WASHINGTON — As private student loan companies come under fire for allegations of predatory behavior and fraud, members of a panel of the U.S. Senate Banking, Housing and Urban Affairs Committee and student advocates expressed concerns about the industry at a hearing Tuesday.
The hearing of the Subcommittee on Financial Institutions and Consumer Protection took place as the broader student debt crisis affects millions of people. According to the US Federal Reserve.
Subcommittee Chairman Raphael Warnock said he and his staff had analyzed some of the countless complaints the Consumer Financial Protection Bureau had received over the past year related to the servicing of private and federal student loans and were “shocked by the sheer scope and magnitude of the problem.”
“Private lenders and servicers have routinely misled or deceived borrowers, and the stories are frustrating and heartbreaking,” said the Georgia Democrat.
Some borrowers find loans from private lenders to be an extraordinary burden, Aissa Canchola Bañez, policy director for the Student Borrower Protection Center, told the panel.
“Student loans should give all families – regardless of race and economic status – the opportunity to secure the prospect of higher education,” she said.
“But for too many, student loans have become a lifelong punishment that prevents borrowers from buying a home, starting a small business, or even starting or growing a family,” says Canchola Bañez.
Canchola Bañez said that “the lack of comprehensive data on the issue of private student loans has too often left borrowers, policymakers and stakeholders in the dark” and that “this has resulted in significant gaps in the protections of the millions of Americans forced to take out private student loans and has made it more difficult for policymakers and law enforcement to protect borrowers.”
Dalié Jiménez, a law professor and director of the Student Loan Law Initiative at the University of California, Irvine School of Law, said the private student loan industry has changed over the past decade.
“New financial products have emerged that offer alternatives to traditional loans, but they come with additional risks that we are only beginning to understand,” Jiménez said, adding, “Many of them are offered by schools that offer dubious value in exchange for expensive loans.”
Industry crisis
Large student loan servicers like Navient have been at the center of legal issues and investigations in recent years. Last week, the Consumer Protection Office for Finance reached a 120 million dollar settlement with Navient, the prohibits the company from servicing government student loans.
Senator Elizabeth Warren, a Democrat from Massachusetts and a member of the subcommittee, has led the investigation into Navient for nearly a decade.
Warren said Tuesday that “Republican extremists want to return to the days when borrowers were at the mercy of predatory loan servicers like Navient” and that “the Biden-Harris administration has a different vision.”
Warren added that it is “long past time for Navient to do the right thing for its countless defrauded borrowers and cancel those loans for private student loan borrowers as well.”
Across the aisle, Republican Senator Cynthia Lummis defended the industry’s fundamental mission.
“While there are certainly isolated cases of abuse in the private lending market – as in any market – private lenders fill a critical gap in higher education financing and provide borrowers with the means to overcome the educational hurdles that exist today,” Lummis said.
Lummis, a Republican from Wyoming, also pointed out that the private student loan market accounts for only 8 percent of outstanding loans and that the huge majority of loans are government loans.
Beth Akers, a senior fellow at the conservative think tank American Enterprise Institute, pointed out that while “the origination and processing of private student loans, both public and private, has not been perfect” and “lending institutions and loan servicers are fallible,” these private institutions that support student loans “do not deserve the wrath of lawmakers looking for a quick fix or even a scapegoat for the wider developments in the student loan space.”
