WASHINGTON — Amid accusations of predatory practices by private student loan companies, a U.S. Senate Committee on Banking, Housing, and Urban Affairs panel voiced concerns during a hearing Tuesday. The student debt crisis, with over $1.74 trillion in outstanding student loans by Q2 2024, impacts millions, according to the U.S. Federal Reserve. Subcommittee Chairman Raphael Warnock highlighted the vast number of complaints received by the Consumer Financial Protection Bureau regarding private student loans and federal loan servicing.
“Private lenders and servicers routinely misled or deceived borrowers, and the stories are frustrating and heartbreaking,” said the Georgia Democrat.
Borrowers have faced significant burdens from private loans, explained Aissa Canchola Bañez, policy director at the Student Borrower Protection Center. “Student loans were supposed to grant all families — regardless of race and economic status — the chance to unlock the promise of a higher education,” she stated. However, student debt has become a “life sentence” for many, hindering major life decisions like buying a home or starting a family.
She emphasized the lack of comprehensive data in the private student loan sector, which hampers efforts to protect borrowers and address the gaps in consumer protections. Dalié Jiménez, law professor and director of the Student Loan Law Initiative at the University of California, Irvine School of Law, noted the evolution of the private student loan industry, with new financial products posing new risks.
Troubled Industry
Major student loan servicers like Navient have faced legal issues and scrutiny. Last week, the Consumer Financial Protection Bureau reached a $120 million settlement with Navient, banning the company from federal student loan servicing.
Sen. Elizabeth Warren, a Massachusetts Democrat, criticized Republican efforts to revert to practices that left borrowers vulnerable to predatory services like Navient. She urged Navient to cancel loans for defrauded private student loan borrowers.
Conversely, GOP Sen. Cynthia Lummis defended the industry’s role in higher education financing, asserting that private lenders fill a crucial gap despite individual cases of malfeasance. She pointed out that private student loans account for only 8% of outstanding loans, with federal loans comprising the majority.
Beth Akers, senior fellow at the American Enterprise Institute, argued that while private loan servicing has its flaws, these entities don’t deserve to be scapegoated for broader student lending issues.
