- Created: Wednesday, 11 March 2015 14:32
By Aaron M. Swift, Esq.
According to The Institute for College Access and Success, the average student-loan borrower graduates with $26,600.00 in student loan debt. Moreover, according to the Consumer Financial Protection Bureau (“CFPB”), student loan debt has reached a new milestone, crossing the $1.2 trillion mark - $1 trillion of which is in federal student loan debt. Altogether, student loan debt accounts for the second highest form of consumer debt (behind mortgages), and student loan debt is crippling students, parents, and the economy.
On March 10, 2015, in order to address a myriad of concerns faced by student-loan borrowers, President Obama introduced the “Student Aid Bill of Rights” via executive action. The executive order addresses several issues, including:
- Brand New Complaint and Feedback Process – The President is requesting a “simple process for borrowers to file complaints…including those pertaining to lenders, loan servicers, private collection agencies, and institutions of higher education.” This new complaint and feedback process will begin with a state-of-the-art website, and importantly, complaints will now be automatically shared with the FTC and CFPB.
- New Standards for Repayment to Avoid Default – According to the CFPB, nearly a quarter (25%) of all student loans are in default within the first three years of repayment. One of the greatest challenges, of course, is the fact that, absent extraordinary circumstances, student loans cannot be discharged via bankruptcy. Because of this fact, the Student Aid Bill of Rights aims to help borrowers avoid default. First, any prepayments should be applied to loans with higher interest rates. Second, loan servicer performance will be tracked and monitored. Third, betters ways to communicate with borrowers will be explored. Lastly, a central payment portal will be created, regardless of who the loan servicer is.
- Streamlined Process for Income Based Repayment Certification – Currently, borrowers may choose repayment options based on income. In other words, the lower the borrower’s income, the less the borrower is required to pay each month, and vice versa. The problem, however, is that the borrower is required to mail a certification each year by a specific date using a specific form. If this important step is neglected or late, then payments can often triple or quadruple with little recourse. The Student Aid Bill of Rights, on the other hand, will allow loan servicers to contact the IRS directly for income verification, and therefore the re-certification process will occur automatically. By bypassing borrower error, more consumers will be protected by this useful change.
According to the Wall Street Journal, the “White House is exploring whether to make it easier for Americans to get rid of student loans through bankruptcy, joining consumer advocacy groups and federal lawmakers who have been pushing for that type of investigation for years.” For example, in a 2012 survey of bankruptcy lawyers, 82% of respondents replied that the difficulty in discharging student debt in bankruptcy was “a big problem” preventing consumers from getting a fresh start. Until the Bankruptcy Code is changed, however, actions such as the Student Aid Bill of Rights will aid consumers and student-loan borrowers facing unmanageable debt. We here at LeavenLaw are similarly focused on helping consumers crippled by debt—including student loan debt. For more information, please visit www.leavenlaw.com or call 1-855-Leaven-Law.