We wrote in our March 2014 report about the critical importance of giving students more than one chance to succeed in college. The reality is that most students do not follow a straight line from high school to a four-year college to graduation. Many stumble along the way. Yet federal aid policies and practices hammer students who do not succeed the first time around. Draconian collection and default policies prevent individuals from getting a fresh start.
Congress has steadily eroded fresh start opportunities over the years, including the change in 2008 that limited borrowers to one opportunity to rehabilitate their loans. This is short-sighted policy that Senator Harkin proposes to change in his HEA discussion draft. The proposal is to eliminate the one-time limit and ensure that borrowers have more than one chance to rehabilitate their loans. There are other needed reforms to the rehabilitation system in the proposal, including codifying a borrower’s right to a reasonable and affordable rehabilitation payment using an income-based repayment formula. (This is now required in the regulations).
Giving borrowers more than one chance to rehabilitate their loans and tying the reasonable and affordable payment to the IBR formula are the top two recommendations in our “Provide Full Rehabilitation Relief” policy brief. Our other key recommendations are to:
1. Eliminate the requirement that guaranty agencies must sell loans in order to complete a rehabilitation (this is for FFEL loans only).
2. Ensure that collectors are counseling borrowers on the full range of options to get out of default, and
3. Provide full credit reporting benefits.
Providing a fresh start recognizes the reality that everyone makes mistakes and that not everyone succeeds the first time around. The main difference for low-income individuals is that one slip can be the end of the educational journey. There is little or no margin for error or cushion when they fall.
Giving borrowers another chance is critical not only in their individual lives, but also for society. The extreme collection powers that kick in after student loan default impede economic productivity by preventing many students from returning to school, succeeding, repaying their loans, and entering the labor force.
