Speeches & Floor Statements

Opening Statement: Colleges Should Be More Accountable For Students Not Repaying Loans

Posted on January 30, 2018

Before we begin, I want to express my concern about the large number of senior positions in the Department of Education that have not been confirmed by the Senate even though this committee first approved their nominations in some cases as long as three and a half months ago. 

 

For a while, the responsibility for this delay could be shared with the Administration, which was slow to make nominations. But not anymore.  

 

The responsibility lies solely with the Democratic minority which is insisting on taking most of one  week to confirm each nominee, knowing that there is not that much time for nominations on the Senate floor. 

 

One year after President Trump took office, only the following four positions at the U.S. Department of Education have been confirmed and are on the job:

  • The Secretary of Education 
  • The Assistant Secretary for Special Education and Rehabilitative Services 
  • The Assistant Secretary for Legislation and Congressional Affairs 
  • The Chief Financial Officer

 

This committee has approved four nominees that are awaiting a floor vote:

  • Carlos Muniz,   General Counsel, nominated June 6, 2017, was passed out of committee October 18, 2017.
  • Kenneth Marcus, Assistant Secretary for Civil Rights, nominated on October 30, 2017, was  passed out of committee January 18, 2018.
  • Jim Blew, Assistant Secretary for Planning, Evaluation, and Policy Development, was first nominated September 28, 2017, and was first passed out of committee December 13, 2017.
  • Mitchell Zais, Deputy Secretary, nominated October 5, 2017, and was passed out of committee December 13, 2017.

 

Since everyone knows that the Senate majority will confirm these four nominees, and the American people expect the president to be able to have enough administrators in place to be accountable for the federal activities in 6000 colleges and 100,000 public schools, my hope is that the minority will quickly allow the Senate to approve these nominees.

 

This is not only happening at the Department of Education. There are 103 nominations on the Executive Calendar awaiting consideration by the Senate. This does not include judicial nominations. 

 

To put this in perspective, on November 21, 2013, when Democrats thought the confirmation backlog was dire enough to use the nuclear option to break the Senate rules, there were 76 nominations on the Executive Calendar.

 

Today we are looking at another important focus of our reauthorization of the Higher Education Act:   accountability – whether students are earning degrees worth their time and money.

 

An important part of that accountability is to find ways to make sure students are not borrowing more money than they will be able to pay back.

 

Today, when students do not make payments on their loans, colleges are held somewhat accountable under the current cohort default rate measure.

 

I believe Congress should consider new accountability measures that are more effective at holding all individual programs at all colleges and universities accountable for the ability of their students to pay back their loans.

 

There is a lot of discussion over federal student loan debt.

 

While the amount spent on federal aid each year is high – about $120 billion, which includes $28 billion in grants and $92 billion in loans, the average debt per undergraduate student is relativity low.

 

At one of our previous hearings, Dr. Susan Dynarski, testified: “In the United States, typical undergraduate debt is less than $10,000 for those who don’t complete a four-year degree and about $30,000 for those who do. What’s exceptional about the United States is therefore not student borrowing but a rigid, archaic repayment system that unnecessarily plunges millions into financial distress.”

 

Historically, most student loans have been repaid and taxpayers recover most of the money.

 

However, there are some worrisome signs as we look ahead.

 

Here is what the student loan repayment picture looks like today:

 

There are two groups of borrowers repaying student loans: nearly half—46 percent – who are repaying on their student loans and a little more than half – 54 percent – who are in default or are not making payments on time.

 

Of the more than half who are not repaying their student loans on time, 21 percent of borrowers are in default, meaning they have not made a payment in over nine months.

 

The current method of holding colleges accountable for students making their student loan payments is based on the cohort default rate – the 21 percent in default.

 

There are another 33 percent of all borrowers who are not making payments on time. These borrowers are not taken into account in the current cohort default rate measure -- about two-thirds of these borrowers are not making payments because of economic hardship and one out of three are at least five days late on making a payment for a variety of reasons.

 

The taxpayer should be concerned not just about the 21 percent in default, but also about the 33 percent who are not making payments on time.

 

Of the half who are making payments, nearly two-thirds of them are in the income-based repayment program.

 

The income-based repayment program is a safety net for low-income borrowers enacted by Congress in 2007. It sets a cap on monthly student loan payments. If the loan is not repaid after 20-25 years at this capped payment rate, the loan is forgiven. 

 

Today, a portion of these borrowers, while considered in good standing, have a student loan payment of zero, because their income is too low.

 

What was designed as a temporary safety net has become the standard where students expect their debt to be forgiven after a certain amount of time.

 

This may be good for the student, but it is not so good for the taxpayer.

 

We will not know the impact of so many borrowers being in this program for another decade, when the first set of borrowers begin to have their debt forgiven.

 

Since the last bipartisan reauthorization of the Higher Education Act, the federal government has become the provider of all loans for students.

 

I did not agree with making the federal government the bank for student loans, but now that we are the bank, we must do what a bank does, which is protect its shareholders. In this case, the shareholder is the American taxpayer.

 

When a commercial bank makes a loan, it underwrites the loan or checks the credit of the borrower to determine whether the borrower is able to pay the loan back.

 

In the case of student loans, there is no underwriting or credit check – students borrow roughly $100  billion each year in individual loans that can go as high as $12,500 for an undergraduate and as high as the cost of tuition for graduate students.

 

And as we have just discussed, students may pay their loan back based on income and if they are not able to pay it all back within 20-25 years, the loan may be forgiven.

 

I do not want to turn roughly $100 billion in loans into grants, so we need effective ways to protect the taxpayer as well as the student.

 

As we continue our work on reauthorizing the Higher Education Act, I want to look at how we hold all schools – public, private, and for-profit – accountable when students borrow too much money and are not prepared to pay those loans back.

 

One way to do that is to provide students with more data on the cost of college and what their likely earnings would be in the curriculum or program they choose.

 

Another way would be to remove barriers and encourage schools to counsel students about the amount of money they can afford to borrow.

 

Another is to look at ways to hold the schools themselves more accountable.

 

There are several proposals by members of this committee, other Members of Congress, and outside organizations that reflect the interest in holding colleges and universities accountable for students repaying their loans. 

 

One is a proposal from Senators Hatch and Shaheen, which proposed fixing the cohort default rate system to instead look at the percentage of students who fail to pay down at least $1 of their principal loan balance within three years.

 

The House Committee on Education and the Workforce and Chairwomen Foxx took an approach similar to Hatch-Shaheen, which required college programs to have at least 45 percent of borrowers in “positive repayment status.”

 

Another proposal by the Hamilton Project suggests creating a cohort repayment rate, not to be confused with cohort default rate, to look at the percentage of federal student loan dollars that have been repaid in the five years after borrowers leave school.

 

It would be possible to apply this at the program level as well. Evaluating individual programs rather than applying a blanket sanction to a college that has both excellent and failing programs would help inform students’ choices and spend federal money more responsibly.

 

Using student loan repayment rates in an appropriate way to measure accountability for all programs at all of our 6,000 colleges and universities would be, in my view, a step in the right direction.

 

To be clear – we want to ensure students are getting a quality education and that they are not borrowing more than they can afford to pay back to the taxpayers who are making the loan.

 

This hearing, and our continued conversations, is one of our key five areas we need to address in our reauthorization of the Higher Education Act this spring.

 

Just as we released white papers in 2015 on accreditation, risk sharing and consumer information, my staff plans to release a staff white paper later this week intended to continue this thoughtful discussion on what it entails to have a robust accountability system.

 

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