Student Aid Bill Of Rights

President Obama recently proposed a new Student Aid Bill of Rights to help take action on the student debt problem, and provide borrowers with more rights and protections.  With the current average borrowers student loan debt at $28,400, and the average default rate at nearly 14%, its neither a surprise nor secret that the country is facing a very large crisis due to student loans.  President Obama has been a champion of student loans, already having created the Pay As You Earn Repayment Plan, as well as making changes to the current forgiveness programs which has led to people calling it the Obama Student Loan Forgiveness program.

I. Have access to a high-quality, affordable higher education

Higher education continues to be one of the best investments one can make in their own future, so the importance of a college education has never been more important.  In January 2015 President Obama proposed a bold plan of making community college completely free for students.  This plan would potentially help 9 million people, and make the first two years of college free to students who start their degree at a community college.

College Rating System

The Department of Education is also currently working on developing a rating system for colleges which is expected to be completed  by the start of the 2015-2016 school year.  This system would provide a measurement that would be easy for anyone to compare colleges with actual data based on historical performances of each college.

Data Used To Rate Colleges

• Average net price of attendance – The average cost a person will pay to attend the school
• Graduation rates – The average number of students who attend and graduate from the college
• Transfer Rates – Measuring students who transfer in, and who are not happy and transfer out of the college
• Employment Rates – Measuring the success of the students in their field of studies post-graduation
• Loan Performance – How well are the students able to repay their loans after receiving their degree.

II. Be Able to easily find the resources they need to pay for college

With the cost of tuition on the rise and higher education continuing to be one of the best investments one can make in their own future, the President realizes the need for people to have access to federal funds to help pay for college.  President Obama has helped make aid easier to obtain by increasing the maximum Pell Grant by $1,000 as well as modifying the American Opportunity Tax Credit to be able to claim up to $10,000 as a tax deductible over four years of college.

Simplification of the FAFSA

Further, the Department of Education has simplified the Free Application for Federal Student Aid(FAFSA) application.  The average time it takes someone to currently complete this application is 20 minutes, reduced from the initial length of over one hour.  The Department of Education has streamlined part of the application to be internally link to the Internal Revenue Database. This allows the Department of Education to view financial records directly through the IRS, instead of having the borrower complete that section of the form.  The President has also requested to remove more questions from the application to make it even easier, and to put less restrictions on applying.

Tax Debt Elimination for Forgiven Student Loans

Under the American Opportunity Tax Credit, President Obama has also proposed eliminating any tax debt on student loans forgiven under any of the income driven repayment plans.  This would include the Income Based, Income Contingent, and Pay As You Earn repayment plans.  Currently, any loan forgiveness may end up with the borrower receiving a 1099-c for the amount forgiven which would need to be claimed on income tax returns.  If the proposal of eliminating this tax liability goes through, many borrowers would see light at the end of the tunnel with their student loans.

III. Be able to choose an affordable repayment plan for student loans

Since currently 14% of all student loans are in default status, the President has committed to providing borrowers with affordable repayment plans for their student loans.  In December 2012 the Pay As You Earn repayment plan was passed into law.  This repayment plan allows borrowers to make affordable monthly payments on their student loans at a maximum of 10% of their discretionary income.  This means that new borrowers can always have affordable payments for their student loans, with payments as low as $0.00 per month with loan forgiveness after 20 years.

With the income driven plans, there is almost never a reason for a borrower to be in default on their loans if they are adequately educated about their repayment options. Unfortunately, many of the lenders are not doing a good job of educating their borrowers, and often times the consumer falls into default after seeking help and contacting their lender.  This leads into the next student aid bill of rights point.

IV. Receive quality customer service, reliable information, and fair treatment when repaying loans.

As we have previously reported, the Department of Education has found problems at Sallie Mae, the largest student loan lender in the United States. Issues such as miscalculation of income based payments, charging unlawful interest rates on student loans to military members, and unlawful late fees being charged to borrowers.  The Department of Education has tried to incentivize servicers to find ways to best serve their borrowers.  Lenders are now compensated better depending on the help being provided to borrowers on repayment of their loans and quality of their customer service.  The Department of Education will further make sure that all debt collections practices are fair, transparent, and that the fees charged for collecting the debt are reasonable.

Educating Borrowers via Social Outreach

The Department of Education has also created a social media campaign trying to target student loan borrowers to help educate them on the options available.   An estimated 3.5 million borrowers were contacted from November 2013 to December 2013.  The campaign was focused most on loan repayment options, common mistakes, and general student loan advice.

Student Loan Counseling Tool

The Department of Education created the Student Loan Counseling Tool in 2012 to help educate borrowers who have not yet received loans, and those with existing loans.  This can greatly help those in high school who have no knowledge of how loans work, and the gravity of the situation when borrowing many thousands of dollars to pursue a degree.  The tool also provides financial planning tips, and provides an estimation of what their debt is likely to be after graduation.

Centralized Student Loan Complaint System

The Secretary of Education will create a website that will give borrowers a simplified and centralized place to file complaints about federal student loan lenders.  The borrower would be able to track the complaint and see what type of resolution would be provided to the individual complaint. The DoE would also be able to use all the data collected to evaluate the performance of the servicers.  The complaint system would be used for complaints against lenders, servicers, colleges, and collections agencies.

Do you think these new proposed ideas will help the student loan situation in our country? Leave a comment and let us know your thoughts!