| 摘要 | Good morning, Chairwoman DeLauro, Ranking Member Cole, and distinguished Members of the Subcommittee. Thank you for the opportunity to testify today on servicing the federal student loan portfolio.
My name is Preston Cooper and I am a research analyst in higher education policy at the American Enterprise Institute (AEI), a nonprofit, nonpartisan public policy research organization based here in Washington, DC. My comments today are my own and do not reflect the views of AEI, which does not take institutional positions on issues.
Background on Federal Student Loans and Servicing
The federal student loan program currently has an outstanding portfolio of $1.4 trillion in student loans distributed among 43 million borrowers. Roughly $94 billion in new federal loans are disbursed every year. The Department of Education (ED) directly manages 86% of the portfolio, amounting to $1.2 trillion. (The remaining $200 billion is federally guaranteed but owned by private banks, and thus is not managed by the federal government.) ED currently contracts with nine servicers to administer and collect payments on federally managed student loans. As of September 2018, the Pennsylvania Higher Education Assistance Authority (PHEAA) was the largest servicer by loan volume ($344 billion), followed by Great Lakes ($246 billion), and Navient ($223 billion).
ED requires servicers to manage its student loan portfolio because a single loan can move through various statuses. Payments are not due while a borrower is in school, or during a six-month grace period following enrollment. Once a loan comes due, borrowers can choose from a number of repayment plans, ranging from a ten-year standard plan with the same payment every month to an array of income-based repayment plans, where payments rise and fall with the borrower’s income. A borrower can pause payments if her servicer grants her a deferment or forbearance, but if a borrower fails to make her monthly payment and does not have a deferment or forbearance, her loan will become delinquent. After she is delinquent for 270 days, her loan goes into default and transfers from her servicer to a collections agency, which can initiate extraordinary collection measures such as wage garnishment and seizure of tax refunds. Borrowers who default also have to pay additional fees, which can run to thousands of dollars.
Default is not a desirable outcome for either borrowers or taxpayers, so ED has set up incentives for servicers to help borrowers avoid default. When allocating new loans to the nine servicers, ED takes into account the percentage of the servicer’s current borrowers that are delinquent on their loans. The compensation structure for servicers also rewards those who keep borrowers current on their loans: a servicer receives $2.85 per month for each borrower who is in current repayment, but just $0.45 per month for each borrower who is severely delinquent.
Despite these incentives, 7.2 million borrowers with federally managed loans are currently in default, while another 3.3 million are delinquent. Another 2.7 million borrowers are in forbearance, a status in which they are not required to make payments, but may see their balances grow due to interest accumulation. Finally, roughly a million borrowers have signaled their intention to work towards Public Service Loan Forgiveness (PSLF), but many have complained about their perceived inability to get relief, an issue for which servicers often get the blame.
While there is always room for servicers to improve, there is also scope for policymakers to reform the federal student loan program itself in order to reduce confusion, errors, and undesirable loan outcomes. Currently, the federal student loan program offers several different repayment plans, runs multiple and overlapping loan forgiveness programs, and provides numerous opportunities for borrowers to avoid paying their loans. Federal student loans are one of the most complex consumer financial products that exist in the United States. To improve servicing, and therefore to improve outcomes for borrowers, policymakers should start with simplification.
Read the full testimony here. |
