CBA Writes Committee on Education Markup

October 28, 2019
Nick Simpson

CBA Writes Committee on Education Markup

Calls for standardized disclosures on student loans, responsible lending caps to prevent debt traps

 

WASHINGTON – The Consumer Bankers Association today wrote the Chair and Ranking Member of the House of Representatives’ Education and Labor Committee to offer comments on the upcoming College Affordability Act (H.R. 4674) markup. The letter calls for bringing federal student loan disclosures in line with the pro-consumer, plain-language disclosures offered on private loans. CBA also proposed capping the current unlimited nature of federal PLUS loans at a responsible level aimed at ensuring college access while preventing borrowers from becoming mired in unaffordable debt caused by the same federal over-lending which has fueled skyrocketing college tuitions.

 

“CBA encourages policymakers to address the root cause of student debt: the cost of college and federal over-lending,” said CBA President and CEO Richard Hunt. “Improved up-front and ongoing disclosures about the terms and conditions of federal loans are a critical first step. Banks are eager to offer solutions based on their excellent record serving customers through effective disclosures and, when necessary, working with borrowers to help overcome obstacles to repayment.”

 

CBA’s letter, available here, addresses several issues, discussed below.

 

  • The State of Student Loan Debt: Student loan debt currently totals nearly $1.6 trillion with the federal government holding $1.44 trillion, or 92 percent, of total debt. With one in five student loan borrowers seriously delinquent or in default, it is clear the vast majority of struggling borrowers are in a federal student loan program. Private, bank-originated student loans account for just 8 percent of total debt and private student loans have a 98 percent repayment rate. The difference is due to strong underwriting standards, responsible terms, clear disclosures and responsible counseling.

 

  • Federal Refinancing of Private Education Loans: The CAA calls for the refinancing of performing private loans into federal loans. This would put borrowers who are successfully repaying their loans into the failing federal program. This policy would divert taxpayer dollars to help individuals who do not need assistance while doing nothing to help largely federal borrowers experiencing trouble repaying their student loans.

 

  • Responsible Borrowing Limits on Federal Parent and Graduate PLUS Loans: The Federal Reserve Bank of New York has linked the availability of federal dollars to increases in tuition. Placing a cap on PLUS loans at 150 percent of the national tuition and fees average would encourage colleges and universities to keep tuition rates in check by ending the current lending structure, which essentially lends borrowers as much as the school demands. The current lending structure on PLUS loans has driven up the cost of college and has set a debt-trap for many federal student loan borrowers.

 

  • Know Before You Owe Disclosures for Federal Student Loans: All private loans, including student loans, carry plan-language Truth in Lending Act disclosures which include specific interest rates, fees, monthly payments, total cost of the loan and an annual percentage rate (APR). Federal loans do not contain this same easy to understand disclosure, instead opting for more than a dozen pages in small font. The CAA calls for better disclosures and CBA believes the bipartisan Student Loan Disclosure Modernization Act (H.R. 1161) introduced by Reps. Emanuel Cleaver (D-Mo.) and Jim Banks (R-Ind.), should serve as the template for these disclosures.

 

  • Pell Grant Expansion: The federal government should help students with the most need. Rather than originating large loans to borrowers without the means for repayment, Congress should increase the availability and amounts of Pell Grants for those who need them.

 

  • College Accountability: CBA supports measures to improve accountability of institutions of higher education by evaluating them based on the success of their students and requiring colleges to demonstrate accountability by sharing the risk of default with the federal taxpayer.

 

  • Fair Value Accounting: Congress should require the cost of federal student loan programs to be calculated using fair value accounting methods, which take into account market risk. The Congressional Budget Office and other economists have stated fair value is a more accurate way to calculate the cost of federal student loan programs. The current Federal Credit Reform Act method of accounting understates the risk – and therefore the costs – of the federal program, reforms appear costly to the federal balance sheet.

 

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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.