June 25, 2013
WASHINGTON – U.S. Senator Mike Crapo (R-ID), Ranking Member of the Senate Banking, Housing and Urban Affairs Committee, today delivered the following remarks during a Banking Committee hearing on private student loans focusing on regulatory challenges and a path forward:
"Thank you, Mr. Chairman, for holding this hearing today.
"Student loans play a vital role in the lives of many students and their families across our country.
"The loans help maintain a strong and educated workforce by ensuring all Americans can have access to higher education regardless of their financial circumstances.
"Recently, the New York Federal Reserve reported that student loan debt has risen to become the second largest household debt burden behind mortgages.
"The total outstanding student debt was $986 billion in the 1st quarter of 2013. Just nine years ago, that number was $240 billion.
"Several factors have contributed to this student debt explosion over the last decade, including college tuition rates that have significantly outplaced inflation and a record number of students and employees opting for school in light of very tight job prospects.
"When discussing the student loan market there is considerable confusion as to who is making the loans and how the loans are made.
"According to the Consumer Financial Protection Bureau (CFPB), 85 percent of the total outstanding student debt is in Federal student loans offered through the Department of Education. That is roughly $838 billion.
"Private student loans, the subject of this hearing, only make up 15 percent of outstanding debt and that market is expected to shrink further.
"A recent Standard &Poor’s report noted that new originations for Federal loans occupy roughly 94 percent of the market, while private lenders originate the remaining 6 percent.
"Much of the contraction in the private lending market is due to the restructuring of the Department of Education loan programs in 2010 to virtually eliminate private lenders.
"Other important considerations include the fact that Federal loans default on average three times as often as private loans; Federal loans do not undergo an underwriting process; and there is almost limitless lending for borrowers who take out Federal loans for graduate school.
"With respect to private student loans, one concern I often hear is that banks do not offer enough borrower relief options.
"In the testimony submitted today, it appears that prudential banking regulators and the CFPB are offering conflicting guidance on borrower relief options.
"The CFPB is pressing for more borrower relief, yet the prudential banking regulators are concerned with how modified loans affect a bank’s safety and soundness as well as may violate accounting rules.
"Lenders have stepped up and expressed their willingness to help more troubled borrowers, citing that loan modifications may benefit both borrowers and lenders in certain circumstances.
"Today, I hope we can gain a better understanding of the obstacles directly from the regulators.
"I also would like to hear about how the regulators are working together to resolve this conundrum of providing student loan relief while not endangering the safety and soundness of the system.
"Finally, since the vast majority of student loans are made by the Department of Education, we need to acknowledge that the Committee on Health, Education, Labor and Pensions has a critical role in determining whether the Department of Education’s student loan programs are helping the situation or binding students and their families into too much debt.
"I know all my Senate colleagues want to find a solution to ease the burden on our young people."