U.S. Sen. Sherrod Brown (D-OH), Chairman of the Senate Banking Subcommittee on Financial Institutions and Consumer Protection, conducted a hearing entitled, “Private Student Loans: Providing Flexibility and Opportunity to Borrowers?” today. The hearing examined the private student loan market and the challenges that borrowers of private student loans face.
“Private student loans are the riskiest way to pay for college and unlike federal student loans, are less likely to come with affordable payment plans, loan forgiveness, deferment options, or cancellation rights,” Brown said. “We must ensure that students who utilize private student loans fully understanding the terms and aren’t saddled with thousands of dollars of debt with limited options. I am hopeful that this hearing will allow us to further understand the challenges faced by students.”
Brown successfully advocated for the establishment of the private student loan ombudsman within the Dodd-Frank Wall Street Reform and Consumer Protection Act. The newly-established Ombudsam began to collect complaints from private student loan borrowers in March 2012.
Below are Sen. Brown’s remarks as prepared for delivery.
On June 29, 2012, Congress passed the Transportation and Student Loan Package - essential legislation that not only ensured funding for our nation’s highways, but also included an extension of the current student loan interest rate of 3.4 percent for subsidized Stafford loans.
The passage of this legislation was a win for more than 7 million undergraduate students nationwide – including 382,000 students in Ohio. Without this extension, the average student would face an additional $1,000 in student loan debt per subsidized Stafford loan.
Prior to the passage of this legislation I spoke with students in Cleveland, Columbus, Cincinnati, Toledo, and Dayton about the rising cost of college. Many of these students shared with me their fears of graduating in a challenging economy with high levels of student loan debt. Others shared the experiences of family members and friends who were still paying off their student loans years after graduating.
This is not surprising – earlier this year, student loan debt outpaced credit card debt soaring to more than $1 trillion dollars. It is a problem that affects people of all generations.
According to a report released by the Federal Reserve Bank of New York, the average student loan debt burden for borrowers under age 30 has risen 56 percent since 2005. Meanwhile, borrowers in their forties are the most likely to default. And parents and grandparents who may have cosigned for a child or grandchild must share the burden of younger generations. It is clear more must be done to ensure future generations are not saddled with high levels of student loan debt while helping borrowers of all ages pay off their student loans.
That is why today’s hearing, which will focus on the challenges facing borrowers in the private student loan market, is so important. Though it is a small portion of the overall student loan market, American consumers owe more than $150 billion in outstanding private student loan debt. And their numbers have increased: 14% of undergraduates in 2007-2008 had taken out a private student loan - up from 5% in 2003-2004.
This is troubling. Private student loans are the riskiest way to pay for college. Often, these loans come with variable interest rates ranging from 5% to more than 18% and no limits on origination and other fees. Additionally, unlike federal student loans private student loans are less likely to have to come with affordable payment plans, loan forgiveness, deferment options or cancellation rights.
Given the risks and challenges – as well as opportunities – posed by private student loans, I am proud to have fought for the inclusion of the private student loan ombudsman as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act. For the first time in history, private student loan borrowers now have a central place to go to file complaints. While this will help some borrowers resolve complaints, I am still concerned that too many borrowers are not receiving the assistance they need from lenders.
Last week, the Consumer Financial Protection Bureau, which was also enacted as part of the Dodd-Frank financial reform act, published a report on the private student loan market and the consumers who use these loans.
What was evident from this report is that many student loan borrowers took out private student loans without fully understanding the terms. Now, many of these borrowers are saddled with thousands of dollars of debt with limited options. I am hopeful that this hearing will allow us to further understand the challenges faced by students.
In the short term, I hope that we can begin to explore ways to provide borrowers with short-term options to get out from under the burden of high-cost private student loans. And in the long term, I hope that we can provide students and their families with more transparency about private loan options and costs, as well as predictability when they are seeking to work with their servicers.
I will conclude with the story of Theresa from Mentor, Ohio, and her struggles with private student loans. Theresa graduated from college in 2009 and soon after applied to join the Peace Corps. Theresa almost had to turn down this once in a life time opportunity because of an unwillingness of her lender to defer her loans while enrolled in the Corps. Theresa came to one of my constituent coffees to ask for help. Through the hard work of my staff, her lender finally agreed to defer her loans and Theresa was able to go abroad last year. While domestic issues brought Theresa home sooner than expected, her private student loan challenges remained.
While she has continued her career in public service that led her to the Peace Corps, Theresa struggles to make her monthly student loan payments that top $400. In just two years, her balance on just one of her loans has jumped from $22,000 to just under $30,000; without intervention, these loans will continue to grow. More must be done to help individuals like Theresa.
I am hopeful that today’s hearing will help move us closer to finding a solution to these important issues.