It’s been two weeks since the election, and there’s still much uncertainty about what the consequences of the election will be for student loan borrowers. While Hillary Clinton had mapped out a series of student loan reform proposals, Donald Trump has been far less specific about how he plans to deal with the $1.4 trillion in outstanding student debt.
In this time of uncertainty, and in keeping with the upcoming Thanksgiving holiday, I think it’s a good time to take stock of what we have and be grateful. If you follow this blog, you know that I frequently write about problems and deficiencies with the the student loan system. And for good reason – student loans are a mess, with inefficient servicing, damaging debt collection, and the potential for life-altering negative consequences for borrowers. There’s a lot to be angry about, and a lot that should change.
But, there are also good elements of the student loan system – programs and laws that keep people in good standing, allow them to repay their loans fairly, and protect them from abuses. As we press forward into this period of change and uncertainty, we may have to do some hard work to preserve what we have.
Income-driven repayment plans like Income-Based Repayment (IBR), Pay As You Earn (PAYE), and Revised Pay As You Earn (REPAYE) aren’t luxuries. They are lifelines for millions of borrowers struggling to repay their student loans, and these plans are sometimes the only affordable repayment options. Without these plans and the protections that they provide, millions of borrowers will go into default. Income-driven repayment may be altered, and it needs to be improved. But above all, it must be preserved.
Fair Credit Reporting Laws
Credit reports have become an integral part of our society. They are not just used when you want to apply for a new credit card or buy a home. They are increasingly used for job and rental applications – and negative credit reporting can prevent people from getting a job or an apartment, effectively locking them in poverty. But laws such as the Fair Credit Reporting Act (FCRA) protect borrowers from mistakes and abuses by lenders and credit bureaus. The FCRA provides people with the right to view their credit reports and dispute errors. If the errors are not fixed, the FCRA gives people the right to sue. The FCRA also mandates that most negative information be removed from a consumer credit report after a period of time, so that people are not forever haunted by a past mistake or a stroke of bad luck.
Fair Debt Collection Laws
Lenders have the legal right to pursue borrowers who have not repaid their debts. But they have to follow certain laws; consumers are protected from abusive behavior by debt collectors. For example, debt collectors cannot harass people with a barrage of phone calls at all hours of the day; they cannot lie or misrepresent the debt or the rights of the borrower; and they cannot publicly shame debtors by talking to family members, neighbors, or coworkers about the debt. Laws such as the federal Fair Debt Collection Practices Act (FDCPA) and state consumer protection laws (including strong statutes here in Massachusetts and in New York) prohibit egregious behaviors by debt collectors and give consumers a basis to “bite back” through litigation when they violate the law.
Default Resolution Programs
As bad as federal student loan default is, it’s not necessarily permanent. That’s because federal law provides paths for borrower to resolve their defaults and return to good standing. For example, borrowers can rehabilitate their defaulted federal student loans through a temporary payment plan tied to their income. Or in some cases, they can consolidate their federal loans to get out of default, or even settle. People sometimes have bad luck or make mistakes – that is the reality of life. Giving people a second shot at succeeding is not only fair, it’s also good for the system and for the economy.
Student Loan Forgiveness
The word “forgiveness” is quickly becoming a dirty word. What people don’t realize is that for most student loan forgiveness programs, borrowers must be in repayment for a very long time. For example, to get loan forgiveness under IBR, PAYE, and REPAYE, borrowers must repay their loans for 20 or 25 years, depending on the plan. Borrowers who get their loans forgiven under certain profession-based programs (such as Teacher Loan Forgiveness and Public Service Loan Forgiveness) may be in repayment for comparatively less time, but they still have to be in repayment, and the trade-off is usually lower-paying, high-need jobs that typically require an advanced degree.
Student loans do not have the same bankruptcy protections as every other form of consumer debt. You can accumulate an enormous amount of credit card debt or even gambling debt, but get it discharged in bankruptcy. Not necessarily true for student loans. So without a loan forgiveness safety net, borrowers could be trapped in debt for the rest of their lives, unable to ever fully participate and contribute to society. We must preserve this light at the end of the tunnel.
Death and Disability Discharge
If you die or become disabled, should your spouse or children be responsible for your student debt? Under federal law, the answer is no (at least for federal student loans). We decided long ago that family members should not have to suffer the consequences of federal student loan debt when the borrower dies or becomes disabled (and can therefore no longer pay). We need to preserve the death and disability discharges to prevent families from being collectively punished by student debt.
Protections for Defrauded Borrowers
We also have student loan relief provisions for situations where schools engage in particularly harmful conduct – for example, if a school closes and prevents the student from completing their degree, or if the school engages in fraud or material misrepresentations. Schools who actively violate the law should not get away scot-free while saddling their students with debt they’ll never be able to repay, and in fact some of the newest regulations mandate that schools under investigation have enough financial resources to pay for possible future student loan relief (so the taxpayer doesn’t have to foot the bill). These laws are designed to reverse the harm caused to borrowers by illegal school practices, and they provide a strong disincentive for schools to defraud their students.