July 31, 2014


WASHINGTON – U.S. Senator Mike Crapo (R-Idaho), Ranking Member of the Senate Banking, Housing and Urban Affairs Committee, today delivered the following remarks during a Banking Committee hearing on the role of financial institutions in higher education:
Thank you, Mr. Chairman.  Beginning the path to higher education is filled with great excitement and opportunity for students across the country.  However, students are faced with financial questions they might not have considered until this point, such as how they will pay for college, whether they should finally open a bank account, and how they will budget their money.
Banks and credit unions throughout the country serve an important role helping students sort through these financial issues in this new chapter in their lives, and many entities provide financial literacy tools to help students improve their understanding of the financial burdens they are about to undertake.
Today, I would like to focus on two issues that impact students and their financial institutions in the higher education market.
First, in the student loan market, both Federal and private, there has been a growing field of research focused on the high student debt burden, now roughly $1.2 trillion, and its impact on the financial opportunities and decisions of recent college graduates.  Recently, the Consumer Financial Protection Bureau (CFPB) noted that the Federal government’s share of outstanding total student debt topped $1 trillion for the first time—roughly five times higher than existing private student loan debt.
I share my colleagues’ concerns about the negative impact of high student debt on the financial lives of recent graduates.  I also have concerns about the significant and increasing role of the Federal government in this market, which ultimately leads to excess exposure for the U.S. taxpayer and diminished student borrowing choices.
The factors we should be focusing on are the rising cost of college and failure to inform students properly about the loan repayment process before starting school.  Since 1974, the cost of college has risen roughly 350 percent.  There have been relatively few market forces to keep costs down, as students can borrow up to the cost of attendance for an undergraduate program and take out almost unlimited Federal loans in graduate school. 
Students are not adequately educated about the impact their borrowing will have on life after graduation.  It is unclear if students have the proper information to compare loan types, earning potential for different career choices, and what their monthly payments will look like when they graduate.  These issues should be addressed before a student ever receives a loan.
The second issue I would like to discuss today is the Department of Education’s proposed rulemaking for the Federal student loan disbursement process, an issue that has received bipartisan attention.  As drafted, the proposal would impact student accounts that are completely unrelated to the Federal student loan disbursement process, which may cause unintended consequences for students and colleges and universities.
With the proposed rule, the Department of Education creates an indirect, backdoor regulation of bank products – requiring them to alter features for accounts that may never be used by a student to receive student loan disbursements.  Unfortunately, this could force banks and credit unions to simply exit campus markets leading to diminished student choice, restricted convenience, and more unbanked young people.
As the Department of Education moves forward, it must work with the prudential banking regulators to understand the compliance challenges its rule may introduce, and the negative impact it could have on the supervision of banks and credit unions.
There is no doubt the financial challenges associated with higher education today can be daunting for students.  I look forward to hearing from our witnesses about how we can improve student financial options, convenience, and financial literacy.
Thank you, Mr. Chairman.