- Elizabeth Warren told Insider that the “days are over” when student loan companies could mislead borrowers.
- Two companies shut down their loan services, leaving 10 million borrowers without a servicer.
- Warren is holding a hearing on Tuesday to discuss how to best facilitate the transition to new servicers.
- See more stories on Insider’s business page.
Over the span of just two weeks this July, two different student loan companies shut down their services. Good, says Massachusetts Sen. Elizabeth Warren, who is holding a Senate hearing on Tuesday to discuss how to best protect borrowers as they transition to new servicers. She told Insider that other companies should consider it a warning.
“The world has changed for student loan debt servicers,” Warren said. “They can’t sign a contract, do a lousy job, cost borrowers tons of money, and still get their contracts renewed.”
In the first two weeks of July, close to 10 million borrowers were left in limbo after the Pennsylvania Higher Education Assistance Agency and Granite State Management and Resources said they would not renew their contracts to service student loans. PHEAA serves 8.5 million borrowers and GSMR serves 1.3 million.
Warren, who is holding the hearing on Tuesday within the Senate economic policy subcommittee to discuss how to best protect borrowers as they transition to new servicers, said it could be a new day in student loans.
“The Department of Education is under new leadership, and they have a chance here to make a real commitment to students that these loans will be processed in a way to help them, rather than just maximize the profits of the servicing companies,” Warren said.
She told Insider that while this transition will be a challenge for the Education Department, it will also be “an opportunity,” especially with the pandemic payment pause on student loan payments and interest set to end in October.
Servicing student loans ‘is not rocket science’
Loan payments of all types are properly collected all the time, Warren told Insider. From credit card companies to mortgage lenders, it’s done every day, and there’s no reason why student loan companies can’t do the same.
“Student loan debt servicing is not rocket science,” Warren said.
“What’s different now is that the tiny number of student loan debt servicers who have had a lock on those government contracts, even when they did a terrible job, are now realizing, those days are over. The servicers are being held accountable,” she added.
In April, Warren and ranking member of the economic policy subcommittee John Kennedy invited the CEOs of all student loan servicers to testify at a hearing on student debt’s impact on borrowers, during which Warren told the CEO of Navient, one of the largest servicers, that he should be fired for misleading borrowers.
She later sent a letter to the CEO of PHEAA James Steely regarding what may have been false testimony before Congress during the April hearing and invited him back to testify again to clarify his comments, prior to the company shutting down its loan services.
The student-loan payment pause ‘kept the economy going’
Warren is one of the leading lawmakers pushing for President Joe Biden to extend the student loan payment pause beyond its expiration in October, requesting either an additional six months of relief or until the economy returns to pre-pandemic employment levels, whichever is longer.
She told Insider that, contrary to the argument that the government has lost enough money putting payments on pause for over a year, the pause has actually “kept the economy going.”
“America has a consumer-driven economy,” she said. “Knocking tens of millions of people out of being able to participate in that economy, taking money out of their pockets, money that they spend in local stores and money they spend to keep this economy going, is not helpful.”
And continuing the payment pause, she said, will give the student loan companies the time they need to transition borrowers to new servicers before beginning to collect payments again. The companies even told Warren that they weren’t ready to begin collecting payments in October, calling the move “unprecedented.”
“The whole student loan area is in turmoil right now,” Warren said. “We need to come out of this on the other side with less student loan debt, and the remaining debt must be better administered. Both of those will help our students and our economy going forward.”