Business & Money

Will new student loan debt program really help?

By Nisa Islam Muhammad -Staff Writer- | Last updated: Apr 1, 2015 - 11:33:53 AM

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WASHINGTON ( - As parents and college seniors prepare for graduation and life after college, student loan debt is quite likely on their list of concerns.  And it should be.  Student loan debt has surpassed credit card debt and risen to the number two debt Americans have behind a mortgage. 

Research shows more than 70 percent of college graduates have student loan debt with significant numbers of this debt in default especially if the student went to a for profit institution.

Student loan debt cannot be discharged through bankruptcy, it can adversely affect credit, deducted from tax returns until the debt is satisfied and debt collectors will pursue debtors incessantly.

Many of the horrors associated with student loan debt may change with President Obama’s new Student Aid Bill of Rights he introduced at Georgia State Institute of Technology, March 10.

“Higher education has never been more important, but it’s also never been more expensive. The average undergrad who borrows money to pay for college graduates with about $28,000 in student loan debt. That’s just the average; some students end up with a lot more than that—you know who you are,” he said.

“We’re creating a way for you to ask questions about your loans, file a complaint, cut through the bureaucracy, get a faster response. That’s not just from the government, that’s also from the contractors who sometimes service your loans. We’re going to require that the businesses that service your loans provide clear information about how much you owe, what your options are for repaying it, and if you’re falling behind, help you get back in good standing with reasonable fees on a reasonable timeline.”

The Student Aid Bill of Rights includes the following:

I. Every student deserves access to a quality, affordable education at a college that’s cutting costs and increasing learning.  

II. Every student should be able to access the resources needed to pay for college.

III. Every borrower has the right to an affordable repayment plan.

IV. And every borrower has the right to quality customer service, reliable information, and fair treatment, even if they struggle to repay their loans.

The President signed a Presidential Memorandum directing the Department of Education and other federal agencies to work across the federal government to do more to help borrowers afford their monthly loan payments including:

(1) a state-of-the-art complaint system to ensure quality service and accountability for the Department of Education, its contractors, and colleges, (2) a series of steps to help students responsibly repay their loans including help setting affordable monthly payments, and (3) new steps to analyze student debt trends and recommend legislative and regulatory changes.

Leslie Parrish, deputy director of research at the Center for Responsible Lending welcomes the changes, “Faulty and inaccurate communications are all too common traits among the companies that now service more than $1 trillion of student debt. There is a lack of basic protections and information about repayment options and a record of poor treatment for those struggling to make monthly payments.”

“The Department of Education must look to improve communication with student loan servicers; require better information about loan repayment options and develop systems that will provide rapid and real relief for people struggling under the burden of student debt. We urge the Department to enact these changes as swiftly and comprehensively as possible.”

But not everyone is welcoming these changes.

Jeffrey Dorfman, an economics professor at the University of Georgia wrote for Forbes Magazine, “The problem with this supposed bill of rights is that nothing in it will have any impact on the true cost of a college education. Rather, it is mostly about shifting the costs onto others.”

“If one reads the first three points, they suggest that somebody unnamed should subsidize college so that it is affordable for all, that resources should be available from some unnamed source to pay for college, and that the priority for any student loan payments be affordability not actually paying back what is owed. All of these points focus the issue of affordability onto making somebody else pay.”

He proposes that students find other ways to pay for college such as:  attending an in-state public college rather than a (likely much more expensive) private one, to work part-time while attending college, even to live at home while doing your first two years at a community college or other less expensive local option and then transferring to a better college for your final two years.