2012 is almost over and it’s time for our annual “look back” at the year that was. Student loan issues were a hot topic this year. Much of the attention centered on legislation this summer that temporarily prevented student loan interest rates from doubling. The legislation continued the 3.4% fixed interest rate for Direct subsidized loans made to undergraduate students through June 30, 2013.
This stopgap measure came at a cost, paid for in part by new restrictions on eligibility. In any case, the interest rate debate was largely a distraction from the most difficult issues facing policymakers, borrowers, and advocates, including:
1. Collection Agency Abuses: The profiteering and abuses of collection agencies finally received much deserved attention this year, including articles in Bloomberg and the Washington Monthly. An NCLC report highlighted problems with current collection agency complaint systems.
The Consumer Financial Protection Bureau shed light on problems with servicers and collectors, including the impact on military service members.
2. Department of Education regulatory changes. The Department of Education negotiated rulemaking process resulted in some positive improvements to the loan rehabilitation process, particularly with respect to reasonable and affordable payment plans. However, the Department has yet to issue proposed regulations on this topic.
The Department did issue final regulations that should lead to improvements in the income-based repayment program and the disability discharge program. In addition, the Administration announced that it will implement the “Pay as you Earn” program early, starting on December 21, 2012.
3. The for-profit school industry. The U.S. Senate Health, Education, Labor and Pensions Committee issued a thorough report on its investigation of the for-profit school industry. It was a big year for the for-profit industry as the business model began to sag due to regulatory pressure and the poor outcomes at so many of these schools. The industry did, however, succeed in halting implementation of the Department’s gainful employment regulations, at least for now.
4. Private student loans. The Consumer Financial Protection Bureau issued a comprehensive report on private student loans in July 2012 and recently released guidelines for examination. The U.S. Senate Banking Committee held hearings on the private student loan industry and lack of relief for borrowers (See NCLC’s testimony at this hearing).
5. Bankruptcy relief. Despite increased support for bankruptcy relief and yet another congressional hearing on the topic, Congress yet again failed to restore bankruptcy rights for borrowers.
6. Relief for borrowers in default on student loans. In July, NCLC released a report focusing on the reasons why federal student loan borrowers default. The report included results from surveys of borrowers about why they believed their student loans went into default. We plan to expand on the recommendations outlined in the report as Congress gears up for reauthorization of the Higher Education Act in 2013.
Change will occur not only through policy reform, but also through improved implementation of existing programs for borrowers. This is a huge hurdle and there is much work to do. We will continue to provide examples of bureaucratic hurdles and suggestions for reform during the new year and beyond. We urge borrowers to share your stories and let us know your experiences.
The election is over and it’s time to focus on providing relief for borrowers and improving the student aid programs to help promote more equal access to higher education (see our recent post).
Current federal policy hammers student borrowers who get behind on their loans. These policies are particularly short-sighted in that they prevent many individuals from going back to school. Many of our clients come to us because they want to go back to school and improve their employment prospects. Current policies reserve the worst punishment for these borrowers–incentivizing collection agencies to mislead borrowers about their options, denying borrowers opportunities to get out of default and back in school, seizing wages and tax refunds administratively and otherwise barring individuals from a fresh start.
We need to reset our policy priorities so that these borrowers are given the opportunity for a fresh start, to finish school, and hopefully climb the economic ladder.
We are taking a short holiday break and will be back early in 2013.