William M. (Mac) Thornberry National Defense Authorization Act for Fiscal Year 2021
Floor Speech
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Mr. LUETKEMEYER. Mr. Speaker, I claim time in opposition. I am opposed to the amendment.
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Mr. LUETKEMEYER. Mr. Speaker, this amendment is an attempt by the Democrats to rewrite private contracts and put private lenders out of business, accomplishing their goal of socializing all student loan debt.
This amendment authorizes between $45 and $50 billion of taxpayer dollars to cancel or substantially lower private student loans. But it does not require that a student borrower demonstrate a financial need for such support, and the amendment does not credit students that have already paid off their student loans as required. It picks winners and losers at taxpayer expense.
The amendment directs Treasury to provide up to $10,000 for every single private borrower to be used toward private education loans, even if there is no demonstrated financial need for support. It wrongly assumes all private student loan borrowers have been impacted by COVID- 19 and creates a situation that is ripe for waste, fraud, and abuse.
Every Member of Congress recognizes that student debt is an issue that must be tackled. However, what is often not mentioned is that the Federal Government is the largest consumer lender, owning or guaranteeing $1.4 trillion out of a total of $1.5 trillion in student debt.
In 2010, Democrats largely nationalized student debt by eliminating the Federal Family Education Loan Program, where private lenders made federally guaranteed student loans to parents and students. Now, the Department of Education and the Direct Loan Program is basically the only option in the student loan market.
Private student loans make up less than 8 percent of all outstanding loans, and because student education loans are subject to strong underwriting standards, those loans from the private sector have a default rate of less than 3 percent, compared to 18 percent in the Federal loan program.
I realize that the amendment is attempting to force regulators to work with the borrowers, but private education lenders already have the flexibility to work with borrowers to make accommodations, including under the pandemic-related guidance provided by the Federal financial regulators.
When the Federal Government, led by congressional Democrats, took over the student loan market, costs skyrocketed. This amendment continues the Democrats' government takeover of the student loan industry, only making the crisis worse.
Democrats continue to push their socialist wish list, rather than providing targeted relief for those most in need.
If this program was such a big priority for Democrats, you would think they would fund it, but they didn't fund it in the FY21 appropriations bill, even though they added $250 billion of new emergency spending.
I am disappointed to see Democrats pandering to the students for election-year gains, rather than tackling the important issue of college affordability.
I would also like to point out that this amendment has no place in the NDAA. A defense authorization bill should be focused on national security, the defense and the industrial base, troop levels and readiness, and the health and safety of our men and women in uniform, not student debt.
Mr. Speaker, I include in the Record the following documents.
The first is a July 15, 2020, letter from the Consumer Bankers Association to Rules Committee Chairman McGovern, requesting that the Dean amendment not be made in order in H.R. 6395.
The second is a document compiled by the Consumer Bankers Association summarizing the steps taken by private student loan lenders to help their customers, as of June 30, 2020. Consumer Bankers Association, Washington, DC, July 15, 2020. Hon. Jim McGovern, Chairman, Committee on Rules, House of Representatives, Washington, DC.
Dear Chairman McGovern: On behalf of the Education Funding Committee of the Consumer Bankers Association (CBA), we ask that you oppose making in order Amendment 283 proposed by Representative Dean to H.R. 6395, the William M. (Mac) Thornberry National Defense Authorization Act (NDAA) for Fiscal Year 2021. This amendment to the CARES Act would make major changes that would significantly impair the entire private student loan market. It is clearly not related to national defense programs and is not germane to the NDAA. The proposal in modified form was considered and included in the HEROES Act, H.R. 6800, as part of measures recommended by the Financial Services Committee. In short, this amendment does not belong in the NDAA.
The procedural and jurisdictional questions aside, the text of the Dean Amendment 283 was considered and rejected in its current form as part of the HEROES Act. We would like to point out what we believe are serious flaws in the proposal.
First, I wish to note that the members of CBA appreciate the accomplishments of this Congress in passing bi-partisan legislation providing help to Americans suffering from the health and economic effects of the COVID-19 Coronavirus, including passage of the Coronavirus Aid, Response, and Economic Security (CARES) Act.
Our members are doing their part with diligence and compassion to help their customers who are impacted by the effects of the pandemic. This includes major steps to assist private student loan borrowers, with thousands helped to date. However, we are concerned that the provisions of this section would, if enacted, dramatically hinder our members' ability to provide financing to our nation's students in the future.
CBA is the voice of the retail banking industry whose members operate in all 50 states, serve more than 150 million Americans, and collectively hold two-thirds of the country's total depository assets. CBA members are also the private sector lenders that make the majority of private education loans to help families finance a postsecondary education. At this time of extreme uncertainty, our banks remain in strong financial condition and are stepping up to serve the needs of customers and employees.
The CBA Education Funding Committee includes the banks that make most private student loans in order to help American students finance their education. That process has been going extraordinarily well for years, with the vast majority--98 percent--of borrowers successfully repaying their private student loans. Our members are working with current students and their families, many of whom have seen their educations interrupted or transformed due to the pandemic. There is a great deal of uncertainty as to when normal educational processes can resume. Because of that uncertainty, we are working closely with our customers to make sure they will have the financing they need to start or continue their higher educations.
Meanwhile, for borrowers who are in repayment on their student loans, CBA member banks continue to offer many options tailored to their needs to make sure they can get through this period of tremendous uncertainty and turmoil. Our members are offering special terms, including allowing expanded forbearance--stopping loan repayment--and other options that meet the needs of borrowers and co-signers. We are also allowing borrowers more time to make decisions about whether to borrow and how much, realizing that families need to evaluate changing economic and individual family conditions.
In sum, CBA member banks are doing their best to help our customers through the crisis and emerge with their educational plans intact and their financial situations manageable. Banks are working, as they must, with prudential regulators, including the Consumer Financial Protection Bureau, Federal Reserve, Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation, as well as state regulatory agencies, on allowable steps that can be taken to help borrowers now.
Given the steps being taken by the private sector, we wish to alert you to the fact that some of the proposals contained in the Dean Amendment number 283 would significantly disrupt the private student loan market. We have offered to work with all interested Members on substitute legislation that would help student loan borrowers and avoid steps that will make it impossible for banks and other private lenders to offer their customers the private loan options they can access today. Such proposals should be considered as part of COVID-19 relief legislation, not as part of the NDAA.
The Dean amendment would have the Secretary of the Treasury make monthly payments for private education loan borrowers totalling up to $10,000 until September 30, 2021. This step would require extensive, complex coordination and across-the- board servicing system changes at a time when financial institutions, like other parts of the economy, are coping with workplace challenges. However, CBA members would work with their customers and the Treasury Department to implement such a policy, should Congress decide to proceed, through an appropriate legislative vehicle, and set up a process for the payments to be made by the government to lenders on behalf of borrowers.
The amendment in the fall of 2021 would give all private student loan borrowers $10,000, less payments previously made on their behalf. CBA is concerned that a lump sum payment made more than a year from now will have little impact on helping our country recover from the emergency. Moreover, this minimum amount provision is untargeted since it would be made after the emergency period and without regard to whether the borrower is actually experiencing any repayment difficulty. Therefore, we believe any relief should be tailored to the government making monthly payments for those in need during the emergency period. We agree that any such payments made on behalf of a borrower should not be counted as income for tax purposes.
Most importantly, the amendment includes an unworkable provision that would require private lenders to change millions of contracts with borrowers to include the Revised Pay As You Earn option that the federal government offers some federal loan borrowers. This proposal would require private lenders to offer the same income derived repayment (IDR) plans, including forgiveness after 20 years of payments for undergraduates or 25 years for loans for graduate studies, as are offered by the Department of Education. While an IDR/loan forgiveness program is an appropriate safety net for loans without any meaningful upfront consumer protections, it is not suited to private loans made with the most critical upfront consumer protection: evaluation of ability to repay.
The federal government currently dominates student lending, originating 92 percent of new loans made each year. These loans provide access to higher education, but because there is no consideration of ability to repay or credit underwriting, they put some students into excessive indebtedness with unaffordable monthly payments.
Private loans play an important role in providing access to higher education, typically supplementing federal aid and always involving a careful assessment of credit capacity and ability to pay. That is why 98 percent of private loans are being successfully repaid, while a quarter of federal loan borrowers are not making any progress towards reducing their loan balance. We strongly oppose applying repayment policies that may address over-lending of federal loans but that are not anchored to safety and soundness principles that consistently assure responsibly underwritten private loans that are being successfully repaid.
Importantly, private loan lenders, working closely with their prudential regulators, have developed well-targeted repayment relief options that effectively assist customers experiencing repayment difficulty. Private loan lenders provide short- and long-term forbearances, as well as loan modifications that lead to affordable loan payments. These solutions appropriately balance consumer protection and safety/soundness principles in support of customer repayment success. In this respect, the proposal to require a well- functioning private loan market to function like the vastly different federal loan market is nothing more than a solution in search of a problem.
The government keeps non-performing loans--millions of them--on its books for decades before giving up on collection. Banks that engage in such practices would be quickly ordered to stop by their federal regulators and would likely face sanctions. If a loan isn't being repaid, banks must account for it on their balance sheets. Under federal IDR rules, a borrower can make no payments but still be considered current, with their loan cancelled after 20 or 25 years. That is not possible for any private lender under the sensible safety and soundness practices required by their prudential regulator.
In short, the proposal to apply repayment policies developed to remediate the absence of an ability to repay evaluation for federal loans to a market that leverages safe and sound underwriting to consistently drive repayment success would not only signifcantly disrupt exisitng contracts with borrowers but would almost certainly force a signficant reduction in access to private loan credit. CBA members recognize the severity of the hardship many Americans are facing in the economic downturn caused by the coronavirus pandemic. All CBA members are working with their customers to help those who are experiencing difficulties or delays in making student loan payments. Banks since the start of the crisis have been enhancing the options available to their customers to help them manage their finances. For many borrowers, it's financially better to keep making payments in order to pay off their loans as soon as possible. Others need more flexibility, and they are getting it.
We understand the desire of Congress to help student loan borrowers and to take measures that will stimulate the economic recovery once the emergency concludes. Banks are doing their part in working with our customers individually to help. Unfortunately, the Dean Amendment would force many banks into an impossible position with their prudential regulators and force banks to stop offering student loans to their customers. This is a major change in the law that does not belong as part of the NDAA.
Thank you for your consideration of our views. We would be pleased to answer your questions and to work with you on ways to assist our country recover from the effects of the pandemic. Sincerely, Richard Hunt, President and CEO, Consumer Bankers Association. ____ Summary of Steps Taken by Private Student Loan Lenders To Help Their Customers [As of June 30, 2020]
Private student loan lenders have continued since the start of the COVID-19 coronavirus crisis to work closely with their customers to make sure they have the assistance they need to handle any financial disruptions. It is in the mutual interest of lenders and borrowers to work together to get through the economic difficulties caused by the emergency.
Although very few private loan borrowers were having trouble with their loan payments before the COVID-19 emergency, with less than 2 percent of loans charged off and less than 3 percent 90 days delinquent, as soon as the economic fallout from crisis became apparent, banks put plans in place to help their customers. Those plans were activated across the country so that borrowers can get the payment relief they need. Banks are constantly reviewing the situation and making changes as needed.
The following is based on a confidential survey of the Consumer Bankers Association's Education Funding Committee, which includes the banks that make most private student loans. The survey was first conducted April 1-8, 2020, and conducted again June 5-17, 2020. The second survey found that policies in place in April remained in place, with some additional measures added.
Banks are continuing to allow their borrowers to suspend payments simply by asking. Documentation is not required. No fees or penalties are being assessed. 90 days is the most common length of time requested and granted. Extensions are available if needed. Bank are instituting a policy to keep loans that were past due when the emergency began from becoming more delinquent.
Most private loans are co-signed, meaning the co-signer becomes responsible for the loan if the borrower defaults, but the banks are not attempting to collect from co-signers of loans where payments have been suspended. In other words, assistance given to the borrower is applied to the co-signer.
There were significantly more requests for help than normal during March and mid-April, mainly from borrowers seeking repayment relief. Banks granted them forbearance. Requests have levelled off for most, with the main requests being for a continuance of forbearance or other assistance previously granted.
Some banks are following common forbearance practices and continuing to charge interest while payments are deferred, and some are not. Those that do charge interest during the forbearance are not planning to capitalize it when payment restarts.
It is common for automatic payment arrangements to stop during a period of forbearance. Most banks are either retaining the discount for paying via ACH or, if the discount is stopped, will reinstate it after payments resume.
Tens of thousands of borrowers have been helped.
Lenders are not taking court action such as lawsuits to collect overdue loans.
Lenders either offer loan modifications to distressed borrowers or are developing or considering modification options. The modifications being offered are mostly the same as those usually available, but some banks are instituting or are in the process of instituting additional modifications.
Examples of Modification options offered are:
Interest rate reductions to lower monthly payments;
Extending the loan term to lower monthly payments;
Additional forbearance beyond the 90 days initially offered due to COVID-19.
Other COVID-19 related assistance examples:
Option to skip payments without penalty;
Allowing partial payments;
Waiving late fees;
Extending forbearance beyond 90 days if needed;
Suspending involuntary collection efforts.
All lenders offered forbearances retroactive to the start of the national emergency.
Lenders are providing ongoing COVID-19 related information to their customers via multiple channels, telling them to contact their servicer or lender if they need assistance. A variety of ways to contact the lender/servicer are available: website, phone, IVR, messaging/chat, and email. Not all offer all those options but all offer most of them.
Lenders are offering help to their communities. For example, one bank donated $1 million to food banks in five states.
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Mr. LUETKEMEYER. Foxx).
Ms. FOXX of North Carolina. Mr. Speaker, I thank the gentleman for yielding.
Mr. Speaker, I rise today to discuss the flaws of this amendment as ranking member of the Committee on Education and Labor, which has jurisdiction over the Federal student loans.
Federal student loans dominate the education loan marketplace, with roughly 92 percent of all outstanding student loans.
Mr. Speaker, proponents of Big Government have succeeded in offering the most generous loan terms in the marketplace, but the private student loan marketplace hasn't made the same mistakes the Federal Government has. The private student loan companies underwrite their investments. Their model fosters student success because that is the only way they, as a business, can succeed.
It was stated earlier that students had to make payments on their loans in the past few months. Well, that is what they agreed to do and what all borrowers agree to do, Mr. Speaker. That is the way it works.
Mr. Speaker, I urge my colleagues to reject this amendment which will complete the government takeover of the student loan industry and, in the process, fail to set students up for success.
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Mr. LUETKEMEYER. Mr. Speaker, in closing, I would just remind my colleagues of the real purpose of this amendment. It is just to socialize the entire student loan industry.
Rather than working to address the underlying causes of the student loan crisis, my colleagues believe the Federal Government should take over the entire program. This is the exact opposite of what we should be doing. We should be analyzing the causes of rising tuition. We should be strengthening the underwriting standards used by the Federal Government. The private sector should be held out as a model, not as a scapegoat.
Mr. Speaker, I urge my colleagues to oppose this amendment, and I yield back the balance of my time.
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Mr. LUETKEMEYER. Mr. Speaker, on that I demand the yeas and nays.
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