Two years ago, I wrote an article that described how U.S. student loan borrowers have been relegated to second-class citizenry. Two years later, their plight appears poised to worsen.
Not only do these consumers still not benefit from…
- The protections to which they are entitled under the Truth in Lending Act
- An ability to discharge education-related debts in bankruptcy (except in extreme circumstances)
- Equal tax treatment for loan balances that are forgiven by lenders
- The option to refinance existing debts at more favorable rates and terms, as do other consumer borrowers with non-education-related debts
- Their constitutional right to a trial by jury because disputes are subject to mandatory (forced) arbitration
- A predetermined and consistently applied methodology for releasing loan co-signers and guarantors when the underlying borrowers have demonstrated their ability to shoulder their obligations without assistance
…but they stand to lose even more as the Department of Education continues to roll back protective regulations while Congress plans on curtailing the payment-relief plans that are currently in place.
Take for instance recent reports that the ED is contemplating prohibiting state governments from interceding on behalf of student-loan borrowers in their disputes with loan-servicing companies—some that are currently the subject of dozens of state investigations for abusive practices.
Another example is the Promoting Real Opportunity, Success and Prosperity through Education Reform (PROSPER) Act that’s making its way through the House of Representatives. Its sponsors propose to increase the maximum installment amounts of the financially distressed borrowers who qualify for one of the government’s income-based payment plans to 15% of income from the current 10%.
This makes no absolutely sense to me. Not only is the delinquency rate on education loans that are in repayment—which constitute roughly half the total outstanding—triple that of comparably unsecured credit card debt at this time, but raising the payment cap will surely come at the expense of other financing needs such as for houses and autos because there are only so many dollars to go around.
Now is the time for our elected leaders to get their collective heads around a simple truth: Any loan portfolio that is so profoundly troubled is one that was improperly structured to begin with, and that restructuring the whole, damned thing with longer repayment terms and reduced interest rates—while rates are still low—is the logical solution to a 1.4 trillion-dollar problem that affects more than 40 million of their constituents.