Democrats push for tougher oversight of student loan market

Democratic lawmakers in a House hearing on Tuesday pushed for tougher oversight of companies that handle student loans.

The hearing before the House Financial Services Subcommittee on Oversight and Investigations touched on what critics say is predatory behavior in the $1.5 trillion student loan servicing market.

Democrats have been pushing for Congress to impose accountability so that loan servicers provide better guidance to student borrowers. Under current Department of Education rules, federal student loan servicers are not legally required to tell borrowers which loan repayment plans are most beneficial to them. {mosades}

“You want your degree at the end, and that’s really the goal when young people come into it,” said Rep. Rashida Tlaib (DMich.). “Then they expect the government and whatever quasi-governmental relationship they might have with private companies to do what is in the best interest of their future.”

But Republicans have balked at new regulations. Rep. Warren Davidson (R-Ohio) expressed concern that Congress is imposing new responsibilities on repairers without safeguards to protect them from failure.

“As a history major, I don’t know if I’m in favor of the government choosing your major,” Davidson said. “But we certainly shouldn’t be indifferent to the risk of default, particularly if we’re going to hold someone fiduciary responsible for the borrower’s performance in repaying that loan.”

Lawmakers also addressed barriers faced by minority women or student borrowers, which lead to higher default and late repayment rates.

GOP lawmakers, including Reps. Barry Loudermilk (Ga.) and Bryan Steil (Wis.), however, said many of the problems with student loans stem from the high costs of higher education, not the practices of loan managers.

The panel heard from state officials who described troubling practices in the loan servicing industry.

Opening Remarks by Nicholas Smyth, Deputy Director of Consumer Financial Protection and Senior Deputy Attorney General of the Pennsylvania Attorney General’s Office, and Joe Sanders, Student Loans Ombudsman and Supervising Attorney at the Consumer Fraud Office of the Attorney’s Office General of Illinois detailed charges against Navient, one of the largest student loan providers.

Smyth called on Congress to explore prohibiting companies from forbearing, where they can defer payments. Smyth said the practice hurt borrowers by adding debt to the tune of $4 billion in revenue for the company.

Sanders also described financial incentives for Navient employees to limit their call times to less than seven minutes when students call for help.

Navient is facing lawsuits from multiple states for its lending practices. The company has denied any wrongdoing.

An industry representative pushed back against criticism from the panel and witnesses at the hearing.

Scott Buchanan, executive director of the Student Loan Servicing Alliance, said a report from the Department of Education’s Office of Inspector General noted that every loan officer is exceeding expectations set by their agreement with the agency.

The issue of excessive student debt has also caught the attention of 2020 Democratic candidates.

Sen. Elizabeth Warren (D-Mass.) unveiled a plan in April that would forgive up to $50,000 in debt for about 95% of Americans with student debt.

Priscilla C. Carnegie