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Letter to Chairman Bernanke, Secretary Geithner, Secretary Duncan, and Chairman Gruenberg


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U.S. Sen. Sherrod Brown (D-OH) joined students at Ohio University today to discuss efforts to keep college affordable for all Ohioans. Earlier this year, student loan debt outpaced credit card debt, soaring to more than $1 trillion.

"Now more than ever, a college degree is the key to good-paying jobs and a secure future," Brown said. "But increasingly high debt means fewer students will be able to buy a home, start a business, or continue on to graduate school. Students who are already struggling to afford higher education shouldn't worry about high interest rates and bills rolling in after graduation. That's why I'm working to ensure that all Ohio students have access to fair loan options that provide affordable payment plans, loan forgiveness, deferment options, or cancellation rights."

Brown heard from students at OU who are struggling with college loans and called on Obama Administration officials to ease the burden for Ohio students. On Friday, Brown wrote to U.S. Treasury Secretary Timothy Geithner, Federal Reserve Chairman Ben Bernanke, and U.S. Department of Education Secretary Arne Duncan emphasizing the serious economic implications that increasing levels of student loan debt have for our economy and asking the Administration to act swiftly on behalf of Ohio's students.

Brown led the fight in the Senate to block the interest rates for federally-subsidized Stafford loans from doubling from 3.4 to 6.8 percent on July 1. Legislation to maintain the current rate was included in the highway bill passed by Congress in June. Without Congressional action, approximately 382,000 students across Ohio would have been forced to pay significantly more for their Stafford student loans. According to the Senate Health, Education, Labor, and Pensions (HELP) Committee, the higher interest rate would have added approximately $1,000 in loan debt per loan for the average student.

In July 2012, Brown, chairman of the Senate Banking Subcommittee on Financial Institutions and Consumer Protection conducted a hearing entitled, "Private Student Loans: Providing Flexibility and Opportunity to Borrowers?" The hearing examined the private student loan market and the challenges that borrowers of private student loans face.

Brown also advocated for the establishment of the private student loan ombudsman within the Dodd-Frank Wall Street Reform and Consumer Protection Act which began to collect complaints in March 2012.

Full text of the letter is below.

September 28, 2012

The Honorable Timothy F. Geithner


United States Department of the Treasury

1500 Pennsylvania Avenue, N.W.

Washington, D.C. 20220

The Honorable Arne Duncan


United States Department of Education

400 Maryland Avenue, S.W.

Washington, D.C. 20202

The Honorable Benjamin S. Bernanke


Board of Governors of the Federal Reserve

20th and Constitution Avenue, N.W.

Washington, D.C. 20001

Dear Chairman Bernanke, Secretary Geithner, Secretary Duncan, and Chairman Gruenberg:

I am writing to you concerning the serious economic implications that increasing levels of student loan debt have for our economy.

As Chairman of the Senate Banking Subcommittee on Financial Intuitions and Consumer Protection, I recently held a hearing to address the challenges facing borrowers of private student loans and the challenges that student debt poses to our economy. Today, there are approximately 850,000 private loans in default totaling over $8 billion.[1] According to the Department of Education, federal student loan default rates grew from 7 percent in 2008 to 8.8 percent in 2009.[2] Presently, there are $76 billion in federal student loans in default, more than the yearly tuition for all students at public 2- and 4-year universities combined.[3]

Recent college graduates are saddled with increasing levels of student debt. As you know, earlier this year, student loan debt outpaced credit card debt, soaring to more than $1 trillion.[4] A recent report by the Pew Research Center estimates that one in five U.S. households owe some form of student debt, double the share two decades ago and a 33 percent increase since 2005.[5] According to the Federal Reserve Bank of New York, the average student loan debt burden for borrowers has risen 55 percent since 2005.[6]

Entering a job market plagued with high unemployment and decreasing wages exacerbates this problem. While the national unemployment rate for 2009 was 9.3 percent, it was 16 percent for individuals who entered college in 2003 with private student loans.[7] For those that are working, median household income was 8.1 percent lower in 2011 than it was in 2007 -- effectively increasing the size of one's debt burden.[8]

During a time when we should be investing in middle-class families, we are letting hardworking and responsible individuals face significant financial hardship, creating a vicious cycle of declining household wealth. Students from middle-income families are likely to leave college with more student loan debt than their peers from low- and high-income families.[9]

Take the housing market: first-time homebuyers are typically an important source of demand and help facilitate move-up purchases from existing buyers. Money that previous generations could use toward a down payment on a house or a new car now must be used to pay down student loan debt. Census data reveals that 6 million Americans ages 25-34 lived with their parents in 2011, a sharp increase from just a few years ago. Americans aged 25-29 have experienced significant reduction in homeownership rates since the financial crisis. The National Association of Realtors estimates that people aged 25-34 made up 27 percent of all home buyers in 2011, the lowest share in the past decade.

A recent Federal Reserve Study shows the share of individuals age 29-34 getting a first-time mortgage dropped significantly in the past decade. According to Chairman Ben Bernanke, "Lending to first-time homebuyers has dropped precipitously, even in parts of the country where unemployment rates and housing conditions are better than the national average." The Treasury Department's Office of Financial Research, established in the wake of the financial crisis, recently acknowledged that conditions in the student loan market could "significantly depress demand for mortgage credit and dampen consumption."

This problem affects all generations. For younger Americans, 40 percent of all households headed by someone younger than age 35 carrying some form of student debt.[10] As young people are concerned they will have to mortgage their futures to receive a degree, parents who are still repaying their own loans are taking on more debt to provide for their families or help their children attend college. One third of borrowers -- more than 12 million people -- are age 40 or older.[11] These burdens have been increased by the declining value of their most valuable asset -- their home. According to bankruptcy law expert Katie Porter, the reduction in home wealth caused by the housing crisis "leads families to look for other options, such as taking on increased student loans to pay for college rather than refinancing a house to pay tuition."[12] Retirees who took out federal loans to help pay for a child or grandchild's tuition can even see a reduction in their Social Security checks if they default on loan repayments.[13]

It is evident that such unprecedented student loan debt is hurting American borrowers of all ages. With that in mind, I would like you to address the impact that such debt may have on our entire economy and to provide answers, in writing, to the following questions:

What are your views on the current size and scope of student loan debt?

What effects does the nature of student indebtedness have on college access?

Have you assessed whether student loan debt is impeding the housing recovery?

What are the broader implications of student loan debt on our nation's economic recovery?

Do you believe that student loan debt may hinder an individual's ability to enter the middle class?

Has student loan debt led to lower contributions to retirement accounts and other savings instruments?

What are the specific economic consequences of failing to address student loan debt in both the short and long term?

I look forward to your responses. Thank you for your attention to this important matter.


Sherrod Brown

United States Senator

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