CBA Urges Congress To Address Root Causes of Student Loan Crisis
WASHINGTON – In a new letter sent to the U.S. Senate Banking Subcommittee on Economic Policy ahead of their Tuesday hearing entitled “Protecting Student Loan Borrowers and the Economy in Upcoming Transitions,” Consumer Bankers Association President and CEO Richard Hunt outlined the need to reimpose limits on unrestrained federal student lending to immediately address the rising student debt crisis in America today.
Over the last decade, CBA has been a leading advocate for higher education lending reforms to address the root causes of rising student debt and higher education costs. In the letter, Hunt writes:
“The best way to address excessive student loan debt and rising costs of postsecondary education is to reimpose reasonable and responsible limits on federal lending to guarantee every American access to higher education without providing a blank check for institutions to charge any price they choose.”
Student loan debt now exceeds $1.7 trillion, with the federal government holding or guaranteeing almost 94% of that amount. This dramatic rise has been driven by low repayment rates among federal student loan borrowers, less than half of which were paying even $1 monthly toward principal prior to the pandemic. In contrast, private student loans, which involve a careful assessment of credit capacity and ability to pay yield a 98% repayment rate. Identifying the flawed federal student lending approval process which has led to these outcomes, Hunt states:
“The federal government lends to undergraduate and graduate students and their families for any costs demanded from institutions of higher learning with minimal credit checks, no ability to repay analysis, and not even the straightforward Truth In Lending Act (TILA) disclosures required for any private loan. Any financial institution that tried to offer loans like these, with these terms, would rightly be prosecuted for predatory behavior.”
To avoid saddling families with debt they cannot repay, Hunt encourages the Senate to consider responsible limits on federal PLUS borrowing and replicate the digestible disclosure forms for federal student loan borrowers that already are provided by private lenders:
“The government has a responsibility to provide access to higher education to Americans regardless of financial situations, but that should be accompanied by some consideration for families’ ability to pay, as well as some limitation on borrowing to constrain prices. We think these practical solutions would go a long way towards easing the student debt problem in the future.”
In April, Hunt sent a letter to Senators Scott and Manchin, expressing CBA’s strong support for the bipartisan Student Loan Disclosure Modernization Act, which would help streamline disclosure requirements and clearly explain the costs and terms of the federal student loan specific to the individual borrower.
Last month, Hunt sent a letter to the House Committee on Education and Labor advocating for needed changes to federal student loan applications in advance of Secretary Cardona’s testimony on Capitol Hill.
Read the full letter here. Learn more about CBA’s work to help students and families responsibly finance their higher education here.
