Finance

Democrats push for tougher oversight on student loan market

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Democratic lawmakers at a House hearing on Tuesday pushed for tougher oversight of companies handling student loans.

The hearing before the House Financial Services Subcommittee on Oversight and Investigations addressed what critics say is predatory behavior within the $1.5 trillion student loan servicing market.

Democrats pushed for Congress to impose responsibilities so that loan servicers must provide better advice to student borrowers. Under current Department of Education rules, federal student loan servicers are not legally obligated to inform borrowers which loan repayment plans are most beneficial for them.{mosads}

“You want your degree at the end, and that’s really the focus when young people get in there,” said Rep. Rashida Tlaib (D­Mich.). “Then afterwards they expect the government and the quasi-­governmental relationship they might have with private companies to do what’s in the best interest of their future.”

But Republicans balked at new regulations. Rep. Warren Davidson (R­-Ohio) raised concerns about Congress imposing new responsibilities on servicers without saveguards to protect them from defaults.

“As a history major I don’t know that I favor the idea that the government picks what your major is,” Davidson said. “But certainly we shouldn’t be indifferent to the default risk, particularly if we’re going to hold someone to the fiduciary responsibility for the performance of the borrower in repaying that loan.”

Lawmakers also addressed the obstacles women or minority student borrowers face that lead to higher default and late repayment rates.

GOP lawmakers, including Reps. Barry Loudermilk (Ga.) and Bryan Steil (Wis.), though, said many of the problems with student loans stemmed from the high costs of higher education not the practices of loan servicers.

The panel heard from state officials who described troubling practices in the loan servicing industry.

Opening statements from Nicholas Smyth, assistant director for consumer financial protection and senior deputy attorney general in Pennsylvania’s Office of Attorney General, and Joe Sanders, student loan ombudsman and supervising attorney at the Consumer Fraud Bureau of the Illinois Attorney General’s Office, detailed accusations against Navient, one of the largest student loan providers.

Smyth called for Congress explore prohibiting companies from putting borrowers in forbearance, where they can put off payments. Smyth said the practice hurt borrowers by adding debt to the tune of $4 billion in revenue for the company.

Sanders also described financial incentives for Navient employees to keep their call times under seven minutes when students called for help.

Navient is facing lawsuits from multiple states over its lending practices. The company has denied any wrongdoing. 

An industry representative pushed back on the criticism from the panel and witnesses at the hearing.

Scott Buchanan, executive director of the Student Loan Servicing Alliance, said a report from the Department of Education Office of the Inspector General noted that every loan servicer exceed the expectations set by their agreement with the agency.

The issue of excessive student loan debt has also gained the attention of 2020 Democratic contenders.

Sen. Elizabeth Warren (D-Mass.) in April unveiled a plan that would cancel up to $50,000 in debt for about 95 percent of Americans carrying student load debts.

Tags bryan steil Elizabeth Warren Rashida Tlaib Warren Davidson

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