Durbin, Reed, Warren: Student Loan Debt Is Hurting America's Middle Class

Senators discuss legislative agenda for 2014 to help working families better manage student loan debt and ensure basic protections for new students

[WASHINGTON, D.C.] – U.S. Senators Dick Durbin (D-IL), Jack Reed (D-RI) and Elizabeth Warren (D-MA) today vowed to do more to address America’s exploding student loan debt crisis that is reducing homeownership, jeopardizing retirement security, limiting the formation of small businesses, and leading to more income inequality in this country.  On a conference call with reporters, the three Senators discussed the higher education priorities they will focus on next year to help working families better manage their student loan debt and ensure basic protections for new students. 


“When we voted to stop interest rates on federal student loans from doubling, we promised to address the underlying causes of skyrocketing higher education costs and the resulting unsustainable student debt in America,” said Durbin.  “Over the last six months, our group of Senators has been working together on a legislative agenda to encourage reform to help students and their families.  Students should not have to sign their lives away to pay for their education.”


On today’s call, Senator Reed announced that he, along with Senators Durbin and Warren, is introducing the Protect Student Borrowers Act of 2013 to help make institutions of higher education more accountable for student indebtedness by requiring institutions to assume some of the risk of a student loan default.


“The biggest driver of student loan debt is the rising cost of college and we needed to tackle this issue from a variety of angles.  I am pleased to join with Senators Durbin and Warren to offer a series of solutions to improve servicing and support for borrowers who are struggling to repay their loans and an opportunity to refinance.  We also want states to step up and reinvest in higher education to stop the skyrocketing increases in public school tuition and we want institutions to have more skin in the game to provide a better and more affordable education to students, which will help put the brakes on rising student loan defaults.  And look, there is a real incentive to get this right: not just to help students, but to boost our economy.  Making college more affordable and ensuring hard working graduates can retire their student debt in a reasonable fashion will unlock a great deal of economic potential and consumer demand and that will have a positive ripple effect throughout our economy,” said Senator Reed, who today introduced the Partnerships for Affordability and Student Success (PASS) Act, which will help revitalize the federal-state partnership through a formula grant to states with a focus on need-based aid, grants to institutions to improve student outcomes and reduce college costs, and public accountability.   States will be required to have a comprehensive plan for higher education with measurable goals for enrollment, affordability, and outcomes for students. 


“Our higher education system is broken, and we need to make fixing it a real priority. We can start by restoring consumer protections to student loans to relieve the burden of existing student loan debt, which is crushing our families. We can also bring down the cost of tuition by investing in our next generation and leveraging federal dollars to incentivize states and institutions to keep costs low and quality high. I will continue to prioritize these goals and look for ways to tackle the rising cost of college through the reauthorization of the Higher Education Act," Warren said.


Americans have accumulated $1.2 trillion in student loan debt.  This is now the largest household debt after mortgages, outpacing credit cards and showing no signs of slowing.  Seven in ten college seniors who graduated last year had student loan debt, with an average of $29,400 per borrower.  From 2008 to 2012, debt at graduation increased an average of 6% each year.


“Right now, young people are trapped between needing a college degree and burying themselves in debt to earn it,” said Ethan Senack, higher education associate for the U.S. Public Interest Research Group, an organization with student members on seventy-five college campuses. “If we’re going to tackle college affordability and our monstrous student debt, we need more lawmakers to make the real commitment to higher education that Senators Durbin, Reed, and Warren made today.”


“Millennials are the first generation in American history expected to be financially worse off than their parents, and much of this has to do with student loan debt,” said Matthew Segal, co-founder of OurTime.org. “The time has arrived for us to step back and ask ourselves: should higher education merely be a commodity for the banking sector or a public good that benefits us all? The answer, at the moment, is far too skewed in one direction.”


Ensuring Basic Rights for Student Loan Borrowers


Earlier this month, Durbin, Reed and Warren joined U.S. Senator Barbara Boxer (D-CA) in introducing the Student Loan Borrower Bill of Rights Act to ensure struggling student loan borrowers are treated fairly and understand the full range of repayment options and resources available to them.  The legislation provides six basic rights for all federal and private student loan borrowers:


  • The right to have options such as alternative payment plans to avoid default.


  • The right to be informed about key terms and conditions of the loan and any repayment options to ensure changing plans won’t cost more.


  • The right to know your loan’s servicer and who to reach out to when there is a problem.


  • The right to consistency when it comes to how monthly payments are applied. Lenders and servicers should also honor promotions and promises that are advertised or offered. 


  • The right to fairness, like grace periods when loans are transferred or debt cancellation when the borrower dies or becomes disabled.


  • The right to accountability, including timely resolution of errors and certification of private loans.


Restoring Bankruptcy Relief by Treating Student Loan Debt Like Other Private Debt


Durbin, Reed and Warren also discussed the need to pass the Fairness for Struggling Students Act of 2013 which would restore fairness in student lending by treating privately issued student loans in bankruptcy the same as other types of private debt.  Since 1978, government issued or guaranteed student loans have been treated as nondischargeable during bankruptcy in order to safeguard federal investments in higher education.  In 2005, the law was unjustifiably changed to give private student loans the same privileged bankruptcy treatment as government loans, even though private student loans have vastly different terms and fewer consumer protections.  The bill introduced by Durbin in January and cosponsored by Reed and Warren would restore the bankruptcy law, as it pertains to private student loans, to the language that was in place before 2005 so that privately issued student loans will once again be dischargeable in bankruptcy like nearly all other forms of private debt. 


There are very few types of debts that the bankruptcy law subjects to a different standard, allowing for discharge in only the most extreme circumstances.  For example, the bankruptcy code makes it especially difficult for people to discharge child support responsibilities, overdue taxes, and criminal fines.  Privately issued student loans should not be on that list.


Other cosponsors of the Fairness for Struggling Students Act of 2013 include the Chairman of the Senate Health, Education, Labor and Pensions Committee, Senator Tom Harkin (D-IA) and Senators Tammy Baldwin (D-WI), Barbara Boxer (D-CA), Al Franken (D-MN), Mazie Hirono (D-HI), Chris Murphy (D-CT), John Rockefeller (D-WV), Bernie Sanders (I-VT) and Sheldon Whitehouse (D-RI). 


Brining to Light the Stark Differences Between Federal and Private Student Loans


The Know Before You Owe Act of 2013, which was included as part of the Student Loan Borrower Bill of Rights Act, would require schools to counsel students before they sign on to expensive, even unnecessary, private student loan debt and inform them if they have any untapped federal student aid eligibility.  It would also require the prospective borrower’s school to confirm the student’s enrollment status, cost of attendance and estimated federal financial aid assistance before the private student loan is approved. 


There are several stark differences between private student loans and federal student loans. Federal student loans have fixed interest rates and offer an array of consumer protections and favorable terms, including deferment and forbearance in times of economic hardship, as well as manageable repayment options, such as the Income-Based Repayment and Public Service Loan Forgiveness programs.


In contrast, private student loans involve only private profit and often resemble credit cards rather than financial aid with uncapped variable interest rates (which spiked as high as 18% in recent years), hefty origination fees and few, if any, consumer protections.  Private student loans are ineligible for federal forgiveness, cancellation or repayment programs.


Durbin introduced and Reed cosponsored the Know Before You Owe Act of 2013 in January.  It is also cosponsored by the Chairman of the Senate Health, Education, Labor and Pensions Committee, Senator Tom Harkin (D-IA) and Senators Tammy Baldwin (D-WI), Ben Cardin (D-MD), Al Franken (D-MN), Patty Murray (D-WA), Jack Reed (D-RI), John Rockefeller (D-WV) and Bernie Sanders (I-VT).