New protections coming for college borrowers
The 40 million Americans who have borrowed for college, including those who are struggling with their loans, could soon find it far less frustrating to repay their student debt.
In a memorandum signed today, President Barack Obama instructed the U.S. Department of Education and other government agencies to work together to create a considerably more consumer-friendly system for college borrowers. The proposed steps include:
- A coordinated federal system for accepting, tracking and reporting complaints to be in place by July 1, 2016.
- A single portal for borrowers managing their federal loans.
- Requirements for loan middlemen and private lenders to improve their service to borrowers in a variety of ways.
Obama also directed the federal government to consider potential options for borrowers who find it nearly impossible to discharge student loan debt in bankruptcy court. He also wants the government to explore whether consumer protections recently applied to mortgages and credit cards should be extended to student loans.
In a speech delivered at Georgia Tech Tuesday afternoon before a crowd of more than 9,500 students, Obama had this to say about his moves:
"We're going to require that the businesses that service your loans provide clear information about how much you owe, what your options are for repaying it and if you're falling behind, help you get back in good standing with reasonable fees on a reasonable timeline." And, he added, "We're going to take a hard look at whether we need new laws to strengthen protections for all borrowers, wherever you get your loans from."
The focus on improving the experience for borrowers is surely in reaction to the large number of complaints about how the student loan industry has been unresponsive to borrowers' needs and grievances. Debtors, consumer groups and the federal Consumer Financial Protection Bureau have complained about egregious behavior in this lending niche.
For instance, the CFPB discovered that some servicers have been intentionally triggering late payments for borrowers by spreading payments across several loans. Another dubious practice is applying prepayments to loans with the lowest rather than the highest interest rates.
Last year, the department's inspector general concluded that the government was not effective in making sure debt collection companies, which pursue borrowers in default, were following the law. Earlier this month, the U.S. Department of Education terminated the contracts of five collection agencies for misleading borrowers.
Lauren Asher, the president of the Institute of College Access & Success, which has been an influential voice in advocating for student borrowers, praised Obama's actions. "We applaud the president's commitments to better serve the nation's federal and private loan borrowers, including those in financial distress and those who have been wronged by loan services, loan collectors or schools."
