WASHINGTON – Testifying at a Thursday Senate hearing on how states could promote college affordability, Lisa Madigan, the attorney general of Illinois, told senators that the federal government wasn’t doing enough for student borrowers. But it was hard to find agreement on whether to focus on that issue, state appropriations for higher education, for-profit colleges or issues such as health care policy as senators and higher education experts considered how federal and state governments could work together to reduce college costs.
The Senate’s Committee on Health, Education, Labor and Pensions held the hearing as part of an ongoing effort to reauthorize the Higher Education Act, a law that governs federal student financial aid.
At the beginning of the hearing, Senator Lamar Alexander from Tennessee, the committee’s ranking Republican, said states must lead the way on college affordability. Madigan, however, insisted that the federal government had a major part to play when it came to protecting and serving student-loan borrowers.
Federal student loan servicing is “extremely problematic and extremely confusing,” she said. Borrowers are often unaware of federal loan repayment programs, and they have difficulty understanding which loan – and which repayment program – might suit them best.
And companies that provide federal loans are failing to adequately advise student borrowers. Her office has received complaints from borrowers who say loan servicers are pressuring them to get their loans current rather than providing information about repayment options.
The complaints are reminiscent of problems her office saw during the mortgage and foreclosure crisis, she said, when homeowners struggled to make their mortgage payments.
Because of these deficient servicing practices, borrowers are falling victim to debt-relief scams, in which predatory companies attempt to extract large sums of money from desperate borrowers – all for repayment programs that borrowers can access for free through the Education Department.
Earlier this year, Madigan launched a multistate investigation into Sallie Mae, which provides and collects on federally guaranteed student loans. In May, Sallie Mae agreed to pay $97 million in fines after government officials alleged the company illegally overcharged active-duty service members.
"Congress should create a uniform process for all student loan servicers to follow,” she said. “Servicers should be required to tell struggling borrowers all their options.”
In another twist reminiscent of Obama’s first term, the hearing nearly tipped, at several points, into a debate about health care reform.
In his opening remarks, Senator Tom Harkin of Iowa, the committee’s chair, said there was a “direct link between rising college costs and long-term state disinvestment.”
State funding has dropped, and public colleges have responded by hiking tuition, the Democrat said. He condemned the “stunning abdication of responsibility on the part of states to preserve college affordability.”
But Alexander was quick to propose an alternative hypothesis for climbing tuition rates. “The principal culprit is Medicaid,” said the senator, who served as education secretary under George H.W. Bush. “It’s the federal requirements on states to pay for Medicaid… those dollars come mostly out of higher education."
“That’s why tuitions go up around the country,” he said – adding that the Affordable Care Act’s Medicaid provisions would make the problem worse.
Harkin’s rewrite of the Higher Education Act, for which he is soliciting comments, runs to nearly 800 pages. In those pages, Medicaid is not mentioned once. Later in the hearing, Harkin shot back at Alexander, saying that declines in state revenues caused by tax cuts -- not Medicaid spending -- accounted for lapsing state support for higher education.
Harkin’s draft lays out two proposals for state-federal partnership. First, his rewrite suggests that the federal government should give eligible states annual block grants for additional public higher education funding. Public institutions would be required to use this money to reduce tuition costs or mitigate tuition increases, and to increase enrollment of Pell Grant-eligible students.
Second, Harkin’s draft includes a competitive grant system, under which states can apply for money to carry out comprehensive reforms – such as shortening the length of time to a postsecondary degree and promoting the use of technology in “increasing personalized learning.”
The senators and experts at the hearing did not discuss the details of Harkin’s proposals for state-federal partnerships. Instead, they inveighed against for-profit institutions (which Madigan called “so-called schools”); discussed their desire to simplify financial aid procedures, including loans, without disrupting aid to the worst-off students; and considered higher education initiatives that had worked well in states such as Maryland and Indiana.
Senator Elizabeth Warren, Democrat of Massachusetts, expressed her disappointment that the student loan refinancing bill she championed, which would have allowed borrowers to refinance their student loans at lower rates, had not passed.
“I believe it’s time to cut the interest rate on student loans, and I think that’s something we should be able to support, both Democrats and Republicans,” she said.