the opportunity to have this hearing, to reach out to all of you.

The third ask that we had as part of our petition was that we preserve the loan forgiveness programs in full, and that we don't cap those, especially for individuals in public service.  That's just such an important part of allowing people who want to serve to have that be a viable life choice.  

One of our petition signers, Aaron from Illinois, wrote: "I have $220,000 in student loans from undergrad, $280,000 for medical school, and I'm going into primary care.  How am I supposed to start a family while getting paid the least of most medical fields and paying over half a million dollars on my students loans?  This is unreasonable.  It's crippling and the future of this country is in serious trouble.  Frankly, I'm terrified."

So, people that are going into these professions that, you know, we have shortages of some of these professions.  We think this is why these loan forgiveness programs are so important because the cost of college has skyrocketed.

Anthony in Massachusetts wrote:  "I'm a member of the clergy serving in a mainline Protestant denomination.  So while I'm making an adequate wage, it will never be quite commensurate with my student debt, which exceeds $140,000.  I'm very worried about being able to pay back this debt."

So, primary care doctors, teachers, social workers, faith workers, we want these positions to be filled by young people who want to serve.  So we would just really encourage you not to cap the loan forgiveness program and that's something that really spoke to our members.

In conclusion, I just wanted to mention, I feel that I would be remiss if I didn't bring up the issue of for-profit colleges and universities as a part of this conversation for loan repayment programs, especially given that for-profits are almost half of defaults, are responsible for almost half of defaults in the country.

Several people on our petition were victims of for-profit colleges and universities.  I was fortunate enough personally to receive my college degree in Minnesota.  It's a great state that has a lot of public and private institutions of higher learning.  It's saddening to me to see that Corinthian College is one of the first campuses that's closing its Everest Institute in Eagan which is not far from where I went to school.  So we've been dismayed just by the fact that not only were these students victims of this predatory for-profit college, but also the teach-out options being offered to them would only send them to other for-profit institutions, two of which are being investigated by the Attorney General Lori Swanson in the State of Minnesota.  And that's just one Corinthian campus and we know that there are more to come.

So on the issue of for-profits, we feel that all Corinthian students and students of schools like Corinthian that have taken advantage of students should be eligible to discharge their federal and private loans in full.  We also feel that the Department should discharge all federal loans for Corinthian students who enrolled in programs that had inflated job placement rates or who were subject to other deception or fraud.

For students that were victims of any fraud, they have to be eligible for loan discharge.  And the Department, we feel, should expand access to the false certification discharge; really use your powers to the full extent under the Higher Education Act's authorization.

We also feel the Department should stop schools from pressuring students into costly student loan forbearances and deferments.  We have to stop letting these schools cooking the books to hide the high default rates.  And lastly, we feel that the Department should actively inform eligible students of their right to discharge their federal student loans for those students that we are talking to at Corinthian Colleges, it's incredibly problematic that the people that have to tell them they're eligible for a loan discharge is the school themselves.  A lot of students don't understand the process.  It's not very clear and a lot of them don't understand that they'd be eligible.

And lastly, we feel very strongly that given all this for schools like Corinthians and others that we believe will come in the future that we need to stop enrollment at these schools.  A company that's going into bankruptcy and is walking through a shutdown process with the Department shouldn't be allowed to continue to ensnare students who maybe down the road will have to go through the same process of figuring out if they can get the loan discharged or if they can do a teach-out or what's going to happen to them next.

So those are our main asks of the Department of Education and thank you so much for this opportunity for ourselves and our members to tell you our stories.

MS. MAHAFFIE:  Keagan Buchanan.

MR. BUCHANAN: Good morning.  Thank you to the panel for holding this hearing and for Undersecretary Mitchell, thanks for your time and attention.

My name is Keagan Buchanan.  I'm a legal fellow with the Higher Ed, Not Debt campaign and I work with Maggie Thompson who just spoke.  There, I'm working to provide assistance to students at for-profit colleges particularly those at Corinthian College.  

I graduated from law school in May with $226,000 in debt.  Yesterday, I enrolled in Pay As You Earn and I'm very grateful to have that repayment option.  The Department should provide all borrowers with the same opportunity I have to enroll in a manageable debt repayment plan and should not cap the amount of loans that are eligible for forgiveness.

I'd like to focus my comments, however, on the way the Department can assist students at for-profit colleges.  While my personal debt is overwhelming, students who enroll at for-profit colleges face far greater challenges and desperately need the Department to work as an advocate on their behalf.  In preparation for this hearing, over 25,000 students signed our petition in just 48 hours and many of them told their student debt story.  Many of them went to for-profit colleges and their stories illuminate the consequences of the failure of the states and the Federal Government to provide oversight to an industry that's motivated by profit, not by student success.

As the Department is well aware, more than half of the students who enroll at for-profits drop out in the first four months.  One student told us he was among that group and has nearly $50,000 in student debt from his 14 weeks as a student at a for-profit.

Another student just graduated with an MBA from DeVry University.  She went back to school so that she could better support her family.  Unfortunately, she now owes over $120,000 in student loans.  The only job she could find with her degree pays her $10.30 an hour.  She anticipates that she won't be able to afford her loan repayment and will join the 24 percent of all DeVry enrollees who default on their student loans.

One student talked about his experience at the University of Phoenix.  When he graduated, he couldn't find a job.  And as a result, likely at the recommendation of the university, he put his loans into forbearance.  Two and a half years later, he's working now, but he earns 20 percent less than he did before he attended the University of Phoenix.  And in the interim, during his forbearance, his loans accrued significant interest.  Meanwhile, the University of Phoenix received $3.7 billion from the United States Government in 2012, nearly a quarter of which was spent on advertising to recruit new students, another quarter spent on profit.

Mr. Mitchell, for-profit colleges like Corinthian College have taken advantage of students and taxpayers.  These students urgently need the Department to act on their behalf.  In particular, the Department is uniquely situated to provide immediate relief to students who enrolled at Corinthian Colleges, a company that has not only knowingly misled your Department, but is also under investigation by the CFPB and multiple State Attorneys General.

So I'm going to repeat the five recommendations we have that Maggie mentioned.  I would just first note that as you're talking with these colleges, particularly Corinthian, negotiating the terms of their ability to remain open as they sell, I'd ask you to keep students in mind.  Thank you.

There are five ways the Department can act now to help student borrowers who attended Corinthian College and other for-profit universities.  First, all Corinthian students should have the right to discharge their federal and private loans if they do not wish to continue studying at a for-profit college, regardless of the sale or a teach-out agreement that's reached.

Second, the Department should discharge all federal loans for all Corinthian students who enrolled in a program that inflated the job placement rates, or who were subject to other deception or fraud.

Third, and more generally, students who are victims of fraud should be eligible for loan discharge.  The Department should expand access to the false certification discharge to the full extent intended by the Higher Education Act.  Currently, it's incredibly narrow and not helpful to students.

Fourth, the Department should stop schools from pressuring students into costly student loan forbearance and deferment.  Forbearance and deferment should only be used to temporarily help borrowers and not help schools manipulate the default rates and leave students to default on even larger balances.

Finally, the Department should actively inform eligible students of their right to discharge their federal student loans.  We've heard too many stories of students who are at a closed school who don't know that they're eligible to have their loans discharged and are still trying to pay back their loans for an education that the Department has already determined they don't have to pay for.

So thank you for this opportunity to testify and for your work for students.

MS. MAHAFFIE:  Sarah Audelo.

MS. AUDELO:  Good morning.  My name is Sarah Audelo and I'm the Policy Director of Generation Progress.  We're the millennial engagement arm of the Center for American Progress, a nonprofit and nonpartisan progressive think tank here in D.C.

At Generation Progress, we focus on economic justice, human and civil rights, and democracy.  As such, increasing access to higher education and addressing the student debt crisis is the cornerstone of our work.

As you move through the negotiated rulemaking process and discuss the expansion of Pay As You Earn, we hope that all student loan borrowers are able to access Pay.  And we encourage the Department to ensure that the current structure of Pay is what these borrowers are able to access where no more than ten percent of discretionary income is what they pay into the program and then their loans are forgiven after 20 years.

In addition, we ask that you allow all borrowers to be able to still use the public service loan forgiveness program while enrolled in Pay and therefore are able to have their federal loans forgiven after ten years after they've worked in the public sector.

  In addition, there should be no cap on the loan amount that is forgiven.

As someone who has worked as an educator and in the nonprofit sector for eight years, income contingent repayment programs like Pay are vital to individuals like myself who graduated from college with student loan debt, but are dedicated to working with and for our community.  For too many of my peers, I have seen them leave a career path of their choice, many of which are in the public sector field in order to pursue a job that will allow them to better manage their student debt.

As a country that is dealing with shortages in many public service professions like nursing, programs like Pay and public service loan forgiveness are vital to allow young Americans to pursue their careers both of their dreams and careers that our country desperately needs to have filled.

In addition, I ask that in this process you also work to expand awareness programs to help educate borrowers about Pay.  I applaud your public-private partnership with Intuit, but we need more.  To me, borrowers do not know about these programs and more, including colleges and universities must be engaged.  For example, I recently spoke with a group of about 30 Latino college students who were interning here in D.C., most of whom were seniors and all of whom had student debt.  None of them knew about Pay.  And while they have yet to start paying their loans, their employment decisions could be greatly impacted if they knew that they could enroll in programs like Pay before they graduated before they were looking for these jobs.

And finally, it should be easy to enroll in Pay.  For those I know who have enrolled in the program, including those who work in the higher education sector, it's confusing.  Enrollment must be streamlined and easy and as too many borrowers of student loan debt are struggling to get by in an economy that's not working for them.  There should not be additional hurdles as they make their responsible decision to deal with their school loan debt.

We look forward to continuing to engage the Department on access to higher ed. and student debt crisis and thank you for the opportunity to speak.

MS. MAHAFFIE:  Sheila Isong.

MS. ISONG:  Good morning and thank you to the panel and Secretary Mitchell for this opportunity to have this really crucial conversation.  My name is Sheila Isong.  And I currently serve as a policy manager with Generation Progress which is the millennial arm of the Center for American Progress.  

After seven years of higher education, I attended the University of Pittsburgh and then went on to get my Juris doctorate at Howard University, not too far from here, I have amassed student loan debt nearing about $200,000.  All of my educational pursuits were undergone in the hopes of reaching the American dream, providing a life for my family and for previous generations that didn't have the luxury of going to college and law school.

When I listen to high school counselors and they said that I should pursue a collegiate degree, I did that.  When I was in college, I listened to the counselors that told me to get another degree.  They said that would be the move.  And I did that as well.  I did everything right.  And now I'm in a situation where I have a really large amount of student loan debt and with that being said, speaking as a student borrower, speaking as a policy manager that works with students all across the country, we're really urging you to expand Pay under the terms that I'm going to highlight.

First, making Pay easier to enroll.  Many borrowers are really not aware of their student loan options.  I was at a reception yesterday speaking to a student that graduated recently and one thing that she mentioned was she was like I didn't even know that I had this option right now.  So we really are urging the Department to make sure that enrollment is easily accessible and you're working to inform all borrowers of their eligibility and therefore their rights.

Secondly, preserving the payment cap.  Preserving the payment cap at ten percent of income for borrowers like myself who work at nonprofit organizations, individuals need the option to cap their payments at ten percent of discretionary income.  This is crucial as we have a lot of millennials which we work for and with who are working non-high paying jobs and they're living in metropolitan communities like Washington, D.C. where transportation is expensive, rent is even more expensive, and salaries are declining.  So with preserving that payment cap, you're giving the individuals the opportunity to actually live a decent life.

Thirdly, preserving the loan forgiveness programs.  The Department should maintain its commitment to forgiving student loan debt in full for borrowers after 10 years in the public service sector and 20 years in the private sector.  There shouldn't be a cap on the amount of debt that can be forgiven.

Last, certainly not least, extending Pay to all borrowers who were not previously eligible under the rule.  One of the ways that the $1.2 trillion in growing student loan debt can be dealt with is through expansive and progressive changes to the current status of the Pay rule, allowing more borrowers to pay back their student loans based on income.  So we're urging you with student loan reform today we're urging you to stand with the millennials.  Thank you.

MS. MAHAFFIE:  Charlotte Hancock.

MS. HANCOCK:  Hi.  I'm Charlotte Hancock.  I'm also with Higher Ed, Not Debt with Maggie and Keagan, the legal fellow who you've already heard from.

I wanted to talk to you today not about myself, but about my younger sister.  My sister moved with me to D.C. in early 2012 after she finished undergrad in Virginia.  She decided she wanted to go back to grad school for an early childhood development program.  She's one of those people who somehow thinks it kind of adorable when a toddler accidentally pees himself, so you know, she's cut out for it.  She's smart.  She's passionate.  She nannies and tutors and volunteers to work in women shelters looking after the little ones.  Trust me; you want her working in the American education system.

But she almost didn't go.  Unfortunately, grad school is a little expensive.  And she doesn't have a lot of options.  So she has student loans.  She cried when she applied for them because she knows that she could be stuck with that anchor for decades as a teacher.  She's racked with anxiety every single day about how she will pay them off once she graduates.  

She asked me for advice with her loans and I as a dual Director for the Higher Ed, Not Debt team here in D.C. didn't really know what to tell her.  I didn't know if she would be eligible for Pay.  I didn't know where to point her to find more information about Pay.  In fact, I didn't really know about Pay until I started working where I do.

I wanted to be able to tell her that there's an easy, straight-forward, online, phone-friendly form to fill out.  Or that there was an app that would help her relieve some of her stress by giving her a step-by-step plan, but I couldn't because those things don't really exist.

So here's what I'm asking for, for my sister and for all the young people about to become teachers or who currently are teachers with mountains of debt.  I want it to be easy to enroll.  Many borrowers don't know about their debt management options.  The Department needs to make enrollment accessible and easy and should inform all borrowers who are eligible.

I want to preserve the payment cap at ten percent of income.  Borrowers need to know the option to cap their payments at ten percent of their discretionary income -- or need the option.  This cap is crucial for borrowers struggling with their loans.

I want to preserve student loan forgiveness programs.  The Department should maintain its commitment to forgive student debt in full for borrowers after ten years of public service for 20 years of work in the private sector and not cap the amount of debt that can be forgiven.  

I also wanted to remind you that it's not just people like my sister who need this kind of help.  It's parents, your peers, and more.  This is Patricia Zinna of Newark, New Jersey, a two-time cancer survivor.  "I graduated veterinary college with a large amount of student debt" -- I'm sorry, this is also from the petition stories that we received.  "I graduated veterinary college with a large amount of student debt.  I needed to use deferment several times due to illness.  The last time I was on disability, I could not get another deferment or forbearance because I had used them all up.  However, I was on disability after having surgery for my second bout with cancer and I needed a year of chemotherapy.  I was unable to work and unable to make my payments.  And since I could not get a deferment or forbearance, I went into default.  So my student loan was finally sold from Sallie Mae to the NYS Higher Education Department and $35,000 was added to the principle as a fee from being transferred from one lender to another.  So I'm a two-time cancer survivor with multiple sclerosis working hard and paying the interest on my student loans.  They wanted me to pay back $2200 a month.  I already pay $1580 a month in rent and there's no way I can make those payments.  It's obvious that I will never be able to pay off my loan.  I am 50 years old and I don't have any credit card debt.  Don't have car payments.  Don't have a mortgage, but I owe close to $200,000 and if I start making the payments now of $2200 which I cannot afford, I will most likely die before I ever pay off this loan."

And this is a mom who needs some help.  This is Nancy Wyland of Indiana.  "Through a series of unfortunate events, I unknowingly signed the promissory note for a Parent PLUS loan on behalf of my son thinking I was co-signing.  The school rushed us through the process, failing to explain the terms of this loan so that my son could register for the classes he needed.  This loan is my sole responsibility and my lowest possible monthly payment is equivalent to my house payment, property taxes included.  His degree is in a field with low returns, musical theater.  So even though he's working 80 hours a week now in Chicago, it will be years before he can begin to pay me back.  The loan I have is subject to many restrictions.  A payment based on ten percent of my income would greatly help my monthly expenses.  I am now committed to working in a public service for ten years in order to get them off my back as quickly as possible.  This Pay As You Earn is my only out."

Thank you very much.

MS. MAHAFFIE:  Luke Waters.

MR. WATERS:  Hello.  And thank you for allowing me to speak.  I am the fourth person with the Higher Ed, Not Debt campaign.  I am an intern there currently.  My name is Luke Waters.  And I am a junior at Ohio Wesleyan University. 

I'd first like to speak about the importance of Pay As You Earn.  By the time I graduate, I will be over $20,000 in debt and I'm one of the lucky ones.  As of today, I have no idea how I'm going to pay back my loans or the process of starting that.  Once I graduate, I know that most of the students around me will feel the same way.

Students today often take out enormous loans to pay for college without being told about what's going to happen after they graduate.  Important tools like social media and phone apps should be used to reach out to the millennial generation and educate us on how to best pay back our student loans.

I think it is important for the Department to do four things when it comes to Pay.  First, make it easier to enroll.  Second, preserve the payment cap of ten percent of income.  Third, preserve and expand the public service loan forgiveness program.  And fourth, extend Pay to all borrowers who are not currently eligible.

   Pay is a simple, effective solution to the growing crisis of student debt and the Department should expand it to all student borrowers.

Second, I'd like to tell a quick story about my cousin.  Wesley got into a little bit of trouble with the law when he was in his last year of high school, dropped out of school, but quickly cleaned up his act, got his GED and applied to the University of Phoenix.  His hope was to get a job during the day and take classes online at night.  Unfortunately, Phoenix lied to him about their graduation and job placement rates, and if he had known the truth about their programs, he never would have applied.

Two years later, when he realized that Phoenix lied to him, he dropped out of school with over $20,000 in debt and nothing to show for it.  For-profit colleges have done this repeatedly to thousands of other students like Wesley and they need to be regulated better.  For-profit colleges cost more money to taxpayers.  They graduate less students.  They leave their students with more debt and they still make a profit off of it.  

And lastly, I'd just like to share this little chart.  For-profit colleges serve 9 percent of the student population, but they graduate only 5 percent and 43 percent of their students default on their student loans, and yet, they still make a profit after that.

Thank you for letting me speak.

MS. MAHAFFIE:  Christine Lindstrom.  Christine Lindstrom.  Okay, we'll move on.  Rebecca Thiess.

MS. THIESS:  Good morning and thank you very much for having me.  My name is Becky Thiess.  And I'm a policy analyst at Americans for Financial Reform.  AFR is a coalition of over 200 public interest and membership organizations around the country, including labor, consumer groups, civil rights organizations, community-based organizations, and more.  We work together to raise the public interest voice on issues concerning the financial system and we're also a member of Higher Ed, Not Debt.

I would first like to call for regulations around cohort default rate manipulation.  There is now abundant evidence that some for-profit companies are evading program integrity laws and putting students at risk of defaulting on higher loan balances.  These companies are using forbearance and deferment to delay defaults until the period after which schools are held accountable. 

In order to prevent cohort default rate manipulation, the abuse of forbearance and deferments, we recommend a few things.  One, amending current regulations under the Higher Education Act to ensure that forbearance benefits students and not schools.  This could be done by specifying that certain types of forbearance patterns such as back-to-back forbearances do not benefit borrowers as well as requiring greater documentation for such forbearances.

Two, amending current regulations to clarify what constitutes a "payment to prevent a borrower's default."  Schools should not be permitted to lower their cohort default rates by providing borrowers with anything of monetary value in exchange for action by the borrower.  

Three, using default data to prompt warnings, investigations, program reviews or audits.  If the Department is not already doing so it should be analyzing the extent to which companies are using forbearance and deferment, particularly serial forbearance and deferments which would indicate that borrowers are not being provided counseling about income-based repayment or other repayment options.  Serial forbearances and spikes in defaults should prompt public warnings, audits, or investigations of school or servicer. 

We would also like to see greater prevention of cohort default rate and 90-10 manipulation.  There is evidence that some for-profit colleges are delaying providing federal aid for the sole purpose of moving these funds into the next fiscal year in order to keep below the 90 percent federal funding limit.  We recommend that the Department count any Title IV funds that a school disburses or could have disbursed in the 90-10 calculation for the reporting period that includes the start of that payment period.

We also recommend that the Department prevent CDR and 90-10 manipulation that is happening by the combining of campuses.  To prevent the evasion of these accountability measures that is taking place, we suggest that the Department not allow changes in Office of Post-Secondary Education ID numbers, also known as OPEID, in cases where institutional compliance is in question, or require continued compliance under the former OPEID for at least three years after any change is made in OPEID.

I would also briefly like to talk about loan discharges for student borrowers who have been defrauded by an institution.  Defrauded borrowers deserve relief and schools should be deferred to the extent possible from engaging in fraud.  We would like to see the Department do a number of things on this front.  The first one has already been mentioned, but it’s broadening regulations around default certification determination in order to more explicitly tackle additional forms of false certification.

The Department, we feel, has interpreted these provisions narrowly, yet the statute is not limited to specific types of certification and, in fact, provides a relief for a range of both illegal and abusive acts.  These regulations should be revised to more explicitly provide relief in a range of circumstances.

Secondly, adopting the Fair Credit Reporting Act's standard of proof for identity theft cancellations.  In cases of identity theft, current regulations require borrowers to prove a crime was committed in order to obtain relief, even though cases of identity theft are rarely prosecuted.  The FCRA defined identity theft as fraud committed or attempted using the identifying information of someone without authority.  The Department could do the same to place fraud alerts or remove erroneous information from credit reports.

Three, addressing problems with burdens of proof.  Currently, the Department requires borrowers to provide independent evidence, including proof of federal or state investigatory findings of fraud, even though in many cases this evidence does not exist.  The regulations should clarify that the Department should be looking at evidence of findings from oversight agencies or other evidence such as student complaints.  The Department should also be keeping all evidence collected in evaluating discharged applications and should be making the information available to borrowers upon request.

And finally, requiring evaluation for group discharges.  We believe the Department should be required to grant group discharges in cases where you have determined that a school has committed pervasive and serious violations of false certification provisions. Thank you very much for your time.

MS. MAHAFFIE:  Pauline Abernathy.

MS. ABERNATHY:  Thank you for the opportunity to speak today and comment on topics for the upcoming negotiated rulemaking.  TICAS, The Institute for College Access & Success, is a national, non-profit policy and research organization dedicated to student financial aid policies that make a quality college education affordable to all.

We strongly support the Department's plan to convene a committee to develop recommendations to give more federal student loan borrowers access to an improved Pay As You Earn repayment plan.  Our detailed written comments filed yesterday, contain recommendations for how to expand eligibility to Pay As You Earn by eliminating the time limitations for when borrowers must have taken out loans and by eliminating the partial financial hardship requirement for enrollment.

It also addresses the better targeting of benefits to the borrowers who need them most:  the importance of retaining the maximum 20-year repayment period so that borrowers can focus on saving for retirement and for their own children's education; of treating married borrowers more consistently than currently; and avoiding sharp cliffs where a dollar more of income or debt can lead nearly identical borrowers to face very different costs.

We strongly urge the Department to add additional issues to the panel's agenda as well.  These include better protecting students and tax payers by preventing cohort default rate and 90-10 rule manipulation; providing equitable relief to borrowers whose defaults are removed from colleges' CDRs, cohort default rates; three, increasing the efficacy of the participation rate index appeal for colleges with low borrowing rates; four, prohibiting mandatory pre-dispute arbitration clauses as a condition of Title IV funding and finally ensuring that federal loans are discharged for defrauded students as the witnesses from Higher Ed, Not Debt have so eloquently testified as did Americans for Financial Form.

In the interest of time, I'll focus my comments today on our recommendations related to cohort default rates.  First, regarding preventing cohort default rate in 90-10 rule manipulation, we join Americans for Financial Reform and more than a dozen other organizations, multiple State Attorneys General and eight Senators on calling on the Department to modify its regulations to prevent companies from evading the law at the expense of students and taxpayers.

Our comments cite the clear evidence that some for-profit college corporations are using forbearance and deferment as tools to manipulate their cohort default rates, regardless of students' best interests, using forbearance and deferment simply to delay defaults until after the period when schools are held accountable.  

Our written comments include several specific regulatory and administrative recommendations to prohibit colleges from evading the law such as by requiring that forbearance only be used for the benefit of the borrower; preventing the use of gift cards and other financial inducements to get borrowers to request forbearances which an investigation by the Secretary documented is happening; and by making it harder for schools to mask high default rates or high Title IV rates by merging campuses for the purposes of reporting only.

Additionally, we recommend providing equitable relief to any borrower whose defaults are removed from colleges' cohort default rates.  As you know, in September, the Department announced it had adjusted the cohort default rates of colleges that would otherwise be subject to sanctions.  We believe that if defaults are removed from schools' CDRs due to faulty servicing, they should be eliminated from the borrower's record as well.  Yet, these borrowers currently are being left in default subject to high collection and default fees and to damaged credit.  We believe the Department has the authority currently to remove such defaults from the borrowers' records, but if the Department believes it does not have that authority, we urge you to then add this issue to the regulatory agenda, to the panel's agenda.

And lastly, we urge the Department to allow colleges to submit a participation rate index appeal or petition in any year in which their CDRs exceed sanction thresholds.  Currently, colleges with low borrowing rates have to wait until their third high cohort default rate year to appeal being sanction.  Withholding assurances until colleges are on the brink of losing eligibility for aid makes it more likely that colleges will stop offering federal student loans.  And if we are serious about helping community college students finish their programs, community colleges need to participate in the federal loan program.

As detailed in our comments, we believe the Department again has the authority to implement an early appeals or petition process administratively, but if the Department believes the current regulations prevent it, then this issue, too, should be added to the panel's agenda.  These and other issues are detailed in the comments we filed yesterday and we thank you for the opportunity to comment.

MS. MAHAFFIE:  Jessica Herrera.

MS. HERRERA:  Hi.  I am graduating NYU in the spring and if it wasn't for my internship this semester, I wouldn't even know that Pay As You Earn existed.  My family took out a home equity loan to be able to pay for me to go to school and I think if we knew that this was an option, things would be really different.

I know that I have friends who aren't as lucky as I am and aren't able to take an internship because they're working 40 hours a week to make sure that when they graduate school, they can manage their debt.  And I think that it's your job to make sure that students are aware of this, that it's easy to enroll and that students are able to focus on school and not have to worry so much about being in debt for ten plus years when they finish.  I think that preserving the payment cap at ten percent of discretionary income would make this way more manageable for at least the people that I know for students who are in similar position.  And preserving the loan forgiveness program so that working for ten years in public service you'll be able to have your loans forgiven.  Thank you.

MS. MAHAFFIE:  Lauren Koehler.

MS. KOEHLER:  Hi.  Like Jessica, who I intern with at the Center for American Progress who works with Higher Ed, Not Debt, I am also a student who wasn't really aware of many of the options available to me.  Certainly I hadn't heard of the Pay As You Earn program and if I weren't working with people at Higher Ed, Not Debt I would certainly not know about it.

I attend private school.  I go to DePaul University in Chicago.  I have a lot of loans.  I'm about to graduate.  I'm actually graduating early to save money and I'm just completely overwhelmed.  I don't know what my options are and I like to think that I'm a relatively capable intelligent person who is able to make decisions for myself, but if it also weren't for the people that I work with and my parents, I would not be able to navigate this.  And I can't even begin to imagine how students who don't have those resources available to them, who don't have those mentors, who don't have those adults in their lives to kind of teach them what their options are, I'm really not sure how they're to become aware of programs like this.

I do think the Department is obligated to make students more aware of their options, just so that, you know, everybody can afford to have the opportunity to attend college.  Thank you.

MS. MAHAFFIE:  Connie Kim Briggs.

Tina Price.  We'll go back.  Is Christine Lindstrom here?  Let's take a ten-minute break and come back at 20 after.  Thank you.

(Whereupon, the above-entitled matter went off the record at 10:12 a.m. and resumed at 10:28 a.m..)

MS. MAHAFFIE:  Connie Kim Briggs.

MS. BRIGGS:  Hello.  Hi, my name is Connie Briggs.  I would like to first thank the Department for this opportunity to share my own experience with my own student debt.  I'm currently working as an attorney at a small firm, about four lawyers, who represent Native American tribes.  I graduated from a private law school here in Washington, D.C. and like most of the students there had to pull out the maximum amount of debt -- loans to pay for tuition and living expenses.  

Just to throw out some numbers to get some perspective, when I entered law school tuition was $35,000, and on top of that living expenses and books.  And I had to pull all that in loans, add about another $12,000.  So all in all about $45,000 to $50,000 a year, and law school is three years, so you do the math.  It's a lot of money.

But that's not all I got in law school.  I was lucky enough to meet my wonderful husband, but then I had the great misfortune of also marrying his debt.  And so like most other students, he also pulled out the maximum amount of loans to pay for his school.  So we're very much in love on the record, but very much in debt.  So when we both started working, it was pretty overwhelming.  We had to start making our loan payments right away.  Although I work in the private sector, given the nature of my practice and the size of my firm, I don't make much, perhaps a bit more than my nonprofit colleagues, but certainly much, much less than my big law firm colleagues.

And while I might otherwise be eligible for this income-based repayment program, the IBR programs as a single taxpayer, because I'm married they take into account our combined gross income.  So together, neither of us were eligible for the IBR program.

So because of that, I have been paying the minimum monthly amount for my loans without any assistance from any program and this has had a tremendous impact on our lives, personally and financially.  The fact that we're paying collectively about $3600 a month for our student loans affects every important decision we've had to make as a family and as individuals, from when to start a family to buying a house to saving for retirement.  We've had to postpone so many decisions, knowing that we'll be making this huge monthly payment every month for the next 30 years.  

And so just last weekend I was actually telling my friend Maggie Thompson, who is here with the Higher Ed, Not Debt program, and she was talking about the Pay As You Earn program.  And it was actually my first time hearing about the program.  It was pretty surprising because I just had my loans consolidated a few months ago.  But I had never heard about it and I had no idea whether I was eligible.  And I kind of told her oh, well, I'm not eligible because of the IBR program where it takes into account our joint income and blah, blah, blah.  And she's like well, this program is a little different, you might be eligible.  So yeah, which kind of brings me to one of the points I wanted to make here today.  

I feel like the Department really should do more in terms of outreach and sending out the message that these programs are out there to help people like me who might have sort of written off these programs thinking oh, with our joint income, we make too much to be eligible for these other programs.  But you know, I think it would be good to send out the message especially to people who are in the process of consolidating their loans just to kind of say hey, by the way, check out this other program that's out there.  You may be eligible and it may help you in the long run.

And also, that brings me to my second point is that the Department really should maintain its commitment to keep the loan forgiveness program.  Now I'm currently on a 30-year repayment program, but if eligible for the Pay As You Earn I saw that it could have -- I could have my loans forgiven in 20 years.  Doing the math again, that's about ten years about not having to make my monthly payment which comes out to about $192,000 in total.  And that's a lot of money that I really could be using to saving towards my retirement or if we have kids someday to saving towards their own college fund.  So that would make a huge difference.  

That's short and sweet, but that's pretty much all I have, so I hope my statement will prove helpful and thank you again for this opportunity.

MS. MAHAFFIE:  Tina Price.  Kristen O'Brien.

MS. O'BRIEN:  Hi, everyone.  Good morning.  I'm Kristen O'Brien.  I'm a representative from the American Medical Association and we want to remind that in addition to representing physicians, the American Medical Association also represents residents and medical students.  And we want to remind the committee that when considering student loans to consider both undergraduate and graduate student loans, obviously, considering that both are important and that more and more students are really having to pursue two degrees now, not just an undergraduate degree to have meaningful employment.  

Currently, our members are facing huge financial barriers to becoming medical students and later physicians in their careers, so this is also occurring at a time when physicians are also facing extreme shortages.  So we really need more people to be coming into the medical community, but we worry about the student debt and the problems with loans are really deterring this practice.

The Affordable Care Act seeks to expand the number of students and medical students, but it's not really done a great job at addressing any of the loan issues that are being faced today.  So the average medical student incurs currently right now $160,000 to $180,000 in debt.  These students are also in a unique position because they are unable to offset those costs by working.  They have to incur long training hours in the hospital and they really don't have the ability to pick up another job because they are, in fact, doing a job.

So the typical medical student has three years to four years of work in actual school.  They then tack on another three to seven years of training.  Over all, this is a huge amount of time that's being incurred of just training, but then, of course, they have to pay off their debt as soon as they are done with medical school. 

So we want to thank the committee for considering the Pay As You Earn issue, but we also want to talk about the cap on student loan forgiveness.  We just simply think that capping at a low rate is not sufficient while students are incurring hundreds of thousands dollars of debt.

We also want to talk, as many people mentioned today, about the lack of education in the Pay As You Earn program.  I think a lot of people don't know about it and the opportunities to lesson debt, so we encourage more education on that effort. 

And finally, we want to consider more efforts to consolidate student loans because I think a lot of students aren't really recognizing those opportunities.  So we wanted to thank the committee.  We wanted to keep our comments short, but we also wanted to recognize that the medical community is having these problems and are seeking new opportunities to improve the debt.  Thanks.

MS. MAHAFFIE:  I'm not sure I can read the handwriting on this one. Taylor DesRosiers.  I am sorry if I butchered the name.

MS. DesRosiers:  Don't worry.  It happens all the time.  My name is Taylor DesRosiers and I'm also with the American Medical Association.  However, I have the unique opportunity to actually be a medical student and I'm taking a year off to work as a fellow for the organization on healthcare policy.

  So thank you for having me here today.  I'd like to tell you my story.

So I went to Cornell undergrad. where I actually worked 30 hours a work to sustain myself through my undergraduate education.  I received state school public tuition and they have a very wonderful program.  And then I applied to medical school.  And I, actually upon getting into medical school, I initially decided not to go because I didn't have the capability to pay.  So I was really torn up about this.  I really wanted to be a doctor and provide care to the community that I grew up in.

Luckily, the Navy has a wonderful program where you can join the military and they'll actually pay for you to go to medical school, so that is what I'm currently in right now and I'm very lucky that I'm receiving this scholarship.  But I would love to tell you about my friends who are in a different boat.  No Navy pun intended there.

So the Class of 2013 that just graduated, as Kristen said, carries an average 

- so mean and median public debt -- are at $163,000 or $180,000 if they went to a private medical school.  They go to four years of this school and then they become residents, medical training residents where the average salary is $53,000.  So it's very unclear how these almost $200,000 debts will start to be repaid when you're working 100 hours a week in a hospital making only $50,000.  

I'd also like to tell you about my best friend and future husband who falls into this latter category of someone who has taken on a lot of this debt.  So he was just awarded the National Resident of the Year Award.  Dr. George has clearly proven himself as a phenomenal budding physician.  He'll be returning back to his hometown, rural Pennsylvania, to practice family medicine in a community that is sustained by one or two physicians for an entire community.  So he will be treating some of the sickest, neediest patients with the greatest care.  And I am so happy that the community has the opportunity to access this care which is clearly needed.

However, Dr. George almost didn't go into family medicine because he carries about $100,000 of debt right now and didn't know if he could pay back this debt in a meaningful and appropriate way going into that profession.  But luckily, he did recognize that this income-base repayment and Pay program exists and he's currently enrolled in that program.

So my two asks today are to maintain the ten percent payment cap of discretionary income and to also preserve the loan forgiveness program and to not cap that off.  If you capped that off, clearly your average medical student would be at a great disservice especially in a time of need when this nation needs more doctors and more people caring for us.  So thank you once again, and I appreciate the opportunity to be here.

MS. MAHAFFIE:  I'm going to call Tina Price one more time.  Okay, that's everybody that we have signed up to talk.  If there's anybody who hasn't had an opportunity who would like to come to the podium now is the time.  Or if you have already come to the podium, but you would like additional time, we can accept that as well.  

Hearing nothing, I suggest that we break through the lunch break and come back at 1 o'clock and we do have people signed up to speak at the 1 o'clock time frame.  Thank you.

(Whereupon, the above-entitled matter went off the record at 10:39 a.m. and resumed at 1:03 p.m.)

A-F-T-E-R-N-O-O-N   S-E-S-S-I-O-N

1:03 p.m.

MS. McLARNON:  Good afternoon.  We're going to get started with our afternoon session of our hearing on the expansion of the Pay As You Earn plan and other issues the public would like to see the Department pursue during our next round of negotiated rulemaking.

I do want to mention that there's a second hearing that the Department will convene and that's going to be in Anaheim, California on November 4th.  You can consult our Federal Register notice that we published on September 3rd for more details on that.

You see a couple of different faces up here this afternoon.  My name is Gail McLarnon.  I'm the Acting Director of Policy Coordination, Development, and Accreditation here at PPI.  Joining me this afternoon is Jeff Appel.  He is our Deputy Undersecretary of Education here at the Department.  He oversees post-secondary education policy initiatives that align the efforts of federal student aid, OPE, and the Office of Vocational and Adult Education.  No small feat.

  Also with us today is again Brian Siegel.  He's our highly esteemed loans program attorney from our Office of the General Counsel.  

We will follow the same format this afternoon that we followed this morning.  We have speakers who have signed up in advance for time slots and we will call on those individual speakers first.  Then we will call on members of the audience who may not have signed up but may wish to make remarks nonetheless.  Then we will ask members of either group whose five minute time frame -- we have our timekeeper up here, did not allow them to complete the remarks that they came here to make today.

So with that, let's get started with our first speaker and that is Mary Lyn Hammer.  I understand Mary Lyn got stuck on a plane coming from Philadelphia.  Did she make it? Great, we'll wait for Mary Lyn.  We'll put her later in the program.

Next signed up speaker is Jennifer Blum.

MS. BLUM:  Good afternoon.  I'm Jennifer Blum, Divisional Senior Vice President for External Relations and Public Policy at Laureate Education, Inc.  On behalf of Laureate and its network, Laureate International Universities, and in particular our U.S. institutions, I want to thank the Department for the opportunity to speak for a few minutes about our interest in your possible rulemaking to amend Pay As You Earn repayment plan, PAYE.

Laureate International Universities is a unique global network of more than 75 institutions in 29 countries.  Together, we serve 900,000 students worldwide.  Each of our institutions is different, guided by individual mission.  Together, we are joined by the network-shared commitment to serving the needs of these students and the regions, countries, and localities in which they are located.  LIU's six institutions in the U.S., Walden, Kendall, NHU, New School of Architecture and Design, Santa Fe University of Art and Design, and the University of St. Augustine are each unique in their mission and academic focus and all demonstrate strong fiscal responsibility and accountability.  All are regionally accredited and as one measure, they each have cohort default rates below the national average, an indication that our students are able to find employment and manage debt.

Laureate's institutions in the U.S. and abroad strongly support government initiatives centered on affordability including ways to reduce debt burden.  Laureate is pleased that the President and the Department have chosen to prioritize the improvement of income based repayment plans and, in particular, the PAYE plan.  With institutions in other countries with governments that rely on similar repayment systems and, in particular, Australia, Laureate believes they are an important tool to many borrowers.

However, under current U.S. law and regulation, student loan borrowers are confused by the number of options that exist.  We have income based repayment, PAYE, and income contingent repayment.  We believe these repayment plans are not appropriately reaching the full breadth of their intended audience, nor providing the full extent of benefit that they should.  Participation in these plans is low nationally.  Laureate, therefore, finds the Department's initiation of a negotiated rulemaking timely.

Short of HEA reauthorization which would provide a more desirable change in consolidation into one plan, a negotiated rulemaking to emphasize PAYE makes sense.  We do believe, however, it will be important during this rulemaking to review aspects of each of the existing plans to best assure that we maximize the benefits of PAYE without creating further confusion between the plans and to examine whether there are positive aspects of the others that, by regulation, could be incorporated into PAYE.  If negotiators and the Department are able to clarify and emphasize the PAYE option to borrowers, we believe this would provide students and loan servicers – I’m sorry, institutions and loan servicers, the ability to better counsel borrowers and help them make important determinations.

With acknowledgment that some reforms may require statutory change, I'd like to mention a few issues and obstacles that may be worthy of some discussion at negotiated rulemaking.  First, we believe negotiators should explore improved exit counseling and educational materials to explain the repayment options and in particular, PAYE, if that's the Department's emphasis.  Borrowers need a better set of time frames and deadlines for meeting eligibility requirements.  It's also important to be clear to the borrower about what the pros and cons of their participation might be.  These points need to be clear to the borrower not just at the time of graduation, or entry into the plan, but as they continue throughout the repayment schedule.

Second, once in repayment, there's little certainty that the borrower regarding -- little certainty for the borrower regarding how long they will actually be eligible for the program's benefits.  Borrowers are required to submit income and other related data annually.  This eligibility process is extremely complex.  With these annual burdens, the borrower faces financial uncertainty instead of stability.  We believe it's important that rulemaking discuss options to reform.  These might include processes similar to the proposed FAFSA prior-prior process, reliance on self-reporting and/or reliance on the Department's own access to borrower income information from the IRS.

As outlined, Laureate strongly supports student financial aid income related repayment plans and see the potential benefit for many U.S. borrowers.  We look forward to the continued dialogue on how to clarify, streamline, and then encourage improved borrower participation.  Thank you.

MS. McLARNON:  Thank you.  The next speaker is Karen McCarthy from NASFAA.

MS. McCARTHY:  Good afternoon.  Thank you for this opportunity to contribute considerations for the upcoming negotiations to expand eligibility for the Pay As You Earn repayment plan, as well as additional issues that should be considered for regulatory action by the Negotiating Committee.

On behalf of our nearly 3,000 member post-secondary institutions, the National Association of Student Financial Aid Administrators extends strong support for the negotiated rulemaking process.  We believe all stakeholders are strongly motivated to achieve consensus and that this process results in far better proposed rules.

We applaud the expansion of Pay As You Earn eligibility to more borrowers as it has great potential to be a successful tool in keeping struggling borrowers out of delinquency and default.  However, expansion of eligibility in and of itself is insufficient.  Borrowers actually have to enroll in income-driven plans to receive any benefit and this enrollment staff is where the Department should focus its efforts.

The application process must be smoothed out to become more borrower friendly.  When calculating the monthly repayment amount, the alternative documentation of income process must be standardized across servicers so that borrowers in similar situations are treated the same regardless of their servicer. 

The Department should also require loan servicers to leverage technology and available data to provide better information to borrowers who should not have to jump through unnecessary hoops in order to enroll in Pay As You Earn.  

On the front end, the Department must do more to reach out to eligible borrowers, especially those who are at risk for delinquency and default.  For borrowers already in default who are now eligible for Pay As You Earn, we recommend an expedited enrollment process so they can get back into good standing quickly without having to go through a full on loan rehabilitation process.

Also worthy of consideration is offering borrowers the option to pre-authorize sharing of income information between the IRS and the Department for purposes of automatic enrollment and income-based repayment, if the borrower ever becomes delinquent in the future.  Our national default rate of 13 percent is indefensible given the availability of income driven repayment plans. 

To the extent that another federal agency already has income information on a borrower, the ideal situation for a delinquent borrower is automatic enrollment in an income driven plan prior to default.  The best time to obtain such consent from a borrower is at the time they are taking the loan.

The formula used to calculate monthly repayment amounts under Pay As You Earn is regulatory and thus subject to negotiated rulemaking.  We would recommend against making significant formulaic changes that would further complicate an already complicated and shifting repayment landscape. 

There are several additional loan-related topics we would recommend for inclusion on the negotiators' agenda.  First, the Department should take this opportunity to negotiate the regulations related to the 150 percent subsidized loan limitation, since those rules were promulgated without the benefit of negotiated rulemaking.

The rules and related reporting requirements are extremely complex, burdensome and in some cases unnecessary.  Now that the rules have been effective for about a year, it is time to evaluate what is working well and what changes may be warranted.  In particular, the reporting requirements should be negotiated and added to the regulations rather than being issued through often changing sub regulatory guidance.  

For example, the current reporting requirements include student level data such as ZIP code that are not needed for the Department to monitor subsidized loan usage.  Indeed, the Department has acknowledged that it requires ZIP code reporting only to assist in program evaluation.  Yet, the collection and reporting of this information is arduous for institutions.

 The amount of student level information to be tracked by the Federal Government should be the decision of Congress and not subject to the whims of the Administration.  If Congress believes that certain student level data would be help for program evaluation, then it can pass appropriate legislation.

While NASFAA supports the repeal of the student unit record ban, this piecemeal approach to obtaining student level data as a way to get around the ban is complicated, burdensome, and disingenuous.  

Other rules we encourage the Department to include on the negotiating agenda are related to default-prevention plans and cohort default rate appeals.  Currently, default prevention plans approved by the Department are required for schools with a one-year CDR of 30 percent or more.  We'd like an option for schools to use a Department approved default prevention plan in cases where the default rate is not as high as 30 percent, but is still cause for concern.  This would allow the schools to aggressively tackle the issue before their rate reaches the 30 percent mark.  For example, the Department could extend the option of a default prevention plan when a school's default rate is above a certain percentage for two consecutive years or if a school's rate increases by a certain percentage from one year to the next.

To mitigate workload issues at the Department, there could be a set of approved default prevention practices that a school could undertake if it meets the established criteria.  The school would be required to notify the Department of its practices, but would not be subject to an approval process.  Establishing a new framework for default prevention plans would assist schools that are struggling with their default rates, but lack sufficient tools to significantly improve them.  Thank you for your time.

MS. McLARNON:  Thanks, Karen.  The next speaker is Alexis Goldstein from The Other 98%.

MS. GOLDSTEIN:  Hi, everyone.  Thank you for giving me the opportunity to talk to you today.  My name is Alexis Goldstein.  The Other 98% is my day job and I'm actually here as a member of the group Strike Debt!  And I would like to submit three proposals for the new Negotiating Committee's consideration.

First and most importantly, I propose that you end all federal funding to for-profit schools.  The for-profit model has been tried and it has failed.  It has led to predatory behavior, lawsuits, and deceit.  I am suggesting that you end all federal loans, Pell Grants, and any other form of government assistance to for-profit schools.  

Short of that, my second suggestion is at the very minimum the GI Bill should no longer count towards the 90-10 rule.  Including GI Bill money in the 90-10 rule has led to the predatory targeting of veterans by for-profit institutions. 

Apart from that, my final recommendation is, because we are in the midst of a student debt crisis, the Department of Education should be expanding its debt forgiveness, not capping programs that already exist.  So I'm asking you to reject the President's proposal in his 2015 budget to cap the public service loan forgiveness program.

But the main reason I'm here today is to talk to you about Corinthian College.  There are a lot of students that we are in touch with who wanted to be here today to tell their stories, but many of them are working minimum wage jobs 60 hours a week and simply do not have the time to come to a hearing in the middle of the day on a weekday.  

But one of them, Heather Wright, who is an Everest College student, told me, "Everest lied about my degree and how much I'd be making, what kind of job I can get into, and I was suckered into applying for a Genesis Loan which is the loan program that the Consumer Financial Protection Bureau has entered into a lawsuit about."

Another Everest student named, Jeffrey Holman, who has written a very long letter which I would love to give you at the end of my testimony wrote, "I was targeted by Everest as an unemployed person and someone who was down on their luck."  He also wrote that,  "Calling the school has been a job.  There have been times of sitting on the phone for hours only to be disconnected."  Jeffrey had to withdraw for a term because of an extensive back and forth that he had with the school.  He wanted to drop a credit.  They wouldn't let him.  So he withdrew for a term and this led to the loss of his scholarship as after his withdrawal he was considered a new student even though he had been at Everest for five years.

Jeffrey wrote, “I feel like a fool; Only two terms away and now this.  I was in a race against time as I am older and not in the greatest physical health and I did not want to be on Social Security.  But this stress, the public's view of those attending Everest College, along with how employers may look at applicants from this college does not do anything for one's self confidence."

I came into contact with these and other students through my work with Strike Debt!  And you may have heard we got some coverage in the Washington Post and NPR and other outlets that Strike Debt! recently used crowd-funded money through our nonprofit arm, the Rolling Jubilee, to buy and abolish almost $4 million in Everest College tuition receivable that we bought in the secondary debt market.  We then erased that debt and sent out certified letters to the students who had their debt erased.

Now we recognize that this is only a very, very small step and that we only relieved part of the debt burden for the over 2700 students affected, but it was a step.  And I would like to stress that at Strike Debt! we are all volunteers.  We have full-time jobs.  Some of us are law students.  We make time to do this, but no one has paid for the work that we do currently.  And I continue to be baffled by the fact that a small group, a scrappy nonprofit, a scrappy Occupy offshoot and a small group of volunteers has so far been able to provide more debt relief to Everest and Corinthian College students than this very powerful Department with over $65 billion in budget, especially when this Department has the statutory power to provide such relief under the Higher Education Act.

The Department is not helping Corinthian students currently.  Instead, through the unwinding process, you are essentially acting as their debt collector, even as they face lawsuits and investigations from the SEC, the CFPB, State Attorneys General, just to name a few.

So why not instead provide immediate relief to the victims of Corinthian's abuses?  You have said that you seek to protect students.  If that is truly your goal, then make all Corinthian debt eligible for discharge, not just those at the schools that have closed.  And why not go even further and properly utilize your powers under the Higher Education Act and affirmatively erase all federal student debt of past and present Corinthian students?

We at Strike Debt! have talked to many Corinthian students and they have a lot of questions.  Corinthian is not giving them any information at all and they asked me to stress that to you, that they have no information.  They have questions that range from what happens if we don't have a buyer for Corinthian by the end of December to what happens to my degree?  They have no idea what's going on and my question is, is there and, if there isn't, why isn't there a Department of Education hotline for Corinthian students?  Why isn't the Department of Education proactively reaching out to Everest students at schools that have been closed and telling them this is how you can apply for a discharge of your debt?

  It should not take a scrappy group of volunteers from Strike Debt! to get Corinthian students answered and we would like to ask you to step up.  

More importantly, I would like to ask where the decisive action is to end federal funding to Corinthian in light of its clear and repeated abuses.  According to an article from Bloomberg, dated September 26th, this Department and Corinthian reaffirmed that Corinthian remains eligible for federal student aid.  My question is why?  Why hasn't the Department of Ed ended Corinthian's eligibility for federal student aid or stopped enrollment in this predatory institution entirely?  

Senator Dick Durbin has asked the same question in a June statement that called for an immediate end to enrollment of students at Corinthian.  A wind down of a for-profit school of this size has never been done before and it's an incredible opportunity.  Every action you take will build tremendous precedent.  So I'm here today to ask you to keep in mind the students first, to stop acting as Corinthian's debt collector, and to do right by these students who have been conned, who are very confused.  They are desperate.  They are burdened with debt and all because they had an ambition for a better life.

I'm asking you to use your powers under the Higher Education Act to erase all the federal student loan debt of past and present Corinthian students and I thank you for your time.  And thank you for listening and I would love to hand you this letter from Jeffrey, if I may.

MS. McLARNON:  Thank you, Alexis.  The next speaker is Justin Habler from the U.S. Student Association.  Is Justin here?  He does not appear to be here, so we'll move on to the next speaker, Satvika Neti from the Center for American Progress.  Satvika also does not seem to be here.

And that is the extent of our sign-ups for the first hour.  We are awaiting Mary Lyn's arrival.  So I suggest we take a break and stay close and as soon as Mary Lyn gets here, if you stay in the immediate area, we'll let you know when she arrives.  Thank you.

(Whereupon, the above-entitled matter went off the record at 1:23 p.m. and resumed at 1:36 p.m.)

MS. McLARNON:  Thanks for your patience.  Mr. Justin Habler has joined us from the United States Student Association.

MR. HABLER:  Good afternoon.  My name is Justin Habler.  And I'm here to speak on behalf the United States Student Association and our 1.5 million student members across the country, as the legislative director.

However, I am not just the legislative director of the United States Student Association.  I am also a student borrower myself, someone who is nearly $10,000 in debt and someone who ends their grace period end of this month only eight days away.

As a graduate with student loan debt, I know how moving the issue of repayment plans can be.  With my debt load, I actually happen to be one of the lucky ones.  At least I have a degree to show for it, as opposed to some such as Corinthian students who are not only saddled with huge debt, but additionally do not have a degree or on a path what would be called gainful employment but some others might just call a job.

In virtue of their struggles, USSA is urging the Department to ensure that all Corinthian students procure the ability to discharge their federal and private student loan debt.  Aside from the issue of Corinthian students, USSA is also adamantly calling for the maintenance of public service loan forgiveness, the simplification of enrollment, expansion of eligibility, preservation of both the 10 percent income cap and the 20 year maximum payment period for PAYE.

In regards to enrollment, it tends to be the case that students are simply incognizant of their available payment options.  It's so complicated and complex, what even seems to be a simple email to a member of, say, the Department of Education, may seem like an arduous and demoralizing exam since students are overwhelmed by the very idea of paying back thousands of dollars of student loan debt.

What needs to be done is increased outreach to students who have debt.  It should be the case that information is handed out to students on line, in their physical mailbox, as well as in their classroom.  Coming from a recent graduate of only four months, I can tell you that not all students consistently check their emails, especially while taking on a full-time course load.  Hence, we suggest issuing guidance to incite continuous and consistent outreach to students in classrooms, mandatory exit counseling, and their repayment options as a prudent choice the Department should make.

Additionally, it is utterly crucial that the Department maintain the public service loan forgiveness program and its provisions of forgiving student debt after ten years of service, as well as the lack of student loan forgiveness cap.  Furthermore, we ask that you all issue guidance surrounding raising awareness for this program as previously mentioned in classroom outreach.  

As for the expansion of PAYE eligibility, this is something that so many borrowers struggle with, something that can literally change the trajectory of lives and consequently this country.  For this, we strongly recommend the elimination of the new borrowers' requirement in conjunction with the removal of the partial financial hardship requirement, the amount of borrowers able to better finance their student loans will undoubtedly contribute to a thriving American economy where more and more graduates can now consider buying houses, cars, and the different facets of the American Dream that keep our country strong.  

Lastly, USSA is calling upon the Department of Education to continue the benefits of a 10 percent income cap as well as a 20 year maximum repayment period for the beneficiaries.  

As you have heard before, and you will irrefutably hear again and again until it is no longer the case, USSA believes that education is an inalienable right, not a circumstantial privilege.  In order to gradually instantiate such an ideal, the Department of Education simply must continue these benefits for hopes of providing education as the great equalizer and not a financial burden.  Thank you for your time.

MS. McLARNON:  Thank you, Justin.  I'm going to ask again if Satvika Neti is in the room?  She is scheduled to speak.  No?  Ok thank you, we'll again wait for Mary Lyn.

(Whereupon, the above-entitled matter went off the record at 1:40 p.m. and resumed at 2:20 p.m.)

MS. McLARNON:  Okay, thanks for your patience.  Mary Lyn Hammer.  She is the President of Champion College Services who will now testify.

MS. HAMMER:  Thank you.  My name is Mary Lyn Hammer and I'm the President and CEO of Champion College Services.  We've been in business 25 years this year.  And we do default prevention for student loans.  We specialize in the high-risk students and most of our clients are in inner-city schools.  We have everything from beauty schools to law schools and everything in between.  We have a pretty big diversity in what we deal with on a daily basis. 

And I'm going to primarily talk about the high-risk students, but I just want to point out that there's a big diversity and there's a big difference between those students who grow up in an atmosphere where good credit is a habit that's passed down from generation to generation and those students where good credit is a life-changing experience for them.  And it can be that for some people, it can change their entire destiny.

And I did a lot of research to try and get something in writing that would give a good parallel to what these people are like and what their habits are like because a lot of times we're on the phone with these students and they've never even had a checking account.  And making the payment on their student loan involved making a trip down to Circle K to get a money order or they go in and pay cash.  And so it's not as easy as getting a bank draft because nobody in their family has ever had a checking account.

When I was still at the school I used to have people that would come in with their checkbook and their coupon book and they would be like okay, what do I do?  And there were some people that came in every month and did that.  It's like, well, you do the same thing you did last month, you know?  So they're different, but they're very proud and they're very proud to have their education and you know, when you educate them properly, it is a life-changing experience.  

And the first time that we had the gainful employment informational data, I did a comparison of our students to like programs and like schools in the industry and we were not-- 15 percent of what the other schools were, we were actually on average 15 points higher in repayment rates than the other schools.  That just shows that we're not teaching them to be dependent on us.  We're teaching them to form good habits.  A lot of that is in making good decisions about their repayment schedules because you want them to choose something that's going to give them long-term success, not just during a cohort window.  You want it to be for the life of the loan.  That's what serves them best.  That's what serves the fiscal interest best.

So the best parallel is subprime ARM loans.  And before I did school loans, I was in the mortgage lending industry in Texas when the oil market crashed, so I was very familiar with the foreclosing on ARM loans because that's what we did then.  It's the same thing we've done in the last few years.  And the subprime ARM loan borrowers have very, very similar patterns.  So, some of the patterns there are that they've likely been turned down for credit in the last few years.  They hardly ever pay off their credit cards.  They utilize a higher share of credit card availability, on average, 80 percent of what they have available, they use.

They consider it normal to use credit when they lose their income and that's happened.  That's their bubble that we have right now is that that's what's happened over the last few years in our bad economy is that they used credit going to school because they lost their income.

Let's see.  There's also the factor of the variable interest rates and that's one of the main points that I want to get across today is that for these students, a variable interest rate puts them at very, very high risk of default.  I'm not sure I'm going to get all these names right but Buist and Yang, 2000, linked higher interest rates with higher default rates through an increasing payment burden and conclude that interest rate volatility can worsen ARM default risk.  Ambrose, LaCour-Little and Huszar, 2005, find relatively high rates of default among ARM borrowers which they attribute to the payment shock that often affects adjustable rate loans.  

And we all know that interest rate's going to go up and you know it's probably not going to be that long in the future and we're going to see a ton of kids defaulting on their loans when that happens.  They -- even the kids that are making good money, they usually spend everything they make.  There’s very few people that put money aside.  And that includes people that are making over $100,000.  There's very few people that put money aside.  So that increased payment puts them at very high risk.

For that reason, the graduated repayment schedules, I think we should just get rid of it.  That's my opinion.  If you ever look at -- you can go online on the federal site and do payment examples with income examples and the amount of where it starts at and where it ends, like it will start at $70 and end at $584 a month and that's crazy to have that big of a swing.  The ICR IBRs are a little bit more normalized and I think that covers the gamut of what everybody needs.  I think the graduated repayment schedule sets anybody that has it up for failure at some point.

For the ARM loans in 2007, they only represented 6.8 percent of mortgages, but they represented 43 percent of the defaults.  And the same thing is true in the student loans.  So it has a big, big influence on the default rate.  And going through the whole mortgage loan bubble, more than four times the default rates doubled on those ARM loans as opposed to fixed rate loans.  So any time you can give them a stable payment it's always in their best interest. 

The other thing that they found in the mortgage loan bubble is they called it a willful disregard for the student's ability to pay, and that goes back to schools not having the ability to say no.  You know when you know that they're not going to be able to pay and you know that these people have no problem borrowing money when they lose their jobs, that sets everybody up for failure.  It sets the students and the school and the taxpayers up for failure.  So the schools need to have the ability to say no and help them make good choices for themselves when they don't do it for themselves.

And then the difference in default rates over the years on subprime fixed versus subprime ARM is 12 percent fixed to 43 percent variable rate.  That's a big difference and I think it's a big contributor to our rising default rates in this country for student loans as well.

So in looking at expanding the program, there are several things that I have big concerns with in this program.  One is the variable rate because, like I said, it sets them up for failure and the other thing is the amount of loan that is forgiven in the end.  And I'm going to use two-year private, not for profit institutions and the income that I used was from the informational gainful employment rates from 2012.  I took the income from that, from those programs and got the average income which ended up being $16,756.  I went on to the federal site and I got the average loan balance of $13,356.  I added 3 percent cost-of-living increase for 20 years.  It's forgiven at 20 years and the total that the student, according to the federal site under Pay As You Earn, the total the student would pay was $7,040.  Now the original loan debt was $13,356.  The total forgiven is $16,734, $3,000 more than what they took out.  And then they have to pay taxes on it.  So at 3 percent cost of living increase, I got their income at 20 years based on that.  It might be a little higher, might not, but I used 3 percent cost of living.  The tax liability would be almost $3800.  So if they could only afford to pay $7,040 over 20 years, how are they going to make a balloon payment to the IRS of almost $4,000?   And they don't have deferments and forbearances at the IRS.

So as the programs go up in length, the incomes go up and this isn't the case like in four-year degrees or higher degrees.  This is the case on the lower-income students.  And I think it needs to be addressed either through not having a tax liability, not letting the loan balance go beyond what it was in the first place, something that protects the student because they're not going to have that IRS money and that would devastate a family because in 20 years, you've got kids in school and you've got a family.  And you don't have $4,000 laying around, not these kids.  So that's my main point that I wanted to get across.

And then I had a couple of additional things.  One of them was here are the graduated repayment fees. We really discourage our kids from taking that out.  And then I think we need to look at designing a program for those high-risk students. And I've done a lot of research about microlending and they do a lot of this over in the Middle East, Bangladesh and countries like that.  What they found is when you start the payments within one to two weeks of when the loan is taken out and you do it in smaller chunks, they have a 95 percent repayment rate.  That's awesome.  And they make weekly payments.  So if we could design something like that for our students where they make weekly payments and it starts early -- the six months, the idea behind it is good, but out of sight out of mind and it creates bad habits.  So that's some of my suggestions.

And I just have one other point to make in rebuttal to some of the things that happened this morning which I've just heard about.  I just want to remind everybody that the Secretary is the only person, so to speak, that has the authority to grant deferments and forbearances.  The schools do not.  And the loan servicers work on their behalf.  They have the ability to say no if a student doesn't quality for it.  The schools do not have that ability.  The schools are required by law and in regulation to educate the student to what their options are if they can't pay.  And to say that educating them about what they could do over the last few years especially in the economy that we had, a lot of people lost their jobs.  And if they exercise their unemployment benefits, that's what it's there for.  And you know, to say that that's all about the schools is kind of crazy and then I want to remind you that there's a lot at stake for the loan servicers because their portfolio, what they get in their portfolio is dependent in part on their default rate.  And the swing for Sallie Mae and Nelnet was in the half a million student range from one year to the next when they switched positions in their rankings.  They have a lot to gain and lose. So solely picking out certain schools, maybe there are some that abuse it, but not everybody and don't throw the baby out with the bath water.  There's a lot of good schools.  

I just did this whole database research on the default rates, 48.3 percent of the proprietary schools are under 15 percent default rate.  There were 828 schools.  So there's a lot of good schools out there.

Thank you.

MS. McLARNON:  I am going to make one last call for Satvika Neti.  And another last invitation for those either scheduled or who are not scheduled if you'd like to make remarks or add to remarks you made earlier in the day before we adjourn temporarily.

That said, we'll adjourn now until 3:30.  We are scheduled to run until 4 o'clock and that will give anybody who does come, walk in or perhaps Satvika, as she was not able to be here during her scheduled time to testify.  So we will re-adjourn here at 3:30 this afternoon.  Thank you.

(Whereupon, the above-entitled matter went off the record at 2:16 p.m. and resumed at 3:32 p.m.)

MS. McLARNON: Thanks for joining us once again. It's 3:30. The hearing does last until 4 o'clock. So we'll give it one more, another half an hour. I did want to make one last call for Satvika Neti. Is she in the room? Or he in the room? No. Okay. Anybody from the audience who is new to the hearing who would like to make any remarks? Okay. None.

Well I think we'll just hold tight here until 4 o'clock and if someone does come and wish to testify, we'll be happy to hear them.  Thanks for your patience, everybody.

(Whereupon, the above-entitled matter went off the record at 3:32 p.m. and resumed at 4:01 p.m.)

MS. McLARNON:  To the few remaining folks in the room, thank you for sticking with us until 4 o'clock.  Most of you are Department people.  And to those in the room who aren't, your testimony, as always, will be very helpful to us going forward as we plan for our next negotiated rulemaking in the winter.  Thank you very much.

(Whereupon, the above-entitled matter went off the record at 4:01 p.m.)

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