Message to people wondering how they are ever going to handle all their student loans: Be tough. Pay up. Don’t expect the federal government to play Mr. Nice Guy.
In a surprising twist after a presidential election in which young adults pleaded for relief from $1.3 trillion in student loans, the Trump administration doesn’t look like it’s going to coddle federal student loan borrowers. In fact, it’s rolling back Obama-era reforms that would have made it easier on borrowers.
The U.S. Department of Education under Obama had discovered through numerous studies that people with student loans were getting awful service – even incorrect information – when they called student loan call centers to find out what to do with their loans. Reforms, which were outlined but not yet implemented, were supposed to fix the problems.
Among the problems: Student loan call centers not answering phone calls from borrowers at convenient times, not telling borrowers how to make payments they could afford, and not warning borrowers about extra fees. Instead of providing customer service, the staff taking borrower calls often simply shoved them through the system, according to the studies. Borrowers reportedly were pushed into skipping payments instead of being told how to handle their obligations.
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In frustration, many borrowers have been giving up and walking away from their student loans without paying anything. Studies claim this is a significant driver of defaults, and a burden for taxpayers. About $137.4 billion in federal loans are now in default.
Yet, with a new administration in charge of student loans, the reforms aimed at curing those ills were aborted in a memo this past week from Secretary of Education Betsy DeVos. What she plans to do instead of the reforms isn’t clear. The department didn’t respond to my request for more information. But consumer advocates are worried that she will allow old practices to continue and leave student loan borrowers without the help needed to avoid defaults.
Illinois Attorney General Lisa Madigan’s take on the change is: “The Department of Education has decided it does not need to protect student loan borrowers.”
Madigan has been among those calling for reforms for years. Besides consumer groups, the Government Accountability Office and Consumer Financial Protection Bureau have conducted detailed studies faulting the Department of Education for not policing the private companies, known as loan servicers, it hires to collect loan payments and answer calls from student borrowers.
Madigan’s office is suing one of the largest companies with a government contract, Navient Corp., descended from Sallie Mae.
The suit claims that instead of serving 12 million borrowers with $300 billion in student loans and helping them onto the right track for paying their loans, Navient incentivizes its employees to get rid of callers quickly.
The complaint says: “Instead of taking more time to discuss other options with borrowers, such as income-driven repayment plans, Navient saved itself money and cost borrowers millions of dollars in added interest on their loans. … They repeatedly misled borrowers about their options to bring their loans current.”
Under the Obama-era reforms the suit would have been important if Illinois won the case. The reforms required that the Department of Education consider the track records of servicers they hire. But with the DeVos memo to abandon those reforms, consumer advocates are wondering if track records will be considered.
“Only time will tell if the government is on the side of borrowers or servicing companies,” said Rohit Chopra, a fellow of the Consumer Federation of America. He has been a critic of past practices. The system, he said, has been “working well for the student loan industry and failing borrowers, taxpayers and the economy.”
Navient is not the only servicer that has been criticized in student loan servicing studies, but it is among the largest. The Consumer Federation of America said government data suggest Navient has had a poor track record on getting students into affordable payment plans.
Navient spokeswoman Patricia Nash Christel said that the company has been effective in putting borrowers into affordable plans. In response to the Illinois suit, Christel said the company “will vigorously defend against these false allegations and continue to help our customers achieve financial success.”
With reforms now on hold and the future unclear, borrowers may continue to face inattentive staff and even inaccurate information if they are struggling with their loans. Chopra said it’s important for people with student loans to understand that they can get their monthly payments reduced if their incomes are too low to handle full payments. Read about income based repayment plans here: www.tinyurl.com/q8u77e2.
A study by the GAO in 2015 said that half of people making their student loan payments would have qualified to pay less under government rules that take income into account. But only 13 percent of the borrowers knew to ask for the lower payments. Whether your servicer helps you or not, use this form to apply for affordable payments: www.tinyurl.com/m5e6hrk. Beware of private firms offering to help you get loan payments reduced. There are a lot of predators taking advantage of borrower confusion.
Gail MarksJarvis is a personal finance columnist for the Chicago Tribune and author of “Saving for Retirement Without Living Like a Pauper or Winning the Lottery.” Readers may send her email at firstname.lastname@example.org.