With student debt playing a prominent role in the 2016 presidential campaign, the Obama administration is taking several steps to ease borrowers’ repayment burdens.
This week the Education Department is expected to publish a proposed rule that would expand and remake Pay as You Earn, the most generous of the income-based repayment plans for student loans. The rule, which a panel of negotiators agreed on in April, would also make it easier for borrowers in the military to receive an interest-rate reduction on their student loans. (It’s a benefit that some student-loan servicers continue to deny to borrowers, according to a report released on Tuesday by the Consumer Financial Protection Bureau.)
The department is also putting in place pieces of President Obama’s Student Aid Bill of Rights, which was released in March. The “bill,” and an accompanying memorandum, directed the department to “ensure that the debt-collection process for defaulted federal student loans is fair [and] transparent, charges reasonable fees,” and “effectively assists borrowers in meeting their obligations and returning to good standing.” It also required the department to identify borrowers who may qualify for a loan discharge on the basis of a “total and permanent disability.”
In response, the department has changed how collection agencies are compensated and issued new guidance to its debt collectors, officials said in a news release on Tuesday. The agency is also in the process of revising its debt-collection contracts “to ensure the proper balance between the interests of the borrower and of the taxpayer,” the release said.
Those changes came four months after the department announced that it was cutting ties with five private collection agencies that it said had provided inaccurate information to student-loan borrowers. In Tuesday’s news release, department officials said the changes in its compensation plan would “ensure that borrowers receive the best advice about how to get a loan out of default,” while the new guidance to debt collectors would “ensure they are providing borrowers with accurate information.”
Starting next year, the department and the Social Security Administration will conduct periodic data matches to identify borrowers who may be eligible for a disability discharge. The two agencies are also working on ways to identify borrowers who receive disability benefits and might benefit from income-based repayment.
Finally, the department has issued a Dear Colleague letter advising loan guarantors and colleges with outstanding Perkins and bank-based loans on how to respond to “undue hardship” claims by borrowers who are seeking to have their loans discharged through bankruptcy. The guidance, which mirrors the department’s practice for direct loans, describes a two-step process that guarantors and colleges should use to determine whether to challenge such claims.