Student loan debt has reached crushing levels in America, topping $1 trillion with some estimates as high as $1.32 trillion. Many economists expect this level of debt to set back the current generation’s ability to maintain a decent standard of living for themselves and their future families — much less buy a home and spur the economy forward through consumerism.
The White House is attempting to refocus efforts on helping students out of their debt situation by addressing all sides of the problem — making quality education more affordable, increasing access to aid, and making loan repayment processes as painless as possible. A platform called the Student Aid Bill of Rights was recently announced by the President to address all those issues.
The four principles of the Student Aid Bill of Rights states that “every student in America should”:
- “Have Access to a High-Quality, Affordable Higher Education” – President Obama has already taken steps in this area with his January proposal for a free two years of community college for students that meet a particular criteria, with an emphasis on needed workforce skills.
Meanwhile, the Department of Education is working on an impartial ratings system to help students and parents determine a particular college’s value, while awarding $75 million in First in the World (FITW) grants to colleges to develop innovative approaches to improve education while cutting costs.
- “Be Able to Easily Find the Resources They Need to Pay for College” – For the 2014-2015 school year, the maximum Pell Grant for students in need was raised to $5,730. It will rise to $5,775 for the 2015-2016 academic year.
The administration believes that Pell Grants often go unclaimed because students and parents are stymied by the complex Free Application for Federal Student Aid (FAFSA) form and has proposed shortening and simplifying the form. Congress is considering similar efforts, so keep tabs on what passes through the Congress for the upcoming FAFSA season.
- “Be Able to Choose an Affordable Repayment Plan for Student Loans” – Students attempting to modify their student loan terms can apply for an income-driven repayment plan to reduce monthly payments. Last year, the President modified one of those programs, the Pay As You Earn Plan, that caps payments at 10% of discretionary income, to make it available to all Direct Student Loan borrowers. Other modifications are being discussed to ease the collective student loan burden, but specifics are not yet available.
- “Receive Quality Customer Service, Reliable Information, and Fair Treatment When Repaying Loans” – In 2010, student loans were centralized through the Direct Loan program replacing subsidies to banks. Contract awards to lenders are now adjusted based on customer survey results, and the new announcement tasks the Department of Education to put together a centralized database for loan complaints against lenders and/or schools by the end of June 2016. They are also planning a single portal to find out loan and payment information regardless of the institution holding the loan.
Another proposed change allows students that are paying off extra toward their loan to direct the extra payment toward the highest-interest loan unless the borrower asks otherwise. As it stands, the banks do not have to apportion extra payments that way (and they won’t).
Keep in mind that this effort is a proposal, not a bill signed into law. Many of these issues will need some legislative backing — a tall order in the current environment. Students and parents should keep an eye on how many of these efforts become law and how many of the initiatives that do not require legislation (like the ratings or centralized complaint systems) come to pass.
We do not think anyone will disagree with the basic principles of the Student Aid Bill of Rights. The argument, as always, will be what means are taken to achieve them.