The Education Department has gotten territorial about student loan policy, but it isn’t stepping up to do much for struggling students.
The department’s own new statistics, from the National Center for Education Statistics, show post-recession borrowers are paying back their loans much more slowly, and defaulting much more often, than pre-recession borrowers…
The report found that 12 years after first entering college, the median percentage owed on student loans by the [pre-recession] borrowers was 70 percent. For the [post-recession] cohort, that number was 78 percent. Over the same time frame, 18 percent of those in the earlier cohort had defaulted on at least one student loan, while 27 percent of the more recent cohort had done so.
That means it’s up to Congress to tackle the problem. As you might have guessed, I don’t have high hopes. But, in fairness, they did pass a law in August making college more affordable for veterans. They do have some interesting proposals sitting around collecting dust, too — both great and terrible ones. I’d like to talk about two of those, and two from state legislatures…
Worthwhile ideas from the states
California is implementing a law next year that would require student loan servicers to become licensed. An amendment they’re considering now would exclude debt collectors from the definition of servicers.
The obvious upside to this law is to provide for oversight where the federal government currently refuses to — remember that the Betsy DeVos-led Education Department wanted just a single student loan servicer and was leaning toward the one being sued for a bevy of borrower complaints and ripping students off $4 billion. While it backed off that decision, it hasn’t moved for stronger accountability from servicers and has signaled it plans to dismantle more regulations than it will create.
There wouldn’t be much point for Congress to create licensing requirements the department would ignore, but if it also created specific accountability standards for the department to enforce, the framework could hold. Part of California’s law includes restrictions on proven fraudsters and people with recent criminal records from holding leadership roles.
It also requires servicers to submit any reports the state decides to require, and lays out specific criteria for how to handle payments, what information to provide borrowers, and what information to ask them for, including how they want to handle overpayment.
While those rules are predictably broad (it’s California) and likely to be narrowed by Congress, they’re a starting point.
Another cool idea: Illinois is pursuing a student loan bill of rights that would require servicers to explain the most efficient ways to pay back your loans, and (again) asking where you want your payments applied first. Governor Bruce Rauner vetoed the bill, but the state legislature just overrode him.
Congress has a student loan bill of rights, too
Representative Frederica Wilson — yes, the Congresswoman Donald Trump called “wacky” for criticizing the way he handled a phone call to a war widow — already introduced a federal version of this idea in July. Four Congressional committees haven’t touched it yet.
The bill would make student loans dischargeable in bankruptcy, create a statute of limitations for collecting on defaulted student loan debt, place limits on wage garnishment and seizing tax refunds to pay down student loan debt, protect public service loan forgiveness, and expand income-based repayment options to loans taken out by parents on behalf of their kids.
The worst student loan idea in Congress
If that’s one of the best ideas sitting on the shelf, Representative Barbara Comstock’s bill from earlier this month is equivalently awful. This bill would try to solve the student loan problem by offloading it to the private sector:
This bill authorizes the Department of the Treasury to establish a temporary three-year program to facilitate federal student loan refinancing into the private market, at no cost to the federal government, to ensure payment of lower interest rates on student loans. Private lenders under such refinancing program shall be eligible to receive a federal government guarantee of 95% of loans.
Treasury shall, in consultation with the Department of Education, begin a national awareness campaign to alert student loan borrowers about such refinancing program with a disclosure that a private loan that results from such refinancing is not eligible for income driven repayment or loan forgiveness.
This would theoretically allow students to save a little bit of money by refinancing their loans, but at the cost of all the current federal protections, potential loan forgiveness, and future repayment options.
It would also leave the federal government — meaning us taxpayers — on the hook for 95 percent of the loans should students default.
It’s the worst of both worlds, and an idea that should be left on the shelf. But, hey, at least she’s trying. That’s more than can be said for a lot in Congress.
Article last modified on October 26, 2017. Published by Debt.com, LLC . Mobile users may also access the AMP Version: More Student Loan Ideas for a Hopeless Congress - AMP.
Article last modified on October 26, 2017. Published by Debt.com, LLC .