Senator Reverend Warnock Highlights Harmful Practices in the Private Student Lending Market During Banking Subcommittee Hearing

Senator Reverend Warnock addressed the lack of transparency in the private student loan market during Tuesday’s Senate Banking subcommittee hearing

The Senate Banking Subcommittee on Financial Institutions and Consumer Protection, chaired by Senator Reverend Warnock, held the hearing—the first hearing of its kind in the Committee in more than 10 years

During the hearing, Senator Reverend Warnock underscored how changes to the current student loan servicing market could help narrow the racial and gender wealth gap

Expert witnesses included Ms. Aissa Canchola Bañez, the Policy Director at the Student Borrower Protection Center, Dr. Beth Akers, a Senior Fellow at the American Enterprise Institute, and Ms. Dalié Jiménez, a law professor at the University of California, Irvine School of Law

The hearing follows recent news of a $120 million settlement between the Consumer Financial Protection Bureau (CFPB) and Navient–once one of the country’s largest student loan servicers–for the company’s exploitation of students and taxpayers

Senator Reverend Warnock: “I hope today’s hearing helps improve transparency around student lending and brings accountability for the private lenders and student loan servicers”

Watch Senator Reverend Warnock at Tuesday’s Senate Banking subcommittee hearing HERE

Washington, D.C. – Yesterday, U.S. Senator Reverend Raphael Warnock (D-GA), chair of the Senate Banking Financial Institutions and Consumer Protection subcommittee, highlighted harmful and predatory practices in the private student loan market during a Tuesday hearing titled “Back to School: Shedding Light on Risks and Harm in the Private Student Lending and Servicing Market.” The hearing was the first of its kind in the Senate Banking committee in over a decade and explored the lack of data and transparency in the private student loan market while highlighting the potential legislative and regulatory recommendations and measures to stop these abusive practices and to better protect students and taxpayers.

“I hope today’s hearing helps improve transparency around student lending and brings accountability for the private lenders and student loan servicers that have misled and harmed borrowers. Indirectly they harm us all,” said Senator Revered Warnock.

Ms. Aissa Canchola Bañez, Policy Director at the Student Borrower Protection Center, Dr. Beth Akers, Senior Fellow at the American Enterprise Institute, and Ms. Dalié Jiménez, Professor of Law and Director of the Student Loan Law Initiative at the University of California’s Irvine School of Law offered expert witness testimony during the hearing. The hearing follows the recent news of the Consumer Financial Protection Bureau (CFPB) agreeing to a $120 million settlement with Navient due to the company’s incorrect processing of payments, misleading of borrowers, and general exploitation of students and taxpayers. Navient, once one of the country’s largest student loan servicers, is now permanently banned from servicing federal student loans.

In May of this year, Senator Warnock urged Department of Education Secretary Miguel Cardona to hold the student loan servicerHigher Education Loan Authority of the State of Missouri (MOHELA) accountable for its billing errors and other failures that impact borrowers. In April, the Senator highlighted the role MOHELA played in blocking efforts to provide meaningful student debt relief. The predatory practices of some student loan servicers contribute to the overall student loan crisis that continues to impact millions of Americans.

Senator Reverend Warnock has long advocated for comprehensive action to address the student loan crisis and has continued pushing the Administration to deliver meaningful student debt relief. Last August, the Senator pushed President Biden to swiftly fulfill his promise to deliver targeted student debt cancellation to working and middle-class families by early 2024 following the misguided SCOTUS decision overturning the President’s student debt cancellation. Prior to that, in July 2023, the Senator urged the Education Secretary to take steps to provide assistance to incarcerated individuals burdened by student loan debt.

Watch the Senator’s full remarks HERE.

See below for a full transcript of Senator Warnock’s opening statement:

“Welcome to this hearing of the Senate Banking Subcommittee on Financial Institutions and Consumer Protection this Congress. This hearing is in a hybrid format, but our members and witnesses are all here in person today. We are grateful for their presence and your willingness to participate.

“Today, this subcommittee will examine the consumer protection risks and harms of private student loans including the roles of lenders, both banks and nonbanks that are operating in this space. We will also examine the ongoing challenges that millions of Americans are still experiencing with their student loan servicer.

“Today’s hearing will be the first time in a decade that the Senate Banking Committee has focused on private student loans, a growing and opaque financing option that students are using to help pay for the rising cost of college.

“Collective student debt continues to rise, with the Federal Reserve finding Americans collectively owe more than $1.74 trillion in debt to the federal Education Department or to private lenders – $1.74 trillion. This number has risen every year, except for 2023. And of that total, $133 billion is owed to private lenders in the form of private student loans, including more than $5.6 billion in the state of Georgia.

“The Biden-Harris Administration has recognized the weight that an excessive student loan burden can have on Americans and to date, Biden-Harris Administration has announced nearly $170 billion in relief for almost 5 million borrowers.

“However, these are only federally-backed student loans, and borrowers continue to report issues with their private loans. While we are not expecting the C-F-P-B Educational Loan Ombudsman’s annual report until next month, information we already have shows that the C-F-P-B received more than 15,000 complaints from September 1, 2023, to August 30, 2024, related to private student loans and federal student loan servicing.

“My staff and I have analyzed some of these complaints from borrowers. And when looking through the complaints, you are 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 – confusing processes, poor customer service, and just a genuine failure of many lenders and servicers to work with struggling borrowers.

“With numbers that high, it’s easy to forget that there is an entire life and story of behind each of these complaints. These are real people with families and these are real consequences. I’ll share just one example, from a borrower in Atlanta, Georgia who holds private student loans.

“This person had attended a for-profit college that has been found guilty of misleading students about the employment and earnings rates of their graduates. Because of this fraud, the individual’s loans should have been eligible to be discharged. However, their lender denied their discharge.

“Think about that. This person was a victim of lies on the front end of the process. They had already selected a school based on untruths about that institution, and they were deceived into enrolling and taking out a loan based upon a false premise. And not only did their lender refuse to cancel their fraudulent loans, which the law requires, they then refused to share information on how to file an appeal or respond in any way to this Georgian in need. Real people, real problems, real consequences.

“I also submit this packet of horror stories from borrowers with private loans collected by the Project for Predatory Student Lending for the record. Without objection, this is so ordered.

“There were more than $10 billion in private education loan originations last year, an increase from just $6 billion in 2011. Private student loans are currently estimated to be more than seven percent of the total student loan market. And although student loans represent a relatively small portion of the student debt landscape, borrowers seem to have more and more issues with them.

“Taking data from October 2022 through September 2023, the C-F-P-B’s Student Loan Ombudsman Report found one in four complaints filed to the C-F-P-B about student loan issues was from borrowers with a private student loan. So think about that, only seven percent of student loan volume are private student loans. But those private student loans make up 25% of loan complaints. That indicates a serious consumer protection problem in private student lending.

“Today’s hearing will also touch on some of the ongoing challenges with student loan servicers—generally private companies that collect payments from and provide customer service for both federal and private student loan borrowers. And it could not come at a more timely moment.

“Just last week, the C-F-P-B announced Navient, a giant student loan servicer, would be banned from servicing federal student loans again and forced to repay $100 million to borrowers the company harmed. Navient also will pay a $20 million penalty. While this settlement still must be finalized by the court, it sends a strong message to other servicers that they cannot profit from harming student borrowers.

“In April, my colleague Senator Warren held a hearing highlighting harmful practices by the student loan servicer MOHELA. This hearing highlighted a decades-long pattern of mismanagement and misconduct that harmed millions of borrowers nationwide.

“Because of institutional failures of servicers like Navient and MOHELA, borrowers faced real-world consequences, including paying more than they should have, not being directed toward loan forgiveness programs, or even having their accounts mismanaged to the point that their credit scores lowered—making it harder for them to buy a home and build wealth.

“I believe that when we center the people, we make better public policy.

“So, as we approach today’s hearing, I think it’s important for us to center the experiences of student loan borrowers and bring ourselves back to when we were all looking at different colleges —I remember that experience— and trying to make likely the biggest decisions of our lives up to that point. This is a real issue for all students but as a first-generation college graduate myself I know what it is like to face those questions.

“The process is complex and often these days deliberately opaque. Many nontraditional students have to navigate this financial maze without the help or support of a parent and may be busy parents themselves. These are massive financial decisions—the equivalent of a mortgage and sometimes a risky bet on their futures with massive consequences that may follow them for decades.

“We owe it to students to ensure that those bets pay off and that the game isn’t rigged against them by predatory, unfair, deceptive, or even abusive behavior from private student lenders and student loan servicers. We owe students that are just trying to get ahead, trying to be productive citizens.

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