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CBA Letter to Senate HELP Committee
Dear Chairwoman Murray and Ranking Member Burr:
On behalf of the Education Funding Committee of the Consumer Bankers Association (CBA) congratulations to you both on your new roles leading the Senate HELP Committee! This is a well-deserved recognition of your years of service to our nation and we look forward to our continuing work together.
We are writing today to share the views of the CBA Education Funding Committee as you consider the nomination of Miguel Cardona as Secretary of Education. CBA is the voice of the retail banking industry whose members operate in all 50 states, serve more than 150 million Americans, and collectively hold two-thirds of the country’s total depository assets. CBA members are also the private sector lenders that make the majority of private education loans that play a key role in helping many families finance postsecondary education.
For years, private student loan borrowers have been extraordinarily successful: more than 96% are paying down their loans in good standing, while federal borrowers are struggling with unmanageable debt burdens that have pushed nearly 1 in 5 toward default. During the COVID-19 pandemic, our members have been working diligently with current students and their families, many of whom have seen their educations interrupted or transformed due to the pandemic. Our member banks continue to offer many options tailored to students’ needs to make sure they can get through this period of tremendous uncertainty and turmoil. Our members are offering special terms, including expanded forbearance—paused payments—and other options that meet the needs of borrowers and co-signers. We are also allowing borrowers more time to make decisions about whether to borrow and how much, realizing that families need to evaluate changing economic and individual family conditions.
In sum, CBA member banks are doing their best to help our customers through the crisis and emerge with their educational plans intact and their financial situations manageable. Banks continue to work with their prudential regulators, including the Consumer Financial Protection Bureau, Federal Reserve, Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation, as well as state regulatory agencies, on allowable steps that can be taken to help borrowers.
While our member banks are taking these proactive steps in coordination with regulators, we have been concerned by recent legislative and other proposals that may be well intentioned, but ultimately bad for our borrowers and the success of our institutions and customers. Language included in the House-passed National Defense Authorization Act (NDAA), for example, would have required holders of student loans to waive interest and stop requiring payments for more than a year, with the financial institutions absorbing the losses without any compensation. This amounted to an unfunded mandate in which Congress would have forced changes to the terms and conditions of legitimate private contracts.
Not only was this change in student lending agreements unnecessary due to successful efforts already underway, it would also have required banks to stop charging interest on all private loans, regardless of whether or not the borrower needed assistance, for more than a year. Lenders would have continued to incur the costs of managing the loans without any income, increasing losses at a time when lenders are already under stress due to economic disruption caused by the pandemic. Imposing additional losses on lenders of student loans, regardless of need, would only weaken the economy further without any substantial benefit to borrowers.
We have also expressed concern about proposals that would require private lenders to change contracts with borrowers to include the Revised Pay as You Earn option that the federal government offers some federal loan borrowers. This proposal would have required private lenders to offer the same income derived repayment (IDR) plans, including forgiveness after 20 years of payments for undergraduates or 25 years for loans for graduate studies, as are offered by the Department of Education. While an IDR/loan forgiveness program may be an appropriate safety net for federal loans offered without any meaningful upfront consumer protections, it is not suited to private loans made with the most critical upfront consumer protections for loans of this size. It is also expressly prohibited under safe and sound banking regulations.
We strongly oppose applying repayment policies that may address over-lending of federal loans to responsibly underwritten private loans whose consumers are successfully meeting their loan obligations. Private lenders, working closely with their prudential regulators, have developed well-targeted repayment relief options that effectively assist customers experiencing repayment difficulty. Private lenders provide short- and long-term forbearances, as well as loan modifications that lead to affordable loan payments. These solutions appropriately balance consumer protection and safety/soundness principles and enable borrowers’ success.
There are also technical issues that are impossible to overcome. For example, the government requires borrowers to submit their federal income tax information (now actually provided directly to the Education Department by the Internal Revenue Service) annually in order for the government to determine eligibility for IDR and set the size of monthly payments for the year. Such information cannot be provided to private lenders without upending existing consumer privacy protections.
We hope that you find this information helpful as you consider Mr. Cardona’s nomination to lead the Department of Education. Thank you again for your decisive actions and leadership during this time, and we remain eager to work with you to improve outcomes for all student borrowers.
President and CEO