President Obama took administrative action earlier this month that aims to help federal student guarantor loans borrowers direct the process of repayment and tighten the rules for companies that help in school debt.
Obama instructed the US Department of Education to develop a website that enables borrowers a simple way of accommodating complaints about lenders, payment collection agencies, and schools and universities.
The government will also develop a centralized method for borrowers to have access to information about their loans and pay them, regardless of whether the contractor is servicing their loans. The presidential memorandum signed by Obama earlier this month will implement consumer protections that will require the contractors to clearly inform students of the repayment options available and when their loans will be transferred from one servicer to another.
Obama told an audience at Georgia Tech in Atlanta wherein he identified the bill of rights of the students, “Higher education has never been more important, but it has never been more expensive. Every student should be able to access the resources to pay for college.”
The steps will, therefore, aid the borrowers to understand better the lenders they borrowed money from and the options they have that will reduce their payments and preventing from any defaults, according to the administration.
The deputy director of the Domestic Policy Council, James Jvaal, said during a conference with the reporters, “The idea is to get ahead of students who are encountering challenges and make sure they have access to the information they need to help them manage their payments.”
In addition, the administration will create recommendations for changes on the regulation and legislation of student loan borrowers that will include potential changes to the treatment of such loans in the event of a bankruptcy.
Note that under the United States’ law, the obligations on a student loan can rarely be discharged with bankruptcy; therefore, it makes these loans more burdensome compared to credit card and mortgage debt.
“The administration would take a hard look at whether legislation is necessary,” says Obama.
The changes will put more pressure on private companies that are tapped by the US government to collect from borrowers that are defaulting on their loans. According to critics, the firms are insisting on stiff payments even though the borrower is a candidate for deferment programs and they are not doing enough to make things clear with students on why they are receiving bills and what are their repayment options.
Last month, the US Department of Education cut ties with 5 firms that cited misleading information to the borrowers. Among these firms is the Pioneer Credit Recovery, which is a unit of Navient Corp. in Wilmington, Delaware, which was separated last year from Sallie Mae Corporation (the largest finance company in US education).
Navient gained $65 million in revenues from the US Department of Education collections in 2014. According to a news report from Bloomberg News in 2012, thee firms collect about $1 billion annually in commissions from their student loan contracts.
According to several officials, they will utilize the data from the complaint system, which is set to operate in July 2016, in order to assess the management of contractors and colleges and universities. The administration is actually commencing a pilot program that directly sees repayment from students that default on their loans.
The federal government has more than 85% of the outstanding student loan debts.
The White House has made college student loans a primary focus of the economic agenda of the president. In fact, in Obama’s State of the Union address last January, he proposed offering free tuition to certain students in community colleges.