CBA: Restraining Federal Lending Critical to Reducing Excessive Student Loan Debt

April 13, 2021

CBA: Restraining Federal Lending Critical to Reducing Excessive Student Loan Debt

In letter to Senate Banking Subcommittee, CBA outlines practical solutions to ease student loan debt, protect borrowers


WASHINGTON – As the Administration and Congress evaluate proposals to address the nation’s federal student debt crisis, Consumer Bankers Association today outlined commonsense reforms to reduce student debt and protect borrowers, including reining in unlimited lending by the federal government that drives up the cost of higher education.


In a letter to the Committee on Banking, Housing, and Urban Affairs Subcommittee on Economic Policy in advance of its hearing on student loan debt, Consumer Bankers Association President and CEO Richard Hunt wrote:


“The student debt problem in this country is caused by unlimited lending by the federal government and the resulting constantly increasing prices charged by schools. The best way to reduce excessive student loan debt is to restrain the federal lending that is fueling the excess.”


Noting the success of private student lending, Hunt added:


“Federal student loan debt has ballooned in large part because many borrowers are not making progress repaying what they borrowed. In contrast, private student loan borrowers are successfully repaying their loans 98 percent of the time. This successful repayment rate has persisted year after year only dropping slightly during the COVID-19 pandemic-affected months 2020 and already recovering this year. […] Federal law allows for open-ended borrowing of PLUS loans by graduate students and parents of undergraduates, limited only by what that their schools decide to charge. Credit checks are minimal. In contrast, private lenders can only lend their depositors’ or investors’ money to students and parents who seem likely to be able to repay.


Recognizing the lack of guardrails for federal student lending, and building on the practices in private lending that have led to high repayment rates, Hunt outlined three practical solutions to help ease the student debt burden:


  • Changing the Higher Education Act to limit PLUS borrowing and otherwise encourage colleges to restrain their costs.
  • Improving disclosure of terms and conditions for federal loans, like those required for private loans by the Truth in Lending Act.
  • Taking into some consideration students’ and families’ ability to repay before saddling them with significant debt they may not be able to repay.


Americans strongly support these commonsense reforms, according to a January 2019 survey, which found:


  • Fully 90 percent of respondents felt borrowers should receive disclosures detailing costs and terms before taking out an education loan.
  • More than 90 percent of respondents felt such disclosures should always provide specific monthly payment amounts.
  • More than 60 percent of respondents felt federal loans should go only to families with the most need, with the private market serving the rest.
  • To further protect such borrowers, 84 percent of respondents supported capping federal loans at a reasonable amount that enables access to education but prevents overborrowing.


Read the full letter here. Learn more about CBA’s work to help students and families responsibly finance their higher education here.




About the Consumer Bankers Association:

The Consumer Bankers Association represents America’s leading retail banks. We promote policies to create a stronger industry and economy. Established in 1919, CBA’s corporate member institutions account for 1.7 million jobs in America, extend roughly $4 trillion in consumer loans and provide $275 billion in small business loans annually. Follow us on Twitter @consumerbankers.