There is a lot of good news for borrowers in the President’s Student Aid Bill of Rights memorandum. Combined with the recent cancellation of a number of government debt collection agency contracts, the President is showing that his Administration is serious about helping struggling student loan borrowers. The reforms announced today are a positive step for borrowers, but there is still much more to be done. Among other things, we need a lot more information about many of the action items announced today. In some cases, the Administration is setting deadlines far into the future for actions that the Department of Education should already be doing. We hope that the Department of Education and other federal agencies understand this sense of urgency and will move quickly (more quickly than the extended deadlines in the memo), particularly to implement the most important reforms for borrowers in financial distress.
The highlights of the President’s memo are summarized in this fact sheet. Key requirements include:
1. New complaint system. The Secretary of Education is required to develop and implement a simple process for borrowers to file complaints by July 1, 2016. The Department will be required to provide data from the complaint system to other enforcement agencies and by October 1, 2017, publish a report summarizing and analyzing the system, including resolution of complaints.
As we wrote in our reports about problems with the debt collection agency complaint system, a responsive and transparent complaint system cannot eliminate all the problems in the current collection system, but it is an important step in restoring the balance between borrower rights and a draconian collection system.
2. Higher standards for servicing. The required actions in the memo mainly relate to better disclosures. However, the memo also refers to strengthened consumer protections. We are eager to hear more about this. As we have repeatedly said, the government must move beyond focusing exclusively on contract incentives and create a clear and enforceable set of borrower rights AND engage in oversight so that servicers that do not comply with their responsibilities face real consequences. Enforceable rights mean both public and private enforcement. We call this “putting some teeth” in student loan servicing reform. We want to hear more about the teeth in this new announcement.
3. Process for raising defenses to repayment. By October 1, 2015, the Secretary of Education in consultation with the Secretary of Treasury and the Director of the CFPB, must issue a report on whether changes are needed to current law allowing borrowers to raise defenses to repayment. This too is a positive step, but this provision has been on the books for years and we urge the Department to act quickly to describe and implement this process. Further, the Department should use all of its tools (including loan cancellations) to provide relief for borrowers, particularly those harmed by abusive for-profit school practices.
4. Streamline income-driven repayment. Reforms include a required report due by October 1, 2015 about the feasibility of developing a system to give borrowers the opportunity to authorize the I.R.S. to release income information for multiple years to automatically determine income driven repayment plan payments. This is critical and among other things should help borrowers as they face annual income-driven repayment plan certification.
5. Improve communication with borrowers. The Department is required to find new and better ways to communicate with borrowers (by January 1, 2016), particularly borrowers in late stage delinquency.
6. Single portal for loan information. As soon as practicable, the Department must create a central location (or portal) that borrowers can use to get information regardless of the specific servicer. We have repeatedly called for this change and believe it will help reduce borrower confusion. We strongly support the Administration for making this a priority.
7. Improve the debt collection process. By July 1, 2015, the Department must implement actions to improve the debt collection process focusing on creating a fair and transparent process that charges reasonable fees and effectively assists borrowers. By January 1, 2015, the Secretary is also required to publish a quarterly performance report on debt collection agency contractors including data separated by contractor.
We urge the Department to use this opportunity to evaluate the entire debt collection system, particularly the ways in which private debt collectors are incentivized to violate borrower rights and ignore the law. While it is essential to ensure that collectors are complying with existing laws, we still have serious concerns about the Department’s use of private debt collectors. As we wrote in a 2010 New America post calling for the elimination of private debt collection agency involvement in collecting federal student loans, the use of private debt collectors “,,,, has been a disaster for financially distressed borrowers who are desperate for help. Dispute resolution is, obviously, not the primary mission of loan collection agencies. Debt collectors are not adequately trained to understand and administer the complex borrower rights available under the Higher Education Act, and the government does not provide sufficient oversight of their activities.” We call on the Department to ultimately eliminate the use of private collection agencies.
8. Protect Social Security Benefits for Borrowers with Disabilities. The Department is required to specify a process to stop collection against borrowers receiving SSDI so that these borrowers may be referred to the disability discharge process. This is a critical change for some of the most vulnerable borrowers and should be implemented immediately. We have been calling for this reform for some time.
9. Debt Collection Pilot Program. By July 1, 2016, the Secretary of Treasury in consultation with the Secretary of Education is required to report on the intial findings of an ongoing pilot program to test ways to improve the debt collection process. The new pilot program at the Department of Treasury is a great opportunity to test different models with the goal of understanding how to collect money when appropriate AND inform and counsel borrowers about the full range of available options.
10. Provide clarity on the rights of borrowers in bankruptcy. The Department is required to issue information by July 1, 2015 highlighting factors courts have used in determining undue hardship in bankruptcy. We need a lot more information on this item. At a minimum, we urge the Department to take simple, but necessary, steps to prohibit its bankruptcy contractor from using the current over-the-top hardball tactics.
It is clear from the action today and other recent actions that the Administration cares deeply about student loan borrowers and the burdens of student loan debt, but there is much more work to do. We urge the Administration to take this opportunity to affirm that as Senator Elizabeth Warren recently wrote, “It is not the job of the Department of Education to maximize profits for the government at the cost of squeezing students who are struggling to get an education.” We look forward to seeing more announcements and reforms and change…The time is now.
