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S. HRG. 113–548 

FINANCIAL PRODUCTS FOR STUDENTS: ISSUES 

AND CHALLENGES 

HEARING 

BEFORE THE

COMMITTEE ON 

BANKING, HOUSING, AND URBAN AFFAIRS 

UNITED STATES SENATE 

ONE HUNDRED THIRTEENTH CONGRESS 

SECOND SESSION 

ON 

EXAMINING ISSUES RELATED TO FINANCIAL INSTITUTIONS AND POSTSECONDARY EDUCATION, INCLUDING PRIVATE STUDENT LOANS, STUDENT LOAN SERVICING, STUDENT LOAN DEBT COLLECTION, AND REFUND BALANCE CARDS 

JULY 31, 2014 

Printed for the use of the Committee on Banking, Housing, and Urban Affairs 

( 

Available at: http://www.fdsys.gov/ 

COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS 

TIM JOHNSON, South Dakota, Chairman 

JACK REED, Rhode Island 

CHARLES E. SCHUMER, New York 

ROBERT MENENDEZ, New Jersey 

SHERROD BROWN, Ohio 

JON TESTER, Montana 

MARK R. WARNER, Virginia 

JEFF MERKLEY, Oregon 

KAY HAGAN, North Carolina 

JOE MANCHIN III, West Virginia 

ELIZABETH WARREN, Massachusetts 

HEIDI HEITKAMP, North Dakota 

MIKE CRAPO, Idaho 

RICHARD C. SHELBY, Alabama 

BOB CORKER, Tennessee 

DAVID VITTER, Louisiana 

MIKE JOHANNS, Nebraska 

PATRICK J. TOOMEY, Pennsylvania 

MARK KIRK, Illinois 

JERRY MORAN, Kansas 

TOM COBURN, Oklahoma 

DEAN HELLER, Nevada 

CHARLES YI, Staff Director 

GREGG RICHARD, Republican Staff Director 

LAURA SWANSON, Deputy Staff Director 

JEANETTE QUICK, Counsel 

PHIL RUDD, Legislative Assistant 

GREG DEAN, Republican Chief Counsel 

JARED SAWYER, Republican Counsel 

DAWN RATLIFF, Chief Clerk 

SHELVIN SIMMONS, IT Director 

JIM CROWELL, Editor 

(II)

C O N T E N T S 

THURSDAY, JULY 31, 2014 

Page 

Opening statement of Chairman Johnson ............................................................. 1 

Opening statements, comments, or prepared statements of: 

Senator Crapo ................................................................................................... 2 

Senator Moran .................................................................................................. 3 

WITNESSES 

David A. Bergeron, Vice President for Postsecondary Education Policy, Center 

for American Progress ......................................................................................... 5 

Prepared statement .......................................................................................... 31 

Responses to written questions of: 

Senator Reed .............................................................................................. 49 

Christine Lindstrom, Higher Education Program Director, U.S. Public Interest Research Group .............................................................................................. 6 

Prepared statement .......................................................................................... 37 

Kenneth Kocer, Director of Financial Assistance, Mount Marty College, 

Yankton, South Dakota, and President, South Dakota Association of Student Financial Aid Administrators ..................................................................... 8 

Prepared statement .......................................................................................... 39 

Responses to written questions of: 

Senator Reed .............................................................................................. 49 

Richard Hunt, President and Chief Executive Officer, Consumer Bankers 

Association ............................................................................................................ 10 

Prepared statement .......................................................................................... 42 

Responses to written questions of: 

Senator Reed .............................................................................................. 50 

ADDITIONAL MATERIAL SUPPLIED FOR THE RECORD

Letter from Kansas State Universities submitted by Senator Jerry Moran ...... 52 

Statement submitted by Americans for Financial Reform ................................... 54 

Statement submitted by The Institute for College Access and Success .............. 57 

Statement submitted by the Center for Responsible Lending ............................. 179 

Statement submitted by the American Bankers Association ............................... 184 

(III)

(1) 

FINANCIAL PRODUCTS FOR STUDENTS: 

ISSUES AND CHALLENGES 

THURSDAY, JULY 31, 2014 

U.S. SENATE, 

COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS, 

Washington, DC. 

The Committee met at 10:02 a.m., in room SD–538, Dirksen Senate Office Building, Hon. Tim Johnson, Chairman of the Committee, presiding. 

OPENING STATEMENT OF CHAIRMAN TIM JOHNSON 

Chairman JOHNSON. Good morning. I call this hearing to order. 

Financial institutions play a role in higher education in many 

ways, from private student loans to student loan servicing, debt 

collection, and campus banking. Student loan debt is currently $1.2 

trillion and continues to be the largest form of consumer debt in 

the country after mortgages. This issue is especially important to 

me, as my home State of South Dakota has a higher percentage of 

students graduating with debt than any other State in the country, 

at nearly eight in ten students. 

Rising student loan debt affects everyone and undermines our 

economic recovery. Increasing numbers of Americans with student 

loan debt are putting off buying a home, starting a business, and 

saving for retirement, and high student loan debt makes it harder 

for students to stay in rural communities like South Dakota. 

While the level of student loan debt is significant, equally significant are the level of delinquencies and the options for borrowers in 

repayment. Recent data shows that nearly one-third of borrowers 

are delinquent and borrowers are entering delinquency faster than 

before the financial crisis. The CFPB has found that borrowers are 

unable to obtain affordable repayment options and have difficulty 

working with student loan services to correct payment errors. Last 

year, I held a hearing on this issue, encouraging lenders to work 

with borrowers to avoid default. 

A few months ago, the CFPB began overseeing large student loan 

servicers, which brings an estimated 49 million borrowers’ accounts 

under its watch. This is an important step. However, we saw in the 

mortgage crisis that responsible servicing is a critical component of 

loan management. 

Both the Education Department, as the originator of Federal student loans, and private student lenders have a duty to ensure that 

their loans are effectively managed every step of the way. This 

means making sure students have full access to information about 

2 

their loan options before taking on debt and providing affordable 

loan repayment, responsible servicing, and careful debt collection. 

Financial institutions have also partnered with a number of 

higher education institutions to offer debit and prepaid cards to 

students, sometimes as a means to facilitate Federal student loan 

refunds. I look forward to hearing more about these arrangements, 

including what impact these relationships may have on students. 

With that, I turn to Ranking Member Crapo. 

STATEMENT OF SENATOR MIKE CRAPO 

Senator CRAPO. Thank you, Mr. Chairman. 

Beginning the path to higher education is filled with great excitement and opportunity for students across the country. However, 

students are faced with financial questions they might not have 

considered until this point, such as how they will pay for college, 

whether they should finally open a bank account, and how they 

will budget their money. 

Banks and credit unions throughout the country serve an important role helping students sort through these financial issues in 

this new chapter in their lives, and many entities provide financial 

literacy tools to help students improve their understanding of the 

financial burdens they are about to undertake. 

Today, I will focus on two issues that impact students and their 

financial institutions in the higher education market. First, in the 

student loan market, both Federal and private, there has been a 

growing field of research focused on the high student debt burden, 

now roughly $1.2 trillion, as the Chairman indicated, and its impact on the financial opportunities and decisions of recent college 

graduates. 

Recently, the CFPB noted that the Federal Government’s share of outstanding total student debt topped $1 trillion for the first 

time, roughly five times higher than existing private student loan 

debt. I share my colleagues’ concerns about the negative impact of 

high student debt on the financial lives of recent graduates. I also 

have concerns about the significant and increasing role of the Federal Government in this market, which ultimately leads to excess 

exposure for U.S. taxpayers and diminished student borrowing 

choices. 

The factors we should be focusing on are the rising cost of college 

and failure to inform students properly about the loan repayment 

process before starting school. Since 1974, the cost of college has 

risen roughly 350 percent. There have been relatively few market 

forces to keep costs down, as students can borrow up to the cost 

of attendance for an undergraduate program and take out almost 

unlimited Federal loans in graduate school. 

Students are not adequately educated about the impact their borrowing will have on their life after graduation. It is unclear if students have the proper information to compare loan types, earning 

potential for different career choices, and what their monthly payments will look like when they graduate. These issues should be 

addressed before a student ever receives a loan. 

The second issue I would like to discuss today is the Department 

of Education’s proposed rulemaking for the Federal student loan 

disbursement process, an issue that has received bipartisan attenVerDate Nov 24 2008 09:15 Dec 21, 2015 Jkt 046629 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 L:\HEARINGS 2014\07-31 AM FINANCIAL PRODUCTS FOR STUDENTS - ISSUES AND CH
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tion. As drafted, the proposal would impact student accounts that 

are completely unrelated to the Federal student loan disbursement 

process, which may cause unintended consequences for students 

and colleges and universities. 

With the proposed rule, the Department of Education creates an 

indirect back door regulation of bank products, requiring them to 

alter features for accounts that may never be used by a student to 

receive a student loan disbursement. Unfortunately, this could 

force banks and credit unions to simply exit campus markets, leading to diminished student choice, restricted convenience, and more 

unbanked young people. As the Department of Education moves 

forward, it must work with the prudential banking regulators to 

understand the compliance challenges its rule may introduce and 

the negative impact it could have on the supervision of banks and 

credit unions. 

There is no doubt the financial challenges associated with higher 

education today can be daunting for students. I look forward to 

hearing from our witnesses about how we can improve our student 

financial options, convenience, and financial literacy. 

Thank you, Mr. Chairman. 

Chairman JOHNSON. Thank you, Senator Crapo. 

Are there any other Members who would like to give a brief 

opening statement? 

Senator MORAN. Mr. Chairman? 

Chairman JOHNSON. Senator Moran. 

STATEMENT OF SENATOR JERRY MORAN 

Senator MORAN. Mr. Chairman, thank you very much. I would 

ask unanimous consent that a letter that I will submit to you from 

the seven Regents institutions in Kansas be made a part of the 

record. 

Chairman JOHNSON. Without objection. 

Senator MORAN. Thank you. 

Mr. Chairman, let me just for my opening statement highlight, 

and it is the last part of what Ranking Member Crapo was indicating. Our seven Regents Universities in Kansas—Emporia State, 

Fort Hays State University, Kansas State University, the University of Kansas, Pittsburg State University, and Wichita State University—are all expressing concern, while they support the general 

concepts of the direction the regulations, the rulemaking is going. 

The particular issue that Senator Crapo just mentioned in regard 

to other accounts is a significant issue for them and for their students. 

The letter basically indicates that they agree with the Department’s stated objectives, to ensure that students have safe, convenient, and free access to credit balances in their accounts. They want 

to raise the issue in regard to the regulation that would, quote, 

‘‘regulate any arrangement under which a student opens or is referred to open a financial account into which Title 4 HEA program 

funds may be deposited.’’ Such a regulation could be interpreted to 

cover any account held by the student or parent if the financial institution had any arrangement, however informal, with that school, 

and regardless of when and why the student or parent opened the 

account with that financial institution. 

4 

That would have a chilling, and in some cases terminal, effect on 

good business partnerships that currently benefit students and universities alike. Students, often far from home, need access to safe 

and secure financial services. Financial experience is a necessary 

part of student life and is essential training in their long-term financial health. Knowing this, many schools have signed agreements with banks to provide on-campus financial institutions at 

low or no cost to students. Such services include secure on-campus 

branches, ATMs, debit cards, and financial education programs. 

Any regulatory action that could potentially take away students’ 

safe, convenient, and free access to one group of essential services 

while it simultaneously drives up the cost of education for that 

same group of students deserves to be studied with extraordinary 

care. 

I would ask that, as I said, the letter be made part of the record, 

and I hope the witnesses will address the concerns that I have 

raised. 

Thank you very much, Mr. Chairman. 

Chairman JOHNSON. Thank you. 

I would like to remind my colleagues that the record will be open 

for the next 7 days for additional statements and any other materials you would like to submit. 

Now, I will introduce our witnesses. David Bergeron is Vice 

President for Postsecondary Education Policy at the Center for 

American Progress. 

I recognize Senator Warren to introduce our next witness. 

Senator WARREN. Thank you, Mr. Chairman. 

I would like to introduce Christine Lindstrom, the Higher Education Program Director for U.S. PIRG Student Chapters. Ms. 

Lindstrom is a 14-year veteran of the Student PIRGs and she now 

works with a PIRG chapter to organize campaigns across the country for more affordable, more accessible higher education. Her work 

has helped make college more affordable for American students, 

whether it is pushing for reforms through the College Cost Reduction and Access Act or advocating for lower-cost textbooks. 

So, Ms. Lindstrom, it is good to have you here today. Thank you 

for coming. 

Chairman JOHNSON. Kenneth Kocer is the President of the South 

Dakota Association of Student Financial Aid Administrators and 

Director of Financial Assistance at Mount Marty College in 

Yankton, South Dakota. Ken, I thank you for traveling all this way 

from South Dakota to testify before us today. I know you have been 

in the financial aid sector for almost 25 years and I look forward 

to hearing more about your expertise in helping students make 

smart decisions across South Dakota and the country. 

Richard Hunt is President and CEO of the Consumer Bankers 

Association. 

I thank you all for being here today. I would like to ask the witnesses to please keep your remarks to 5 minutes. Your full written 

statements will be included in the hearing record. 

Mr. Bergeron, you may begin your testimony. 

5 

STATEMENT OF DAVID A. BERGERON, VICE PRESIDENT FOR 

POSTSECONDARY EDUCATION POLICY, CENTER FOR AMERICAN PROGRESS 

Mr. BERGERON. Thank you, Mr. Chairman, and thank you to the 

rest of the Committee for inviting me to be here today. 

We are at a critical moment of the year. Our young people are 

in the process of preparing to go off to college, many for the first 

time, and they are going to be dealing with issues that they have 

never had to deal with before, as was mentioned in a couple of the 

opening statements. 

And, when we think about that experience that our students 

have, it is different than the one we had. Today, 21.5 million students will be enrolling in our 7,500 institutions and 12 percent of 

them will be going online. You know, when I went to school, there 

was no such thing as online, never thought of anything like that 

happening. 

And, so, the student population is experiencing different things, 

and one of the things that is very different is the level of debt that 

they are taking on. Students graduating with a Bachelor’s degree 

in 2011–2012 graduated with $26,500 in student loan debt. That 

was an increase in just 4 years of 33 percent. Graduate students 

graduated with $55,600 in debt. That was an increase of 46 percent 

in just 4 years. 

And, while I worry a lot about the students who graduate from 

our institutions of higher education, the level of debt they are taking on, I also worry, and probably worry more, about students who 

are taking on debt and are failing to graduate. And, 10 percent of 

the students who drop out from our institutions reported debt levels of $33,000 or more. That has to be a concern. 

I am also concerned about the students who take on a mix of private and Federal loans, and I point out in my testimony the difference in borrowing levels for those students who take on both private and Federal loans. It is much higher. It is much more concerning. And this affects, as several of you indicated in your statements, the life choices that students can make—whether they form 

a household, whether they buy a car, whether they buy a house, 

whether they start a small business. So, we know that there are 

concerns, and legitimate concerns. 

Some people argue that this is not new. You know, there is a recent study by another organization that said things have really not 

changed, and I would assert they really have changed, because the 

authors of the study, I think, discount one of the findings, and that 

is the length of time that it takes to repay student loans. They say 

that it went from 7.4 years or 7.5 years to over 13 years. That is 

a huge impact on a family’s ability to save for retirement, for their 

own children’s college education. And, so, we need to pay particular 

attention to that. 

The Center for American Progress has indicated very strong support for doing something about refinancing student loans, both Federal and private, and we believe that that is a critical issue and 

one that we need to address. 

We have also indicated that there needs to be some reforms in 

the bankruptcy protection that is afforded to student loans, both 

Federal and private. Private and Federal student loans are not disVerDate Nov 24 2008 09:15 Dec 21, 2015 Jkt 046629 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 L:\HEARINGS 2014\07-31 AM FINANCIAL PRODUCTS FOR STUDENTS - ISSUES AND CH
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chargeable in bankruptcy currently today. That is something that 

exists for nearly all other borrowers in our economy, whether small 

businesses or individuals, and it really needs to be rethought so 

that students who enroll in programs that were of high quality but 

where the industry they were seeking to enter disappears because 

of changes in technology or the economy should not have that hamper them permanently and hamper them in ways that prevent 

them from being able to do the things that they need to do for their 

families or to improve our society by starting small businesses. 

I would like to talk for a minute about the issue of student loan 

servicing. I tell the story in my written testimony of the development of state-of-the-art world class regulations for servicing debt in 

the 1970s, and clearly, things have changed since the 1970s and we 

really need to update the way that we service and handle our student loan portfolios, whether they are Federal or private. We need 

to really improve those and develop and implement state-of-the-art 

tools. 

With that, I am happy to answer any questions that you have 

when you get to that point in the hearing. 

Chairman JOHNSON. Thank you. 

Ms. Lindstrom, please proceed. 

STATEMENT OF CHRISTINE LINDSTROM, HIGHER EDUCATION 

PROGRAM DIRECTOR, U.S. PUBLIC INTEREST RESEARCH 

GROUP 

Ms. LINDSTROM. Thank you, Chairman Johnson and other distinguished Senators, for giving me the opportunity to speak. Once 

again, I am Chris Lindstrom with the U.S. Public Interest Research Group. 

The topic of today’s hearing is broad, so I will focus my remarks 

on issues that U.S. PIRG has been actively tracking and promoting, 

specifically in the campus banking space, which has come up in 

several Senators’ introductions. 

Since 2007, we have worked to ensure that students are protected from tricks and traps that are layered into high-cost products like campus credit cards, private student loans, and campus 

bank accounts and debit cards. Right now, students are being hit 

with high fees that are hard to avoid as they try to access their 

Federal aid refunds through campus-sponsored bank accounts and 

prepaid debit cards. 

We found in our 2012 report, ‘‘The Campus Debit Card Trap’’, 

that two in five student students in the country are exposed to 

debit cards on campus that may drive up their costs. Students at 

some campuses are charged steep and unusual fees to get to their 

Federal financial aid, including PIN transaction fees at the point 

of sale, overdraft fees at $37 or more. On the whole, these accounts 

are not necessarily a better deal for students than what they might 

find through a bank not affiliated with the campus. 

Still, industry leading banks and financial firms can see 40 to 75 

percent of students on a campus using the campus bank product 

after—a campus-based product after a few years of marketing. So, 

how do they do it? 

First, banks and financial firms behind these products often rely 

on multimillion-dollar revenue sharing agreements with campus 

7 

administrations. The contracts include receiving direct payment to 

use the school’s logo, providing bonuses for recruiting students, and 

discounted pricing in exchange for marketing access. 

In addition, they use push marketing and other strategies to 

steer students into opening up these new accounts over using their 

existing bank accounts. Higher One, a prominent financial firm in 

this market, premails a card to every student on campus before 

they have opted in or out. The cards are cobranded with the college 

logo, giving the impression that the student must open the account. 

At another college, bank representatives actually set up tables 

right outside the student ID office, essentially aggressively promoting their accounts that students can link to the student ID 

cards. Students can get freebies, like bags and T-shirts, for signing 

up. 

Finally, the fees can be high, as I mentioned, and unusual. Fees 

on university-sponsored cards include a variety of PIN swipe fees, 

inactivity fees, overdraft fees, ATM surcharges, fees to reload prepaid cards, fees to check your account balance. I could go on. The 

fees can be hard to avoid, for example, if a merchant only accepts 

PIN debit or there is no fee-free ATM available. 

All campus bank accounts and prepaid card services can charge 

overdrafts. Overdraft coverage is a form of credit, since the financial institution covers the consumer’s shortfall and is subsequently 

repaid the amount extended plus a fee. Some banks engage in the 

abusive practice of purposely reordering transactions to maximize 

overdraft fees. Many banks and financial firms that are playing on 

campus right now have been held accountable for their abusive 

practices in this arena. 

Overdraft fees are inconsistent with the Department of Education’s existing rules on school-sponsored accounts. Department of 

Education rules also require that students be provided convenient 

fee-free ATM access. In practice, access can be limited. 

One argument that is being made in defense of these campus 

banking products is that too many low-income students are not 

able to acquire a bank account other than on campus. These are 

the unbanked students. The Consumer Financial Protection Bureau found that less than half a percent of college students in 

America are legitimately unable to secure a bank account. So, a 

new student who comes onto campus without a bank account, she 

does not have one because she chose not to have one or she has 

not gotten one yet. Students do not need campus-sponsored bank 

accounts. 

So, I urge you to consider legislation that bans revenue-sharing 

agreements between colleges and banks or financial firms crafted 

specifically to offer bank accounts and related banking products to 

students on campus. The conflict of interest inherent in these accounts is problematic for the student consumer and it needs to be 

addressed. Thank you. 

Chairman JOHNSON. Thank you. 

Mr. Kocer, please proceed. 

8 

STATEMENT OF KENNETH KOCER, DIRECTOR OF FINANCIAL 

ASSISTANCE, MOUNT MARTY COLLEGE, YANKTON, SOUTH 

DAKOTA, AND PRESIDENT, SOUTH DAKOTA ASSOCIATION OF 

STUDENT FINANCIAL AID ADMINISTRATORS 

Mr. KOCER. Chairman Johnson and Members of the Committee, 

thank you for inviting me to testify this morning on the important 

topic of private education loans. 

At Mount Marty College, we actively promote the Federal Student Loan Programs for students as their first and best option 

when considering a loan to assist with educational costs, as do my 

colleagues across South Dakota. In particular, Financial Aid Administrators counsel students on the many benefits of the Federal 

Student Loan Program, including the availability of subsidized interest for certain borrowers, options for loan forgiveness, and multiple generous repayment plans. Beyond these benefits, the Federal 

Direct Loan Program also offers deferment and forbearance options, Federal consolidation opportunities, and in many instances, 

lower interest rates. 

Even with students being counseled to utilize and exhaust the 

Federal student loans available to them, some still find that they 

need additional resources. Private loans can fill the gap in certain 

cases by funding a student’s educational costs when Federal resources fall short. 

Institutions in South Dakota generally have a lower tuition rate 

when compared to other States, yet even we find that some students need to utilize private education loans. In surveying my colleagues throughout the State, as many as one-third of students on 

some campuses receive private education loans. 

I would like to share with you an example of the gap I described 

that may cause a student to utilize a private student loan in order 

to cover educational costs. Let us say an institution costs $18,000 

for tuition, fees, room and board, setting aside now any indirect 

costs, like books, transportation, and personal costs they may 

incur. If the student is not Pell Grant eligible, the only guaranteed 

Federal eligibility the student has as a first year dependent undergraduate student is a direct loan in the amount of $5,500. Going 

back to our $18,000 school, this leaves over $12,000 which the student would need to find a way to fund. Lacking parental support, 

this shortfall in Federal loan eligibility leaves a student looking to 

other options. For this reason, private student loans with proper 

consumer protections do fill an important need for some students. 

I would like to now briefly walk through the processing procedure for private student loans. It begins with the student selecting 

a private lender they feel best suits their needs. In South Dakota, 

a number of schools provide a site where the students can access 

a historical list of private loans that students at that institution 

have utilized in the past. Importantly, providing historical lists of 

private education loans is different than providing a preferred lender list, in which case the schools recommend specific lenders to students. A historical list displays features of different private loan 

programs, enabling students to make comparisons that hopefully 

lead to an informed decision. 

Once a student selects the private loan they wish to borrow, they 

apply for the loan directly through the private lender. The lender 

9 

approves the loan. The certification request is sent to the school. 

The school reviews the student’s educational cost of attendance and 

the financial aid resources that the student has already received, 

for example, Federal loans and grants, to determine the amount of 

the private loan for which the student is eligible. An appendix to 

my written testimony provides a specific example of this. 

By involving the school in the private loan certification process, 

it allows the school to track all borrowing the student is incurring 

and counsel the students on the overall amount of their loan debt. 

From an institutional perspective, we consider this a good practice, 

as it provides us with more information to assist in preventing students from over-borrowing. Through the process of certifying private loans, the school can ensure the student has not borrowed beyond the calculated cost of attendance. 

There are quite a few private lending institutions that currently 

utilize school certification as a prerequisite in determining whether 

the student is eligible for their private loan or not, but lenders are 

not required to do so. 

Having provided some context on private education loans, I 

would like to offer the following recommendations to improve the 

private loan process for all borrowers. 

Recommendation one is to require school certification for all private education loans. The current private education loan application process should be revised to continue to counter the impact of 

lender marketing and to assist in managing student over-borrowing. Replacing student self-certification with full school certification would give institutions the opportunity to ensure that a student is aware of the benefits of the Federal loans before a student 

commits to a potentially less favorable private loan. Additionally, 

by requiring that an aid administrator review the student’s remaining eligibility under the cost of attendance limits, we can help 

reduce unnecessary or inappropriate student borrowing. 

Recommendation two, provide one single Web site where students can see all their educational borrowing from the Federal, institutional, and private sources. SDASFAA supports NASFAA’s recommendation to create a universal loan portal for students. Congress should mandate the creation of a single loan portal where 

students can easily access information on all their student loans. 

This would allow all educational loans from the Federal Government, private lenders, and colleges and universities to be reported 

to one central data base. 

Students need an accessible one-stop shop where they can manage their student loans. Many borrowers have multiple loans with 

different loan holders that may be in various stages of repayment. 

Having a central Web site where students can view their access on 

all their loans would significantly help students as they manage 

their borrowing and repayment. 

The creation of such a resource could result from the expansion 

of the data collected by the National Student Loan Data System, 

NSLDS, which only partially serves the purpose at this time. 

Thank you for the opportunity to speak today, and I look forward 

to any questions you may have. 

Chairman JOHNSON. Thank you. 

Mr. Hunt, please proceed. 

10 

STATEMENT OF RICHARD HUNT, PRESIDENT AND CHIEF 

EXECUTIVE OFFICER, CONSUMER BANKERS ASSOCIATION 

Mr. HUNT. Chairman Johnson, Ranking Member Crapo, Members of the Committee, a very good morning. My name is Richard 

Hunt. I am President of the Consumer Bankers Association, a 

trade association for today’s leaders in retail banking. 

This hearing is most timely, as many of the Nation’s 21 million 

students are preparing to head for campus. The need for fair, clear, 

and transparent products for these students has never been more 

important. CBA’s members provide student loans and banking 

services to some of the Nation’s college students and their families. 

I appreciate the opportunity to offer insights on these products, 

services, and associated marketplaces. 

Before I address the topic of today’s hearing, we cannot ignore 

the real crisis facing students and their families, the rising cost of 

a 4-year college education. Since 1980, the average tuition for a 4- 

year degree has risen 1,100 percent, more than four times the rate 

of inflation. Over half of our college students need some form of financial need. We must make college more affordable or we allow 

this to snowball to the detriment of our Nation’s future leaders. 

We strongly believe in the pursuit of higher education. It is absolutely critical for economic mobility, the success of our Nation’s 

economy, and international competitiveness. We have a sacred 

bond with our students and play an important role as they begin 

their financial and professional futures by developing a good credit 

rating and aiding them in earning a college education. 

Private and Federal loans have a complementary role in helping 

students achieve their educational goals. However, private student 

loans are but a sliver of the overall marketplace. Today, 92 percent 

of all student loans are originated by the Department of Education, 

and they alone have over $1 trillion on their balance sheet. 

Unlike Federal loans, private student loan applications undergo 

a robust underwriting process based on a variety of factors, including, and most importantly, a determination of the borrower’s ability 

to repay the loan. Private lenders encourage the use of cosigners, 

resulting in lower interest rates for the student. Ninety percent of 

student loans have a cosigner. Since private student loans do not 

carry a Government guarantee, the lender bears the risk of loss, 

not the taxpayer. 

Private lenders have strengthened underwriting standards, resulting in remarkably lower delinquency and default rates. Just 

this week, a new report came out by MeasureOne that found that 

less than 3 percent of private student loans were 90 days or more 

delinquent—three percent. On the other hand, the Federal Loan 

Program has a current default rate of 14 percent, with some reports estimating more than 40 percent of the loans will be in default or become delinquent. 

We are committed to working with students one on one, utilizing 

every tool necessary, including restructuring, refinancing, and 

deferment. Private student loan lenders are required to provide disclosures at multiple times throughout the origination process. 

These urge students and their families to look at the Federal Loan 

Programs before opting for private loans. It is up to each borrower 

11 

to determine the right mix of Federal and private loans to meet 

their educational needs. 

In addition to the small but critical role in the student lending 

market, CBA members play an important role by offering basic 

banking services on campus, such as checking and savings accounts 

designed to meet students’ unique needs and help establish their 

credit history. In some cases, banks do partner with educational institutions to offer services, such as accounts linked to student ID 

cards, financial literacy programs, and assistance with financial aid 

systems. The accounts offered through negotiated agreements often 

have student-friendly fee structures, are fully and transparently 

disclosed, and are completely optional for students. 

Recently, the Department of Education entered into a negotiated 

rulemaking on the topic of cash management. This includes the disbursement of student aid refunds, or Federal aid in excess of what 

is needed to pay school tuition and fees. We worked in good faith 

with the Department and are disappointed a consensus was not 

reached. We have serious objections to the direction of this draft 

rule. A bipartisan group of 54 of your House and Senate colleagues, 

including Senators Klobuchar, Franken, Heller, and now Moran, 

have similar concerns. 

While the Department has the authority to write rules concerning Title 4 financial aid disbursement, the proposed rule would 

go much further by regulating the availability and terms of financial accounts. This includes debit and prepaid cards available to 

students from already heavily regulated and well supervised depository institutions. We believe this to be outside the Department’s 

scope. Whether it is a college-affiliated checking account or a private student loan, we want to offer these products in a way that 

serves the student well. 

Thank you for the opportunity to testify. 

Chairman JOHNSON. Thank you for your testimony. 

As we begin questions, I will ask the Clerk to please put 5 minutes on the clock for each Member. 

Mr. Bergeron, many student loan borrowers are unable to refinance their student loans and have thus been locked out of taking 

advantage of historically low interest rates. What challenges exist 

in refinancing student loan debt, and what recommendations do 

you have to address this issue? 

Mr. BERGERON. As I indicated in my testimony, Mr. Chairman, 

I think the issue of refinancing student loans is perhaps the most 

critical. It would give the borrowers the ability to take Federal 

loans, combine them with private loans, and repay them as a single 

package with their total debt being considered. 

The Center for American Progress released a report last year 

where we made specific recommendations for refinancing and we 

have worked with staff from both the House and Senate, and Republicans and Democrats, to propose and work on legislation to 

carry out that. Senator Warren has a bill that was voted on and 

did not reach the requisite number of votes to move forward, and 

I hope and expect that that will be something that is taken up 

again by the Senate. I think, in the long term, we have to find a 

solution, and the solution that has been offered by Senator Warren 

is a good one. 

12 

I think that if we cannot move forward with that, there are other 

proposals that have been put forward by members that should be 

considered. The idea of creating a conduit-like vehicle, as was done 

under the Ensuring Continued Student Loan Access Act a couple 

of years ago to make student loans available during the credit crisis provides a mechanism, a model for the kinds of public–private 

partnership that could be created to create a marketplace for consolidation loans, particularly those that are distressed. 

But, I think, as a first order, we should look really hard at what 

already is pending before the Senate. 

Chairman JOHNSON. Mr. Kocer, do you support mandatory certification of private student loans? How does certification help student borrowers, and in what way does your institution, Mount 

Marty College, use certification to meet its own need for information about student debt? 

Mr. KOCER. It is very important for school certification, because 

it gives us more contact with the borrowers, first of all. So, when 

a school certification comes in, we know that there is an additional 

loan that student is looking for, and then we have the opportunity 

to counsel them on how that loan will affect them and what the 

possible repayment could be for them. So, that is the first advantage of having them all school certified, is we get that contact with 

the borrower to give them that up-front counseling on how it could 

affect them further on. 

And, it also helps us with school certification to prevent over-borrowing for a student, because using school certification, we only 

allow them to borrow up to the maximum cost of attendance at our 

institution, so that will prevent them from over-borrowing and taking out additional loans not specifically for educational purposes. 

Chairman JOHNSON. Ms. Lindstrom, last month, President 

Obama announced an expansion of the Pay as You Earn Program. 

Can you discuss why this proposal is important and whether you 

believe more needs to be done to improve repayment options for 

borrowers. 

Ms. LINDSTROM. Yes, absolutely. I mean, David mentioned the 

$1.2 trillion, as did you, Mr. Chairman. Obviously, that is not only 

a drag for the individual borrowers behind that figure, but a drag 

on the economy more generally. So, it is important to make incomebased repayment options attractive to as many borrowers as possible. And, President Obama’s action would enable more than five 

million more borrowers to take part, or partake in that benefit 

than previously, and so I do think that that is very important and 

it is, as I mentioned, important to make those opportunities attractive for borrowers. 

That said, I do think that borrowers who do qualify for these 

benefits are not getting into these programs, and that actually is 

another big problem that I would love to see lawmakers tackle. 

There is a major system failure where borrowers who qualify for 

these alternatives that could be beneficial to them are not getting 

into these programs. So, we have to figure out a way to deal with 

that, to look at the way the servicers are being compensated, and 

to ensure that there is a smooth path for borrowers in distress to 

be able to access the Pay as You Earn Program, now with an exVerDate Nov 24 2008 09:15 Dec 21, 2015 Jkt 046629 PO 00000 Frm 00016 Fmt 6633 Sfmt 6633 L:\HEARINGS 2014\07-31 AM FINANCIAL PRODUCTS FOR STUDENTS - ISSUES AND CH
13 

pansion component, and some of the other alternatives that are 

there. 

Chairman JOHNSON. Senator Crapo. 

Senator CRAPO. Thank you, Mr. Chairman. 

Mr. Hunt, since the termination of the Federal Family Education 

Loan Program in 2010, there has been a dramatic change in the 

student loan market structure. The private sector markets are contracting and the Federal market is growing significantly. I am concerned that this reduces student borrower options. Could you describe the current state of the private student loan market and how 

that compares to the Federal market and maybe explain why we 

are seeing this dynamic. 

Mr. HUNT. Sure. Thank you very much for the question. We have 

gone from about a $24 billion industry to about an $8 billion industry, and yet performance rating for our banks have gotten much 

better. Many of our banks have exited the student lending business. There are a few others that are thinking about it as we 

speak. We have a 3-percent default rate. 

We flipped the equation, Senator. We do not want to look at a 

refinancing option. We do not need to because we do all the work 

at the front end. We make sure consumers have an ability to repay. 

There is nothing worse than telling a student at the very beginning 

of their career, we are not sure you can afford the loan we are 

about to give you. We do have self-certification. Ninety-seven percent of our loans are certified by the institution. When it is time 

to repay the loan, we work with the student many, many different 

ways, including offering deferment and refinancing the student. 

That is why we are at a 3 percent default rate. 

And, just because we consider the ability to repay does not mean 

it is a guarantee that the student is more likely to repay at the 

very end. That helps quite a bit. So, 6 months after graduation, or 

6 months after one is no longer a full-time student, we give them 

6 months’ grace period. Hopefully, they will start paying back after 

that. If they cannot, we can go into a 6-month forbearance. So, a 

student who is having trouble maybe finding a good paying job, 

cannot pay back their loan, we give them an additional 6 months, 

and then we work with the OCC, with safety and soundness guidance, to ensure we are adhering to that safety and soundness and 

helping out the student. There is nothing more sacred for us than 

making sure our students, especially so early in their career, can 

repay their loan. 

Senator CRAPO. Thank you. And, in your testimony, you discussed the Department of Education’s new rulemaking dealing 

with student loans and the disbursement process. It has been mentioned several times here today. I am concerned that the Department has not worked through all of the compliance challenges for 

banks and supervision challenges for banking regulators. Can you 

share with us in a little more detail how the Department’s rule as 

it is currently proposed would impact student bank accounts and 

what kind of compliance challenges would be introduced for banks. 

Mr. HUNT. Well, if the Department of Education goes down the 

path where I think it may be going, there will not be much concern 

for us on the regulatory structure because I think most of our 

banks would exit. Right now, the Department of Education want to 

14 

apply rules and requirements of a cash management program to 

banks and students that have nothing to do with Title 4 disbursement. It is apples and oranges. So, I am afraid that is the direction 

they are going. 

We negotiated in good faith, with a lot of other consumer groups, 

to come to a consensus. Quite frankly, I thought there was going 

to be consensus until the very end and they did not do it. So, we 

are hoping they will have common sense. They want to apply the 

same rules and regulations to campus affiliations that have nothing to do with Title 4. 

Senator CRAPO. According to one measure—and, again, Mr. 

Hunt, according to one measure—a report, actually, by 

MeasureOne, a private research firm, substantial loan performance 

differences exist between the Federal and private loans, and I 

think you mentioned that in your testimony, as well. According to 

the numbers I have, private student loan borrowers only default in 

the low single digits, I think you said 3 percent—— 

Mr. HUNT. Correct. 

Senator CRAPO. And, the number I had here for Federal loans is 

close to 20 percent. I think you said 14 percent. But, can you describe some of the features of the—you already did describe some 

of the features of the private student loan system. Can you explain 

why that difference exists. What is it about the Federal loans that 

generates such a higher statistic? 

Mr. HUNT. Sure, Senator. Actually, I think it is a tale of two cities. Our default rate is going down. It was 3.13 percent last year 

and it is down to less than 3 percent, at 2.89. I think the biggest 

difference is the ability to repay. I think many of our Federal programs do not take into consideration the borrower’s ability to repay 

after graduation. There are no underwriting standards on Federal 

loans, while on the private side there are extensive underwriting 

standards. There is nothing worse we can do than give someone a 

loan they cannot repay. That is something actually Raj Date of the 

CFPB once told me, that he would never even consider giving 

someone a loan unless we thought they could repay the loan. 

And, you mentioned the number 20 percent. There are some people who are estimating the actual default rate on the Federal side 

will be as high as 40 percent when you look at the IBR forgiveness 

that will happen down the road. 

Senator CRAPO. Thank you, Mr. Chair. 

Chairman JOHNSON. Senator Reed. 

Senator REED. Thank you very much, Mr. Chairman. 

We are talking about these bank products that essentially are 

used to take Federal grants and loans and pay tuition, but then the 

excess is moved into a banking account. And, in your testimony, 

Ms. Lindstrom, you indicate that there are some arrangements between banks and colleges that appear to be detrimental to students. Is that fair? 

Ms. LINDSTROM. That is right. Yes. You know, on a college campus where students are a captive audience and a bank is getting 

an exclusive deal, that deal should actually be far superior for the 

students who are exposed to that deal and being marketed to than 

what is available to them on the open market. But, in fact, that 

is not the case. In quite a few instances, the deals that students 

15 

are driven into are equal to or, in some cases, worse than what is 

available right off campus. And, obviously, we think that that is a 

huge problem. 

The reality is that student aid is ending up in all types of bank 

and financial firm accounts that are offered to students on campus. 

So, the mainstream banking industry, during the negotiations with 

the department of rulemaking [sic] were touting figures of between 

20 to 40 percent of students at the places where they had deals 

with the campus were taking up those accounts. Seven out of ten 

college students these days are graduating with student loan debt. 

It is obvious that aid is ending up in those accounts as well as the 

others, and, therefore, the Department is right on point in terms 

of extending its protections to students in all the various accounts 

that are there. 

Senator REED. Is not the solution—at least in concept—to require 

the school, who is the intermediary, to act as a fiduciary for the 

student, that—— 

Ms. LINDSTROM. Absolutely. 

Senator REED. ——they would be required, because they are dispensing Federal funds, to ensure that they do so for the benefit of 

the student, and if there is an arrangement with a financial institution, it benefits the student—— 

Ms. LINDSTROM. That it should benefit, and they should act in 

the best interest of the students. Actually, that is a criterion that 

was put into place after the debate over the aggressive private student loan marketing tactics that were in effect previous to the credit crisis, and that was put into place there and it has really helped 

make the marketplace more fair on campus for students when it 

comes to steering that was occurring, steering students into those 

private student loan products. And, we would be thrilled if something similar were in place for students when it comes to campus 

bank accounts and campus debit cards. 

Senator REED. Mr. Kocer, you are on campus. Do you think that 

you should act as a fiduciary for the students? 

Mr. KOCER. All I can comment is our experience at Mount Marty 

College and our colleagues in South Dakota, there are no arrangements that I know of with any of our colleagues. All of our disbursements are by check or direct deposit, and so I cannot comment on anything as far as arrangements—— 

Senator REED. Well, that seems to be sort of a sensible approach. 

I would guess it would be direct deposits to the bank where the 

student indicates, correct? 

Mr. KOCER. That is correct. 

Senator REED. So—— 

Mr. KOCER. The student has a choice of giving us the bank account to deposit into their account. 

Senator REED. So, the choice is either let the student decide or, 

if you are deciding for the student, you have to do it in the best 

interest of the student. That seems to make sense. 

Mr. Hunt, does that make sense? 

Mr. HUNT. Sure. Actually, the student does have options. When 

the student has a disbursement measure, they can choose one of 

three things. They can go to the bank that has a relationship. They 

can go to their own institution, wherever that institution is. Or, 

16 

they can simply check the box and say, I would rather have a check 

sent to my mailing address. So, there are many choices. All of these 

campus affiliation products are optional for the student. The student does not have to go to the campus affiliated institution. It is 

certainly their choice. We think this has provided safe, transparent 

access for funds for everybody. 

Senator REED. Ms. Lindstrom, I think in the comments, some of 

these choices are harder than others, it seems, on campus. Can you 

elaborate, because it—in fact, there is a suggestion that there are 

some very preferential deals between financial institutions and the 

campus which are giving the campus an incentive, and they use 

the incentive to put people in these accounts. Is that—is there data 

there? 

Ms. LINDSTROM. Yes. Yes. So, as I mentioned, the Consumer Financial Protection Bureau has actually gathered quite a few contracts and taken a look at what is in those contracts, and there are 

some reimbursements that schools are getting, essentially a bounty 

per student that takes up the account. So, then, the student—or 

the school—has an interest in helping to steer students into those 

accounts, and obviously, those are written into the contracts deliberately. Yes. So, there is that component, absolutely. 

And then in terms of how that faces, or interfaces with the student consumer, as I mentioned in my previous testimony, if you are 

premailed a card when you have not even made a choice yet and 

it has got the campus logo on it and the letter is telling you that 

you should do this right now as a function of receiving your financial aid refund, of course, you are going to log on to the computer 

and get started enrolling. And, that is in some models where the 

rubber hits the road. 

So, when students actually log onto that screen, it is a screen 

that is designed by the industry. They are making the choice on 

the industry Web page, not on the campus or the bursar Web site. 

The choice to opt into the industry or the campus sponsored account is more prevalent and more prominent and written in a way 

that, again, steers you to that choice. You might have to click 

through four or five or six screens to make the choice to steer the 

aid into your own bank account. 

In some instances, you cannot actually make that choice online. 

You actually have to snail mail or fax information about your own 

bank account in order to get your aid steered in that direction. So, 

in fact, it is harder and there are barriers that are set up, and as 

a result, students are compelled into this campus sponsored choice. 

Senator REED. Thank you. My time has expired. Thank you. 

Chairman JOHNSON. Senator Heller. 

Senator HELLER. Mr. Chairman, thank you, and to the Ranking 

Member, for having this hearing today, and also to our witnesses 

that are also here. Thanks for taking time and enlightening us on 

this particular issue. 

I have probably a better understanding, for all the wrong reasons, on this particular issue. I have four children. They are either 

attending school or have just graduated from college, and so I have 

got a pretty good idea firsthand of the financial burdens that these 

students are facing, and on top of that, the difficult job market that 

our youth are currently facing. I think it is a—we do have two 

17 

issues here, and that is, obviously, the financial burden of student 

loans, but also a jobless recovery over the last 5 or 6 years. 

If you talk to some of these students, as I have, their friends and 

my own children and those back in the State of Nevada, they will 

tell you, you want to solve this problem, get me a job. And, they 

said, we can solve the burden of our loans if there were jobs created. And, they are very disappointed that this Congress—and they 

keep asking, when is this Congress going to do something that will 

help spur this economy and create the jobs necessary so that these 

young men and women can go into society and take care of themselves. But, obviously, this is a hearing only about student loans, 

so we will keep it in that direction. 

I do not know if this was mentioned—I am sorry I missed the 

opening statements—but the theme of Know Before You Owe, the 

initiatives. Mr. Hunt, could you expand on what the private sector 

is doing with this initiative. 

Mr. HUNT. Sure. The private student loan process is like a mortgage. You sit down with the said lender and you fill out an application providing your assets, your liabilities, your income and so 

forth. If it is approved, it is then sent to the financial institution. 

The financial institution takes a look at your request, takes a look 

at the assistance you may be receiving from the Federal Government compares it to the cost of education at that specific university, and then tells the lender, the bank, here is the amount of 

money this person should receive. It is the ability to repay and it 

has been very, very successful. 

And, if I may just take a moment, Senator, to respond to just a 

couple of things Ms. Lindstrom said about the campus affiliation. 

Her report of 2 years ago was very good in the fact that it identified a single bad actor in the industry. That bad actor had enforcement action from the FDIC and we supported every single bit of 

that enforcement action. 

I would tell you, these campus products are very popular, very 

low complaint rates received by the CFPB. They help stunt the tremendous growth of tuition. It helps to retain and recruit faculty. 

Many institutions provide scholarships based on this arrangement 

we have. Many of the banks hire interns from that university if 

they have an alliance, as well. And, I think most importantly, they 

provide financial literacy on campus to those students. So, it provides safe access to funds. It has been very well received from students and from institutions. 

And, I assure you, Senator, we have a lot of regulators in our 

banks. If they thought we were unfair, deceptive, or abusive, they 

would have no hesitation calling us to the mat like the FDIC did 

with the one bad player. 

Senator HELLER. Mr. Hunt, in your understanding of Know Before You Owe, do private lenders work with these students and 

share with them what alternative financing may be available outside of that institution, like Pell Grants and those kind of issues? 

Mr. HUNT. Sir, not only do we want to, we have to. It is required 

by law. At three different steps throughout the private loan application and disbursement process, we have to provide disclosures to 

borrowers. There is no question there are some benefits, obviously, 

to having Federal assistance before you have private assistance. 

18 

Then, I think, after you exhaust some of the private matters, then 

you should go to a private entity to do that. Most students do go 

to the Federal Government assistance first before they come back 

to the private. But, we have to. We want to. 

We work with the students throughout, because you have to remember, Senator, we have relationships already, usually with their 

parents, and 97 percent of applications are cosigned by parents or 

another family member. So, it is a family generational thing. It is 

not just the first time we are meeting the student. 

Senator HELLER. In this jobless recovery, if a student is having 

a repayment problem, how do you work with them? 

Mr. HUNT. Several opportunities, Senator. The last thing we 

want to do is have someone’s credit rating destroyed at the very 

beginning of their career. We start notifying them months ahead 

of time when their first payment is due. Then we work with them 

in case they have hardship, undue hardship especially, do not have 

the high-paying job, to either extend their payments, refinance 

their payments, either one. 

Senator HELLER. Give me one more time—you may have mentioned this—what is the average complaint rate for private loans? 

Mr. HUNT. Well, the CFPB, as you well know, and that is a 

whole different subject on my plate, they receive complaints from 

the public and then they disperse them to the public without 

verifying whether the complaints are actually valid, whether they 

are true or not, and then it is up to us to disseminate whether it 

is true or not. But, even if you were to take every single complaint 

as valid, if you look at the total number of loans we produce, 8.5 

million, there were 2,600 complaints about student lending in general. That equates to 0.03, three-one-hundredths of 1 percent, Senator. 

Senator HELLER. All right. Mr. Chairman, thank you. 

Chairman JOHNSON. Senator Warner. 

Senator WARNER. Thank you, Mr. Chairman. I appreciate you 

and the Ranking Member holding this hearing. 

A couple of opening comments and then I want to make a few 

advertisements for some solutions and get some response from the 

panel and maybe again alert my colleagues to some ideas. 

First, I hear more about student debt around Virginia than I do 

about Obamacare. People are concerned. It is raised everywhere. 

We all know the numbers. Mr. Bergeron’s comments, I supported 

Senator Warren’s approach on refinancing. If we cannot get that, 

we need to figure out some other option on refinancing and recognize the combination between the Federal and the private side that 

is going to have to come together. 

Mr. Kocer mentioned something, and Senator Heller mentioned 

Know Before You Owe. I actually think long before you get Know 

Before You Owe, we ought to be doing something called Know Before You Go, which is a bill that Senators Wyden and Rubio and 

I have that would basically build on your idea, Mr. Kocer, of we 

ought to have a common, easily accessible Web site, not just in 

terms of student debt, but in terms of all the choices a parent or 

a student makes before they go to college—retention rates, graduation rates, if you choose a field, as one of my daughters did, in art 

19 

history—God bless her—what is your chance of getting a job in 

that field—— 

[Laughter.] 

Senator WARNER. And, we have got a Zillow Web site on real estate. Why can we not create the same for folks making, next to 

purchasing a home, their most expensive choice they are going to 

make, the cost of higher education? And, I would include 4-year, 2- 

year, trade schools, as well. And, so, I wholeheartedly endorse your 

idea. And, the remarkable thing is, we do not even have to create 

any new reporting requirements. We have all this data. 

And, again, some of the conversation between Ms. Lindstrom and 

Mr. Hunt, and I do believe we have got some legislation on prepaid 

credit cards that, I think, would help clear up some of these mistakes, but this Know Before You Go, one option. 

Second, and again, apologies to the panel—I am going to take 

their all nods on Know Before You Go—Mr. Bergeron, I am going 

to take all your nods as that is a good idea. You are going to get 

to weigh in on the second one. 

There are times when I kind of scratch my head, when there 

seems like there are certain kind of partial no-brainer solutions 

that still are not law, and let me point out one right now. And, this 

is not a full silver bullet to our problems of increasing student debt. 

But, current law allows an employer to take up to $5,000 of an employee’s salary and directly apply it to tuition. You know, we all 

hear about employers who say, you know, come work with us. You 

are going to get a Master’s. We are going to help pay for it. 

Senator Thune and I have said, well, why not take that same concept on the question of student debt. Allow up to $5,000 of a 

student, or a young person, or a not-so-young person’s payment and 

have that go directly against the debt. Obviously, a great retention 

tool for the employer. The young employee could opt in or out of 

this. But, obviously, the employee would receive the benefit of having this money going pretax against the debt. 

To me, it seems like a no-brainer. Is there any sense from the 

panel of whether you would think—and, hopefully, relatively short 

answers on this—whether this makes sense or not? 

Mr. BERGERON. So, let me just agree with you totally on this 

issue of the Know Before You Go. One of the things I did before 

I joined—— 

Senator WARNER. Get to the second part, too—— 

Mr. BERGERON. I will—— 

Senator WARNER. ——because I have got one more commercial to 

make before I am done in a minute and 18. 

Mr. BERGERON. So, I will do it real fast. I really love the Know 

Before You Go, but I think there is something that employers 

should be doing, and whether it is a change in the tax code to permit it or employers just doing it, just like Starbucks has partnered 

with ASU. There is no reason an employer could not do exactly 

what you want to do today. 

Senator WARNER. My understanding is there are preclusions that 

would allow them to have that apply directly pretax—— 

Mr. BERGERON. Pretax, yes. You would have to change the tax 

code. But, I think it is a great idea. 

Senator WARNER. Can we—I will settle for a ‘‘yes.’’ 

20 

Ms. LINDSTROM. Yes. 

Mr. KOCER. Yes. 

Mr. HUNT. Anything you can do to help the student would be terrific. 

Senator WARNER. Right, and it is a retention tool for an employer. A student or young person, not so young, necessarily, with 

some of these debt burdens, makes sense. 

Final, and it has been touched upon, income-based repayment. 

Senator Rubio and I have an approach that would say—we have 

got that out there as an option right now. It is cumbersome, complicated. Why not allow income-based repayment to become the top 

default mechanism, allowing, again, a student to withdraw if he or 

she chooses not to, but would that not provide more flexibility to 

folks to have the kind of career choices that otherwise are being 

precluded? I know my time has expired. 

Mr. BERGERON. Yes. I absolutely agree that we should have that 

as the default option, as I indicated in my testimony. 

Ms. LINDSTROM. I think we would prefer ensuring that students 

go into the—or borrowers move right into the repayment plan that 

is going to keep their costs as low as possible, and IBR does not 

always work out that way for borrowers, and, therefore, I do not 

think that IBR as the default is necessarily the right thing. 

However, for borrowers who are in delinquency and have been 

going on in delinquency for 3 months, 6 months, I do believe that 

some kind of automatic move into IBR makes sense for those borrowers to help them protect their credit and get into something 

that is clearly going to be more manageable than unchecked delinquency. 

Mr. KOCER. I agree with that response, too. It is not always the 

most advantageous for students. It is good to see which program 

would be best for them. But, it is a good back-up for, if they are 

going to delinquency, to get them in a program that they can better 

afford to spend. 

Mr. HUNT. IBR—on the Federal side. It is not on the private 

lending side. We have our own options, as well. But, anything you 

can do to reduce the debt on the Federal side is welcome. 

Senator WARNER. My time has gone on, but I would just say, Mr. 

Chairman, there are a lot of folks who fall into default because of 

if you take that straight 10-year payment, your payments are so 

high coming out of school, and Income-Based Repayment will give 

a lot more flexibility. Thank you, Mr. Chairman. 

Chairman JOHNSON. Senator Warren. 

Senator WARREN. Thank you, Mr. Chairman. 

Borrowers who are in serious financial trouble, either because 

they have lost a job, they have lost a spouse, they have had serious 

medical problems, can get a fresh start on pretty much every kind 

of debt by declaring bankruptcy. They can deal with credit card 

debt. They can deal with mortgages, with payday loans. But, student loans are treated differently. There is, essentially, no discharge, no matter how much trouble you are in or why you are in 

trouble. 

Federal student loans have been excluded from bankruptcy since 

1998, and in 2005, the banks successfully lobbied Congress to end 

bankruptcy protection for private student loans, as well. Now, the 

21 

Federal Government at least offers Federal borrowers programs for 

loan modifications, for default rehabilitation, and for Income-Based 

Repayment, as we were just talking about, that at least give people 

some chance to get back on their feet. Look, it is nothing like a 

fresh start in bankruptcy, and the Federal Government is still 

making huge profits off these loans, but at least it is something. 

Banks, by comparison, get the benefits of the bankruptcy exclusion and do not offer much of anything in exchange to help struggling borrowers. So, last summer, the Federal regulators, including 

the FDIC, the OCC, and the Federal Reserve, made it crystal clear 

that private student lenders could offer loan modifications, like reduced interest rates, to struggling borrowers without any penalty. 

But, according to the Consumer Financial Protection Bureau, 

banks still, effectively, are not offering that help. 

So, what is the impact of that? Well, just 3 days ago, CNN published a story that gave an idea. It was a story about a woman who 

died, leaving her parents to care for three small children and also 

leaving them with $100,000 in student loan debt that the couple 

had cosigned. I think I just heard Mr. Hunt say that the private 

student loans have about a 97 percent cosigning rate. So, the 

grandparents of these little children contacted the private lenders, 

but they could not get much help to manage the huge monthly payments. The couple considered bankruptcy over their daughter’s student loan debt, only to discover that bankruptcy is not an option 

to them. 

So, here is my question. If struggling borrowers cannot discharge 

their loans in bankruptcy, and if your banks will not give them 

loan modifications, Mr. Hunt, what are they supposed to do? 

Mr. HUNT. So, Senator Warren, thank you very much for the 

question. We share the same concern you do, is making sure that 

we do everything we can to make sure that students’ debt is paid 

off in a timely manner, especially when you have life circumstances 

that arise. A very tragic incident that happened. I saw that on 

CNN and also read the extensive report by Senator Reed on Christopher’s Law. 

I do not agree with you when you say there are not many options 

for people to refinance. Citizens Bank, which has a huge presence 

in Massachusetts, headquartered in Rhode Island, does offer now 

refinancing—— 

Senator WARREN. Now, wait, wait, wait. Let us just be careful 

here when we are talking about refinancing. 

Mr. HUNT. Sure. 

Senator WARREN. We are not talking about performing loans and 

you like to reach out to your customers and say, have we got a deal 

for you. We will lend you some more money. Here is refinance. We 

are going to change your interest rates. 

What I am talking about are loan modifications that reduce the 

interest rate, that forgive interest, that reduce principal. Do you 

have any data suggesting that the banks are doing this, because 

Consumer Financial Protection Bureau says they are not. 

Mr. HUNT. Well, I think it is very important, Senator, that when 

a person does restructure their loan for a lower interest rate, it is 

loan modification and it is refinancing—— 

Senator WARREN. So, you are—— 

22 

Mr. HUNT. In Massachusetts, there is a $126 per month savings 

for your constituents, and in Rhode Island, it is $149, just by Citizens Bank—— 

Senator WARREN. So—— 

Mr. HUNT. ——doing a refinancing—— 

Senator WARREN. So, that is my question, again, Mr. Hunt. 

Mr. HUNT. Yes. 

Senator WARREN. Are you telling me that all banks today in 

America, or even a majority—do you have some data to suggest 

how many are offering loan modifications for student borrowers 

that will reduce interest rate or will reduce principal for them? Do 

you have some data on that? 

Mr. HUNT. I will tell you, when it comes to refinancing, the actual amount of the interest rate, it is discovered. Wells Fargo— 

Wells Fargo—— 

Senator WARREN. I am sorry—— 

Mr. HUNT. ——has been doing this for 10 years—— 

Senator WARREN. The question was, do you have any data to 

suggest that the banks are offering the kinds of loan modifications 

that will help people who are in financial trouble get a chance to 

get back on their feet? After all, Mr. Hunt, the banks lobbied to get 

nondischargeability in bankruptcy. The question I started with 

here is what are people supposed to do? What is this family supposed to do that now has three children to take care of and 

$100,000 in nondischargeable student loan debt from a child who 

died? 

Mr. HUNT. So, Senator, thank you. Two things. There is now loan 

forgiveness for a student who passes away. Many of our banks are 

now formalizing that into their contract. I know one is—— 

Senator WARREN. I am sorry. You are telling me that this is now 

available from all banks, that there is loan forgiveness, and this 

couple can take advantage of this loan forgiveness since their 

daughter died? I had not heard this. 

Mr. HUNT. That is mostly right. 

Senator WARREN. Is this right? 

Mr. HUNT. That is mostly right. 

Senator WARREN. I do not understand what mostly right 

means—— 

Mr. HUNT. And I will let you know—— 

Senator WARREN. Is it available or not? 

Mr. HUNT. Not all banks. There are many more banks that are 

giving loan forgiveness throughout the country. 

Senator WARREN. What number is ‘‘many more’’? More than 

one—— 

Mr. HUNT. I would say right now, Senator—— 

Senator WARREN. More than zero? 

Mr. HUNT. Yes, ma’am. There are more than zero. In fact, I know 

of about four, at least four that are doing it right now. 

Senator WARREN. Four out of 7,000? 

Mr. HUNT. Well, not all 6,700 banks provide student lending, and 

we do not represent all 6,700. I will tell you, one large institution 

since 2011 has forgiven $26.8 million because the student, unfortunately, passed away. I think you are going to see more of our banks 

23 

formalize that into their contract. When a student does pass 

away—— 

Senator WARREN. And when it goes—— 

Mr. HUNT. ——they are going to start forgiving—— 

Senator WARREN. Thank you, Mr. Hunt—— 

Mr. HUNT. ——those loans more and more. 

Senator WARREN. And when it goes from four to eight, I am sure 

you will announce that you have seen a hundred percent increase. 

Mr. HUNT. Well, keep in mind, Senator, you only have about 

eight banks that dominate the market. So, we are making progress. 

A lot of these banks do it by a case-by-case scenario. There is nothing worse than the tragic accident that happened. 

Senator WARREN. Yes, actually, there is something worse, and 

that is when something like this happens and the family is left 

with $100,000 in debt and three orphans to take care of. That is 

worse. So—— 

Mr. HUNT. And I am hoping that bank forgives that loan. 

Senator WARREN. Well, I am hoping that bank will forgive that 

loan, too. 

Mr. HUNT. Sure. 

Senator WARREN. So far, what that bank has said is no. The 

banks have not forgiven those loans. They have not provided adequate relief to this family, and I do not know how many other families are in those circumstances. 

Thank you, Mr. Chairman. 

You know, there really is no substitute for bankruptcy protection. 

But, the banks went out and lobbied to make sure that they were 

going to be exempt from the bankruptcy laws, and now they will 

not even provide the modest relief that is provided on Federal loans 

for people who end up in terrible financial circumstances. I think 

this is wrong. 

Chairman JOHNSON. Senator Heitkamp. 

Senator HEITKAMP. Thank you, Mr. Chairman. 

I want to kind of begin with a discussion about the baseline problem, which, to me, is that we do not have a financially literate population, especially among youth, and a lot of what we are talking 

about today really requires a level of sophistication in terms of understanding the obligations, understanding time value of money, 

understanding what compound interest can do to you long term, 

and making sure that they are in the best position. The first line 

of defense to helping a student is the student themselves and the 

student’s family. 

And, so, I have some questions for Ms. Lindstrom. Number one, 

when you looked at this whole report, you talked about transparency, and I could not agree more, and I think Senator Warner 

made a great point about let us let people know on the front end, 

even beyond student debt. 

But, what recommendations would you have for us in terms of 

providing greater transparency on all of these financial transactions, not just debit cards, but student loans in general so that 

we have more truth in lending, if I can kind of put it that way. 

Ms. LINDSTROM. Well, I mean, we are also supportive of the 

Know Before You Owe provisions that have been discussed. So, in 

that regard, I think that would be a great start. 

24 

Senator HEITKAMP. But, would you not agree that sometimes students make some pretty bad decisions, even if they have access to 

all that information? 

Ms. LINDSTROM. Yes. I mean, I do think that financial education 

plays a role, but it is not the primary way that you are going to 

clean up or make the marketplace fair for students. I mean, in reality, these are uninformed consumers who are just emerging in 

the marketplace and they need stronger protections. 

Senator HEITKAMP. You know, I am disturbed a little bit by that 

answer, that it is not the primary way, because we can deal with 

student loan debt, and we have dealt with mortgage loan debt, and 

we can deal with credit card debt, but the most important thing 

that we can do, in my opinion—and I have been in this fight since 

the bankruptcy days, since I was Attorney General and represented 

and was responsible for consumer protection—— 

Ms. LINDSTROM. Mm-hmm. 

Senator HEITKAMP. I see over and over again an unwillingness 

to kind of get the base of information that consumers need to provide themselves with the first line of protection. And, so, I mean, 

I can appreciate and understand what you are saying, that things 

can be clouded and masked and we need to take care of that. We 

need to make sure it is as transparent as what it can. 

But, transitioning to maybe a bigger discussion, what are campuses doing? What are student organizations doing? What are you 

doing on campuses to provide better consumer education to students so they do exercise either the political clout that they have 

to tell the administration, I want more options, or the wherewithal 

to make a different choice. 

Ms. LINDSTROM. Mm-hmm. Well, yes. So, specifically, we do run 

financial education campaigns from time to time. We actually are 

a student-run organization—— 

Senator HEITKAMP. Yes, I know. 

Ms. LINDSTROM. ——so students make those choices. Currently, 

I do not have anything that we are running right now, but in the 

past, we have run—previous to the passage of the CARD Act, we 

ran a big campaign called FEESA, F-E-E-S-A, where students ran 

a tongue-in-cheek bank marketing campaign on campus. They 

dressed up like credit card marketers and they gave out free Tshirts and lollipops, et cetera, and consumer education guides for 

students on how to navigate the credit card deals that were being 

hocked on campus at the time. So, that is an example of the type 

of education that we have engaged in. 

And, right now, we are considering engaging in an education 

campaign around keeping your interest low when you get into repayment—— 

Senator HEITKAMP. I would just suggest that on the University 

of North Dakota, they have absolutely created within their Student 

Financial Office a consumer protection kind of division with consumer education, you know, trying to figure out debt. 

But, I have one other question for you. As you look at this, and 

as you look at not only Federal Government responding but the 

State governments responding, have you seen any States pass any 

kind of laws that you think provide a pretty good example of the 

right kind of protection for consumers? 

25 

Ms. LINDSTROM. Right now, the State of California has been considering legislation in the campus banking arena to provide more 

disclosures for students up front, as has the State of Oregon. Neither of those have actually passed, but I know that those have 

been—I have spoken to legislators at the State level who are considering those types of things. 

Senator HEITKAMP. The example that I have is ‘‘no use’’ fees. 

There are a number of States that do not allow ‘‘no use’’ fees. I 

think North Dakota is one of them. I mean, you cannot discount 

from the card if you do not use the card. 

And, so, these are the kinds of things that I think we need to 

have a broader understanding, because way too often here, we 

think that the only people who are concerned about these issues in 

the U.S. Congress or the Federal Government or a Federal agency, 

when, in fact, there is a whole campus involvement, State law involvement, local State regulatory involvement. And, so, I think we 

need to have a better understanding of what the whole effort is so 

that we can continue to provide students with the opportunity to 

seek other—you know, a broad array of funding options, but also 

the opportunity to make choices and the education to help them 

make good choices. 

So, thank you, Mr. Chairman. 

Chairman JOHNSON. Senator Manchin. 

Senator MANCHIN. I want to follow up on what Senator 

Heitkamp, because, as usual, she and I are on the same wavelength here. I just want to read to you—and you all can then tell 

me if you agree or not—but, this is the information I received. As 

of the fourth quarter of 2012, nearly half of the 25-year-old age 

group has student debt, and overall student debt levels tripled between 2004 and 2012. Further, nearly one-third of the borrowers 

in repayment are delinquent on student debt—one-third are delinquent on student debt. And, recent data shows shifting demographics of borrowers, with increasing proportions of borrowers in 

the 40 to 49 age group, 50 to 59, and 60-plus age groups. Student 

loan debt has quadrupled between 2003 and 2014, while other 

forms of nonmortgage debt have decreased or seen little growth 

during that same period of time. And, it says, during the same period of time, the number of students with student loan debt increased by 70 percent, to almost 40 million individuals, and the average balance per borrower also increased by 70 percent, to nearly 

$25,000 per borrower. 

It seems like there is an awful lot of easy money being pushed 

in one direction to where you have the best chance of a return. I 

am just simply looking at it without blinders on. It has got to be 

the best game in town from the banking standpoint, because, I 

mean, you can sign them up for life and try to collect that for life 

and they cannot escape it, if there is any way to collect it. 

And I know it is very emotional, and we all are, but I have 

talked to some of the people at West Virginia University, and they 

told me, they said, it is a hard time denying anybody. You cannot 

deny them, and you cannot tell them that they do not need all that 

money. You can tell them that maybe they—but, we do not have 

any authority or any law to tell them or advise them. So, they 

might be getting an apartment they cannot afford, or using the 

26 

money to buy a car, and using the money for almost everything except their education and then throwing the debt on education. This 

is what I am being told by the University. And, when they are 

reaching out, something is wrong. There is a problem. 

And, then you look at the statistics. When everything else is 

going one way, this continues to go up disproportionately to everything else. So, that is why you are seeing an awful lot of movement 

and pressure on this, and something has to be done. 

So, we will start—we can start, Mr. Hunt, with you and go right 

down the line and see if you all have two sentences on this. 

Mr. HUNT. Senator, you are 110 percent correct. Something has 

to be done about the cost of college, A, number one. If we do not 

address the cost of college, we are going to be right back here every 

single year, talking about—— 

Senator MANCHIN. But, if you are—would you agree that—and I 

am not being, I mean—— 

Mr. HUNT. Right. 

Senator MANCHIN. ——if it was not for bankers, I would be in 

trouble, because I borrow. We all borrow. But, the bottom line is, 

this seems to be pretty lucrative from the banking standpoint. 

Mr. HUNT. I do not agree with that. 

Senator MANCHIN. OK. 

Mr. HUNT. If this was lucrative, we would not have gone from a $24 billion industry to $8 billion, and we would not have had 

banks exit instead of getting into it. I assure you that if it was lucrative, you would see more banks getting in, not getting out. 

Senator MANCHIN. How many—— 

Mr. HUNT. That is not happening. 

Senator MANCHIN. What is your percentage of denials on college 

loan requests? 

Mr. HUNT. Oh, about half. 

Senator MANCHIN. You think—— 

Mr. HUNT. It is hard. It is hard to get a student loan, sir—— 

Senator MANCHIN. You think you all turn down about 50 percent 

right now? 

Mr. HUNT. That is about right. That is about right. 

Senator MANCHIN. And that has been about the same all the 

way? And if I asked all these—— 

Mr. HUNT. Probably a little bit higher now than it was—— 

Senator MANCHIN. If I asked all these students how hard it was, 

all these students out here, did you have a hard time getting a 

loan, any of you? If you had a hard time and they turned you down, 

raise your hand. 

OK. One hand went up out of the whole room. So, sir—— 

Mr. HUNT. I do not know if they are doing private. Look, it is 

almost impossible not to get a Federal loan. 

Senator MANCHIN. It is almost impossible not to get one? 

Mr. HUNT. Not to get a Federal loan. 

Senator MANCHIN. That is what—— 

Mr. HUNT. It is hard to get a private student loan. The Federal 

student loan process—— 

Senator MANCHIN. A private school loan—— 

Mr. HUNT. ——has no underwriting. The Federal Government 

has no underwriting standards. 

27 

Senator MANCHIN. Uh-huh. 

Mr. HUNT. We have all the underwriting standards. 

Senator MANCHIN. OK. 

Mr. HUNT. If you get a loan from us, we have a pretty good reasonable expectation you are going to pay it back. That is because 

you qualify for it. 

Senator MANCHIN. OK. 

Mr. HUNT. And, you have to keep in mind—— 

Senator MANCHIN. But, now, the Federal—so, you are saying we 

are lax on our end. 

Mr. HUNT. Absolutely. 

Senator MANCHIN. OK. 

Mr. HUNT. And, so, there is your cost of college. 

Senator MANCHIN. So it is us. We have got to change it. 

Mr. HUNT. You have got a higher default rate. You have got a 

15 percent default rate. You need to have a serious conversation 

about the cost of college. 

Senator MANCHIN. We have got a 33. 

We will go right down. Mr. Kocer, if you—— 

Mr. KOCER. Just a comment there as far as the Federal loan programs are concerned, is when you are saying to find ways to reduce 

the amount of borrowing for students who do not really need it, if 

we, the Financial Aid Administrators—— 

Senator MANCHIN. I am not—I am just saying that you all can evaluate, is that truly the cost? Is that $1,200-a-month apartment 

and that $500-a-month car payment, should that be part of your 

student loan? 

Mr. KOCER. No, and it is not. 

Senator MANCHIN. OK. 

Mr. KOCER. When we figure costs of attendance, we figure out a 

standard cost that would fit an average person, not students who 

have borrowed or would borrow above that. 

Senator MANCHIN. Can students borrow more than what is—I 

mean, as long as what they qualify for, can they borrow as much 

as they qualify for? 

Mr. KOCER. They can borrow up to a cost of attendance, but one 

thing that the Federal Government does not allow schools to do is 

to lower the amount of Federal loans that we can give students. So, 

if they are at a low-cost—— 

Senator MANCHIN. Do you think the Federal Government needs 

to change the rules of how we do Federal loans? 

Mr. KOCER. I think they should give Financial Aid Administrators more control over making situations like that possible. If the 

student is a part-time student, they may not need to take the full 

student loan that they are taking out. Or, if they are going to a 

low-cost institution, they may not need that, even though they can 

qualify it under the cost of attendance. 

Senator MANCHIN. Mr. Chairman, would it be possible to hear 

the other two, if you do not mind? Is that OK? Thank you, Mr. 

Chairman. 

Ma’am, if you would, Ms. Lindstrom. 

Ms. LINDSTROM. Yes. I would say that we do not want underwriting criteria for Stafford student loans. Student loans are an access tool. They keep the doors of college open for everybody—— 

28 

Senator MANCHIN. So, what you are saying—— 

Ms. LINDSTROM. ——regardless of your background. 

Senator MANCHIN. ——is you do not think there should be any 

more Federal rules on that. Just let the good times roll. 

Ms. LINDSTROM. Correct, for Stafford student—for undergraduate 

Stafford loans, we absolutely need to ensure that that stays as aid, 

student aid to be able to access college. Now, when it comes to Parental Plus Loans, which is another Federal—— 

Senator MANCHIN. So, you are in disagreement with her completely. 

Mr. KOCER. Well, just to give you an example of—— 

Senator MANCHIN. I am. I am just asking if you are. 

[Laughter.] 

Mr. KOCER. Well, to give you—yes—— 

[Laughter.] 

Ms. LINDSTROM. Woo-hoo. 

Mr. KOCER. To give you an example, if somebody is a half-time 

student and they stay a half-time student, they will run out of 

their loan eligibility before they can get a 4-year degree. 

Senator MANCHIN. Got you. 

Mr. KOCER. And, so you can counsel them and counsel them and 

counsel them, but if they can get the money before they can 

achieve that degree, then they will have—— 

Senator MANCHIN. We are getting somewhere—— 

Mr. KOCER. ——private loan—— 

Senator MANCHIN. OK. And, I enjoy your passion. I really do. 

[Laughter.] 

Ms. LINDSTROM. I enjoy yours. 

[Laughter.] 

Ms. LINDSTROM. So, at any rate, that is how I would view that. 

I think when it comes to private student loans, I mean, the reality 

is that complaints are on the rise, absolutely, and thank goodness, 

private student loan consumers have a place to complain. The market is expanding once again. Previous to the credit crisis, there 

were all sorts of collusion and aggressive marketing tactics and 

steering occurring on college campuses. There is absolutely no indication that that—well, some of those problems have been solved. 

Others have not. 

We should be making sure that there is a bankruptcy provision 

available for private student loan borrowers. We should be making 

sure that private student loan—— 

Senator MANCHIN. Well, if we do that—— 

Ms. LINDSTROM. ——certification—— 

Senator MANCHIN. ——you would agree that we are going to 

have to change the rules a little bit differently than what they 

are—— 

Ms. LINDSTROM. For private student loan borrowers. 

Senator MANCHIN. I am saying for the Stafford, too. If you are 

going to be able to use bankruptcy to not pay your Stafford loan 

back, then you have got to make sure—— 

Ms. LINDSTROM. I am sorry. For private student—so, I, actually, 

I am talking about the private student loan product and not the 

Federal student loan product. So, I do think—— 

29 

Senator MANCHIN. Well, the Federal, I mean, it is your tax dollars. I do not care how they come. We are still spending your 

money or giving it away. So, as an investor, you would want to 

make sure you are protected the best you can. So, if you are going 

to let me escape because of bankruptcy, but you are going to make 

sure I am not a worthy borrower, but you want that to be open, 

then you are saying you want the Federal Government and the taxpayers to pick up a—now they going to pick up a great loss ratio. 

You believe it should be supplemented. I understand. I think I 

know where you are coming from, and we have a lot of our members that feel the same. 

Ms. LINDSTROM. I was making the point around the private student loan product, in particular—— 

Senator MANCHIN. OK. If I can—— 

Ms. LINDSTROM. ——completely separate from the Federal student loan product. 

Senator MANCHIN. ——I want to give Mr. Bergeron just a little 

bit of an opportunity. I am sorry. 

Mr. BERGERON. Thank you, Senator. I want to go back to the 

point that Senator Warner was making earlier, that it is really important for us to do a much better job helping students—— 

Senator MANCHIN. Right. 

Mr. BERGERON. ——as they are leaving high school and make decisions about where to go to college so that they take cost into consideration as they do that—cost, graduation rates. When I worked 

for the administration, we did a College Scorecard, which made 

sure that those pieces of information, as well as the default and 

loan burden, were taken into account. 

But, I do think on this issue of bankruptcy protection, we at the 

Center for American Progress wrote a paper where we said some 

Federal student loans should be dischargeable in bankruptcy, but 

they are different—they are very specific, where the economy 

changes and what people are prepared for, those jobs disappear because of broader economic changes. You know, I would use the example of closed captioning, real-time writing, where, at some point, 

technology is going to just overwhelm that. 

So, I think that there is a limited dischargeability in bankruptcy 

that should be applied to Federal loans, but I also think that private student loans should offer the kinds of protections that the 

Federal programs do in order to get that bankruptcy protection, 

and I think there are commercial products that could be developed 

that would meet that test, and, so, it would address the concerns 

that—— 

Senator MANCHIN. Let me—— 

Mr. BERGERON. ——that Senator Warner was raising—Warren 

was raising earlier today. 

Senator MANCHIN. The Chairman has been so kind here. Let me 

just make sure that—we know that education is the great equalizer. It is the thing that has made this country what it is today and 

it is the thing that will continue to keep us the country that we 

should be, as long as we have the availability of education. So, I 

think we are all passionate about that. 

The numbers are going the wrong direction. You all saw the 

problems we had in the student loan, just trying to get it back 

30 

down to the 3.8 and trying to stay within market rates and things 

of this sort. 

We are going to have to get all of you together, even though you 

might disagree philosophically on certain parts, but how do we 

keep college affordable, but also the risks that will be taken and 

who is going to underwrite it, and how do we do it? By getting kids 

more involved in the educational understanding of what their responsibilities are. 

And, with that, Mr. Chairman, thank you so much for your time. 

Chairman JOHNSON. I want to thank today’s witnesses for testifying about these important issues. 

This hearing is adjourned. 

[Whereupon, at 11:29 a.m., the hearing was adjourned.] 

[Prepared statements, responses to written questions, and additional material supplied for the record follow:] 

31 

1Scott A. Ginder, Janice E. Kelly-Reid, Farrah B. Mann, ‘‘Postsecondary Institutions and Cost 

of Attendance in 2013–14’’; ‘‘Degrees and Other Awards Conferred, 2012–13’’; and ‘‘12-Month 

Enrollment, 2012–13’’, National Center for Education Statistics, U.S. Department of Education, 

July 2014, available at http://nces.ed.gov/pubs2014/2014066.pdf. 2Scott Ginder and Christina Stearns, ‘‘Enrollment in Distance Education Courses, by State: 

Fall 2012’’, National Center for Education Statistics, U.S. Department of Education, June 2014, 

available at http://nces.ed.gov/pubs2014/2014023.pdf. 3Sandy Baum and Jennifer Ma, ‘‘Trends in College Pricing 2013’’, College Board, 2013, available at http://trends.collegeboard.org/sites/default/files/college-pricing-2013-full-report140108.pdf. 4Perkins Loans are still being made from institutional revolving funds. In fiscal year 2014, 

approximately $1 billion of the $101 billion in new Federal student loans were made under the 

Perkins Loan program. FY2015 Department of Education Justifications of Appropriation Estimates to the Congress, U.S. Department of Education, March 2013, available at http:// 

www2.ed.gov/about/overview/budget/budget15/justifications/index.html. 5 Consumer Credit—G.19, Federal Reserve, May 2014, available at http:// 

www.federalreserve.gov/releases/g19/current/. 

PREPARED STATEMENT OF DAVID A. BERGERON 

VICE PRESIDENT FOR POSTSECONDARY EDUCATION POLICY, CENTER FOR AMERICAN

PROGRESS

JULY 31, 2014 

Mr. Chairman and Members of the Committee, I am David Bergeron, Vice President for Postsecondary Education Policy at the Center for American Progress (CAP). 

The Center for American Progress is an independent nonpartisan educational institute dedicated to improving the lives of Americans through progressive ideas and 

action. As progressives, we believe America is a land of boundless opportunity, 

where people can better themselves, their children, their families, and their communities through education, hard work, and the freedom to climb the ladder of economic mobility. Accessible, affordable, and high-quality postsecondary education empowers people to strive for better economic opportunities. 

I am grateful to the Committee for providing me the opportunity to appear today 

to discuss the financial products, in particular student loans, that are available to 

students and their families to help pay for college. In a few short weeks, our Nation’s nearly 7,400 colleges, universities, and other postsecondary education institutions 1 will welcome more than 21 million students to their campuses 2; and, unlike 

just a few short years ago, these campuses are both physical and virtual with 12.5 

percent of the Nation’s college students enrolled exclusively in online programs. 

These students will come to the campus concerned not just about whether they can 

cut it academically but also about how they will pay tuition and fees, buy books, 

and meet living expenses. They have good reason to be concerned. Although funding 

for Federal grants and tax benefits has increased, the net tuition and fee costs at 

our Nation’s colleges and universities have increased even more rapidly. At public 

4-year colleges and universities, for example, it costs 50 percent more today in real 

terms than it did in 1994. 3

The Obama administration, where I served as the acting Assistant Secretary for 

Postsecondary Education and the Deputy Assistant Secretary for Policy, Planning, 

and Innovation until last year, has worked with Congress to increase Federal funding for grants for college students from low- and middle-income families, expand 

higher education tax benefits that help middle-income families, and make student 

loans more affordable by lowering interest rates and providing repayment options 

that allow borrowers to repay those loans as a percentage of their after-graduation 

income. The Obama administration has also worked to expand consumer information tools, like the College Scorecard, to steer prospective college students toward 

more affordable and productive institutions and make it easier to apply for Federal 

student aid and repay student loans. 

Role of Student Loans in Financing Postsecondary Education 

Most of the borrowing for postsecondary education is through one of the Federal 

student loan programs authorized under title IV of the Higher Education Act of 

1965, as amended; and since July 1, 2010, nearly all of those loans have been made 

directly by the Federal Government under the William D. Ford Federal Direct Loan 

program. 4 In just the last 7 years, we have seen outstanding student debt grow 

from $560 billion at the end of 2006 to $1.26 trillion by March 2014. 5 Of the $1.26 

trillion in student loans outstanding in March 2014, approximately one trillion was 

under one of the Federal loan programs. 

In the last several decades, it appears that we have optimized the Nation’s higher 

education financing system for debt. Despite the increases in Federal grants and tax 

32 

6 Analysis of data from the 2011–12 National Postsecondary Student Aid Survey (NPSAS) by 

the Center for American Progress (CAP) specifically for this testimony. Information about the 

National Postsecondary Student Aid Survey can be found at http://nces.ed.gov/surveys/npsas/ 

. The CAP analysis was performed using the National Center for Education Statistics Datalab 

at http://nces.ed.gov/datalab/. 

7 Analysis of data from the 2011–12 National Postsecondary Student Aid Survey (NPSAS) by 

the Center for American Progress (CAP) specifically for this testimony. Information about the 

National Postsecondary Student Aid Survey can be found at http://nces.ed.gov/surveys/npsas/ 

. The CAP analysis was performed using the National Center for Education Statistics Datalab 

at http://nces.ed.gov/datalab/. 

8 Consumer Financial Protection Bureau and U.S. Department of Education, Private Student 

Loans, August 29, 2012, available at http://files.consumerfinance.gov/f/ 

201207lcfpblReportslPrivate-Student-Loans.pdf. 9Senator Jeanne Shaheen, ‘‘Shaheen Introduces Bill To Help Students Manage Debt’’, March 

11, 2014, available at http://www.shaheen.senate.gov/news/press/release/?id=bbe0cf00-6d91- 

4678-8d03-223d4804334f. 

credits, the number of students that borrow to meet educational expenses have increased as has the amount that each student must borrow. Between 2007–08 and 

2011–12, the median amount borrowed by undergraduates completing: 

• a bachelor’s degree increased from $20,000 to $26,500, or 33 percent, in just 4 

years. 

• an associate’s degree increased from $8,500 to $13,590, or 60 percent, during 

the same period; and 

• a certificate increased from $8,813 to $10,327, or 17 percent. 

Borrowing among graduate students has also increased. The median amount borrowed by graduate students completing a degree program increased from $38,000 

to $55,600, an increase of 46 percent again in just 4 short years. 6

As significant as student loan debt is for those who complete postsecondary education, we need to be most concerned about those who leave college with significant 

amounts of student loan debt but without completing their education. While some 

of those leaving postsecondary education before completing a degree do so to start 

a new job or remain in their current job with enhanced skills, many leave simply 

because they feel they aren’t getting what they need out of postsecondary education 

either because of the quality of the program they are enrolled in or their own lack 

of preparation. Among apparent drop outs—students that were enrolled between 

July and December 2011 but did not earn a degree or certificate or re-enroll for the 

spring term in 2012, nearly half had borrowed with median debt among those who 

borrowed of $10,000 while 10 percent of borrowers had debt in excess of $33,000. 7

Private Student Loans 

In addition to the Federal loan programs, many students and their families take 

out private student loans. One of the issues with private student loans is that we 

lack good data on the scope and condition of the market. Today, our best data on 

the interaction between Federal and private loans is the National Postsecondary 

Student Aid Survey (NPSAS). This survey is only conducted every 4 years and does 

not provide student level information. As a result, unlike Federal student loans 

where the Government knows exactly who has student loans, how much debt they 

have incurred, and the repayment status of that debt, the private student loan market is opaque. Even estimates of the magnitude of the amount outstanding private 

loans vary dramatically—from as low as $80 billion to a high as $140 billion. 8 Better information on private student loans is critical both for policymakers and for 

borrowers. Senator Shaheen has embraced an idea we advocated in her Simplifying 

Access to Student Loan Information Act, 9 which calls for the development of a central online portal that would allow students to review all their public and private 

student loans as well as repayment options in one place, which would in turn help 

students better manage, understand and repay their debt. Such a system would also 

allow policymakers to have access to transparent information into the size and 

health of the private student loan market. Data on this market is critical to understand the impact of student loans on the economy. 

The data from the NPSAS paint a troubling picture of the role that private loans 

play in financing a postsecondary education by increasing the level of debt that student ultimately hold at graduation. For example, among students receiving a bachelor’s degree in 2011–12, graduates with both Federal and private loans borrowed 

an average of $33,600, or 35 percent more than those with just Federal loans who 

have an average debt of $24,800. Among students receiving a graduate degree in 

2011–12, graduates that had both Federal and private loans borrowed an average 

33 

10 Analysis of data from the 2011–12 National Postsecondary Student Aid Survey (NPSAS) 

by the Center for American Progress (CAP) specifically for this testimony. Information about 

the National Postsecondary Student Aid Survey can be found at http://nces.ed.gov/surveys/ 

npsas/. The CAP analysis was performed using the National Center for Education Statistics 

Datalab at http://nces.ed.gov/datalab/. 11Senator Richard Durbin, ‘‘As Student Loan Debt Surpasses $1 Trillion, Senators Introduce 

Legislation To Address Crisis’’, January 23, 2013 available at http://www.durbin.senate.gov/ 

public/index.cfm/pressreleases?ID=adad47a3-9b82-4c46-b971-57bb9dc11044. 12 Rohit Chopra, ‘‘Sunshine for Student Financial Products’’, Consumer Financial Protection 

Bureau, December 17, 2013, available at http://www.consumerfinance.gov/blog/sunshine-forstudent-financial-products/. 13Senator Tom Harkin, ‘‘With Focus on Affordability and Access, HELP Chairman Harkin 

Unveils Discussion Draft To Reauthorize Higher Education Act’’, Senate Health, Education, 

Labor, and Pensions (HELP) Committee, June 25, 2014, available at http:// 

www.help.senate.gov/newsroom/press/release/?id=5d38939d-4dc5-4ca8-9924-5762c9bb30e7. 

of $68,600, or 61 percent more than those with just Federal loans who averaged 

$42,500. 10

Differences in Consumer Protections 

There are significant differences in the consumer protections among Federal loans 

and private student loans. Private student loans typically charge higher, often riskadjusted, interest rates, require cosigners, and lack many of the consumer protections standard in Federal student loans. Federal student loan borrowers have access 

to an array of repayment options that include plans that allow them to pay 10 or 

15 percent of their discretionary income, which is the amount above a subsistence 

budget. Private student loans often offer only one repayment plan of fixed term and 

monthly payments. Federal student loan borrowers are also entitled to deferments 

and forbearances and the loans are forgiven on the death or total, permanent disability of the borrower. While some private lenders offer borrowers the opportunity 

to apply for forbearance, additional fees for setting up the forbearance are common. 

Finally, most Federal loans can also be forgiven after 20 years of repayment under 

an income-based repayment plan, which can be shortened to 10 years for those 

working in public service. Although some State loan programs offer targeted loan 

cancellation for public service, none is a sweeping as that offered by the Federal 

offer and no private lender offers a formal loan forgiveness program. 

What is also concerning is that some private student loans are made directly to 

students without knowledge or involvement of the institution of higher education. 

In order to ensure that students first take full advantage of the Federal student financial aid available, the institution must know if the student has applied for and 

will receive a private loan. For this reason, I believe the proposal put forth by Senator Durbin—along with Senators Harkin and Franken—for the Know Before You 

Owe Private Student Loan Act of 2013 is particularly important. 11 This bill would 

require lenders to seek certification of attendance status and cost of attendance before making a private loan and requires that the postsecondary institutions provide 

this information to the lender. Not only would the certification play an important 

role when the loan is being originated but it also would provide the opportunity for 

the institution to do appropriate loan counseling. 

As important as it is for the institution to know about a private loan being made 

to a student, it is equally important to eliminate the potential abuse that could 

occur if an institution stands to benefit financially from the making of the private 

loan or the provision of other financial products to students. The Consumer Financial Protection Bureau has been examining the relationships between institutions of 

higher education and financial products being offered to students. Last December, 

Richard Cordray, Director of the Consumer Financial Protection Bureau, expressed 

concerns about some financial institutions making secret payments to institutions 

of higher education. He called on the financial institutions to voluntarily make those 

payments public. 12 Senator Harkin, in his discussion draft of a bill to extend and 

improve the Higher Education Act of 1965 13 has proposed a similar safeguard as 

a code of conduct that would prohibit an institution or an employee of an institution 

from profiting from the making of a private student loan or selling other financial 

product. These safeguards are clearly necessary. Some institutions of higher education have placed their economic interest before those of their students in entering 

into agreements with vendors to offer financial services and products to them. One 

glaring recent example is the growing use by institutions of prepaid debit cards to 

disburse Federal student aid funds. When prepaid debit cards are issued in other 

contexts, efforts have been made to ensure that consumers have a choice of financial 

products to minimize the amount of their own wages or benefits needlessly eroded 

34 

14 Joe Valenti and David Bergeron, ‘‘How Qualified Student Loans Could Protect Borrowers 

and Taxpayers’’, Center for American Progress, August 20, 2013, available at http:// 

www.americanprogress.org/issues/higher-education/report/2013/08/20/72508/how-qualifiedstudent-loans-could-protect-borrowers-and-taxpayers/. 15Dina ElBoghdady, ‘‘Student Debt May Hurt Housing Recovery by Hampering First-Time 

Buyers’’, Washington Post, February 17, 2014, available at http://www.washingtonpost.com/ 

business/economy/student-debt-may-hurt-housing-recovery-by-hampering-first-time-buyers/ 

2014/02/17/d90c7c1e-94bf-11e3-83b9-1f024193bb84lstory.html. 16 Richard Fry, ‘‘A Rising Share of Young Adults Live in Their Parents’ Home’’, Pew Research, 

August 1, 2013, available at http://www.pewsocialtrends.org/2013/08/01/a-rising-share-ofyoung-adults-live-in-their-parents-home/. 17 Catherine Rampell, ‘‘As New Graduates Return To Nest, Economy Also Feels the Pain’’, 

New York Times, November 16, 2011, available at http://www.nytimes.com/2011/11/17/business/economy/as-graduates-move-back-home-economy-feels-the-pain.html?—r=1&. 18Meta Brown, Sydnee Caldwell, and Sarah Sutherland, ‘‘Young Student Loan Borrowers Remained on the Sidelines of the Housing Market in 2013’’, Liberty Street Economics, Federal Reserve Bank of New York, May 13, 2014, available at http:// 

libertystreeteconomics.newyorkfed.org/2014/05/just-released-young-student-loan-borrowers-remained-on-the-sidelines-of-the-housing-market-in-2013.html#.U9aIuSbD-70. 19William G. Gale, Benjamin H. Harris, Bryant Renaud, and Katherine Rodihan, ‘‘Student 

Loans Rising: An Overview of Causes, Consequences, and Policy Options’’, Brookings Institute, 

May 2014 available at http://www.brookings.edu/research/papers/2014/05/student-loan-debtrising-gale-harris. 20Phyllis Korkki, ‘‘The Ripple Effects of Rising Student Debt’’, New York Times, May 24, 

2014, available at http://www.nytimes.com/2014/05/25/business/the-ripple-effects-of-risingstudent-debt.html. 

by fees. The same should be true for the students aid dollars, which may be flowing 

in the form of student loans. 

Bankruptcy Protection 

Despite the differences between Federal and private loans, they do have one thing 

in common: generally speaking, neither can be discharged through bankruptcy. 

Since our Nation’s founding, bankruptcy has been a last resort for individuals and 

businesses facing severe economic hardships in need of a fresh start. Bankruptcy 

is available for nearly all types of borrowers and types of debt except for student 

loans and mortgages on a primary residence. 

Some members of Congress have proposed legislation that would again permit private student loans to be discharged more readily in bankruptcy, effectively making 

student loans equal to credit card debt. Not all private loans are bad and not all 

Federal loans are ultimately good for borrowers. For example, not all Federal loans 

have the same borrower protections. While income-based repayment options, like 

Pay As You Earn, often make it easier for borrowers to meet their living expenses 

and pay off at least a portion of their student loans, parents using PLUS loans to 

borrow for a child’s education are generally excluded from using the income-based 

repayment benefit. Making student loans dischargeable in bankruptcy is not just an 

issue for young adults but also of parents. Congress should move to make some student loans dischargeable in bankruptcy. Last year, CAP offered a proposal to reform 

the bankruptcy treatment of student loans. Specifically, we suggested that only 

loans with certain characteristics should be protected from discharge in bankruptcy—loans with reasonable interest rates and fees; deferment and forbearance 

provisions similar to today’s Federal loans; access to income-based repayment; and 

reasonable likelihood of repayment. 14

Impact of Student Loans on the Economy 

Whether we take steps to address the bankruptcy treatment or otherwise improve 

the terms and conditions under which private student loans are offered, it appears 

that the record levels of student loan debt may have hampered recovery from the 

recession, or even long-term growth. 15 As student loan debt rises, young people are 

more likely to live with their families. A recent Pew Research Center analysis found 

that 21.6 million young adults were living with their parents in 2012—an increase 

of 3.1 million since the start of the Great Recession in 2007, which is not accounted 

for by increased college enrollment. 16 Household formation is critical for economic 

activity as Moody’s Analytics estimates that each new household generates an estimated $145,000 of economic activity. 17 As recently as May, Liberty Street Economics wrote on the impact of student loan debt on home ownership and auto markets. 18 There is also some evidence that high levels of student debt may cause borrowers to delay marriage or having children. 19 Others have offered evidence that 

the current levels of student loan debt are impacting the creation of small businesses 20 and, although there is not empirical evidence, high levels of student loan 

35 

21David Bergeron, Elizabeth Baylor, and Joe Valenti, ‘‘Resetting the Trillion-Dollar StudentLoan Debt Problem Center for American Progress’’, November 21, 2013, available at http:// 

www.americanprogress.org/issues/higher-education/report/2013/11/21/79821/resetting-thetrillion-dollar-student-loan-debt-problem/; and Anne Johnson and Tobin Van Ostern, ‘‘It’s Our 

Interest: The Need To Reduce Student Loan Interest Rates’’, Center for American Progress, February 13. 2013, available at http://cdn.americanprogress.org/wp-content/uploads/2013/02/ 

StudentLoanRefinancing-5.pdf. 22 Beth Akers and Matthew M. Chingos, ‘‘Is a Student Loan Crisis on the Horizon?’’, Brown 

Center on Education Policy at Brookings, June 2014, available at http://www.brookings.edu// 

media/research/files/reports/2014/06/24%20student%20loan%20crisis%20akers%20chingos/ 

is%20a%20student%20loan%20crisis%20on%20the%20horizon.pdf. 23 Basit Zafar, Zachary Bleemer, Meta Brown, and Wilbert van der Klaauw, ‘‘What Americans 

(Don’t) Know About Student Loan Collections’’, Liberty Street Economics, Federal Reserve Bank 

of New York, June 5, 2014, available at http://libertystreeteconomics.newyorkfed.org/2014/06/ 

what-americans-dont-know-about-student-loan-collections.html#.U9ZdWCbD-70. 

debt likely result in delayed retirement savings or lower saving levels overall further damaging long-term financial security. In analysis CAP did earlier this year, we found that of the $1 trillion in Federal 

student loans outstanding, only 60 percent of borrowers in repayment were actually 

making scheduled payments. The remaining 40 percent of borrowers were in 

deferment, forbearance, or default. As noted above we do not have good data on the 

condition of private student loans. However, I do not believe that those loans are 

in a better condition than Federal student loans, which could mean that there is 

an additional $30 to $80 billion in distressed private loans. 

Most troubling for me are borrowers that have both private and Federal student 

loans. The combination of private and Federal student loans leaves borrowers 

caught between a rock and a hard place. The private student loan, because it is less 

flexible, may be more difficult and expensive to pay back, but the consequences for 

nonpayment of Federal loans are much higher. Borrowers with both types of loans 

who cannot keep up with payments must choose between falling behind on a highinterest private loan, leading to owing more interest and damaging one’s credit, or 

falling behind on a Federal loan, leading to possible wage garnishment and other 

penalties. 

CAP has strongly advocated for refinancing of student loans to the same low interest rates that apply to other loan products in order to make families more financially secure and stimulate the broader economy. A number of senators have offered 

proposals for refinancing of both Federal and private student loans including Senator Warren who offered the Bank on Students Emergency Loan Refinancing Act, 

which is cosponsored by the majority of this Committee. Last month, Senator Warren’s bill failed to get the 60 votes needed to advance the legislation, with a 56– 

38 vote on the Senate floor. I hope that the Senate will reconsider that important 

legislation again in the fall because refinancing student loans would potentially save 

borrowers billions, give them the ability to take control of their future and become 

more financially stable. The money that student loan borrowers would save could 

be spent and reinvested in the economy. Lowering student loan interest rates to 5 

percent would save $14 billion for borrowers and add $21 billion to the economy in 

the first year alone. 21 Refinancing student loans would be good for young people 

and their families, allowing as many as 25 million borrowers to make smaller student loan payments. 

Some analysts have argued that a typical student loan borrower is no worse off 

today than a generation ago. These analysts go on to suggest that borrowers struggling with high debt loads is not new and that the percentage of borrowers with 

high payment-to-income ratios has not increased over the last 20 years and may 

have declined. 22 However, the analysts discount the significance of one particularly 

disturbing trend—the lengthening of the time required to repay a student loan from 

7.5 years to 13.4 years, an increase of 79 percent, a significant change resulting 

from the loan consolidation activity that occurred in the early 2000s. The lengthening of the time required to repay a student loan should not be discounted. If it 

takes more than 13 years after graduating to finish repaying student loans, it certainly impacts a borrower’s ability to save for their child’s education, buy a home, 

start a small business, or save for retirement. 

Servicing and Debt Collection 

Even with good terms and conditions for the Federal student loans, poor servicing 

of those loans can increase loan delinquencies and defaults. A study of student loan 

servicing conducted by the Federal Reserve Bank of New York demonstrates that 

there are significant gaps in the servicing of student loans. 23 The Federal Reserve 

analysis revealed that most households, even among those with higher levels of student loan literacy, had a poor understanding of the implications of being delinquent 

36 

24The Appendix, Budget of the United States Government, Fiscal Year 2015, Office of Management and Budget, Executive Office of the President, March 4, 2014, available at: http:// 

www.whitehouse.gov/omb/budget/Appendix. 25Patrick J. Howard, ‘‘Handling of Borrower Complaints Against Private Collection Agencies’’, 

Office of Inspector General, U.S. Department of Education, July 11, 2014, available at: http:// 

www2.ed.gov/about/offices/list/oig/auditreports/fy2014/a06m0012.pdf. 26The Appendix, Budget of the United States Government, Fiscal Year 2015, Office of Management and Budget, Executive Office of the President, March 4, 2014, available at: http:// 

www.whitehouse.gov/omb/budget/Appendix. 27 CFPB To Oversee Nonbank Student Loan Servicers, Consumer Financial Protection Bureau, December 3, 2013, available at http://www.consumerfinance.gov/newsroom/cfpb-to-oversee-nonbank-student-loan-servicers/. 

on student loans. This should not be surprising as there is significant pressure on 

the Federal Government and private lenders to service as cheaply as possible. 

Today, the Federal Government spends between $1.67 and $2.22 per month per account on servicing. 24

Additionally, the current student loan servicing system is a product of regulations 

that govern the servicing of Federal Family Education Loans (FFEL). These regulations were written in the 1970s to reflect the then existing ‘‘best practices’’ in loan 

servicing. These regulations became the de facto standard for student loan servicing 

not just for FFEL but also for private loans. When the Federal Direct Loan Program 

was implemented, the FFEL servicing regulations became the core of the business 

rules governing servicing in the new Direct Loan program. During my tenure with 

the Department of Education, we often discussed the need to update and improve 

the loan servicing regulations but the loan servicers, having built automated systems to implement those regulations, opposed any effort to update them. 

The Department moved from rule-based to performance-based servicing for the 

Direct Loan Program; the hope at that time was that such a change would improve 

the quality of service and lead to innovation in the way the Federal student loans 

are serviced. Unfortunately, other changes to the servicing system have limited the 

potential impact of this change. When the Health Care and Education Reconciliation 

Act was enacted, a provision was included that mandated awarding servicing contracts to not-for-profit loan servicers. The not-for-profit loan servicers were guaranteed a specific number of loan accounts to service, which rendered the performancebased elements of the servicing contracts ineffective. 

The bottom line is that student loans need better servicing. If a debt is appropriately serviced, the borrower is less likely to become delinquent and default. But 

we need to remember that there is an entire industry that has grown up around 

delinquency and default in student loans. Currently, the Department of Education 

employs 22 private contractors 25 to collect on the more than $35 billion in defaulted 

student loan debt. 26 Private lenders, guarantee agencies, and institutions also employ private debt collection contractors. A recent audit by the Department of Education’s Inspector General found that the Department did not effectively monitor 

whether the private collection agencies are abiding by the Federal debt collection 

laws. Given the high stakes associated with Federal student loans, such a lapse is 

very troubling and suggests that it may be time to fundamentally rethink our student loan strategy. Last December, the Consumer Financial Protection Bureau 

issued a rule that will allow the agency to supervise nonbank student loan servicers 

for the first time. I applaud the Bureau’s action because it brings needed protections 

to a financial market that has seen a rise in borrower delinquency in recent years. 27

But what is also necessary is for significant improvements in the servicing of private student loans. 

Let me conclude by asking a fundamental question: why, with all the repayment 

options available to borrowers today, do we still have defaults in the Federal student loan programs? Likely, it is because we have made the system too complex to 

navigate, we are not doing a good enough job in counseling students before they borrow or when they leave postsecondary education, and we are not servicing the loans 

well enough. 

Ultimately, we need to rethink how we are making and collecting on Federal student loans. Perhaps it is time to consider, as some in Congress and the community 

have suggested, using the wage withholding system to collect student loans as a 

way to prevent delinquency and default. Under a wage withholding based student 

loan collection system, the borrower would tell her employer that she had a student 

loan. The employer would withhold a student loan payment equal to, for example, 

10 percent of the borrower’s discretionary income. The employer would send the student payments to the Federal Government along with the income and other taxes 

withheld. At least quarterly, the employer would provide sufficient information to 

the Federal Government to reconcile the loan payments for each borrower. Once the 

37 

1 Report, ‘‘The Campus Debit Card Trap’’, U.S. Public Interest Research Group Education 

Fund, May 30, 2012. 2 Issue Brief, ‘‘Perspectives on Financial Products Marketed to College Students’’, The Consumer Financial Protection Bureau, March 26, 2014. 

loan is repaid, the Federal Government would refund to the borrower any overpayment that results from the wage withholding. Such as collection system for student 

loans is not new. Australia and New Zealand have such systems. However, in the 

United States we should allow the employee to opt out of wage withholding and arrange to pay under an alternative repayment system. This would be similar to the 

alternative quarterly filling which some taxpayers use today. Implementing a wage 

withholding based repayment system would result in fewer defaults and less delinquency in the Federal loan programs. Since defaults and delinquency on Federal 

student loans are extremely harmful to borrowers, and only the debt collection contractors ultimately benefit from defaults, such a new system should be considered. 

Such an approach would also significantly reduce the cost of servicing. These savings could be passed on to borrowers through lower interest rates or to current students through increased Pell Grants. 

Thank you again for the opportunity to appear before you today. I am happy to 

respond to any questions you have. 

PREPARED STATEMENT OF CHRISTINE LINDSTROM 

HIGHER EDUCATION PROGRAM DIRECTOR, U.S. PUBLIC INTEREST RESEARCH GROUP

JULY 31, 2014 

Thank you Chairman Johnson, Ranking Member Crapo, and other distinguished 

Senators for giving me this opportunity to speak. My name is Chris Lindstrom, and 

I am the Higher Education Program Director with the U.S. Public Interest Research 

Group (U.S. PIRG). U.S. PIRG is a federation of State-based consumer protection 

groups, which have 75 campus chapters in 20 States across the country. On behalf 

of those student chapters, our project works to promote affordable and manageable 

student loan policy, to increase grant aid, and to protect student consumers on campus. 

The topic of today’s hearing is broad, so I will focus my remarks on issues that 

U.S. PIRG has been actively tracking and promoting related to the role of financial 

institutions on campus. Our top priority over the past 2 years has been the debit 

cards and bank accounts that millions of students are exposed to on campus each 

term. I will also briefly touch on the private and institutional loans that students 

may take up to pay for college. 

Since 2007, we’ve worked to ensure that students are protected from the tricks 

and traps layered into high-cost products like campus credit cards, private student 

loans, and campus bank accounts and debit cards. Right now, students are being 

hit with high fees that are hard to avoid as they try to access their Federal aid refunds through campus-sponsored bank accounts and prepaid debit cards. The lowest 

income students, who receive the most in financial aid, are the prime targets for 

these products and are the hardest hit. Paying extra fees to access financial aid 

through a campus-sponsored account, combined with a high student debt burden 

and other pressing financial concerns such as child care and transportation costs, 

can overwhelm low income students and cause them to withdraw from post-secondary programs. 

We found in our 2012 report, ‘‘The Campus Debit Card Trap’’, that two in five 

college students in the country are exposed to debit cards on campus that may drive 

up their costs. Students at some campuses are charged steep and unusual fees to 

get to their Federal financial aid, including PIN transaction fees at the point of sale 

and overdraft fees at $37 or more. On the whole, these accounts are not necessarily 

a better deal for students than what they might find through a bank not affiliated 

with campus. 1

Still, industry leading banks and financial firms can see 40 to 75 percent of students on a campus using the campus based products after a few years of marketing. 2 How do they do it? How do they get such high uptake into accounts that 

are not any better, and in many cases, worse, than what they would get in accounts 

off campus? How are they profiting? 

First, banks and financial firms behind these products often rely on revenue-sharing agreements with campus administrations to gain dominant access to students 

on campus. Contracts disclosed to the Consumer Financial Protection Bureau, as 

part of its investigation launched last year include receiving direct payment to use 

38 

3 News story, ‘‘New Haven’s Higher One Faces New Restrictions in Draft Federal Rules’’, The 

New Haven Register, March 25, 2014. 4 News Story, ‘‘Bank Pays $34 Bounty for New College Customers’’, ABC News, September 

5, 2013. 5Press Release, ‘‘FDIC Announces Settlements With Higher One, Inc., New Haven, Connecticut, and the Bancorp Bank, Wilmington, Delaware, for Unfair and Deceptive Practices’’, 

Federal Deposit Insurance Commission, August 8, 2012. 6 Issue Brief, ‘‘Perspectives on Financial Products Marketed to College Students’’, The Consumer Financial Protection Bureau, March 26, 2014. 7Press Release, ‘‘CFPB Launches Inquiry on Campus Financial Products’’, January 31, 2013. 

8 Report, ‘‘Third-Party Servicer Use of Debit Cards To Deliver Title IV Fund’’, Department of 

Education Office of the Inspector General, March 10, 2014. 

the school’s logo, providing bonuses for recruiting students, and discounted pricing 

in exchange for marketing access. 

Second, they use push marketing and other strategies to steer students into opening up these new accounts over using their existing accounts. Higher One, a prominent financial firm in this market, premails a card to every student on campus, before they have opted in or out. The cards are cobranded with the college logo, giving 

the impression that the student must open the account. 3

Once the student logs online to opt in or opt out, Higher One steers folks into 

their accounts by slowing down their aid disbursements if they make a choice other 

than Higher One. This makes it unfairly onerous to set up direct deposit to an existing bank account to receive funds. 

At another college, bank representatives actually set up tables right outside the 

student ID office, and pitch students as they apply for their IDs to sign up for a 

bank account right then and there. These bank accounts can be accessed right 

through the student ID card. Students can get freebies like bags and tee shirts for 

signing up. 4

Finally, the fees can be high, and unusual. Fees on university-sponsored cards include a variety of PIN swipe fees, inactivity fees, overdraft fees, ATM fees and fees 

to reload prepaid cards. These fees can be hard to avoid—for example, if a merchant 

only accepts PIN debit, or there is no fee-free ATM available. Additionally, if these 

fees are being paid out of Federal loan funds, then students are paying interest on 

these fees for at least a decade. 

All campus bank accounts and prepaid card services charge overdrafts. Overdraft 

coverage is a form of credit, since the financial institution covers the consumer’s 

shortfall and subsequently is repaid the amount extended plus a fee. Some banks 

engage in the abusive practice of purposefully ‘‘reordering’’ transactions to maximize 

overdraft fees. In 2012, the FDIC settled a case with Higher One for $11 million 

dollars over similar claims. 5 Overdraft fees are inconsistent with the Department 

of Education’s existing rules on school-sponsored accounts, which state that schools, 

and the financial institutions handling financial aid refunds on the school’s behalf, 

cannot market a card or account as credit or convert it to a credit instrument. 

Department of Education rules also require that students be provided ‘convenient’ 

fee-free ATM access. In practice, such access can be limited. At many community 

colleges, there is a run on the campus ATM machines on the day that financial aid 

is disbursed. The machines are cleaned out of cash early so students at the back 

of the line must go to a foreign ATM machine to access their aid, where they incur 

fees. Also, machines on campus may be closed for maintenance for days at a time, 

or be located in buildings that are locked at nights and on weekends. 

One argument that is being made in defense of these campus banking products 

is that too many low income students are not able to acquire a bank account other 

than on campus, and by controlling their access to campus bank accounts, their access to other beneficial products available in the mainstream financial marketplace 

is blocked. The CFPB laid this argument to rest at a recent presentation to the U.S. 

Department of Education. The agency analyzed data from the Federal Deposit Insurance Commission and the Current Population Survey. It found that very few students—less than half a percent—are legitimately unable to secure a bank account. 

What that means is that a new student on campus doesn’t have a bank account because she has chosen not to have one, or hasn’t gotten one yet. 6 So, put simply, 

students do not need campus sponsored bank accounts. 

There is a steady drumbeat of evidence that campus-sponsored accounts are a bad 

deal for students. In the past 2 years, at the request of Senator Dick Durbin (DIL) and Representative George Miller (D-CA), the CFPB has undertaken an investigation; 7 so has the Department of Education’s Inspector General which resulted 

in a recent report, 8 and finally, the General Accounting Office has recommended 

39 

9 Report, ‘‘College Debit Cards: Actions Needed To Address ATM Access, Student Choice, and 

Transparency’’, General Accounting Office, February 13, 2014. 10Press Release, ‘‘Higher One Agrees To Settle Class Action Regarding OneAccount Fees’’, 

Tycko and Zavareei, July 23, 2014. 11Press Release, ‘‘FDIC Announces Settlements With Higher One, Inc., New Haven, Connecticut, and the Bancorp Bank, Wilmington, Delaware, for Unfair and Deceptive Practices’’, 

Federal Deposit Insurance Commission, August 8, 2012. 12Press Release, Board of Governors of the Federal Reserve System, July 1, 2014. 13 Report, ‘‘Private Loans, Public Complaints: The CFPB’s Consumer Complaints Database 

Gets Real Results for Student Borrowers’’, U.S. Public Interest Research Group Education Fund, 

October 24, 2014. 14 Report, ‘‘For Profit Higher Education: The Failure To Safeguard the Federal Investment 

and Ensure Student Success’’, Senate Health Education, Labor, and Pensions Committee, July 

30, 2012. 

policy changes that would benefit students. 9 There is also a class action lawsuit 

pending in Connecticut 10 and two major enforcement actions by the FDIC 11 and the 

Federal Reserve Board 12 with another still in development. The Department of Education is also in the process of updating its rules to address similar concerns. 

While these actions are encouraging, I urge you to promote solutions from this 

chamber as well. Our elected leaders in the Senate can act directly on behalf of students and families shouldering high costs associated with higher education. 

I urge you to consider legislation that bans revenue-sharing agreements between 

colleges and banks or financial firms crafted specifically to offer bank accounts and 

related banking products to students on campus. The conflict of interest inherent 

in these agreements is problematic for the student consumer. We’ve seen this conflict of interest before in the campus marketplace around private student loans and 

campus credit cards. In fact, both Congress and the Department of Education have 

acted decisively in recent years to limit push-marketing tactics, revenue sharing, 

and unfavorable terms on private student loans and credit cards offered on campus. 

Now is the time to extend similar solutions to campus bank accounts and related 

products. Such a solution would remove any financial incentive for a college to 

‘‘monetize’’ its relationship with a bank in a way that harms students. Specifically, 

effective legislation would ban banks and financial firms from offering compensation 

to schools for assisting in the marketing of financial products; and would further 

require that any financial products recommended by the college to students be in 

the students’ best interests. 

Private student loans are another financial product targeting students. While 

these loans only accounted for seven percent of all educational loans made last year, 

they are very risky. Private student loans, like credit cards, generally offer variable 

interest rates that are higher for those borrowers with the least means. Repayment 

options are also severely limited. While the market for private student loans shrunk 

due to the financial crisis, it is expanding once again. 13 According to the CFPB, the 

majority of private student loan borrowers have not maximized their Federal student loans before turning to private loans. I encourage you to consider legislation 

that will add more checks and balances into the private student loan market, specifically by requiring that all private student loan products must be certified by the 

student’s financial aid office before approval. 

In a similar vein, institutional private loans deserve scrutiny. A Senate HELP 

committee investigation found that half a million students leave their for-profit college without a degree, shouldering high debt levels that are more challenging to 

manage without credentials. 14 Before the financial crisis, for-profit colleges played 

the role of financial institution, offering institutional private loans to student recruits on top of their Federal loans. While many of these institutional loan programs 

have been discontinued, borrowers who are in repayment now carrying these loans 

are dealing with high costs and little recourse. We urge you to consider offering restitution for these borrowers who are ensnared in these bad loan deals. 

PREPARED STATEMENT OF KENNETH KOCER 

DIRECTOR OF FINANCIAL ASSISTANCE, MOUNT MARTY COLLEGE, YANKTON, SOUTH

DAKOTA, AND PRESIDENT, SOUTH DAKOTA ASSOCIATION OF STUDENT FINANCIAL

AID ADMINISTRATORS

JULY 31, 2014 

Chairman Johnson, Ranking Member Crapo, and Members of the Committee, 

thank you for inviting me to testify this morning on the important topic of private 

education loans. For the past 23 years I have served as Director of Financial Assistance at Mount Marty College in Yankton, South Dakota. I am also the current 

40 

president of the South Dakota Association of Student Financial Aid Administrators 

(SDASFAA). In addition, my institution is also a member of the National Association of Student Financial Aid Administrators (NASFAA), the national association 

representing financial aid administrators at the Federal level. 

At Mount Marty College, we actively promote the Federal student loan programs 

for students as their first and best option when considering a loan to assist with 

educational costs, as do many of my colleagues throughout South Dakota. In particular, financial aid administrators counsel students on the many benefits of the 

Federal student loan program, including the availability of subsidized interest for 

certain borrowers, options for loan forgiveness, and the multiple generous repayment plans. Beyond these benefits, the Federal Direct Loan program additionally offers: deferment and forbearance options, Federal consolidation opportunities, and in 

many instances lower interest rates. 

Even with students being counseled to utilize (and exhaust) the Federal student 

loans available to them, some still find that they need additional resources. Private 

loans can fill the gap in certain cases, by funding a student’s educational costs when 

Federal resources fall short. Institutions in South Dakota generally have a lower 

tuition rate when compared to other States, yet even we find that some students 

will need to utilize private education loans. In surveying my colleagues throughout 

the State, as many as one third of students on some campuses receive private education loans. 

I’d like to share with you an example of the ‘‘gap’’ that I described above, that 

may cause a student to utilize a private student loan in order cover educational 

costs. Let’s say an institution costs $18,000 for tuition, fees, room and board, setting 

aside for now any indirect costs like books, transportation, and personal costs. 

If the student is not Pell Grant eligible, the only guaranteed Federal eligibility 

the student has as a first year dependent undergraduate student is a direct loan 

for the amount of $5,500. Using the aforementioned example of our $18,000 school, 

this leaves over $12,000 which the student would need to find a way to fund. Lacking parental support, this shortfall in Federal loan eligibility leaves the student 

looking to other options. For this reason private student loans, with proper consumer protections, do fill an important need for some students. 

I’d like now to briefly walk you through the processing procedure for private student loans. It begins with the student selecting a private lender they feel best suits 

their needs. In South Dakota a number of schools provide a site where students can 

access a ‘‘historical’’ list of private loans that students at that institution have utilized in the past. Importantly, providing a ‘‘historical list’’ of private education loans 

is different than providing a ‘‘preferred lender list,’’ in which case the schools recommend specific private loans to students. A historical list displays features of the 

different private loan programs, enabling students to make comparisons that hopefully lead to an informed decision. Once a student selects the private loan they wish 

to borrow, they apply for the loan directly through the private lender, the lender 

approves the loan, and a certification request is sent to the school. The school reviews the student’s educational cost of attendance and the financial aid resources 

that the student has already received (for example, Federal loans and grants) to determine the amount of the private loan for which the student is eligible. 

By involving the school in the private loan certification process, it allows the 

school to track all borrowing a student is incurring, and counsel the student on the 

overall amount of their loan debt. From an institutional perspective, we consider 

this a good practice as it provides us with more information to assist in preventing 

students from over-borrowing. Through the process of certifying the private loan the 

school can ensure the student has not borrowed beyond the calculated cost of attendance. 

There are quite a few private lending institutions that currently utilize school certification as a prerequisite in determining whether the student is eligible for their 

private education loan, but lenders are not required to do so. 

Having provided some context on private education loans, I’d like to offer the following recommendations to improve the private loan process for all borrowers. 

Recommendation 1 

Require School Certification for All Private Education Loans 

The current private education loan application process should be revised to continue to counter the impact of lender marketing, and to assist in managing student 

over-borrowing. Replacing student self-certification with full school certification 

would give institutions the opportunity to ensure that a student is aware of the benefits of Federal loans before the student commits to a potentially less favorable private loan. Additionally, by requiring that an aid administrator review the student’s 

41 

remaining eligibility under cost of attendance limits, we can help reduce unnecessary or inappropriate student borrowing. 

Recommendation 2 

Provide One Single Web Site Where Students Can See All Their Education Borrowing From Federal, Institutional, and Private Sources 

SDASFAA supports NASFAA’s recommendation to create a universal loan portal 

for students. 

Congress should mandate the creation of a single web portal where students can 

easily access information about all of their student loans. This would allow all educational loans from the Federal Government, private lenders, and colleges and universities to be reported to one central database. The creation of such a resource 

could result from the expansion of the data collected by the National Student Loan 

Data System (NSLDS). 

Students need an accessible ‘‘one-stop shop’’ where they can manage their student 

loans. Many borrowers have multiple loans with different loan holders that may be 

in various stages of repayment. Having a central Web site where borrowers could 

access information about all of their loans would significantly help students as they 

manage their borrowing and repayment. Under such a scenario, all students would 

have access to their entire debt portfolio in real time, enabling them to calculate 

a more accurate monthly repayment amount based on a variety of potential circumstances. 

It is critical that students be able to obtain and monitor all of their loan information in one central database, regardless of their loan’s origination, rather than having to pull information together in a piecemeal fashion, which may cause important 

information to fall through the cracks. Currently NSLDS only partially serves this 

purpose as it includes only some Federal loans, and it does not include health professions loans made through the Department of Health and Human Services (HHS), 

private loans, or institutional loans. A universal loan portal would capture all of 

these loans. 

Appendix: Example of Certifying a Private Loan Under Calculated Cost of 

Attendance 

The U.S. Department of Education provides schools with ‘‘allowable costs’’ which 

may be included in a students’ educational ‘‘cost of attendance.’’ This ‘‘cost of attendance’’ amount is very important as it determines the maximum amount of aid a student may receive and assists in controlling over-borrowing by the student. 

The ‘‘cost of attendance’’ includes direct costs the student may incur such as: 

• Tuition and Fees 

• Room and Board (if on-campus) 

But the cost of attendance also includes ‘‘indirect costs’’ a student may incur such as: 

• Books and supplies 

• Transportation 

• Personal expenses 

Financial aid offices can also take into account other student costs such as disability expenses, child care and a computer used for the students program of study. 

A typical 9 month budget could look something like this: 

Tuition/Fees $10,000 

Room & Board $6,000 

Transportation $2,000 

Personal $2,000 

Books $1,000 

Loan Fees $100 

Total $21,100 

If the student were receiving the following financial aid for this period: 

Pell Grant $5,000 

SEOG Grant $1,000 

Scholarship $4,000 

Perkins Loan $1,000 

TEACH Grant $3,000 

Direct Sub. $3,500 

Direct Unsub. $2,000 

Total $19,500 

42 

1 U.S. Department of Education, National Center for Education Statistics. (2013). Digest of 

Education Statistics, 2012 (NCES 2014-015), Chapter 3. http://nces.ed.gov/fastfacts/display.asp?id=98 2 Bloomberg, ‘‘Cost of College Degree in U.S. Soars 12-Fold’’, August 15, 2012. http:// 

www.bloomberg.com/news/2012-08-15/cost-of-college-degree-in-u-s-soars-12-fold-chart-of-theday.html 3 New York Federal Reserve Board, Current Issues in Economics, ‘‘Do Benefits of Colleges 

Still Outweigh the Costs?’’ May 2014. http://www.ny.frb.org/research/currentlissues/ci20- 

3.pdf 

The school is able to determine that the student still has $1,600 of eligibility re- maining toward allowable educational costs: $21,100 minus $19,500. If a private 

loan request for $10,000 comes to the school for certification, the school would only 

allow $1,600 of that request for the students cost. If, however, the private loan request did not come to the school for certification and instead went directly to the 

student, the student is in essence borrowing $8,400 above their educational costs. 

School certification would prevent this. 

A SDASFAA member institution recently described a student requesting a $20,000 private student loan. This private loan required school certification. The 

school denied the private loan, as the student was already receiving financial aid 

to cover their full educational cost of attendance. As it turned out, the student wanted to buy a car. If this loan had not been certified through the financial aid office, 

it would have added another $20,000 in student loan debt for an item which was 

not education related. 

Simply put, a private lender that does not require school certification, is awarding 

the student based on credit-worthiness, but is not taking into account the actual 

cost of attendance for the student or the resources the student may have already 

received to meet their cost of attendance. 

PREPARED STATEMENT OF RICHARD HUNT 

PRESIDENT AND CHIEF EXECUTIVE OFFICER, CONSUMER BANKERS ASSOCIATION

JULY 31, 2014 

Chairman Johnson, Ranking Member Crapo, and Members of the Committee, 

thank you for convening today’s hearing on financial products for college students. 

The timing of this hearing could not be better. Families across the country are preparing to send students off to school over the next few weeks and, while most will 

have their financing squared away ahead of time, many will make important decisions about how and where to bank once they arrive on campus, therefore the need 

for safe, regulated, transparent products will never be more important. 

The Consumer Bankers Association (CBA) is the trade association for today’s 

leaders in retail banking—financial services geared toward consumers and small 

businesses. Our mission is to preserve and promote the retail banking industry as 

it strives to fulfill the financial needs of the American consumer and small businesses. CBA’s corporate members (the Nation’s largest financial institutions, as well 

as many regional banks) collectively hold two-thirds of the industry’s total assets. 

Our associate members represent the premier providers of technology and services 

to banks. 

Several CBA members provide student loans and banking services for the 21 million students enrolled in U.S. colleges, as well as their families. 1 We appreciate the 

opportunity to offer the insights of our consumer-focused banks on these products, 

services, and their associated marketplaces. 

Before addressing the specific issues you asked me to discuss, I think it is critical 

to acknowledge the real crisis we face today—the rising cost of higher education. 

Since 1978, tuition and fees at institutions of higher education have grown at more 

than four times the rate of inflation and even twice the rate of health care costs. 2

If policymakers fail to find ways to make college more affordable, then we are simply addressing the symptoms of a much bigger problem and allowing it to snowball, 

to the detriment of our Nation’s youngest citizens. CBA members strongly believe 

in the pursuit of higher education, a term which can mean anything from vocational 

training to graduate work, depending on the student’s plans. Continued learning is 

absolutely critical for economic mobility and the success of our Nation’s economy. 

Despite the rising cost of a diploma, study upon study has shown the return on the 

college investment remains unparalleled. 3 CBA’s members are committed to helping 

their customers invest in themselves, their families, and ultimately their futures. 

Deciding where to attend and how to pay for college are among the most important financial decisions an individual will make. Financial institutions can play a 

43 

4 College Board, ‘‘Trends in Student Aid 2013’’. https://trends.collegeboard.org/student-aid/ 

figures-tables/growth-federal-and-nonfederal-loans-over-time 5Measure One, ‘‘Private Student Loan Report 2013’’. http://www.measureone.com/reports 6Measure One, ‘‘Private Student Loan Report 2013’’. http://www.measureone.com/reports 7 Center for Higher Education Reform, ‘‘How Much Is Too Much: Evidence on Financial Well 

Being and Student Loan Debt’’, May 2014. http://www.aei.org/files/2014/05/14/-how-much-istoo-muchl100837569045.pdf 8 U.S. Department of Education, Office of Federal Student Aid, National Default Rate Briefings for FY2011 2-Year Rates and FY2010 3-Year Rates. http://www.ifap.ed.gov/ 

eannouncements/093013CDRNationalBriefings2YRand3YR.html 

role in this process by offering products to help finance college and by working with 

students and their families on planning for their futures. Before many students take 

their first college tour, their families have already benefited from a multitude of 

services provided by financial institutions as they manage their savings. Increasingly, families obtain important advice on paying for college tailored to their needs. 

We think it is never too early to begin this planning process. Financial institutions, 

particularly retail banks, want to help their customers with this pivotal opportunity, 

but the role of financial institutions in higher education lending today is quite limited. I would like to provide you an update on student lending by the private sector. 

Today, the Federal Government Dominates the Student-Lending Marketplace 

The Department of Education (DOE) disburses roughly $100–110 billion per year 

through the Federal Stafford and PLUS programs, 92 percent of student and parent 

loans, 4 compared to $6.5–7.5 billion dispersed by private lenders. 5 Of the more than 

$1 trillion in outstanding student loan debt, less than 8 percent are private loans. 

According to the data analysis firm MeasureOne, which surveyed the seven largest 

private student lenders accounting for 90–95 percent of the private loan market, 

only $90 billion of the $1.2 trillion in outstanding student loan debt consists of private loans. 6

In the wake of the financial crisis, many private student lenders strengthened 

their underwriting standards, while others continued their long-standing practice of 

conservative underwriting, and the performance of private student loans has responded accordingly with delinquency and default rates dropping markedly. Private 

student loans carry no Government guaranty, so if they are not repaid, the lender 

loses. 

As Beth Akers of the Brookings Institute recently wrote, ‘‘[The evidence] does not 

indicate that aggressive regulation of the private lending industry is necessary. As 

discussed, financial institutions have little incentive to provide loans they do not expect the borrower to repay. In this sense, the industry is self-regulating by design.’’ 7

For a lender to offer a sound private loan product, as required by prudential regulators, applications must be put through a robust underwriting process, where a determination is made whether the potential borrower is likely to repay their loans. 

Lenders encourage the use of cosigners, who often have more extensive credit histories and better credit scores than students, in order to offer the lowest possible 

interest rates for consumers. Unlike with Federal Direct Loans, origination fees are 

not charged. 

Data compiled in the MeasureOne 2013 survey of private student lenders, and reflected once again in the second Report issued two days ago (July 29th), clearly demonstrates the value of sound underwriting that responsibly assesses a borrower’s 

ability to repay—delinquencies and defaults are declining and are at the lowest level 

since the credit crisis. Continuing strong private loan performance shows: 

• Early stage delinquencies (30 to 89 days past due) declined 17 percent from Q1 

2013 to Q1 2014 from 3.59 percent to 2.97 percent. 

• Serious delinquencies (90+ days past due) declined 13 percent from Q1 2013 to 

Q1 2014 from 2.92 percent to 2.55 percent. 

• Charge off rates also declined to post credit-crisis lows with rates dropping from 

3.5 percent in Q1 2013 to 3.16 percent in Q1 2014. 

Nearly three out of four private student loans are in active repayment status, as 

opposed to deferment or forbearance, a high rate which again illustrates that private student loan borrowers are successfully managing their repayment obligations. 

By way of comparison, the Federal student loan program carries a 3-year cohort 

default rate of more than 14 percent. 8 Further, much of the Federal loan portfolio 

is not in an active repayment status. Of those loans in active repayment, multiple 

reports have estimated more than 40 percent will default or become at least 90 days 

44 

9 Institute for Higher Education Policy, ‘‘Delinquency: The Untold Story of Student Loan Borrowing’’, March 2011. http://www.ihep.org/assets/files/publications/a-f/delinquencytheluntoldlstorylfinallmarchl2011.pdf 10 Consumer Financial Protection Bureau Blog, ‘‘A Closer Look at the Trillion’’, April 2013. 

http://www.consumerfinance.gov/blog/a-closer-look-at-the-trillion/ 11 Remarks of Raj Date, American Bankers Association Conference, Orlando, FL, June 2012. 

http://www.consumerfinance.gov/newsroom/remarks-by-raj-date-to-the-american-bankers-association-conference/ 12Federal Reserve Amendments to Regulation Z (Truth in Lending), July 30, 2009. http:// 

www.federalreserve.gov/newsevents/press/bcreg/20090730a.htm 13Measure One, ‘‘Private Student Loan Report 2013’’. http://www.measureone.com/reports 

delinquent. 9 This is in spite of generous income-based repayment plans. Data available from the Consumer Financial Protection Bureau (CFPB) and others shows the 

average balance of income-driven repayment plans stands at more than $45,000, 

with an average defaulted Federal loan balance of $14,000. 10 This suggests income 

based repayment plans are helping certain types of borrowers, but may not be a ‘‘silver bullet’’ in terms of eliminating all Federal loan defaults. 

Though Both Federal and Private Student Loans Support the Attainment 

of Higher Education, These Products Are Quite Different in Structure 

and Design 

As has been well-chronicled, there are numerous repayment options on Federal 

student loans, including monthly payment plans tied to income, as well as easily 

available deferments and forbearances for times of economic hardship. Repayment 

flexibility is particularly necessary on Federal student loans because Federal student loans lack a robust assessment of a borrower’s ability to repay. As then-CFPB 

Associate Director Raj Date has said, ‘‘If you are going to lend money, you should 

probably care about getting paid back. And if you care about getting paid back, you 

should probably inquire about, and evaluate, a borrower’s ability to pay you back.’’ 11

However, the unique nature of the Federal student loan program means traditional measures of ability to repay may not be useful for a large portion of these 

programs. The Federal loan programs are designed to foster access to higher education, and the loans are meant to be repaid with future earnings. Annual and cumulative loan limits are somewhat helpful in preventing undergraduate Federal 

Stafford Loan borrowers from over-borrowing. However, the PLUS Loan Program for 

parents and graduate students is designed to supplement the Federal Stafford Programs. These loans are available up to the full cost of attendance, including living 

expenses, and only include a high-level check for major adverse credit events—they 

do not include a prospective assessment of the borrower’s ability to repay. 

By contrast, private student lenders are required to provide comprehensive disclosures of terms, conditions, and full life-loan borrowing costs at multiple times 

throughout the origination process—i.e., at application, approval, and consummation—and to tell students and families about Federal aid programs’ terms as well. 12

Private education loans are critical to helping families fund the gap between other 

available financial aid and the total cost of attendance. Through multiple disclosures 

and ongoing communications, private education lenders assure students and families are well informed about the cost and terms of their loans. 

Private lenders must carefully assess ability to repay, and usually cosigners are 

required or encouraged, because the borrower often lacks credit history. In addition, 

private student loans are school-certified to prevent students from over-borrowing. 

Though only self-certification from the borrower is required under law, 96 percent 

of today’s private student loans are also school-certified to ensure students are not 

borrowing beyond their need. 13 The remaining four percent of private loans which 

are noncertified are loan refinancing for students no longer enrolled, or are designed 

specifically for professional school graduates no longer affiliated with their institution, such as loans for law graduates preparing for the bar exam or medical school 

graduates in a residency program. 

More than simply recouping their funds on the loan, banks involved in private 

student lending have the added incentive to provide excellent service to student loan 

borrowers because they are prospective customers for future products and services 

they will need when they leave school. Banks seek to develop trust and loyalty by 

providing quality products and services. 

The combination of current and future economic incentives results in good customer service for private student loans. Analyzing data from a recent report by the 

CFPB, only 0.03 percent of private student loans received a complaint from conVerDate Nov 24 2008 09:15 Dec 21, 2015 Jkt 046629 PO 00000 Frm 00048 Fmt 6621 Sfmt 6621 L:\HEARINGS 2014\07-31 AM FINANCIAL PRODUCTS FOR STUDENTS - ISSUES AND CH
45 

14 CFPB ‘‘Mid-Year Update on Student Loan Complaints’’. April 2014. http:// 

www.consumerfinance.gov/newsroom/cfpb-finds-private-student-loan-borrowers-face-auto-default-when-co-signer-dies-or-goes-bankrupt/ 15 U.S. Department of Education, Office of Federal Student Aid: https://studentaid.ed.gov/announcements/sequestration. 

sumers. 14 CBA’s members adhere to the ‘‘one complaint is too many’’ philosophy but 

this incredibly low complaint rate suggests a high degree of customer satisfaction. 

In Spite of Its Relatively Small Size, the Private Student Loan Market Continues To Respond to Consumer Demand 

Private student lenders continue to respond to the needs of their customers. Lenders now offer private student loans with both fixed and variable rates, and most 

carry no origination fees, unlike Federal loans. Private lenders continue to meet current refinancing needs, while also increasing their refinance offerings to accommodate customer demand. As far as refinancing existing private student loans, lenders 

are equipped to handle current demand. Several CBA members have offered a refinance product for some time, and others are beginning to launch new programs or 

are developing them. We expect demand for private loan refinance products to continue to grow, but the largest potential win/win for consumers and financial institutions may lie in the private refinancing of Federal student loans. 

Ironically, the CFPB may significantly inhibit the development of products to refinance Federal student loans due to uncertainty over how the Bureau and the courts 

are defining ‘‘UDAAP’’ (Unfair, Deceptive, and Abusive Acts of Practices). Even 

though they may be able to provide a lower rate, most private lenders are reluctant 

to refinance Federal loans until it is clear they will not be liable for a UDAAP violation, because the loans are not eligible for Federal income based repayment programs. CBA urges the CFPB, with the support of Congress, to clarify financial institutions will not be penalized for offering their customers well-informed choices to 

refinance their Federal student loans. 

While 98 percent of private loans demonstrate ongoing successful repayment, 

banks remain committed to providing robust options to the very small subset of private loan customers experiencing sustained financial distress. For the most distressed borrowers, banks continue to work with the prudential regulators to develop 

short and long term loan modification programs to provide borrowers with more 

flexibility, particularly in the early stages of their career. Some banks already have 

launched loan modification programs, while others are piloting programs in advance 

of a broader roll-out. These programs are designed to address the unique nature of 

student loan borrowers within the confines of safety and soundness principles. 

Two major options are available for families to ‘‘fill the gap’’ in paying for college: 

the Parent PLUS loan or a private education loan. 

• Parent PLUS: The Federal Government disbursed $10 billion to parents of undergraduate students last year at a fixed rate of 6.41 percent with no abilityto-repay assessment, only a review of serious previous credit problems. The 

Government is also currently charging origination fees of 4.288 percent on all 

PLUS loans, a fee that budget sequestration is increasing every year. 15 Parent 

PLUS loans have no debt-to-income ratio test and, because the parent is not 

the beneficiary of the education, the loan does not offer income based repayment. A private education lender would never make this type of loan. 

• Private Education Loan: A private education loan protects families from over 

borrowing through sound underwriting, including a thorough review of ability 

to pay. Over 90 percent of undergraduate loans have cosigners—most of these 

loans are provided to the student, who benefits from the education, with a parent as a cosigner. Unlike the PLUS loan, parents who do not have the income 

to afford the debt are protected from taking out a loan they cannot pay. This 

is the ultimate consumer protection—ensuring a family does not undertake an 

obligation they cannot afford. 

The benefit of the cosigner for the student cannot be overstated. A cosigner not 

only lowers credit risk to the point where a young person can get a loan, but he 

or she also helps the borrower secure a lower rate, and establish credit. 

Banks Take Every Possible Step To Ensure Servicemembers and Veterans 

Receive the Benefits Afforded to Them 

CBA members place compliance with the Servicemembers Civil Relief Act (SCRA) 

as a top priority. The SCRA caps the interest rate on loans taken out before military 

service at 6 percent and provides for deferments and forbearances of payments and 

other benefits during the service period. It is much easier for our members to ensure 

46 

16 CBA/EFC/SLSA letter to Secretary Duncan on SCRA, May 2014. http://www.cbanet.org/ 

documents/2014%20Comment%20Letters/2014-05-21%20CBA-SLSAEFC%20Letter%20to%20Secretary%20Duncan.pdf 17 ‘‘College Debit Cards: Actions Needed To Address ATM Access, Student Choice, and Transparency’’ (February 2014). http://www.gao.gov/assets/670/660919.pdf 

SCRA compliance on their private student loans than on their remaining FFELP 

loans due to conflicting statutes and regulatory guidance from Federal agencies. 

CBA and others involved in the student lending community have asked the DOE 

for new guidance, which we have been told to expect soon, to clarify the regulations 

and allow loan holders and servicers to streamline the process of providing SCRA 

benefits to their eligible customers. We look forward to its release so 

servicemembers can have maximum flexibility in obtaining the benefits they deserve. 16

In addition to providing a small but critical component of the education funding 

process, financial institutions play an important role on campuses by offering banking services such as checking and savings accounts designed specifically to meet students’ unique needs and help establish their credit history. 

Banks Provide Valuable Financial Services and Products to Millions of Students 

Some CBA members have entered into agreements with institutions of higher 

education to provide useful services, such as campus ID cards that can be linked, 

at the option of students, faculty, staff, and others associated with the university, 

to a standard deposit account. These financial institutions also provide important 

services, such as on campus financial literacy programs and assistance with financial aid systems to colleges and universities. According to a GAO report, ‘‘Most of 

the college card fees we reviewed generally were not higher, or in some cases were 

lower, than those associated with a selection of basic or student checking accounts 

at national banks. In particular, college card accounts generally did not have monthly maintenance fees, while the basic checking accounts we reviewed typically did.’’ 17

Recently, the DOE entered into a negotiated rulemaking with a variety of stakeholders, including students, school representatives, banks, credit unions, consumer 

groups, and others, on the topic of ‘‘cash management,’’ which includes the disbursement of student aid refunds, Federal aid in excess of what is needed to pay school 

charges. Despite significant progress among nonfederal negotiators and the offering 

of good-faith proposals by the bank and credit union negotiators, consensus proved 

elusive. This leaves the Department unbound by any agreements worked out during 

the negotiations, and free to write whatever changes to the regulations it wishes to 

propose. 

CBA shares the DOE’s goal of promoting students’ understanding and management of financial products while ensuring they have meaningful choices. However, 

we have serious concerns about and objections to the expansiveness of the draft regulation related to disbursement of Federal student aid credit balances, particularly 

with regard to nondisbursement accounts (i.e., accounts opened outside of the Title 

IV credit balance disbursement process), as well as sponsored disbursement accounts. Similar apprehensions relating to the scope of the DOE’s rulemaking have 

been expressed by members of both parties and houses of Congress. 

With regards to nondisbursement accounts, though the language in the draft regulation presented by the DOE during the negotiated rulemaking is not clear, it 

would certainly classify as ‘‘sponsored accounts’’ any traditional bank deposit account linked to a ‘‘campus card,’’ such as a college identification card, even though 

the depository institution offering the account does not facilitate the delivery of Federal student aid credit balances for the school—which is the true subject of the rulemaking. In addition, the draft regulation could cover any deposit account that could 

receive Federal student aid credit balance disbursements held by a financial institution that happens to have other types of arrangements with colleges or universities 

(educational institutions). As sponsored accounts, these accounts would be subject 

to various requirements and significant restrictions under the proposed regulation, 

impacting relationships that have nothing whatsoever to do with the disbursement 

of Federal student aid credit balances. 

While the DOE has authority to write rules concerning Title IV financial aid disbursement and the methods under which disbursements are made, the proposed 

rule would go beyond that scope and regulate the availability and terms of deposit 

accounts, including debit cards and prepaid cards, available to students from depository institutions—separate and apart from the financial aid disbursement process. 

We can identify no authority for DOE’s overreach to regulate deposit accounts that 

have, at best, only a tangential relationship with those accounts. 

47 

18 ‘‘NACUBO Response to CFPB Request for Information on Campus Products and Services’’, 

March 2013. http://www.nacua.org/Documents/NACUBOlLetterToGarryReeder.pdf 

Moreover, and more importantly, this broad scope would have a chilling effect on 

the offering of accounts designed for students and would deprive students of choice 

and access to valuable, low-cost, and convenient access to bank services, accounts 

that can be especially useful to those students who arrive on campus without a bank 

account. For these reasons, we have urged the DOE to reconsider its draft regulation so it does not cover these traditional bank products and services to the extent 

they are offered outside of disbursement services (i.e., to the extent the deposit account opening process is not integrated within the Federal student aid credit balance disbursement process). 

In addition to our concerns regarding non-Title IV disbursement accounts and 

services, we are concerned the proposed regulation will effectively eliminate Federal 

student aid credit balance disbursement accounts—that is, accounts specifically designed to disburse Federal student aid credit balances—to the detriment of students 

and educational institutions. 

Federal student aid is disbursed directly to colleges and universities, which use 

the funds to satisfy a student’s tuition expenses and then disburse the remaining 

funds to the student to be available for other appropriately related purposes. The 

DOE has issued a series of student aid credit balance disbursement regulations, 

which have increased the operational complexity of disbursing these funds to students. Financial service providers have partnered with educational institutions to 

help these educational institutions satisfy the DOE disbursement requirements. 

These arrangements enable colleges and universities to reduce the costs of disbursing Federal student aid credit balances by utilizing direct deposit, rather than 

mailing paper checks, thereby decreasing costs for students and schools and provides to students, safe, quick, and convenient access to funds. In some of these arrangements, financial institutions may offer students a deposit account within the 

credit balance disbursement process itself or, when instructed by the educational institutions, provide them with a prepaid card to access Federal student aid credit 

balances, particularly where a student does not have a preexisting account to accept 

a direct deposit of funds. Most importantly, these products and services are always 

offered as options and are never a requirement. As evidenced by the chart below, 

institutions of higher education offer students a variety of options for receiving excess student aid funds. Paper checks along with ETFs to a bank account of the student’s choosing are the most prevalent methods for disbursing these funds. 18

48 

19 ‘‘NACUBO Response to CFPB Request for Information on Campus Products and Services’’, 

March 2013. http://www.nacua.org/Documents/NACUBOlLetterToGarryReeder.pdf 20 ‘‘Perspectives on Financial Products Marketed to College Students’’, Presentation to the Department of Education Negotiated Rulemaking Session. March, 26, 2014 (pp. 3, 7). 

For those students who do not have, or cannot easily access, an existing bank account, a letter from the National Association of College and University Business Officers (NACUBO) notes, ‘‘campus banking relationships can streamline the process 

of establishing a new account or a prepaid card option provides an alternative to 

a check.’’ 19

The draft regulation presented by the DOE during the aforementioned negotiated 

rulemaking would effectively deprive students and educational institutions of these 

services by compelling financial institutions currently providing such ‘‘sponsored accounts’’—including those in no way opened in connection with the credit balance refund process—to stop providing them to tens of thousands of students on multiple 

campuses. Draft regulation would restrict nearly all income sources associated with 

the maintenance and use of these products. With limited or no means to support 

the cost of providing the services, providers may have no choice but to exit the business and close existing accounts. 

The result would be thousands of students losing a convenient, safe, and quick 

option to access their Federal student aid credit balances, and the convenience of 

a single card that—at the election of the student—can combine financial and school 

functionality. Payments to students via checks would be more prevalent, especially 

for those without bank accounts, delaying the students’ access to the funds and potentially causing them to incur off-campus check cashing fees. In addition, it is 

worth noting the CFPB found that requiring disbursement through electronic fund 

transfer can reduce fraud and costs. 20

CBA is hopeful all involved in this process come to understand how banking relationships on campus provide students access to a range of financial products and 

options to meet their needs. It is especially important that the function of providing 

general financial services is not adversely affected by concerns over the separate 

issue of making Federal aid funds available to students who wish to have funds deposited directly into a bank account, instead of being given cash or a check. 

Conclusion 

CBA Members remain proud of the work they do to provide products and services 

for college students. Whether it is a private student loan or a student checking account, CBA Members want to offer these products in a way which best serves their 

consumers. As students continue to better themselves and their economic prospects 

by earning high education degrees, the Nation’s retail banks will continue to develop 

services that allow them to prove themselves worthy of these prospective customers. 

Thank you for the opportunity to testify on behalf of CBA’s Membership. CBA 

looks forward to the opportunity to work with Congress to ensure millions of Americans can pursue education that meets their needs and aspirations. 

49 

RESPONSES TO WRITTEN QUESTIONS OF SENATOR REED 

FROM DAVID A. BERGERON 

Q.1. We have seen student loan debt rise dramatically over the last 

10 years. Right now borrowers and the Federal Government bear 

all of the risk with these loans. 

I have proposed the Protect Student Borrowers Act to ensure 

that institutions have skin in the game when it comes to student 

loans. In other words, colleges and universities would be on the 

hook for a percentage of the loans that go into default. How would 

you ensure that institutions have a stake in ensuring students can 

repay their loans? 

A.1. In a report which I wrote for the Center for American Progress 

earlier this year, ‘‘What Does Value Look Like in Higher Education?’’, I made a specific proposal for risk-sharing that would require all but the top performing institutions to buy a special class 

of 10-year Treasury notes with yields equal to the most recent cohort’s default rate multiplied by prior-year loan volume. The base 

yield would be the same as regular 10-year Treasury notes. However, under my proposal, institutions with better-than-expected 

graduation and repayment rates would receive a bonus, while institutions with poorer-than-expected graduation and repayment rates 

would receive a lower yield. 

On August 22, the yield on the current 10-year Treasury notes 

was 2.4 percent. Under this proposal, an institution that had a 

graduation rate that was 10 percent better than expected might receive a yield of 2.65 percent on the notes that they were required 

to buy, while an institution that had a graduation rate that was 

10 percent lower than expected might receive a yield of 2.15 percent. 

Such an approach would address two problems in higher education funding. First, it would provide a financial incentive to not 

just enroll students but also to ensure that they graduate. Second, 

it would provide an alternative funding stream that could help 

bridge the ‘‘feast and famine’’ cycle under which institutions see 

revenues fall as enrollments grow during economic downturns. 

RESPONSES TO WRITTEN QUESTIONS OF SENATOR REED 

FROM KENNETH KOCER 

Q.1. We have seen student loan debt rise dramatically over the last 

10 years. Right now borrowers and the Federal Government bear 

all of the risk with these loans. 

I have proposed the Protect Student Borrowers Act to ensure 

that institutions have skin in the game when it comes to student 

loans. In other words, colleges and universities would be on the 

hook for a percentage of the loans that go into default. How would 

you ensure that institutions have a stake in ensuring students can 

repay their loans? 

A.1. Schools currently do have ‘‘skin in the game.’’ If institutions 

do not maintain default rates below U.S. Department of Education 

guidelines, future Federal aid will be suspended to those institutions. This is a powerful incentive and for this reason it is to the 

benefit of schools to maintain low default rates. The current Federal regulations state ‘‘if a schools cohort default rate equals or exVerDate Nov 24 2008 09:15 Dec 21, 2015 Jkt 046629 PO 00000 Frm 00053 Fmt 6602 Sfmt 6602 L:\HEARINGS 2014\07-31 AM FINANCIAL PRODUCTS FOR STUDENTS - ISSUES AND CH
50 

ceeds 30 percent for the three most recent fiscal years or if the 

most recent cohort default rate is greater than 40 percent, the 

school is considered not administratively capable and may become 

ineligible to participate in the Federal Direct Loan, Federal Pell 

Grant, or Federal Perkins Loan Programs.’’ 

In addition, the Federal Government gives institutions no leeway 

or authority to reduce or deny Federal Direct Loans to students, 

which could assist in lowering their loan debt. Asking the institutions to be responsible for loans, for which they have no control to 

deny, would not be a proper approach. 

RESPONSES TO WRITTEN QUESTIONS OF SENATOR REED 

FROM RICHARD HUNT 

Q.1. We have seen student loan debt rise dramatically over the last 

10 years. Right now borrowers and the Federal Government bear 

all of the risk with these loans. 

I have proposed the Protect Student Borrowers Act to ensure 

that institutions have skin in the game when it comes to student 

loans. In other words, colleges and universities would be on the 

hook for a percentage of the loans that go into default. How would 

you ensure that institutions have a stake in ensuring students can 

repay their loans? 

A.1. Banks are quite experienced with having skin in the game 

when they make loans. For private loans made today, banks are on 

the hook for the entire amount loaned since there is no Government guaranty or other recourse if the loan is not repaid. For that 

reason, banks have to be careful in the lending process to make 

sure there is a strong chance the loan will be repaid. Banks also 

have experience with risk sharing with the Federal Government, a 

model used in the Federal Family Education Loan Program since 

about 1994, where banks are only insured for 95 to 98 percent of 

the balance of a defaulted loan. The concept of risk sharing is a 

good one, I believe, and could serve to reduce Federal default costs 

in the Direct Loan Program while also encouraging schools to emphasize job placement services for their graduates as well as to do 

everything they can to help their students complete their course of 

study. 

Q.2. In your testimony, you discuss the strong underwriting and 

strong performance of the private loan portfolio. You also say that 

the private sector is responding sufficiently to the demand for refinancing of student loans. 

A.2. The private student loan marketplace was relatively new during the past decade, so underwriting standards were not as well developed as they are today and the structure of the market has 

changed. Loans made during the 2002–2008 period were made according to the underwriting standards set by a private student loan 

insurer. Many were also sold into the secondary market, especially 

loans made by nonbanks. After 2008, as illustrated by the contraction of the market, underwriting standards tightened considerably. 

Banks made some loans that failed to perform as expected during 

the 2002–2008, period, but since most defaults occur during the 

51 

first 2 to 3 years of repayment, the loans that have not already 

been charged off from that period are performing well today. 

As I stated in my testimony, refinancing options are widely available today for private student loans, regardless of when the loan 

was originated. Another product is about to be announced by a 

major bank, and more banks have plans underway for refinancing. 

In addition, there are numerous loan modification opportunities 

featuring interest rate reductions and loan-term extensions for borrowers who are struggling with repayment. 

CBA and our member banks have been working with bank regulators since 2010 to be permitted to offer more options to borrowers 

who need help. The regulators now allow lenders the option to provide borrowers an additional 6-month grace period if needed after 

repayment is supposed to begin. Two to three month payment extension (hardship forbearance) options are available on an annual 

basis for borrowers who are struggling with repayment. Banks also 

offer interest rate reductions to borrowers utilizing automated payments. 

Additionally, all of CBA’s member banks who originate private 

student loans forgive a loan in the event of the death of a student. 

Since 2008, CBA members have forgiven over 3,200 loans, totaling 

over $38.5 million. The death of a student is very rare, but when 

it does occur CBA’s members do not want families to have to shoulder a financial burden on top of their heartbreak. In other circumstances where students or their families have a hardship, 

CBA’s members are working one-on-one with them to assist 

through short- or long-term loan modifications, refinancing, payment extensions, or other payment options. We are committed to 

working with students and their families to manage their loans 

through the unexpectedness of life, and this is why the private student loan market has an incredibly low default rate of 2.79 percent. 

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ADDITIONAL MATERIAL SUPPLIED FOR THE RECORD

LETTER FROM KANSAS STATE UNIVERSITIES SUBMITTED BY 

SENATOR JERRY MORAN 

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AND SUCCESS 

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LENDING 

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