High interest rates and more than $1.2 trillion of student loan debt are not the only challenges facing the 40 million Americans with student loans. Student borrowers face intense hardships caused by the deceptive practices of loan providers and servicers, and those problems came under the scrutiny Wednesday of the Senate Banking Subcommittee on Financial Institutions and Consumer Protections.
Currently, student borrowers are automatically assigned to one of more than 50 loan providers or servicers, including JPMorgan Chase, Wells Fargo, and Citibank. Because the federal contracts with these providers are up for renewal this summer, the Senate is investigating the scope and implications of the more than 2,300 complaints of loan providers and servicers compiled by the Consumer Financial Protection Bureau (CFPB). The grievances include crucial information not being available, changes in loan terms without consent and without apparent reason, and blatant lying by loan providers and servicers.
In his opening statements, Sen. Sherrod Brown (D-Ohio) said he was concerned that “student loan servicers care more about maximizing profits than customer service.”
These companies’ actions prove his point.
Robert Geremia, a teacher at Woodrow Wilson High School in Washington, D.C., still has outstanding student loans several years out of college. He said that he never received enough information about the long-term consequences of his loan before he signed for it. Because of this, he will pay over $10,000 in interest and fees.
There are no industry standards that dictate how much information these companies must provide to the borrower. Nor is there an agency solely dedicated to regulating these loan providers and servicers. Although the CFPB recently vowed to supervise the actions of the seven largest student loan providers and servicers, including Sallie Mae and Nelnet, most student loan companies are left unregulated. As a result, many student borrowers are wrongfully charged fees or left in default because of loan provider and servicer actions.
Even if student borrowers realize that something is amiss with their loan or loan provider, they have nowhere to turn and no one to advocate for them. Nancy Hoover, Director of Financial Aid at Denison University, said that graduates are increasingly seeking the help of their alma mater’s financial aid office, a department typically ill-equipped to handle their cases.
While the entire panel agreed that the degree of outstanding student loan debt is a detriment to the economy, Lindsey Burke of the conservative Heritage Foundation offered suggestions that would only compound the problem, including reducing the amount of federal Pell Grants available to students. When asked by Sen. Brown if she believed the loan provider and servicer industry should be regulated, she simply responded “no.”
Sen. Elizabeth Warren (D-Mass.) and other Democrats disagree. Since last summer, Sen. Warren has been leading the charge on student loan reform. During the hearing she passionately reaffirmed her position that loan providers and servicers “must follow the law and not take advantage of people.”
Sometime this week, Senate Democrats are expected to propose a bill that would allow student borrowers to refinance their loans to lower, fixed interest rates. This would certainly help student borrowers, but it will not completely ameliorate the serious burdens that they face. Loan providers and servicers must be held accountable when they trick, cheat, lie or withhold information, or else their deceitful tactics will continue, and students will pay the price.
Please join Sen. Warren and Campaign for America’s Future in urging the Senate to allow existing borrowers their fair shot at student loan fairness.