NAICU Washington Update

Witnesses Offer Different Ideas for Managing Student Debt

April 11, 2014

Senators and witnesses both expressed concern about student loan debt levels that, in aggregate, now exceed $1.2 trillion during the March 27 hearing Strengthening the Federal Student Loan Program for Borrowers conducted by the Senate Committee on Health, Education, Labor and Pensions (HELP).

Ranking Minority Member Sen. Lamar Alexander (R-TN) noted that while college is more affordable than many students think over-borrowing could be a problem. Committee Chair Sen. Tom Harkin (D-IA) concurred while suggesting that limiting borrowing for part-time students and for personal expenses might help reduce debt levels. He also suggested limiting borrowing by graduate students who currently can borrow up to $138,500 in Stafford loans and up to the cost of attendance in Grad PLUS loans, and may feel they are protected by income-based repayment and loan forgiveness. In addition, several witnesses suggested providing institutions with the authority to limit borrowing for certain categories of programs and simplifying programs.

James Runcie, chief operating officer, Office of Federal Student Aid, Department of Education, blamed some student loan repayment problems on confusion caused by the Department’s expansion from a single servicer for Direct Loan (DLP), prior to 2009, to the current 11 servicers. He also argued that providing better information about income-driven repayment plans was a solution for many borrowers. He noted the Education Department sent more than 3 million emails to federal student loan borrowers in November 2013 about repayment options. He said that this had helped a number of borrowers avoid default. Currently, 22 percent of DLP loans are in an income-driven plan. He also cited other department efforts including the Financial Awareness Counseling Tool (FACT) on

Michelle A. Cooper, president of the Institute for Higher Education Policy, suggested “risk-sharing” by institutions and states either through lowering costs or contributing to a risk-sharing pool based on a measurement of repayment, such as the cohort default rate. A bill by Sen Jack Reed (D-RI), Protect Student Borrowers Act of 2013 (S. 1873), proposes a risk-sharing scheme based on institutional cohort default rates. Other witnesses also recommended additional loan counseling.

This was one of a series of HELP Committee hearings on the road to reauthorization of the Higher Education Act before it expires on December 31, 2014.

After the hearing, Sen. Harkin has introduced the Smarter Borrowing Act (S .546) and plans to introduce the Proprietary Education Oversight Coordination Improvement Act. The first bill would require institutions to update students about their remaining Pell Grant eligibility at least once every two years. The second bill, which will be cosponsored by Sen. Richard Durbin (D-IL), would establish an interagency oversight committee on for-profit schools. Rep. Elijah Cummings will introduce it in the House.

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