Last week the U.S. Senate Banking Committee held a hearing (archive includes video) called "Financial Products for Students: Issues and Challenges." It heard recommendations on campus banking and student loan issues from several student advocates, including U.S. PIRG Higher Education Program Director Christine Lindstrom. The hearing also featured a spirited exchange between Senator Elizabeth Warren (MA) and Richard Hunt of the Consumer Bankers Association concerning the failure of private student lenders to give student-consumers more options to re-finance or defer their loans, including in cases of extreme undue hardship, such as when the borrower dies suddenly. Senator Warren discussed such a tragedy, as profiled in a recent CNNMoney story. A young mother died with $100,000 in debt that, with interest, has ballooned to a $200,000 burden on her parents.
Senator Warren's questioning (Youtube video) of Richard Hunt (testimony), a bank lobbyist whose association's member banks include most of the big private student lenders, explained the wide disparity between a variety of income-based repayment, as well as forebearance and deferral, programs offered on federal student loans but not so broadly or prominently on higher-cost private student loans. Senator Warren is also concerned that this problem is exacerbated because private student loans (like federal student loans as well), can generally never be discharged in bankruptcy. (There is a very limited "undue hardship" exception that often requires convincing a judge of a "certainty of hopelessness".) But federal loan recipients who take advantage of the options available to them may have less need for bankruptcy, Senator Warren noted.
Senator Warren: "[T]he banks went out and lobbied to make sure that they were going to be exempt from the bankruptcy laws, and now they won't even provide the modest relief that is provided on federal loans for people who end up in terrible financial circumstances. I think this is wrong."
Chris Lindstrom of U.S. PIRG's testimony was based on our ongoing work concerning campus banking products. We started investigating campus credit card marketing in 1998; our recommendations on limiting campus credit card marketing and making contracts between banks and colleges more transparent were incorporated in the 2009 Credit CARD Act. As I and other witnesses explained at a CFPB hearing in October 2013, that act has been widely praised for cleaning up, without drying up, a corrupt marketplace based on "tricks and traps," despite initial gloom and doom claims from the banks.
More recently, we have investigated campus debit cards, which are often linked to student loan disbursement. As a blog Chris posted summarizing her testimony explains:
“We found in our 2012 report, The Campus Debit Card Trap, that two in five college students in the country are exposed to debit cards on campus that may drive up their costs. Students at some campuses are charged steep and unusual fees to get to their federal financial aid, including PIN transaction fees at the point of sale and overdraft fees at $37 or more. On the whole, these accounts are not necessarily a better deal for students than what they might find through a bank not affiliated with campus."
In her testimony, Chris made a variety of recommendations to improve campus debit card fairness; her recommendations included support for the following:
"legislation that bans revenue-sharing agreements between colleges and banks or financial firms crafted specifically to offer bank accounts and related banking products to students on campus. The conflict of interest inherent in these agreements is problematic for the student consumer. We’ve seen this conflict of interest before in the campus marketplace around private student loans and campus credit cards. In fact, both Congress and the Department of Education have acted decisively in recent years to limit push-marketing tactics, revenue sharing, and unfavorable terms on private student loans and credit cards offered on campus."
We have also been encouraged that, in a recent report, the CFPB recommended extending the CARD Act's statutory database of campus credit card contracts to also include debit card contracts. As CFPB Student Ombudsman Rohit Chopra has noted, over two-thirds of these are already available through Freedom of Information Act (FOIA) or open-records requests at public universities. Just today, CFPB released a comparison of debit card contract transparency at some of the "largest universities in America--members of the Big Ten Conference."
In his testimony, David Bergeron of the Center for American Progress discussed many of the problems with high cost private student loans and also explained servicing problems and abusive debt collection practices on both types of loans. Kenneth Kocer of Mount Marty (SD) College's financial aid department, also representing the SD financial aid administrators association, made a variety of pro-student recommendations, including a call for a universal portal: "Provide one single web site where students can see all their education borrowing from federal, institutional and private sources."
Here are links to statements for the record from allies Americans for Financial Reform and the Center for Responsible Lending.
Also, just today, Illinois governor Pat Quinn signed Illinois-PIRG-backed legislation drafted by Illinois Attorney General Lisa Madigan guaranteeing that the growing number of workers paid with payroll debit cards would not face unfair fees. Those employees, in other states, generally face the same problems as students face from fees on debit cards used for their student loan disbursements:
“Before today, there were better protections on gift cards than payroll cards in Illinois,” Madigan said. “But with this new law, which will be the strongest of its kind in the country, Illinois employees will no longer have to pay just to get their pay.”