The Brainless No-Brainer Fix to the Student Loan Problem

You know what they say about opinions, right? Well, the same can be said about so-called no-brainer fixes to the student loan problem, as a recent Bloomberg.com article illustrates.

This particular “fix” has to do with the 57% of federal student loan borrowers who were drop-kicked out of the government’s various income-based repayment (IBR) plans in 2015 because they failed to file their income-verification paperwork on time.

According to the Obama Administration and the departments of Treasury and Education (and that post on Bloomberg.com), the process needs streamlining. How? By permitting borrowers to authorize the Internal Revenue Service to share their tax return data with the private-sector companies that administer their government-backed student loans.

Hang on…

Aren’t we talking about the same administrators that the government had called out for loan-servicing malfeasance?

Hmmm.

And what about requalification as a concept? Why is there even such a thing when loan restructures—which is what we’re talking about here because interest rates and principal balances remain unchanged—are typically a once-and-done affair?

Yes, I know that income-based repayment is income specific. But if we are to take the ED at its word when it says that IBR is the key to achieving a “zero default rate among student loan borrowers,” and if this type of relief plan accomplishes this by extending repayment terms to as long as 20 years’ time — twice the duration of the standard student loan agreement — wouldn’t doubling the remaining term of any student loan yield the same result?

According to the Federal Reserve Bank of New York’s August 2016 report on consumer credit, 11.1% of all student loans are 90 or more days past due. Well, since roughly half of all these loans are actually in repayment (the balance is deferred because the borrowers are still in school), that means that more than 20% of the loans that are “live” are, technically speaking, in default.

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Mitchell D. Weiss

Mitchell D. Weiss is a financial services industry executive and entrepreneur. He is also an Executive-in-Residence at the University of Hartford, co-founder of the university’s Center for Personal Financial Responsibility and adjunct faculty at Rutgers University. His most recent text, Practical Finance - A Straightforward Guide to Personal and Entrepreneurial Finance, is the basis for the course he teaches at both institutions.

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