July 31, 2014
WASHINGTON – Today, Senate Banking Committee Chairman Tim Johnson (D-SD) held a hearing titled “Financial Products for Students: Issues and Challenges.”
Below is Chairman Johnson’s statement as prepared for delivery:
“Good morning. I call this hearing to order.
“Financial institutions play a role in higher education in many ways, from private student loans to student loan servicing, debt collection, and campus banking. Student loan debt is currently $1.2 trillion and continues to be the largest form of consumer debt in the country after mortgages. This issue is especially important to me, as my home state of South Dakota has a higher percentage of students graduating with debt than any other state in our country, at nearly 8 in 10 students.
“Rising student loan debt affects everyone and undermines our economic recovery. Increasing numbers of Americans with student loan debt are putting off buying a home, starting a business, and saving for retirement. And high student loan debt makes it harder for students to stay in rural communities, like South Dakota.
“While the level of student loan debt is significant, equally significant are the level of delinquencies and the options for borrowers in repayment. Recent data shows that nearly one-third of borrowers are delinquent and borrowers are entering delinquency faster than before the financial crisis. The CFPB has found that borrowers are unable to obtain affordable repayment options and have difficulty working with student loan servicers to correct payment errors. Last year, I held a hearing on this issue, encouraging lenders to work with borrowers to avoid default.
“A few months ago, the CFPB began overseeing large student loan servicers, which brings an estimated 49 million borrower accounts under its watch. This is a positive step; however, we saw during the mortgage crisis that responsible servicing is a critical component of loan management. Both the Education Department, as the originator of federal student loans, and private student lenders, have a duty to ensure that their loans are effectively managed every step of the way. This means making sure students have full access to information about their loan options before taking on debt and providing affordable loan repayment, responsible servicing, and careful debt collection.
“Financial institutions have also partnered with a number of higher education institutions to offers debit and prepaid cards to students, sometimes as a means to facilitate federal student loan refunds. I look forward to hearing more about these arrangements, including what impacts these relationships may have on students.”
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