ICYMI: Warren Calls for Student Loan Servicers To Be Held Accountable When They Cheat Borrowers
WASHINGTON, D.C. — Today, chairing a hearing of the Senate Banking, Housing, and Urban Affairs Subcommittee on Economic Policy, United States Senator Elizabeth Warren (D-Mass.) questioned experts on what should be done to protect student borrowers during upcoming transitions to new student loan servicers. During the hearing, Senator Warren spoke about the end of the Pennsylvania Higher Education Assistance Agency's (PHEAA) student loan servicing contract with the U.S. Department of Education and the servicer’s failure to manage the Public Service Loan Forgiveness Program.
At the hearing, Senator Warren emphasized the importance of the student loan payment pause for borrowers during the pandemic, and the risks for borrowers and the economy if it is allowed to end too quickly. She also continued her calls for President Biden to extend the payment pause.
Full transcripts on the three rounds of questions and videos below.
Transcript: Protecting Student Loan Borrowers and the Economy in
U.S. Senate Banking, Housing, and Urban Affairs Committee's Subcommittee on Economic Policy
Tuesday, July 27, 2021
Round 1 of Questions below and video HERE:
Senator Warren: The first hearing that we held in this subcommittee, just a few months ago, focused on student loan servicers – these are the private companies that manage student loans for the federal government. During that hearing, I asked the CEO of PHEAA, one of the largest servicers in the country, whether the Department of Education had ever penalized his company in any way for its blatant mismanagement of the Public Service Loan Forgiveness program, or “PSLF.” He told me, quote, “No, they have not.” But it turns out that wasn’t true.
After the hearing, the Department of Education sent Senator Kennedy and me a letter detailing the multiple penalties PHEAA has faced. So Senator Kennedy and I wrote to PHEAA’s CEO asking him why he had lied to Congress.
Two weeks later, PHEAA announced they would be quitting the student loan program when their contract expires in December.
Attorney General James, your office has had multiple dealings with PHEAA, including suing them for mismanaging the Public Service Loan Forgiveness program. Based on what you’ve seen in New York, are you sorry to see PHEAA quit the student loan program?
Letitia James: I think PHEAA’s exit is an opportunity for a fresh start. As we alleged in our lawsuit PHEAA failed the teachers, nurses, social workers, those who serviced in the military by failing to accurately count these qualifying payments, failing to provide timely explanations of their determinations, failing to inform borrowers of their options to challenge their mistakes. Public workers who fulfil their obligations to the public should be able to get the debt relief they earn and we are hopeful the Department of Education will work with our office and other state and federal partners to ensure in the future that the Public Service Loan Forgiveness program fulfils its promise. Our case, as you know, is in the midst of discovery and we will continue our litigation and hopefully get the relief that countless number of borrowers so desperately need not only in New York but all across this country.
EW: Thank you. I think we all know what happened here. PHEAA realized that Congress and the Department of Education and the attorneys general were finally starting to hold them accountable for cheating borrowers and lying about it, so they turned and ran. I’m glad they’re gone. All 8.5 million of the accounts that PHEAA currently handles now must be turned over to the student loan servicers.
Ms. Yu, did the contract that PHEAA has with the Department of Education have any requirements in it obligating PHEAA to protect borrowers if they suddenly decided to quit?
Persis Yu: The contracts provide no meaningful requirements to borrowers in the case that they suddenly decide to quit and importantly they do not provide the meaningful relief to the borrowers if they get harmed as indicated by Attorney General James.
EW: Okay, so let’s talk a little bit about that. The Department is currently negotiating with PHEAA over what they need to do when PHEAA walks away. What specifically do you think the Department of Education should require from PHEAA to make sure that student loan borrowers aren’t hurt even more during the transition to a new servicer?
PY: Well first of all we need to learn from the lessons from the transfer from ACS a number of years ago. We need to learn that borrowers must have complete and full payment histories and that includes the payment histories from prior servicers as well as the payment history when the borrower was with PHEAA. They need to also transfer any records of complaints, any information where borrowers may have disputes about the loan system as well. And then we need to be proactive about identifying vulnerable borrowers who might get lost in this transfer. But critically we need to understand that inevitably some borrowers will get harmed in this transfer and we need to make sure we have adequate remedies available to those borrowers.
EW: I think that’s a really good point. You know, President Weingarten made the point that if PHEAA has done such a bad job of counting for the loan payments that people have been making, expecting them suddenly to have 100% compliance when they make the transition, and they're not even gonna stay in the business, is pretty unrealistic. I thought you made a very powerful point about that. Look, our student loan system is broken more than just PHEAA. I’ve been saying for years that the Department of Education needs to do more to hold all student loan servicers accountable when they break the law or when they hurt borrowers.
And for years, the excuse has been that there is no alternative to working with these incompetent companies because there’s no plan for how to get by without them.
Contracts get renewed year after year after year with no accountability and no consequences for bad behavior and zero provisions about what the companies would have to do if they went under or if they walked away. When the federal government props up companies like that, that is the definition of “too big to fail.”
Now in December, all of our servicer contracts will be up for renewal, not just PHEAAs, but all of them, which means that right now the Department of Education is negotiating over what conditions these companies will have to agree to in order to keep making money off the student loan borrowers.
Ms. Yu, what would loan servicing contracts with real teeth to protect our students look like?
PY: Yeah, thank you for your question. There needs to be real penalties for poor performance and abusive practices and the Department needs to proactively look for those and do screenings. But the Department also needs to get out of the way of state attorneys general like General James and for private borrowers who are seeking relief using state consumer protection laws. They need to rescind the notice on preemption that Attorney General James mentioned before but also prevent servicers from raising defenses such as pre-emption or derivative sovereign immunity which are intended to shield them from liability and prevent them from giving borrowers no relief.
EW: Thank you. We need to get control of our broken loan servicing system so that we never end up in this situation again. Right now, the incentives in the servicers’ contracts aren’t strong enough to get them to change their behavior, and the penalties are nothing more than a slap on the wrist when the companies injure student loan borrowers.
We have an opportunity over the next year to write new rules that will tell servicers that if they do a great job servicing the borrowers, then they’ll be rewarded – and if they mislead the borrowers or break the law, then they’re out. That’s fair for everyone.
Round 2 of questions below and video HERE:
EW: Let’s see if we can wrap up where we are on the PSLF. So the PSLF Program was set up with a simple promise: Work in public service for ten years, make payments toward your loans, and after a decade your remaining balance will be cancelled. But the federal government, with PHEAA’s help, has failed to keep up our end of the bargain.
President Weingarten, let’s go over some of the numbers here. You represent more than 1.7 million school teachers, nurses, and early child educators - exactly the kinds of public servants who should benefit from this program. So I want to run through some numbers. How many people have applied for relief through Public Service Loan Forgiveness?
Randi Weingarten: So Madam Chair, according to the Education Department’s most recent data, about 322,000 borrowers have applied for relief.
EW: Okay, and how many of those have successfully had their loans forgiven?
EW: And since you are a former school teacher, you can do the math on that?
RW: You know, I was a social studies teacher, but (inaudible).
EW: (laughs) That’s no excuse.
RW: about 2 percent.
EW: About 2 percent. And here’s the part that you can bring to Congress to talk about it, one more time. You talk with your members, why are they having trouble qualifying for loan forgiveness?
RW: So this is, and I’m really glad you asked that question Madam Chair because it was hard to under- at least for me it was hard to understand how teachers who very much followed the rules, that this as Senator Ossoff said earlier, it’s a pretty simple promise that for 10 years in exchange for you paying your debt each month for 10 years, you would get the rest of it forgiven. So they would be, you know, paying their debt, they’d be sending in a coupon, or doing a venmo, or doing whatever Millenials do now to pay debt, and it would be credited and they would keep the forms. But then what would happen is that they would hear, well it’s the wrong loan type, or you’re in the wrong repayment plan, or servicer A said this and then after 10 years servicer A would say, well you have to go to the Department of Education to find out you can’t talk to us about it. And you would see these kind of two different islands of misinformation because a person would go to the Department of Education and they would be told one piece of information, and then they would go back to the servicer and said the Department of Education said A, and the servicer said no that’s not true. So it was a, it’s a labyrinth , where you could be wrong by a cent on one payment in 10 years, and that could put you back to the beginning again. It, it is, I have never seen such a mess from a program that’s supposed to be pretty clear, and a promise pretty direct.
EW: Now, there are a lot of reasons for this 98% denial rate, this astronomical denial rate, including the complicated rules that Congress wrote. But a big part of the problem is that the federal government turned over the management of the program to a private company that couldn’t do even the most basic part of the job. This company cheated public servants out of relief, and – until recently – faced no meaningful consequences for its failures.
Attorney General James, in your investigation, what role did you find that PHEAA played in denying forgiveness to public servants?
LJ: My office alleges in our lawsuit that PHEAA’s failure to accurately count the public student loan forgiveness qualifying payments contributed to the, as you described a shockingly high rate of denials. 98%, when borrowers applied for forgiveness, again the borrowers run the gambit . They’re teachers, they’re nurses, they’re firefighters, they’re police, they’re librarians, they’re even government workers. And when we filed our lawsuit, again more than 98% of those applications were rejected. And these are individuals, again who made payments and unfortunately were turned down, and they made these payments based on the promise that was made. And so going forward we look forward to working with the Department of Education, and we look forward to working with other federal and state departments to increase oversight over these services in addition to, it’s important that again we extend the pause, that we offer $50,000 in debt relief to student borrowers, that we reverse the previous administration rules with respect to states being preempted by certain rules. And last but not least, that the federal agencies share information with state attorney generals so that we can collaborate and be partners together to protect student borrowers all across this nation.
EW: That is very powerful Attorney General James, and I appreciate it. President Weingarten, I want to give you a shot at that same question. What do you think the Department of Education should do to make this right?
RW: So first the Department of Education has one of two choices, it could attempt to deal with 150,000 claims that are backlogged. To try to untangle every single one of these in every single place, or it could actually have a presumption that says if you have been a school teacher for 10 years and, and you have some evidence that you’ve paid your loans, all the rest of the loans have been forgiven. And during this period of time there could be a presumption that said that up to $50,000 of loans could be forgiven, which would be the preferable way because then you can start from scratch and fix these programs, and hold these services accountable, and do the work that we need to do in the future to recruit and retain people in public service and say a promise made is a promise kept. But right now it is such a tangled web. I don’t know how any Department of Education is gonna untangle the mess that Betsy Devos left. So it would be the right thing to do to deal with the wealth gap, to deal with what has just happened in terms of the pandemic, to actually say let’s cancel $50,000 of student debt, and let’s fix PSLF in the future.
EW: Thank you. President Biden has the authority to fix this problem today. I know the Department of Education has put out a call for borrowers’ feedback, and I encourage anyone who’s watching this to submit their stories to the Secretary of Education, Secretary Cardona. I hope that once the Education Department hears from borrowers, they will follow Congress’ intent and simplify the rules of the program so that future public servants don’t get lost in this maze. But let’s be clear, we need wholesale forgiveness and we need it now. People have been cheated, they have been given the runaround, people have been harmed over and over and over again. The President has the capacity to make this right, and it’s time to do that.
Round 3 of questions below and video HERE:
EW: Just weeks after the coronavirus pandemic started in March 2020, the Department of Education suspended student loan payments and collections and canceled student loan interest for every single student loan borrower. A Republican administration took this unprecedented step because borrowers needed help during a crisis. When he took office in January, President Biden extended this pause because millions of borrowers are still struggling to get back on their feet. But this payment pause is scheduled to end in just two months, on September 30.
This is a disaster in the making. This student loan time bomb could drag down our entire economic recovery when it explodes.
Ms. Weingarten, tell me how important this student loan payment has been. How has the pause on student loan payments, interest, and collections affected the borrowers that you represent?
RW: So, sorry, Chair Warren, that I keep on telling stories of my members.
EW: No, I want you to.
RW: But this is - this is - you know, it makes your heart break when you hear these stories and when you try to actually deal with this. Let me tell you about the story of Aleece who is a clinical lab tech at SUNY Upstate Medical University in Syracuse. She went to college, she pursued her career and then she had lots and lots of student loans. This is her quote to me: "My husband and I drive a 10 year old car. I can't buy work shoes even though the ones I wear are contaminated with body fluids. I have to work overtime just to make ends meet. I'm doing work that I love and that people depend on but my debt is a prison sentence that will haunt me and my family for life."
What happened with the pause? It gave her the money so that her husband could stay home to care for her child because child care had closed while she was working. It gave them some breathing room so that they could buy a new car. It gave them the breathing room so that they didn't have to worry every single month whether she was gonna buy work shoes or whether she was gonna pay her student debt. I hear these stories all the time. The kind of breathing room that it gave people so that they could navigate during this period of time and even with that, you see the stress that my members are under. That's why we're so concerned that in a month or two as schools are trying to reopen, as our job is to create a welcoming and safe environment, people are going to start stressing about what they're going to do again when they start having payments of 200 to 400 to 600 to 1,000 dollars a month. And if we don't have a solution long term for the debt, if we don't cancel that debt long term, if they can't figure that out then they're gonna have on top of that this PHEAA transition and these other transitions which will be also equally stressful because the paperwork is so bad already.
EW: The pause has been good for Aleece, good for Aleece's family and good for our economy. Now, some people are saying that the economy is improving, and as more people get vaccinated, we’re getting COVID under control. That’s true, and that is obviously good news. So they’re wondering, why do we still need a pause in student loan payments?
You've talked about this President Weingarten but Ms. Yu, I want - your organization works with student loan borrowers. So let’s think together about how prepared student loan borrowers are. Have these borrowers been told what their monthly payments will be after the pause ends?
PY: They have not.
EW: Have the servicers been proactively communicating with borrowers to help them get ready for a re-start?
PY: No, they have not.
EW: A lot of borrowers’ financial situations have probably changed in the last year and a half. Has the Department of Education made it easier for people to enroll in income-driven repayment plans or to update their income information?
PY: No, in fact, the opposite. Many people are struggling with that.
EW: And some borrowers face other problems. If a borrower is facing eviction or foreclosure, do you think that paying their student loans is going to be at the top of their mind?
PY: Not at all.
EW: You know, even before COVID, student loan debt disproportionately hurt people of color and exacerbated racial wealth gaps. These are the same communities that have been hit hardest by the pandemic.
And, as I've said, this suspension is scheduled to end in just two months.
So, Ms. Yu, what risks to consumers are you worried about if the repayments restart on October 1, as scheduled?
PY: Thank you, Senator. So we know that the economic recovery has not been even and some of the most vulnerable borrowers are still struggling the most. We're very concerned about borrowers in default who are going to have their Social Security benefits immediately seized when the payment suspension ends. I'm very concerned about borrowers relying on their earned income tax credits and their child tax credits when next tax season comes but we're also worried about the millions of borrowers that won't even know that payments have restarted because they have no contact with their servicers and will have trouble accessing income-driven payments and then will fall into default as a result of communication failures and servicing errors.
EW: You know, we talk about the borrowers aren't ready, the system is chaotic, the student loan servicers aren’t ready, either. When I asked them about their plans, one servicer described the complexity of the challenge as quote “unprecedented,” noting that quote “the Federal Student Aid Servicers have never attempted to move 43 million-plus accounts into a repayment status all at once all across the country.”
Last month, I led sixty of my House and Senate colleagues in calling on President Biden to extend the payment pause at least until March 2020 to give borrowers, servicers, and the Department of Education more time to prepare.
I’m fighting to cancel $50,000 of student loan debt so that borrowers who are struggling can get permanent relief. In the meantime, borrowers are facing a financial disaster on Oct. 1. President Biden should act immediately to make sure that all borrowers are protected.
I want to thank our witnesses who have been here today. I want to thank you for your testimony. I also just want to thank you for your work. Your hard work in the trenches on behalf of people who are struggling with student loan debt. For Senators who wish to submit questions for the record, those questions are due one week from today, Tuesday, August 3rd. For our witnesses, you will have 45 days to respond to any questions. Thank you again for being here and sharing with us today. With that, this hearing is adjourned.
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