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Obama Signs Student Aid Bill of Rights

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President Barack Obama introduced Tuesday his Student Aid Bill of Rights, which would create a new complaint system for student borrowers, introduce new measures to ease loan repayment and boost federal research on student borrowing.

But the measure is already being criticized for what it doesn’t include: measures to prevent students from “over-borrowing” because college tuition rates remain sky-high, according to the Manhattan Institute for Policy Research.

The administration announced Tuesday that Obama had 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” via three measures: a state-of-the-art complaint system to ensure quality service and accountability for the Department of Education, its contractors, and colleges; a series of steps to help students responsibly repay their loans, including help setting affordable monthly payments; and new steps to analyze student debt trends and recommend legislative and regulatory changes.

The administration also released on Tuesday state-by-state data showing the outstanding federal student loan balance and total number of federal student loan borrowers who stand to benefit from the Bill of Rights. The administration notes that more than 70% of those earning a bachelor’s degree graduate with debt, which averages $28,400 at public and nonprofit colleges.

Education Secretary Arne Duncan is being directed to create by July 1 a website to give students and borrowers a “simple and straightforward way” to file complaints and provide feedback about federal student loan lenders, servicers, collections agencies and institutions of higher education.

The administration is also mulling new requirements for private and federally guaranteed student loans, giving the more than 40 million Americans with student loans additional “basic rights and protections.”

To this end, Obama has directed his Cabinet and White House advisors, working with the Consumer Financial Protection Bureau, to study whether consumer protections recently applied to mortgages and credit cards, such as notice and grace periods after loans are transferred among lenders and a requirement that lenders confirm balances to allow borrowers to pay off the loan, should also be afforded to student loan borrowers and to improve the quality of servicing for all types of student loans. 

The agencies are charged with developing recommendations for regulatory and legislative changes for all student loan borrowers, including possible changes to the treatment of loans in bankruptcy proceedings and when they were borrowed under fraudulent circumstances.

Obama is speaking Tuesday afternoon at Georgia Tech about the package.

Rep. John Delaney, D-Md., introduced legislation on Jan. 22 to allow student debt to be discharged in bankruptcy. Delaney’s bill, the Discharge Student Loans in Bankruptcy Act, H.R. 449, addresses what Delaney sees as a “huge student loan loophole in bankruptcy law that’s hurting real people.”

Judah Bellin, associate editor at the Manhattan Institute in New York, argues that while Obama’s new Student Aid Bill of Rights will “help students manage existing debt,” the measure “won’t prevent students from over-borrowing, because it doesn’t address the cause of rising debt: the unimpeded growth of tuition.” Bellin notes that colleges have “little incentive to keep tuition down [because] the federal government ties loan awards to a student’s cost of attending a particular college. So colleges can raise tuition knowing that the federal government will make up the difference.” Unless that incentive changes, he says, “student loan debt will remain a problem.”

Obama noted in his State of the Union speech that one of his goals is to help students reduce their college debt load by making community college free, and that he also wants to work with the new Congress “to make sure those already burdened with student loans can reduce their monthly payments.”

Included under the Bill of Rights are two ways Obama has offered to lower students’ debt load — eliminating the tax on student loan debt forgiveness under Pay-As-You-Earn (PAYE) and other income-based repayment programs, and replacing the complicated student loan interest deduction for new borrowers with “more generous and more targeted tax relief” through other programs.

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