Chairman Coats, thank you for calling today’s hearing. 

Rapidly growing student loan debt is a significant challenge facing our country. Student loan debt grew steadily through the recession, more than doubling from the start of the recession in 2007 to today, and is now close to $1.3 trillion. More than 40 million people have, on average, more than $27,000 in debt.

The recent explosion in student debt risks the economic security of young Americans and threatens our economic growth. As debt levels increase, young people are forced to delay buying a car, purchasing a home, starting a small business and saving for retirement. 

And some end up paying back loans well into their 30s, 40s and even 50s.

State Divestment and Tuition Increases

How did we get here?

Part of the story is that many American families have struggled in recent decades and have had trouble saving money for their children’s college education. And many were hit hard by the recent recession, the most serious economic crisis since the Great Depression.  

When parents have less savings, students are forced to borrow more. Substantially more. In fact, borrowing has gone up sharply in recent years, with the average debt at a 4-year public institution climbing from $21,900 in 2006-07 to $25,600 in 2012-13.

Another critical part of the story is that tuition has risen dramatically, especially at public colleges and universities, which educate the vast majority of our students.

States have also been hit hard by the recession, and in response many have slashed funding for higher education. Median state funding per student, for example, fell by almost one-fourth from 2003 to 2012.  

Cuts in state funding for higher education force public universities to charge more. As a result, this forces students and their parents to pay more. And this means that students have to borrow more money to go to college.

With declining state investment, tuition increases have far outpaced inflation since the 1980s.  After adjusting for inflation, tuition and fees at a public 4-year university more than TRIPLED in the past 30 years. 

The Bush-era recession also increased the overall amount owed by students in another way. As job opportunities shrank, more and more young people opted to enroll in school. And they had to take out loans to pay for it.

The recent recession also accelerated the loss of many higher-paying jobs that did not require a college degree, further increasing the demand for college or other postsecondary education.

For-profit institutions, in particular, saw their enrollments surge – quadrupling between 2000 and 2011.  A new report finds that 75 percent of the increase in student loan defaults between 2004 and 2011 results from the increase in borrowers at for-profit institutions. 

Republican Focus on Private Sector Comes with Risk

Yes, student debt is a big problem.

And how do our Republican colleagues suggest that we respond to this problem? By restricting the availability of federal student loans and by expanding the private student loan market.

As recent history has shown us, private student loans pose significant risks to borrowers. These loans lack the consumer protections of federal loans. They typically carry higher interest rates, some greater than 18 percent. And they offer fewer options for loan modification.

Many borrowers have been forced into default when lenders wouldn’t negotiate viable repayment plans. Income-based repayment and extended loan terms – plans that are available with federal loans – typically are not available with private student loans.

And there are many, many examples of private lenders preying on student borrowers.

Private lenders regularly declare borrowers’ private student loans in default after a co-signer dies or files for bankruptcy, even for borrowers who paid their loans on time for years. Of course, a default can affect employment background checks and cause lasting damage to a person’s credit.  

There is probably broad agreement in this room about the need to continue to clean up the abuses in the private student loan industry. It’s been the Wild West, with providers marketing their loans to students desperate for financing through every conceivable channel – Pandora, You Tube, on campus, off campus, at the gym and so on.

As we consider new private options for financing a college education, we must make absolutely sure we have strong safeguards in place to prevent private lenders from using predatory practices to take advantage of students.

Income Share Agreements

Today we will discuss a new private lending mechanism – income share agreements – that could offer some students an alternative way to finance their college education.

I would like to hear what our witnesses have to say about this issue. I would also like to know – specifically – how they would protect students from the predatory practices that have been a part of the existing private student loan market.

Needed Investments and Reforms

Rather than look to the private sector to magically solve the student debt problem, we should strengthen public support for higher education. It’s important to remember that an educated workforce is a public good and thus without government involvement, we would underinvest in education. There are four steps we should take right now.

First, we should make tuition free for students at community college. Students would then be able to build their skills, and perhaps obtain an associate’s degree, without taking on huge debt.

Second, states need to partner with the federal government to reinvest in higher education, and to begin to reverse the years of divestment at the state level.  

Third, at the federal level, we should increase investments in Pell Grants to give low-income students a real shot at a college education. Despite recent increases, Pell Grants now cover just one-third the cost of going to a public university. 

Finally, we need to reform the system so that universities and colleges have some “skin in the game,” some consequence, when a student is unable to pay back a loan. And colleges should be rewarded when a student succeeds.

Conclusion

Before we take the advice of my Republican colleagues and scale back federal student loans and increase private lending to students, let’s take a minute to remember how much students benefit from federal loans.

Much lower rates. Better consumer protections. Income-based repayment. Extended loan terms.

College has been a gateway to opportunity for generations in our country. But for too many Americans, as the price of college rockets up, the dream of an affordable college education slips away.

Our goal should be college education that is more accessible and more affordable. The federal government, state governments, universities, colleges, community colleges, the private sector and families all have a role to play. I look forward to our discussion today and thank the witnesses for their testimony.