Federal: AFC Letter to House Education and Workforce Committee on Role of Responsible Private Lenders in Higher Education Financing Post

The Honorable Tim Walberg
Chairman
Committee on Education and the Workforce
U.S. House of Representatives
Washington, DC 20515

The Honorable Robert C. Scott
Ranking Member
Committee on Education and the Workforce
U.S. House of Representatives
Washington, DC 20515

Re: AFC Letter on Role of Responsible Private Lenders in Higher Education Financing Post-PLUS Program Sunset

Dear Chairman Walberg, Ranking Member Scott, and Members of the Committee:

On behalf of the American Fintech Council (AFC), the premier trade association representing responsible fintech companies and innovative financial institutions, we appreciate the opportunity to provide comments as the Committee on Education and the Workforce (the Committee) advances reconciliation legislation pursuant to H.Con. Res. 14.

AFC’s mission is to promote an innovative, transparent, inclusive, and customer-centric financial system by fostering safe and responsible innovation in financial technology (Fintech) and encouraging sound public policy. AFC members, made up of fintech companies and innovative banks, are at the forefront of fostering competition in financial services and pioneering ways to better serve underserved consumer segments and geographies. AFC and its members strongly support the development and implementation of regulatory frameworks that encourage the responsible development of innovative financial products and services. AFC members operating in the student lending space are comprised of loan originators and servicers, as well as companies that offer other innovative services, such as a unique debt and savings platform for student borrowers.

AFC recognizes the Committee’s efforts to pursue structural changes to the student lending ecosystem that will lessen taxpayer risks and issues related to students overborrowing. While AFC does not take a position on the overall package, we respectfully submit comments on specific provisions included in the current committee print that would sunset the Graduate PLUS loans and reform to Parent PLUS loan programs beginning in 2026.

We recognize that these programs have historically expanded access to higher education financing for both undergraduate and graduate students. However, with that expanded access, certain programmatic aspects and the underlying publicly funded nature of these loan programs have also expanded the risks to borrowers and taxpayers in a manner that causes concern for AFC. As noted in a previous U.S. Government Accountability Office report, Grad PLUS loans are not need-based, which allows student borrowers to “borrow up to the cost of attendance, such as tuition and room and board, minus any other estimated financial assistance”.  This aspect of the Grad PLUS loan allows for overborrowing that places undue debt burdens on student borrowers and harms their ability to properly repay the loan. Further, the Parent PLUS loan program presents additional default risks, as the parents who take on the debt for their children do not have access to the federal repayment and forgiveness programs that allow students to manage their debt effectively. In turn, this creates a potential long-term debt burden for parents seeking to help their children and could leave these parents financially worse off. Given the publicly funded quality of these programs, the default risk stemming from an inability to repay either Grad PLUS or Parent PLUS loans extends to taxpayer dollars.

As the student lending ecosystem moves away from the Grad PLUS loan program, borrowers will still need access to student loans that are originated in a responsible manner. AFC wants to ensure that future student lending options do not present the risks of overborrowing or establishing an unaffordable debt burden that exist in the aforementioned programs. Historically, AFC’s members have been able to effectively and efficiently serve borrowers from across the credit system, including student borrowers. It is with this in mind that AFC recognizes the importance of ensuring private sector lenders—including those who constitute AFC’s membership and offer responsible, innovative student borrowing solutions—are able to effectively and efficiently offer student borrowers the funding they need in a safe, sound, and prudently underwritten manner. As the Committee considers these significant structural changes, we encourage thoughtful planning around the critical and expanding role that the private market will play for borrowers.

As federal lending capacity adjusts, responsible private market participants, including innovative fintech lenders, Congress can support this transition by:

• Providing regulatory certainty that encourages responsible private sector participation without duplicative or conflicting regulatory oversight;

• Facilitating access to fair credit reporting and underwriting data to ensure efficient and affordable lending options;

• Ensuring competitive neutrality by preventing artificial advantages for any single category of lenders, encouraging innovation across banks and fintech providers.

The American Fintech Council and our members are committed to promoting access to affordable and sustainable higher education financing options. Critical to that effort is ensuring that students and their families are not overburdened with debt and are able to repay their loans properly. We stand ready to collaborate with Congress, agencies, and stakeholders to ensure a smooth transition and a competitive, responsible marketplace that benefits borrowers and mitigates risks to taxpayer dollars. Ultimately, we believe that pursuing the path put forward by the Committee will ultimately establish a stronger, safer student lending ecosystem that can serve consumers more effectively.

Thank you again for your leadership and your consideration of these important issues.

Please do not hesitate to reach out if we can serve as a resource or provide further perspective on the role of fintech in enhancing America’s education system and overall financial health.

Sincerely,

Ian P. Moloney
SVP, Head of Policy and Regulatory Affairs
American Fintech Council

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[1] U.S. Government Accountability Office, HigherEducation: Characteristics of Graduate PLUS Borrowers, GAO-18-392R, (Apr.17, 2018), available at https://www.gao.gov/products/gao-18-392r.