The Institute of Student Loan Advisors
U.S. Department of Education
400 Maryland Ave. SW, Room 2C179
Washington, DC 20202
Re: Docket ID ED-2021-OPE-0077
My name is Betsy Mayotte and I am the President of The Institute of Student Loan Advisors (TISLA), a 501(c)(3) non-profit whose mission is to provide fair, free, expert student loan advice and dispute resolution to consumers. I have been working in the student loan industry in a compliance or advocacy role for over 25 years and have worked with thousands of borrowers who struggle with their education debt. My testimony today stems from both my experience in a compliance role and from working directly with these borrowers.
I commend the Secretary for tackling such a robust, consumer focused agenda in this upcoming negotiated rulemaking session. While I could comment on most of the items on this agenda, due to the limited time allotted I will focus on the issues that will have the most positive impact for student loan borrowers.
Expand Availability of Income Driven Repayment Plans
While the income driven repayment plans (IDR) have proven to be invaluable to borrowers with high student loan debt in relation to their income, these plans are not available to all borrowers. A large group of federal student loan borrowers – parents – continue to be awarded unaffordable amounts of student loans yet are not given access to the tools needed to make that debt manageable. To receive a Federal Parent Plus loan, borrowers are not required to pass any type of ability to pay test, such as an evaluation of their debt-to-income ratio. Consequently, I frequently work with Parent PLUS borrowers who have been awarded student debt amounts that far exceed their household income
While some of these borrowers may stumble upon the requirement of consolidating their loans to access income contingent repayment, as this plan is the only plan that takes 20% of the borrower’s discretionary income, it is also often unaffordable to those families, especially those living paycheck to paycheck. In any other forum outside of the federal scheme, the practice of awarding loans in large amounts without regard to the borrower’s ability to pay and that are almost impossible to discharge in bankruptcy, while not providing tools for relief would be considered predatory and unconscionable. In fact, such practices sound very much like what we saw during the mortgage crisis in 2008. Yet without these loans, access and choice of higher education would not be available to lower- and middle-class families.
Parent PLUS borrowers’ inability to access these lower cost income driven plans also prevents them from making retirement contributions, thus further financially destabilizing the middle class whose success the Biden administration strongly supports. Allowing parent borrower access to IDR would balance these sometimes competing parental (and societal) financial goals — helping dependents secure higher education and ensuring parents can also achieve a stable, independent retirement. To ameliorate this inequality, TISLA is proposing that the Secretary allow consolidated Direct Parent PLUS loans access to the lower cost PAYE and REPAYE plans, which were created under the same statutory authority as the income contingent repayment plan. While such an action would not solve the conundrum of the size of Parent Plus loans, which would require thoughtful, statutory changes, it would allow these loans to become more affordable, especially to those parent borrowers who have retired and are on limited, fixed, incomes.
On a related note, as the Secretary considers other topics during this negotiated rulemaking session, I urge him to consider ways to ensure that institutions be held accountable for not only student debt, but Parent Plus loan debt as well. It is important that we find a way to discourage schools that may be circumventing the consequences of high default rates by steering families away from the lower cost Stafford loans, into the more expensive Parent Plus loans, often to these family’s detriment.
Borrower Defense to Repayment
I was one of the negotiators in the 2016 negotiated rulemaking session that drafted the initial rules for the borrower defense to repayment discharge. As a participant in that session, and an observer in the session facilitated by the last administration, I understand better than most what a complicated issue the borrower defense to repayment discharge is.
And, as someone who has been working directly with struggling student loan borrowers for decades, I have seen the real harm the current process and rules are causing already victimized borrowers. The primary goal, at least of the first negotiated rulemaking session, was to create an even playing field between a consumer, especially the more vulnerable consumers, and an institution that has greater legal resources at their disposal. We were also attempting to ensure that institutions that were found to have defrauded students reimbursed US taxpayers for the cost of the relief provided victimized borrowers. Finally, like most forgiveness and discharge programs, we wanted to ensure there were mechanisms in place to identify and prevent frivolous claims.
Even putting the actions, or inactions, of the prior administration aside, the current rules and process make it extremely difficult for the average consumer to file a robust claim without the assistance of an attorney – which is what we were trying to avoid in the first place. The average consumer and especially the more vulnerable consumers these fraudulent schools tend to target, doesn’t understand legal concepts like statutes of limitations, how to obtain and present evidence (if they even have access to evidence), that there’s a difference between puffery and misrepresentation or that the fact that the enrollment representative pressured them into making a quick decision could be relevant to a claim. In my experience the claims they submit are quite powerful in their explanation of the consequences and emotions they have experienced as a result of being victimized by these schools but contain very little actual evidence or even narrative about what the regulations would actually consider fraud. Despite our intent to facilitate defrauded borrowers’ access to the remedy, we are still expecting these victims to be lawyers.
The Higher Education Act requires the Secretary of Education to “specify in regulations which acts or omissions … a borrower may assert as a defense to repayment…”. TISLA recommends amending the regulations to allow a borrower to make a prima facie case for relief by changing the standard of proof for determining that a borrower has met their obligation to establish their right to relief.
A borrower’s claim of fraud should create a rebuttable presumption of validity if it details actions by the school that would entitle the borrower to the discharge, which is the current standard for situations of prohibited inducements between schools and lenders. This would ensure that if a borrower submitted a claim on the basis of misrepresentation or other violation of state law as outlined in the regulations or statute, it would be up to the school to prove the claim false with the evidence they have on hand. An institution is going to have that evidence much more readily at hand than a consumer would. Creating the rebuttable presumption standard results in the more even playing field we are trying to achieve as opposed to the current standard that leaves it up to the borrower to try and provide enough evidence to meet a preponderance of the evidence threshold that they likely don’t even understand.
The last suggestion I am making as part of today’s testimony is related to the current payment calculation for defaulted borrowers pursuing loan rehabilitation. Under the current regulations, a borrower is first presented with a payment amount equal to 15% of their discretionary income under the same formula used for the original income-based repayment plan. If a borrower cannot afford this amount, their expenses are taken into account, which often drastically reduces the rehabilitation payment amount. I will call this second option Option B for the purposes of this comment. Option B is an example of that expression “the road to hell is paved with good intentions.” It was developed to make it easier for borrowers to get out of default by finding a way to ensure they could obtain an affordable rehabilitation payment amount. The problem is that there are no plans for loans in good standing that take a borrower’s expenses into account. So, while we can get borrowers out of default by giving them an affordable rehabilitation payment, we cannot ensure that the borrower will stay out of default. Once out of default, expenses won’t be considered so payments can be unaffordable immediately, putting them at significant risk of a second default. This leaves them with double collection costs and no longer having the rehab tool available to resolve this new default.
TISLA recommends that the regulations be amended to ensure that a borrower cannot be given a rehabilitation payment amount that is lower than their lowest payment plan would be once they are out of default. This will ensure that we are not setting these struggling borrowers up for failure when the intent of this program is to set them up for long term success. The amended regulations should also require that if a borrower states they cannot afford the projected loan rehabilitation payment, that their administrative wage garnishment amount be reduced to the amount of their lowest payment option were they not in default.
About The Institute of Student Loan Advisors
The Institute of Student Loan Advisors (TISLA) is a private 501(c)(3) nonprofit dedicated to ensuring that all consumers have access to fair, free, student loan advice and dispute resolution. We will never charge consumers for our services and do not require registration or affiliation to utilize our services. While we encourage all student loan borrowers to talk to their loan holders for help, we understand that sometimes, you just want a second opinion or need additional help.