There are 44 million student loan borrowers holding a total of almost $1.3 trillion in student-loan debt. Eight million or more federal student-loan borrowers are in default. One in seven borrowers will default on federal student loans within three years of repayment. In total, more than 30 percent of people saddled with student debt are unable to pay their debts at all.
Young borrowers are finding it difficult to keep up with their monthly payments, choosing to delay starting families and buying homes. Older borrowers are also affected, with over one-third of borrowers over the age of 40 struggling to stay current on their loan payments.
Many borrowers are unaware of the free federal-government programs that exist to help ease their debt burden. The student-loan servicing companies hired by the Department of Education often fail to provide enough information to accurately inform and assist the borrower, leaving room for unscrupulous companies who charge unwitting borrowers thousands of dollars to enroll in free government programs.
What to do? The Checklist to Support Student Loan Borrowers is a simple, four-point policy package, developed by Student Debt Crisis, that details common sense reforms which would help the 44 million Americans hamstrung by student debt.
Refinance Student Loans
Establish a program to refinance both federal and private student loans.
- Federal refinancing could help private student-loan borrowers take advantage of the repayment programs and additional protections of federal loans. Under one proposal, 25 million student-loan borrowers could lower their interest rate and monthly payments, saving an average of $2,000 over the life of their loans.
Simplify and Strengthen Repayment Options (including PSLF)
Expand and protect repayment options and create simplified systems for enrollment.
- There are currently over 30 different repayment plans, with confusing and sometimes onerous requirements to enroll and maintain benefits.
- Backdoor tax surprises on loan forgiveness in current law should be eliminated.
- Automatic renewal systems, instead of the current annual recertification process, would prevent borrowers from accidentally losing their repayment plan benefits.
- Public Service Loan Forgiveness can be made proportional for each year of service.
Student Loan Servicer Accountability and Consumer Protections
Extend consumer protections to all student loan borrowers.
- The servicing companies the Department of Education currently contracts with too often contribute to the student-debt crisis.
- Student-loan-servicer accountability measures include cutting contracts with lawbreaking servicers; Fully implementing President Obama’s Borrowers Bill of Rights; and providing a private right of action against loan servicers.
- Consumer-protection measures include extending the protections that federal borrowers enjoy to private student-loan borrowers, including caps on interest rates, flexible repayment options, and certain cancellation rights.
- Cracking down on private student-loan “relief” companies.
- Ending Social Security offsets for recipients with defaulted student loans.
- Providing more efficient teach-out programs for defunct for-profit colleges and immediate loan forgiveness to victims of closed/sold colleges or those under investigation.
Restore bankruptcy protections by limiting exceptions and removing the undue hardship rule.
- Under current bankruptcy law, discharging student debt is almost impossible.
- Loan modification options and bankruptcy protections for all student loans, including private loans, would alleviate a major burden for struggling or insolvent borrowers.
- Provisions of the 2005 bankruptcy code, which were more consumer friendly, can be restored to allow easier discharge of student loan debt.
The next Congress and president of the United States will have the immense responsibility of solving a student-loan-debt crisis that is constraining the potential of a whole generation and, in the process, imperiling the future of the entire country.