Let me start by thanking Senator Brown for inviting me to speak to you today about how our young people are seeking to finance their education and improve their future lives. I will provide a brief overview of some of the issues surrounding student loan debt and the costs of higher education, and I will describe how the U.S. Consumer Financial Protection Bureau, where I serve as the Director, is working to address these issues.
Just as a point of personal reference, I feel these matters directly, with twins who are nearing the end of their sophomore year in high school in Grove City, Ohio, which causes me to commute to work here from my home there. Like many families, we are engaged in the process of making sure we and they know how to weigh our choices as they consider where to go for school.
We all can see that a college education has become a key milestone on the path to opportunity later in life. Your institutions serve as the first step into adulthood for millions of young people. Yet as a college degree is now more important than ever, financing that degree has become increasingly challenging. Many families were hit hard by the financial crisis, which has complicated their circumstances and their options about how best to pay for college. The cost of tuition has soared, and though responsibility for that problem rests on many shoulders, the institutions themselves must bear their share of that responsibility. Today, outstanding student loan debt in this country now exceeds 1.2 trillion dollars, trailing only mortgage debt among the financial obligations of most families. Every day at the Consumer Bureau, we hear from young people whose dream of attending college and earning a degree has become a financial nightmare.
In response, we are working to help people make better choices about paying for college. We want to make sure that students and their families have the information to compare alternatives and understand what the costs and debt burdens will be in very tangible terms. The tools and resources we are developing allow consumers to have a clear view of the financial expectations that await them when they arrive on your campuses.
The Consumer Bureau has partnered with the Department of Education to create a financial aid shopping sheet, which is now being used by nearly 3,000 colleges across the country, including many here in this room. The straightforward document provides students and their families with an accurate representation of the total costs they will be responsible for should they decide to attend a particular school. The information in the shopping sheet lets families make objective comparisons between different financial aid packages before they make their choice among different schools.
To supplement the financial aid shopping sheet, the Consumer Bureau has released our Paying for College web tools, which are designed to help young people weigh the costs and risks of financing their education through student loans. Much like consumers shopping for the proper mortgage when buying a home, we believe it is important that consumers have their eyes open about the financial obligations that lie ahead when they are making these decisions. We want them to know the answers to key questions such as “What will my monthly debt payment be at graduation?” Or “What are my rights and options for repaying these loans over time?” This will help people manage these issues more effectively both as students and after they leave school.
Last year, the financial aid director from Dennison University testified before a hearing chaired by Senator Brown about problems in student loan servicing. The Consumer Bureau estimates that 8 million Americans are now in default on a student loan – and strengthening student loan servicing is essential to getting this growing problem under control. We also share the concerns of many in the higher education community that student loan servicing needs drastic improvement. As Ohio Attorney General, I saw how poor practices by mortgage servicers led to many unnecessary foreclosures with devastating effects on Ohio communities. We now are exerting supervisory oversight over the largest student loan servicers to make sure they are complying with the law by appropriately processing payments and paperwork and by providing clear information to help with available options when borrowers run into trouble.
The costs of college also extend beyond tuition costs, of course. Many students who arrive on your campuses are managing money on their own for the first time. This can be a challenge for them. To help students navigate these new issues successfully, we are actively working with colleges and universities that partner with financial institutions to offer checking and prepaid accounts. We are seeking to ensure that these partnerships provide sound deals to students as they begin their financial lives, and to this end we released a model “Safe Student Account Scorecard.” The scorecard can help you obtain accurate information about fees, features, and sales tactics from financial institutions before you enter into sponsorship agreements for marketing these products to your students. Finally, and very simply, all contracts between schools and financial institutions to offer financial products to students – including checking account products, prepaid account products, and credit card products – should be entirely transparent to students, their families, and the public. I frankly see no reason why any school would fail to put these contracts on-line as an easy means of disclosure that allows ready access to their terms. That is now easy as a matter of technology, and any further obstacles to this kind of transparency are not justified.
At the Consumer Bureau, we hear stories every day about the kinds of difficulties and regrets people have because they did not understand these issues well enough at the time they made these key financial decisions. Our tools and resources are intended to help guide young people responsibly as they confront these issues going forward. We are glad to work with you and your colleagues around the country to ensure that young people can be more financially secure as they seek to build their precious human capital for the benefit of themselves, our communities, and our nation’s future.
The Consumer Financial Protection Bureau (CFPB) is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives. For more information, visit www.consumerfinance.gov.