Durbin: Congress Ignores Exploding Student Debt Crisis
Illinois and Kentucky AGs testify about the need to rein in for-profit colleges that push students toward risky, high interest private loans
[WASHINGTON, D.C.] – At a hearing to examine the growing student loan debt crisis in America, U.S. Senator Dick Durbin (D-IL) today urged Congress to take steps to help struggling students beginning with the passage of his Fairness for Struggling Students Act – a bill that will restore fairness in student lending by treating privately issued student loans in bankruptcy the same as other types of private debt. Durbin also addressed the role of for-profit colleges in exacerbating the growing debt problem by pushing students toward risky, higher-interest, private student loans.
“There is now more student loan debt in this country than credit card debt,” said Durbin. “While overall growth in student indebtedness is troubling, the most pressing concern is private student loans which are being aggressively promoted by the for-profit college industry. Forty-two percent of for-profit college students had private loans in 2008 – up from just 12% in 2003. The for-profit college business model relies on steering students toward private loans and, as a result, many students are pushed into private loans when they are still eligible for federal loans – even when the lender knows they are likely to default. “
For the past decade, private student loans have been the fastest growing and most profitable part of the student loan industry. The interest rates and fees on private loans can be as onerous as credit cards. There are reports of private loans with interest rates of at least 15% and higher rates are not unheard of. This can place a tremendous burden on student borrowers with private loans and unlike federal student loans, there is no government-imposed loan limit on private loans and no public regulation over the terms and cost of these loans.
Durbin outlined several additional steps that Congress should take in order to address the looming student debt problem and protect students from the misleading practices of some for-profit colleges including:
- Require full private student loan certification to ensure that students take advantage of their federal student aid options before turning to private loans;
- Push for meaningful accreditation for for-profit institutions to ensure that students are not being saddled with debt just to graduate with worthless degrees for their chosen field; and
- Encourage the Consumer Financial Protection Bureau, currently collecting data and complaints on private student loans, to use its rulemaking authority to take corrective action.
Illinois Attorney General Lisa Madigan, who testified at today’s hearing, recently filed a lawsuit against Westwood College – a for-profit college that allegedly engaged in deceptive practices in marketing its criminal justice programs. According to Madigan, Westwood falsely represented to prospective students that they could pursue a career with law enforcement agencies in Illinois even though virtually all of the agencies do not recognize a Westwood degree due to its lack of regional accreditation. She said, “In short, many Westwood students are now burdened with debt loads as high as $80,000 and stuck with a degree that is neither marketable nor transferrable. Since we filed our lawsuit, more than 800 former and current students have come forward to complain about their experience at Westwood College.”
Kentucky Attorney General Jack Conway, who chairs a multistate working group looking into for-profit colleges that make false or misleading statements to prospective students, also testified at today’s hearing. He explained, “The more we learn about the private student loan market, the more concerns we have. We have seen borrowers manipulated both by lenders and unscrupulous institutions that are in a fiduciary relationship with these borrowers. Because of this dynamic, I must ask, why should we provide these students with no less than the same consumer protections that are available to federal student loan borrowers?”
Durbin highlighted the case of Chicago, Illinois resident, Danielle Jokela, who after graduating from Harrington College of Design – a for-profit college run by Career Education Corporation – struggled to find work in her chosen field and to pay off her student loans. Danielle testified that after graduation in 2007, she owed nearly $79,000 in student loans ($37,625 in federal loans and $40,925 in private loans). Six months after her graduation in 2007, that total had ballooned to more than $100,000 after interest and fees. Five years later, despite her hard work and tireless effort, Danielle has been unable to reduce the overall cost of the loans, or reduce the balance by any significant amount. Twenty-five years from now, if interest rates hold, Danielle will finally be done paying off her student loans. She will have paid approximately $211,000 – nearly $56,000 for federal loans and $155,000 for private loans).
Deanne Loonin, a staff attorney with the National Consumer Law Center and the Director of the organization’s Student Loan Borrower Assistance Project, testified at today’s hearing in favor of Durbin’s legislation and the discussed the importance of creating an adequate safety net for borrowers that have exhausted all options but are still crippled by student loan debt. She explained, “Current bankruptcy law treats students who face financial distress the same way as people who are trying to discharge child support debts, alimony, overdue taxes and criminal fines. The current undue hardship system is arbitrary and unfair and denies relief to the most vulnerable student loan borrowers. This harsh treatment of students in the bankruptcy system was built on the false premise that students were more likely to ‘abuse’ the bankruptcy system. Yet there is no evidence and has never been any evidence to support this assumption.”
Durbin’s Fairness for Struggling Students Act would help address the looming student debt crisis by restoring a pre-2005 provision in the bankruptcy code allowing for discharge of privately-issued student loans – like other forms of private debt, including credit cards – in bankruptcy. Before changes were made to the bankruptcy code in 2005, only government issued or guaranteed student loans were protected during bankruptcy. This protection had been in place since 1978 and was intended to safeguard federal investments in higher education. Restoring this provision would once again make important relief available to students who are being crushed by overwhelming private student loan debt.
Earlier this year, Durbin introduced legislation that would further limit federal government subsidies to for-profit colleges and eliminate the incentive for these extremely profitable schools to aggressively target veterans and service members. His Protecting Our Students and Taxpayers (POST) Act would re-instate the original ratio of 85/15 (it was loosened to 90/10 in 1998) and change the definition of what counts as federal revenue so that it includes all federal funds. The bill is cosponsored by the Chairman of the Senate Committee on Health Education Labor and Pensions (HELP), U.S. Senator Tom Harkin (D-IA).
A copy of Senator Durbin’s opening statement and copies of the witnesses’ testimony are available below.