Wednesday, March 11, 2015

Government Help for Student Loan Borrowers


On March 10, 2015, President Obama signed the Student Aid Bill of Rights. Since 2003 delinquency rates on student loan has steadily increased. According to the National Center for Education Statistics, from 2003 through 2011, outstanding student loan debt increased from approximately $250 billion to over $900 billion. Since the mortgage crisis in 2008 the total outstanding student loan debt has gone from billions to trillions. According to the Federal Reserve the total outstanding student loan debt at the end of 2014 was $1.3 trillion dollars. 

The rise in student loan debt from 2003 to the present is a result of:  increased tuition costs, increased health care costs, the sandwich generation’s expenses (i.e. caring for children and parents), government initiatives to encourage funding for higher education, post-graduate degrees, the 2008 recession, unemployment, and increased cost of living just to name a few. 

According to The Institute for College Access and Success (TICAS) the average student loan debt has outpaced the average credit card debt. In May 2014 Federal Reserve report, covering first quarter of 2014, student loan debt totaled $1.1 trillion, while credit card debt totaled $659 billion. Student loan debt may replace mortgage loans as the largest form of consumer debt. Student loan debt is currently the second largest form of consumer debt. 

For some student loan borrowers, paying back student loans is a lifetime commitment. For others it means the different in paying a credit card bill, paying monthly expenses versus repaying student loans. Many borrowers are still struggling from the effects of the 2008 recession and 2013 government shutdown. Statistics state that only way to increase your financial status is to get a college education. However, research neglected to tell borrowers the long-term price tag associated with it. There seems to be no way out. 

If borrowers experience an issue with a private loan servicer or collection agency they can file complaints with the Consumer Financial Protection Bureau, Department of Veteran Affairs (for veterans), the Department of Defense and the Federal Trade Commission. The Student Aid Bill of Rights provides federal student loan borrowers with a glimmer of hope. The bill offers to:

  1. Provide affordable higher education
  2. Provide easy to find resources to pay for college
  3. Provide affordable repayment options
  4. Receive quality customer service, reliable information and fair treatment when repaying student loans
  5. Provide an online feedback system starting in July 2016 to give borrowers an easy way to provide feedback and file complaints about federal student loan lenders and servicers and collection agencies.
  6. Notify borrowers when their federal student loans are transferred to a new servicer.
  7. Restrict debt collections on penalties and interest fees charged on defaulted student loans.
  8. Allow low-income and disabled borrowers to enroll and stay enrolled in income-based repayment plans and ensure disabled borrowers can discharge federal student loan debt versus having their Social Security Disability benefits garnished.
  9. Improve disclosures regarding student loans and provide stronger consumer protections during the loan repayment lifecycle.
  10. Requires prepayments be applied to loans with the highest interest rate first unless the borrower requests otherwise.
  11. Establish a centralized database for federal student loan borrowers to access account and payment processing information.

This is a good start but more needs to be done to help student loan borrowers for both federal and private student loans. My recommendations are:

  1. Make private loan companies offer the same repayment options as the Department of Education for federal loans such as: loan deferment, income-based repayment plans, loan consolidation, rehabilitation, and student loan forgiveness.
  2. Develop and enforce strict guidelines for private loan servicers, collection agencies and debt collectors for student loans similar to guidelines that were implemented for mortgage lenders.
  3. Revise the 2005 Bankruptcy Law to include federal and private loans.
  4. Increase the maximum federal Pell Grant amount to $10,000 per award year and increase the amount yearly by a minimum of $1,000 in correlation to college tuition increases.
  5. Simplify the income-based repayment system into one option and base monthly payments on income and a review of a borrower’s monthly expenses. Payments will increase as a borrower’s income increases.
  6. Stop allowing collection agencies and debt collectors to charge fees and refuse borrower offered payment arrangements on federal student and parent plus loans.
  7. Allow parent plus loans to be refinanced and consolidated.


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