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Miller: Spotlight on the Fiscal Cliff of Student Loans

There’s a need for vigilance to ensure students are treated fairly as consumers

As the nation’s fiscal cliff dominates the headlines, many college graduates are facing their own fiscal cliff when it comes to their student loans. Outstanding student loan debt has surpassed $1 trillion, exceeding credit card debt for the first time. Student loan default rates are on the rise. The cost of college continues to increase.

Starting a career and repaying student loans is a difficult balance for many young Americans. And excessive student loan debt is a drag on these graduates’ economic future, hampering employment options, family decisions and home purchases.

While previous Democratic Congresses took steps to dramatically improve the federal student loan system and help families afford college costs, many students and their families need to borrow a private student loan to meet the financial demands of achieving a college degree.

Private student loan borrowers do not enjoy the same consumer protections, like capped interest rates and flexible repayment options, that are part of the federal student loan system. Unlike federal loans, private lenders can charge whatever interest rates and fees they want and allow students to borrow as much as they like, making it much more difficult for students to pay back their loans. These loans also have a history of being marketed to students in deceptive and aggressive ways.

Unsurprisingly, many private student loan borrowers are facing an uncertain and often difficult repayment future. A recent report from the Consumer Financial Protection Bureau found that borrowers were routinely given the runaround when trying to find out information on how to refinance or modify the terms of the loan. Borrowers complained of unexpected fees, mishandling of payments and a frustrating inability to reach the right service representative. The CFPB found a striking similarity between these complaints and those of mortgage borrowers.

This report underscores a need for vigilance to ensure that students are treated fairly as consumers. That’s why I have asked a number of private student loan lenders — like Sallie Mae — for information on their lending practices. Many of these same lenders are also servicing federal student loans. So I have requested that the Government Accountability Office examine problems reported by federal borrowers with their private servicers.

Those problems often echo the customer service complaints we hear from private student loan borrowers. And earlier this year, I asked the CFPB and the Department of Education’s Inspector General to examine the use of debit and credit cards on college campuses. These cards are used by many institutions to distribute federal student aid to students but can carry fees and credit implications without the students’ knowledge.

With these investigations, I hope to find ways to better protect students from lending or customer service practices that leave many responsible Americans in a black hole of endless debt and poor credit ratings.

While we tackle the ways in which lending and servicing operations might be improved for the benefit of student borrowers, Congress has an obligation to help young Americans — and, increasingly, older Americans — find ways to repay this debt.

For example, despite the lack of statutory repayment options for private loans, the nation’s bankruptcy law gives special treatment to student loan lenders by severely limiting the ability to discharge this debt. Private student loans issued by for-profit companies should be treated the same as other debts like credit cards, car loans and mortgages, and allowed to be discharged in bankruptcy — the borrower’s last resort in a personal financial crisis.

Congress also has an obligation to address the cost of college itself. If tuition increases were not dramatically outpacing inflation, students wouldn’t have to increasingly rely on more debt to pay for college. And we should do everything possible to protect students by first maximizing their federal student aid options before incurring more expensive debt. With the reauthorization of the Higher Education Act on the horizon, these questions should be front and center.

Our nation’s economic future depends on a skilled, educated workforce. And our system for financing that workforce should serve students and graduates, not the other way around. We need to make sure — whether it is how federal student loans are serviced or how private student loans are made and handled — that tomorrow’s scientists, engineers, teachers and entrepreneurs are treated fairly. We need to solve the nation’s fiscal cliff crisis by year’s end, and next year we must take care not to allow millions of new fiscal cliffs to form in homes across the country.

Rep. George Miller of California is the senior Democrat on the House Education and the Workforce Committee and authored the College Cost Reduction and Access Act of 2007.

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