Yahoo Finance Presents: Senator Elizabeth Warren
Senator Elizabeth Warren, a democratic senator from Massachusetts and Chair of the Senate Banking Committee's Subcommittee on Economic Policy, sat down with Yahoo Finance’s Aarthi Swaminathan to discuss all things related to the student loan debt crisis, after Tuesday’s Senate hearing on the issue.
Video transcript
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AARTHI SWAMINATHAN: Welcome to Yahoo Finance Presents. I'm Aarthi Swaminathan. And today my guest is Senator Elizabeth Warren of Massachusetts. She chairs the Senate Committee on Banking, Housing, and Urban Affairs Subcommittee on Economic Policy and is also a passionate advocate for student loan borrowers. So welcome, Senator Warren.
ELIZABETH WARREN: Thank you. It's good to be with you.
AARTHI SWAMINATHAN: So just first question, straight off the hearing that we just had, this is on Tuesday evening. You focused a lot on investigating and basically trying to understand the roots of the student debt crisis. You went in with a bunch of questions I'm sure. Did you get the answers you were looking for? Was there anything that surprised you?
ELIZABETH WARREN: Overall in this hearing, it was perfectly clear we have a broken student loan system. We've got these middlemen, the student loan debt servicers that were with us today, who can't seem to keep straight what borrowers have paid, give them credit, get them into the right programs. They get sued over and over. And yet, there's no accountability.
But to me, it's just one more example of the United States government is running a massive student loan program that is really putting a burden on tens of millions of people around this country that makes no sense. So this is why Senator Schumer and I are calling for immediate cancellation of $50,000 of student loan debt, something that President Biden could do this evening.
AARTHI SWAMINATHAN: So before we jump into the cancellation question, I wanted to pick out just one instance during the hearing where you said the Pennsylvania Higher Education Assistance Agency and Navient, both of them should be fired. I thought that was a really interesting statement you made. Can you explain a little bit more about that?
ELIZABETH WARREN: Sure. So these are companies. Understand how the setup is, the federal government lends money. And then when it comes time for people to repay, they hire these servicers. They're called student loan servicers whose job is to get hundreds of millions of from the federal government to process the payments, help you get into the right program, count your payments when they come in, give you credit, make sure you get your discharge at the end, right?
And in fact, what they've done is mess up every part of that over and over. So, for example, it's very complex getting into the right program. There's been one lawsuit after another showing that Navient, instead of getting you into the right program, just encourages its call center people to get you into the fastest program, the one that gets the person off the phone as quickly as possible.
And the fact that it ends up costing the borrower far more money, and the borrower doesn't get the help that the borrower needed, not Navient's problem, at least that's their view. And that's pretty outrageous. It's outrageous that it happens once. But what's happened is it's gone on over and over and over. And the Department of Education just keeps shoveling those student loans over for them to process.
The Department of Education should fire Navient. And Navient, in turn, should fire the CEO who was the one who was in charge as each one of these scandals unfolded. It just seems pretty straightforward to me on that. These student loan debt servicers, they're making buckets of money to help their bottom line but not to help the students who are really in trouble trying to repay their loans.
AARTHI SWAMINATHAN: So just want to take a pulse check right now, we're four months into a new presidency. Comparing the Biden administration to the Trump administration, how far along are we to getting something like forgiveness done?
ELIZABETH WARREN: Well, we've made some real progress. Part of that progress was in the American Rescue Plan and that is that the Democrats included a bill that Senator Menendez and I put together so that student loan debt cancellation would be treated as tax free. So no one gets a tax bill because the federal government canceled your student loan debts. That helps pave the runway for this.
In addition, Secretary Cardona of the Department of Education has already loosened up the restrictions on debt forgiveness for those who've been cheated and bless his heart for doing that. And he's undergoing a thorough review right now of the program in terms of the ability of the president to be able to cancel this debt. Remembering that President Obama did it. President Trump did it. And actually, even President Biden has been doing it since he has been president.
He's been canceling about $5 billion of debt every month in interest payments that otherwise would have been either paid or accruing. So we'll see a report on that soon. Now all of that said, doesn't mean it's time to lean back and say, OK, so this is for sure going to happen. All I can say is we've lined things up to make it a lot easier for it to happen. But we need to hear from people. President Biden needs to hear from people.
Senator Schumer and I are doing the best we can. Senator Menendez and I are doing the best we can. Senator Smith is on this today. She announced at the hearing that she's on board for cancellation of $50,000 of student loan debt. But we need to put more wind in the sails. We need to hear from more borrowers and their families. We could get this done. And we're right at that moment.
AARTHI SWAMINATHAN: I love it. So just one more thing on bankruptcy, something that you have extensive experience in. During this hearing, we heard a little bit about Navient actually supporting loosening the standards for bankruptcy, making student loans eligible for discharge, right? You introduced a bankruptcy bill a couple of months ago, which we covered. Curious on where that stands and just the impact of reform for student loan borrowers.
ELIZABETH WARREN: So I absolutely believe that, in the same way that when somebody goes into bankruptcy, right now, they can cancel credit card debt. They can cancel medical debt. They can cancel excess debt on their car loan. They can cancel debt that exceeds the value of a home they might have. But it's virtually impossible to cancel student loan debt. I think that's fundamentally wrong.
I think student loan debt should be canceled in bankruptcy. But bankruptcy's too small. That's not a big enough solution. It should be there for the extreme cases. I run into these cases sometimes. People who have $200,000 of student loan debt because they haven't paid for a long time. And it's interest and penalties that have accumulated. They're never going to get out from underneath it. And they have very, very small incomes.
Those are people for whom bankruptcy makes a lot of sense. But bankruptcy doesn't make sense for everyone else. The federal government should not be throwing people into bankruptcy to try to deal with run of the mill student loan debt. It is time to cancel $50,000 of student loan debt.
AARTHI SWAMINATHAN: Just one question on the Consumer Financial Protection Bureau which is your baby, it is now likely to be headed by Rohit Chopra, who's an old hand at student loans. Can you speak a little bit to the role of the CFPB in terms of this payment resumption that people are going to face in October?
ELIZABETH WARREN: Well, you know, I'm very worried. Because there's a pause right now on student loan payments. But that pause is scheduled to run out at the end of September. And that means families all across this country are all of a sudden going to be hit with payments. The average payment is going to be just around $400. Now, for some families, they're simply not going to be able to pay it. And that's just going to throw that family over a financial cliff.
But even for families who can pay it, that's $400 that's going to go into the federal government instead of getting spent in your local community, instead of getting spent at restaurants and retail stores, instead of being spent on back to school expenses in September. We need that money moving through the economy.
So this is one of the reasons why canceling $50,000 of student loan debt would be so good for individual families but also so good for our economy. It would let about 34 million people completely get rid of all their student loan debt. And another six, seven million would be able to see their student loan debt dropped precipitously. And that would free them up, free them up to be able to buy cars, to be able to buy homes, to be able to start a family, to be able to start a small business.
We can track the data. And even before COVID, student loan debt was holding people back on all of those things and holding back our economy. You put this money in and, particularly because much of this money, disproportionately, many of these debtors are people of color, you put this into communities of color, it's going to be a huge boost to our economy. Good for the individual borrowers. Good for closing the racial wealth gap. Good for the economy overall.
AARTHI SWAMINATHAN: Being debt free is definitely something that is just a boon, right, for many people. So with that, I'm sorry. We've run out of time, mindful of your time. Thank you so much Senator Warren for joining us. There's just so many topics I would love to talk with you. But, you know, that's how it is.
ELIZABETH WARREN: Let's do it again.
AARTHI SWAMINATHAN: Thank you so much.
ELIZABETH WARREN: We will absolutely do it. But in the meantime, stay on this student loan debt issue. It's something that's affecting more than 40 million families all across this country. And we have this moment. We can make real change, cancel $50,000 of student loan debt.
AARTHI SWAMINATHAN: Follow up with you-- we'll follow up with you later on for-profit schools, a topic that we had--
ELIZABETH WARREN: Yes.
AARTHI SWAMINATHAN: --talking about. For sure. So all the best and thank you so much for joining us.
ELIZABETH WARREN: Thank you. Take care. Bye-bye.
