House Subcommittee Debates Roles of Loan Servicers and Regulators

Consumer groups, student loan servicing representatives and legislators convene for oversight hearing.

6/12/2019 8:30 AM

House Subcommittee Debates Roles of Loan Servicers and Regulators

The House Financial Services Subcommittee on Oversight and Investigations reviewed state and federal efforts to oversee student loan servicers and student loan debt management during a hearing on June 11.

After hearing from witnesses at several state attorneys general offices and groups representing student loan borrowers and servicers, the subcommittee focused its discussion on repayment options for consumers as well as oversight of student loan servicers and the Department of Education (DOE.)

Subcommittee Chairman U.S. Rep. Al Green, D-Texas, called on the Consumer Financial Protection Bureau to fill the open position of student loan ombudsman and issue the annual report on student loan complaint data.

The discussion wavered between the responsibility of the DOE to evaluate loan issuance to borrowers on the front end, and that of student loan servicers to assess the best repayment options for student loan debt, which tops $1.5 trillion in the U.S.

“The federal government must become a more responsible lender,” said U.S. Rep. Andy Barr, R-Ky., ranking member of the subcommittee. “If we want [student loan servicers] to behave differently, then we need to focus our energy on adjusting the companies’ relationship with the federal government by reconsidering the terms of their contract. We need to look at the student debt crisis holistically and that means working with the committees of jurisdiction in Congress and the administration to identify meaningful reforms.”

The subcommittee also discussed which federal standards and state legislation come into play when regulating the student loan marketplace—specifically the Illinois Student Loan Servicing Rights Act, which went into effect in December of 2018.

“The act provides a wide array of protections for students. It restricts forbearance steering, requires that student loan servicers first offer income driven repayment options to struggling students, and requires servicers to create repayment specialists who are specifically trained to assess students’ short term and long term financial circumstances in order to effectively counsel students,” said hearing witness Joe Sanders, student loan ombudsman and supervising attorney for the Consumer Fraud Bureau at the Illinois Attorney General’s Office.

However, representing student loan servicers, Scott Buchanan, executive director of the Student Loan Servicing Alliance, clarified the role of student loan servicers working with borrowers on federal loans.

“The federal student loan program is just that—a clear federal program that is set by Congress, overseen by the Department of Education, and administrated by direct contractors of the federal government,” Buchanan said. “Servicers are now stuck in the middle between a government disagreement between the states, multiple federal agencies and Congress. That conflict between others means that the resources we otherwise devote to helping borrowers access their options are being misdirected to trying to get clarity.”

Ultimately, while student loan servicers work with borrowers to find the best repayment options, such as income-driven repayment plans, forbearance or the Public Student Loan Forgiveness Program, the subcommittee noted there's a need for improved consumer education about expected debt and the ability to repay it.

“It’s unfortunate that federal policy is enticing so many students to take on too much debt especially with the degrees and the income that can be produced for repayment,” Rep. Barr said.  “I think that’s something that we all really have to assess as policymakers.”

“Congress has done a lot to try to lift that burden in terms of creating these income driven repayment plans and Public Student Loan Forgiveness programs,” said witness Arwen Thoman, director, student loan assistance unit and investigations supervisor with the Massachusetts Attorney General’s Office. “I do think that those programs in many cases could be more generous for borrowers and raise the amount of income that is protected. The student loan servicers are also not wrong that the system is very complicated.”

The Illinois Student Loan Servicing Rights Act was introduced after the DOE withdrew servicing standards in April 2017.

During the hearing, Buchanan called for restoration of common servicing standards.

“The real challenge is when you have those conflicts at the state, federal and agency level. Any effort to create some common standards … we would think is a valuable contribution to the dialogue,” he said.

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