Betsy DeVos has withdrawn student loan protections which encouraged lenders to work with borrowers and help them manage their debt. The protections, which were issued by former Education Secretary John King and former Undersecretary Ted Mitchell, were outlined in a series of three memorandums. In addition to increasing oversight, the memos offered lenders incentives to prevent borrowers from defaulting on their loans.
As reported by Student Loan Hero, an estimated 44.2 million Americans owe student loan debt. On average, students who graduate with a master’s degree accumulate between $50,000 and $60,000 in student loan debt. Students who graduate with a law or medical degree owe between $140,000 and $160,00. For a majority of borrowers, student loan payments range between $200 and $300 per month.
In addition to the standard grace period, those who are unable to make the required payments have numerous options including deferment and forbearance. Lenders also offer a number of repayment plans, which include the graduated repayment plan, the level repayment plan, and the income-based plan. Unfortunately, an estimated 4 million borrowers are still unable to make the required payments and are currently in default.
— DCReport (@DCReportMedia) April 13, 2017
More than $1.4 trillion is currently owed on student loans in the United States. More than $67.5 billion of that amount is currently in default. A majority of borrowers who are in default admit they simply cannot afford to make the payments. However, some borrowers have suggested the lenders and the servicing companies are to blame.
As reported by The Washington Post, borrowers primarily complained about “poor communication, mismanaged paperwork, and delays in processing payments.” Essentially, they did not believe the servicing companies were providing them with enough information about deferment, forbearance, or repayment options.
In an effort to reduce the number of late payments and defaulted loans, former education secretary John King and former undersecretary Ted Mitchell introduced three memos outlining a series of improvements to student loan servicer operations, including their interactions with borrowers.
As stated in the memo, servicers were required to provide borrowers with “accurate, consistent, and timely information about their debt.” The memos also offered servicers incentives to reduce the number of defaulted loans.
On Tuesday, U.S. Secretary of Education Betsy DeVos withdrew all three memorandums offering protections for student loan borrowers. In a formal letter, which was addressed to Federal Student Aid Chief Operating Officer James Runcie, DeVos said the memos caused “a myriad of moving deadlines, changing requirements and a lack of consistent objectives.” Therefore, the memos were withdrawn in an attempt to avoid further “deficiencies in service.”
Americans for Financial Reform senior policy analyst Alexis Goldstein disagrees with Betsy DeVos’ assessment and her decision to withdraw the protections.
“In order to have accountability, there must be real consequences when servicers violate the law… DeVos’s actions today moves us away from true accountability, and creates dangers for the very student loan borrowers the department is responsible for protecting.”
One of the key points in the withdrawn memos was to reduce the number of defaulted loans by offering borrowers more options. According to the Government Accountability Office, an estimated 70 percent of borrowers who defaulted on their loans could have afforded their payments if they were offered “lower monthly payment through income-driven plans.” Unfortunately, the GAO determined many borrowers were unaware of that particular option.
Betsy DeVos Just Made It Harder to Pay Back Your Student Loanshttp://buff.ly/2nGFdX7 pic.twitter.com/z0o3jkp9ba
— Jason Abbate (@jasonabbate) April 13, 2017
Michele Streeter, with the Education Finance Council, said a majority of servicing companies offer borrowers all available options before declaring a default. However, some borrowers simply ignore their advice.
Streeter acknowledged that borrowers “deserve a high-quality loan servicing environment that is consistent, transparent, and fair… ” However, she said the current system needs to be streamlined to better serve the borrowers and the servicing companies.
Betsy DeVos withdrawal of the student loan protections will likely remain a point of heated controversy. However, she believes her decision is in everybody’s best interest at this time.
[Featured Image Manuel Balce Ceneta/AP Images]