The White House, along with the Consumer Financial Protection Bureau, wants to help student loan borrowers get some relief. More specifically they want to get more borrowers who are late on payments or in default enrolled in one of several debt repayment plans.
To that end, Education Secretary John King and CFPB Director Richard Cordray announced this week two new initiatives to help struggling borrowers of federal student students find a repayment option that works for them.
One in four of the 43 million student loan borrowers are delinquent on their loan payments or in default, said Richard Cordray, director of the CFPB, and 70% of those borrowers would qualify for a lower monthly payment under government repayment plans, according to the GAO. But currently just under 5 million are enrolled in repayment plans, including the Pay as You Earn plan, which caps monthly payments at 10% of income, said Education Secretary John King. He wants two million more borrowers enrolled in those easier payment plans “by this time next year,” said King.
King announced a new website StudentLoans.gov/repay that helps students find the best repayment option and said the Education Department is working on a one-stop shop where borrowers can more easily manage their loan payments. “What’s clear, based on our analysis, is that there are student borrowers out there today who could benefit from income-based repayment and haven’t yet taken advantage, said King, in response to a question. “We want to make sure that they get the information they need.”
Cordray of the CFPB announced the Payback Playbook, which will allow borrowers to compare different repayment plans to the standard 10-year fixed payment plan. “Borrowers have the right to choose among different plans, but they first need to know what their options are,” said Cordray. They also need accurate information from loan servicers about account features, loan terms and borrower protection.”
The playbook is currently available online in draft form. It includes the Pay as You Earn plan, which extends the loan to 20 years and bases payments on a borrower’s income, and a graduated payment plan, which increases monthly payments over a 10-year period. The CFB is asking for suggestions from the public about how to make the site more informative and easier to use.
The latest announcements from the Department of Education and the CFPB are part of a broader effort by the White House to make college more affordable and accessible while also addressing the growing burden of student debt, which totals $1.3 trillion, more than total credit card debt.
During the Obama presidency, commercial banks have been forced out of the federal student loan market, Pell Grant maximums have been increased and The American Opportunity Tax Credit, giving families up to $10,000 over four years of college, was created. In addition, the White House developed a Student Aid Bill of Rights as well as repayment programs linked to income. As a result of another administration initiative, college students and their families will be able to fill out the Free Application for Federal Student Aid (FAFSA) in October instead of January, which could increase the odds of receiving financial aid.
“Higher education is the single best investment we can make in our futures, and student loans help to make it affordable,” said King, who is still paying off his graduate school loans. “If you work full time, a bachelor’s degree will help you earn over $1 million more over your lifetime than if you just completed high school.”
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