WASHINGTON (Georgia Recorder) — As private student loan companies take heat over accusations of predatory behavior and deception, members of a U.S. Senate Committee on Banking, Housing and Urban Affairs panel and student advocates voiced concerns over the industry at a hearing Tuesday.
The Subcommittee on Financial Institutions and Consumer Protection hearing came as the broader student debt crisis impacts millions, with more than $1.74 trillion in outstanding student loans as of the second quarter of 2024, according to the U.S. Federal Reserve.
Subcommittee Chairman Raphael Warnock said he and his staff analyzed some of the myriad complaints the Consumer Financial Protection Bureau received related to private student loans and federal student loan servicing in roughly the last year and were “struck by the sheer scope and magnitude of the problem.”
“Private lenders and servicers routinely misled or deceived borrowers, and the stories are frustrating and heartbreaking,” the Georgia Democrat said.
Some borrowers have found loans offered by private lenders to be extraordinary burdens, Aissa Canchola Bañez, policy director at the Student Borrower Protection Center, an advocacy group, told the panel.
“Student loans were supposed to grant all families — regardless of race and economic status — the chance to unlock the promise of a higher education,” she said.
“But for too many, student debt has become a life sentence, holding borrowers back from buying a home, starting a small business and even starting or growing a family,” Canchola Bañez said.
Canchola Bañez said “the absence of comprehensive data in the private student loan space has too often left borrowers, policymakers and advocates in the dark” and that “this has allowed for significant gaps in protections for the millions of Americans forced to take on private student loan debt and has made it harder for policymakers and law enforcement officials to protect borrowers.”
Dalié Jiménez, a law professor and director of the Student Loan Law Initiative at the University of California, Irvine School of Law, said the private student loan industry had transformed in the last decade.
“New financial products have emerged, offering alternatives to traditional loans, but they’ve come with added risks that we’re only beginning to understand,” Jiménez said, adding that “many are offered by schools that provide dubious value in return for costly credit.”
WATCH U.S. Senate hearing on student lending
Troubled industry
Major student loan servicers, such as Navient, have been at the center of legal issues and scrutiny in recent years. Last week, the Consumer Financial Protection Bureau reached a $120 million settlement with Navient that bans the company from federal student loan servicing.
Sen. Elizabeth Warren, a Massachusetts Democrat and member of the subcommittee, has led investigations into Navient for nearly a decade.
Warren said Tuesday that “Republican extremists want to return to the days where borrowers were just at the mercy of predatory servicers like Navient” and that “the Biden-Harris administration has a different vision.”
Warren added that it’s “long past time for Navient to do the right thing by their countless defrauded borrowers and cancel out these loans for the private student loan borrowers as well.”
On the other side of the aisle, GOP Sen. Cynthia Lummis defended the industry’s basic mission.
“While individual cases of malfeasance certainly exist in the private loan market — as they do in any market — private lenders fill a crucial gap in higher education financing and equip borrowers with the tools to meet the barriers to education in place today,” Lummis said.
Lummis, a Wyoming Republican, also noted that the private student loan market only accounts for 8% of outstanding loans and that the vast majority of loans are federal loans.
Beth Akers, senior fellow at the conservative think tank the American Enterprise Institute, pointed out that while “private student loan origination and servicing, both for federal and private loans, hasn’t been perfect” and “lending institutions and those that service loans are fallible,” these private entities supporting student lending “don’t deserve the ire of lawmakers looking for a quick fix or even a scapegoat for what is happening more broadly in student lending.”
