Government to switch to 1 student debt servicing company

Angie Massey
May 20, 2017

Peters also introduced the Federal Adjustment in Reporting Student Credit Act, which would allow private student loan borrowers who have successfully completed a series of on-time payments to remove the student loan default from their credit reports. Many teachers, public defenders, Peace Corps workers, and law enforcement officers fit the qualifications.

Officials at the CFPB say the government should reexamine whether the loan program, and the lucrative contracts it bestows on private firms, is working for the millions of Americans struggling to repay their taxpayer-backed student debt.

A lot of people who went to grad school, or who are at least thinking about it, are going to be extremely unhappy if not outright panicked when the Trump administration releases its first detailed budget next week. Congress would have to approve the department's proposed changes for them to take effect. It may also be the last time, as the Trump administration is reportedly targeting this and other Department of Education repayment programs for elimination.

The Department of Education did not respond to CNNMoney's requests for comment, and "had no immediate comment" for the Washington Post.

So people who planned their financial lives around this program may not need to hyperventilate.

It allowed students to have the remainder of their federal education loans waived after 10 years of making payments. NCHER President James Bergeron said the feds need to simplify the various repayment plans they offer and "do a better job" helping previously defaulted borrowers get into repayment plans.

Education Secretary Betsy DeVos has said little on the issue of student debt. As promised in the "skinny budget", the Federal Supplemental Educational Opportunity Grant would be eliminated, while TRIO and Gear Up programs, which help disadvantaged students in middle and high schools prepare for college, would sustain almost $200million in cuts.

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Data in the report is based on responses from loan servicers who assist borrowers in rehabilitating their loans from default and enrollment in income-driven repayment plans. In fact, those borrowers already feel in limbo, as a current lawsuit accuses the Department of Education of changing its mind about whether certain types of jobs qualify for forgiveness. The Education Department, which rewards its loan servicers with more business if the loans they service remain in good standing, excludes rehabilitated loans when grading its servicers' performance.

"The changes will certainly increase profits for the industry, but will do nothing to tame the high levels of default in the program", said Rohit Chopra, senior fellow at the Consumer Federation of America and former CFPB assistant director.

The consumer bureau estimates that the vast majority of borrowers who rehabilitate their defaulted debt with $5 monthly payments are eligible for $0 payments after they exit default, under an income-based repayment plan. The option to enroll in different payment plans that may lower monthly payments is invaluable to borrowers who can't afford standard repayment amounts. Signing up for that repayment plan alone requires submitting information about your income each year - a process which can take weeks and temporarily stop the clock on your 10 years of payments.

The program could cost the government more than originally expected, according to the Government Accountability Office. In 2015, the Obama administration proposed capping the amount of debt that could be forgiven at the federal loan limit for undergraduates, or $57,500.

The proposal would also revamp how much graduate students pay: Instead of 10% for their income for 25 years, they would pay 12.5% for 30 years, according to the Post.

"With student debt hanging over them, it might not be be financially possible for recent grads to commit to public service careers", he said.

Other reports by GizPress

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