CBA Comment Letter re Secretary Cardona Hearing

Dear Chairman Scott and Dr. Foxx,

On behalf of the Consumer Bankers Association (CBA), I am writing to share our views about education loans and higher education policy in advance of Secretary Cardona’s testimony before your Committee on Thursday, June 24.  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.   

According to the April update by the New York Federal Reserve, student loan debt now exceeds $1.7 trillion through March of 2021. The federal government dominates this market, either holding or guaranteeing $1.59 trillion of this debt—almost 94%. The remaining roughly $120 billion is held by private lenders, including CBA member banks. The care and information that the private lending market provides ensures that borrowers are set up for success. 98% of private student loan borrowers are successfully repaying their loans, in stark contrast to less than half of federal borrowers pre-pandemic, according to Department of Education data.  Even discounting borrowers “in-school” or “grace,” shows only 57% of federal borrowers in repayment, many of which were in an income-driven repayment program making $0 payments.  Clearly any student loan crisis that exists sits squarely on federal government’s egregious over-lending practices that in any other context would be considered predatory.

One of the primary distinguishing reasons private lenders exhibit such success is the amount of information and counseling we provide to borrowers up front. As such, CBA is supportive of provisions that would provide clear, disclosures on federal student loans at origination, just like those private borrowers get. Key terms such as interest rates, origination fees, monthly payments, and the total amount borrowed should be stated clearly and concisely when a student applies for a loan in order to improve transparency, help prevent over-borrowing and ensure the borrower is well-informed.  Disclosing loan terms only when it is time to sign a promissory note is too late.

Policymakers have often failed to address to root causes of our nation’s federal student loan debt problem, namely the cost of college and federal over-lending.  Rather than focusing on helping borrowers after they are already heavily in debt, policymakers should prioritize increasing accountability on institutions and create sensible safeguards to ensure sound financial decisions are made before students and parents take out student loans.  Access to information about the true cost of a federal student loan is critical to empower families to make informed decisions.

In addition, CBA supports efforts to restore sensible lending limits within the PLUS loan program. Some have called the federal PLUS loan the ultimate predatory loan by providing unlimited borrowing without any determination whether the borrower has or will ever have the means to even repay the loan. Parents and grandparents on limited budgets are borrowing tens of thousands of dollars in order to meet the cost of the most expensive colleges and universities.  This places significant financial strain on these borrowers, many of whom find their Social Security checks garnished when they cannot pay down the balance before retirement.  This is also true for graduate students.  Institutions charge graduate students ever increasing prices for their programs knowing that a student can borrow the full cost from the federal government with no impact to the institution when that borrower ends up in financial hardship.  We urge Congress and, specifically, the Committee to fully examine the PLUS program when it begins to tackle the Higher Education Act reauthorization.

CBA also supports recent efforts to publicly release the report revealed in an April 29, 2021 Wall Street Journal article, “Is the U.S. Student Loan Program Facing a $500 Billion Hole? One Banker Thinks So.” This report, commissioned by the Department of Education in 2018, examined and evaluated the true cost of federal student loan programs and should be available to the public. CBA has long been supportive of using the Fair Value reporting method for determining the realistic cost of a federal loan, a method that the Congressional Budget Office also has stated is more accurate.  While the Office of Federal Student Aid has improved the amount of information and data reported about the federal student loan portfolio, the organization has traditionally viewed all of the federal aid programs as simply that—aid programs, instead of credit programs.  The Department of Education is now the nation’s fifth largest consumer creditor and, as such, the time has come to better understand the performance of the federal loan portfolio.  The 2018 report and any others should be released to provide the public with transparency and insight into this performance.

As Secretary Cardona comes before you tomorrow, we ask that you keep these perspectives in mind and respectively suggest asking him about any plans or changes the Department has for improving consumer access to information and loan transparency by providing the same level of disclosures for federal borrowers as those received by borrowers in the private market. We furthermore encourage you to ask Secretary Cardona to release the report referenced above and any other information about the federal student aid portfolio that would help the public gain a better understanding of how these programs are functioning.

Finally, CBA supports an increase to the federal Pell Grant award and are encouraged by recent efforts by Congress and Administration to move toward doubling the award amount.  We look forward to our continued work with you to increase Pell Grants and improve outcomes for education loan borrowers and families.

Sincerely,

Richard Hunt

President and CEO