Betsy DeVos: Student loan debt is 'of grave concern'

Betsy DeVos defends proposed student aid cuts
Betsy DeVos defends proposed student aid cuts

Betsy DeVos said Tuesday that student debt is "of grave concern."

But Democrats on the Senate Appropriations Committee slammed DeVos, claiming that her concern for student loan borrowers is not reflected in the Department of Education's proposed budget. Released two weeks ago, it calls for a 13.5% cut to funding for the department next year and some drastic changes to the federal student aid program.

About 42 million Americans have federal student loans and as Education Secretary, DeVos oversees the $1.3 trillion student debt program.

"I talked about that during my confirmation hearing and I feel no differently now. In fact, I probably feel more strongly about the critical nature of the increasing student debt," DeVos said before she was interrupted by Senator Dick Durbin, a Democrat from Illinois.

"Your budget increases the interest burden of students. Your budget freezes the Pell Grant so they have to borrow more. Your budget doesn't give them public loan forgiveness," Durbin said.

DeVos said that her budget would streamline the loan repayment system, making it less confusing. And it would reduce the loan burden for some borrowers who enroll in an income-driven repayment program.

The proposal also supports year-round Pell Grants, so that low-income students can start receiving financial help for classes they take during the summer.

But the budget also calls for cuts to a number of federal aid programs and would eliminate some altogether. Over the next decade, it would cut at least $143 billion from student aid.

If approved, the budget would slash the number of Work Study jobs for college students in half next year. Roughly 2.9 million fewer low-income students would receive subsidized loans. And it would eventually end the Public Service Loan Forgiveness program for government and non-profit workers for new borrowers.

Related: DeVos's loan overhaul would hurt doctors and lawyers

But don't expect all those cuts to become a reality.

"This is a difficult budget request to defend," said Republican Senator Roy Blunt, chair of the appropriations subcommittee, in his opening remarks Tuesday.

He said the cut to the Work Study program, among others, would make it harder for students to complete a college degree.

"Such a significant cut to the department's budget is likely untenable," Blunt said.

But there were some changes that seemed to have the support of Republican senators at the hearing.

Year-round Pell Grants

Congress already expanded the Pell Grants program earlier this year so that low-income students will be able to receive financial aid for classes they take during a summer semester. DeVos said Tuesday that this funding will be available starting July 1.

That means an eligible student can receive up to $8,880 annually if they enroll in an extra summer semester, Blunt said.

Related: What is (and isn't) in the budget for student loan borrowers

Currently undergraduate students from the lowest-income families can receive up to $5,920 a year for two semesters.

But Democrats say the department's budget doesn't go far enough to expand Pell. They've criticized it for raiding money from the program's reserve, as well as not adjusting the maximum award to inflation -- meaning it could cover a smaller portion of their college cost.

A new income-driven repayment plan

Income-driven repayment plans tie borrowers' monthly payments to their income and forgive their debt after a set period of time. But there are currently five different plans offered.

The proposed budget would create just one plan for everyone, a move that has been applauded by consumer advocates.

Simplifying the repayment process has had bipartisan support as well, said Republican Senator Lamar Alexander on Tuesday.

"I have had college presidents tell me they had a hard time repaying their kids' student loans because it was so complicated," said Alexander, who chairs the Senate Health, Education, Labor and Pensions Committee.

Related: The $1.3 trillion student loan problem facing DeVos

The budget proposes capping a borrowers' payments at 12.5% of their discretionary income, which is higher than the 10% cap most have now. But undergraduate students would see their remaining debt forgiven after 10 years rather than the current 15.

This could benefit those who borrowed for an undergraduate degree, but could come at the expense of graduate students. They would have to pay for 30 years before getting forgiveness under the proposal -- which is five years longer than existing plans.

The revamp of the income-driven repayment plans would save the government $76.4 billion over 10 years.

Simplify loan repayment

DeVos has also proposed revamping the system so that there is just one student loan servicer. Currently, nine companies have a government contract to collect payments and assist borrowers in enrolling in the right repayment plans.

Many people have reported poor customer service, unexpected delays, and lost paperwork when it comes to their loan servicers, according to the Consumer Financial Protection Bureau.

President Obama's administration also proposed creating a single-platform system.

DeVos says she expects the change to save the government $130 million over the next five years. The one leading servicer would be able to contract out some of the work to other companies.

On Tuesday, she said creating a single platform would increase competition and accountability.

But Blunt disagreed.

"I'm inclined to think that's not the best direction to go," he said. "We've been working with the department to try to create more competition among loan servicers."

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