“It feels like I’m being set up to fail.”
That’s how Jacob Lowry, 31, described his experience trying to repay his roughly $50,000 in student loans. Between misdirected payments by one of the companies servicing his loan and the abusive collection tactics he encountered when he fell behind, Lawry said the repayment process simply seemed stacked against him.
A 2009 graduate with a degree in media communications, Lawry is not alone in his experience. Consumer advocates say student-loan servicers often make an already heavy debt load even more burdensome for borrowers.
A 2013 survey of student loan borrowers, including 9,523 survey respondents, revealed a common complaint regarding the failure of loan servicers to explain the full array of repayment plans available (Young Invincibles, 2013). In many cases, this means borrowers don’t know they are eligible for loan relief and don’t receive it.
INCOME-DRIVEN REPAYMENT PLANS
Many borrowers who have defaulted on or are behind on repaying their student loans could benefit from income-driven repayment plans that are intended to ease pressure on distressed borrowers and keep them from defaulting on their federal loans. These plans can allow borrowers with low income and/or high debt to pay less each month, or even nothing, until their finances improve without penalization or default status.
Read More about income-driven repayment…
In the aftermath of the financial crisis, we learned repeatedly about debatable practices among mortgage companies that made it harder for homeowners trying to repay or renegotiate their loans. Now, similar horror stories are emerging about the companies servicing student loans. Among the largest companies are Navient, Great Lakes, and Discover Bank.
How Do I Know Who My Student Loan Servicer Is?
Making matters worse, borrowers are not allowed to choose their servicers, so if they encounter problems, they cannot take their business elsewhere.
FEDERAL STUDENT LOAN SERVICES
The Education Department has contracts with 11 loan servicers who manage borrowers’ accounts, process their payments and enroll them in alternative repayment plans – including those based on a fixed share of the borrowers’ income. These companies are paid by the government to manage borrower accounts, process monthly payments and enroll distressed borrowers in alternative repayment plans. But with minimal federal standards governing loan activities, student-loan servicers have great flexibility in their practices.
Jacob Lawry explained his success in reevaluating his financial student loan status, “My private lender was willing to lower the payments somewhat, but not without impacting my credit score. Without a high credit score, I would be unable to find a realtor willing to deal with me or take out other loans in the future for things such as grad school or transportation.”
COLLEGE FINANCIAL COUNSELING
Except for the few privileged colleges with massive endowments, many of the two- and four-year colleges rely on student-loan funding. Professors, staff and administrators ultimately rely on these loans for funding the tuition that pays their salaries and benefits. And yet many colleges are not providing students with substantive or mandatory personal finance instruction, especially as it relates to the economic burden they are taking on to get a college degree.
For many students, their first experience with debt is their student loan, and they simply don’t understand the consequences of this transaction, even as they take on additional loans to complete college. Far too many students only begin to clearly understand the results of their cumulative loan decisions when their loans are in repayment mode, six months after graduation. By then it may be too late.
Higher education institutions have a moral obligation to help students understand how credit and credit scores work, especially as funding their education becomes an important part of their credit history. College students often did not receive personal financial training in during their elementary and secondary education years or at home. So, as college students acquire substantial loads of debt, it would dramatically benefit colleges to provide them with the tools they need to responsibly manage debt.
In 2008, the President’s Advisory Committee on Financial Literacy recommended that the president direct the departments of treasury and education to require college students to take a much more comprehensive course in financial literacy than is currently required. Sadly, this recommendation was never acted on.
RECENT ADVANCES
Clearly, the current methods of communication to student loan borrowers aren’t working if the Consumer Financial Protection Bureau estimates that more than one in four student loan borrowers are now delinquent or in default (Mayotte, 2015). The student loan industry needs to continue to find ways to ensure that struggling borrowers know their options and understand how to obtain them.
On October 8, 2015, the Department of Education’s announcement credited a recent increase in payment-based plans, in part, to successful social media campaigns ensuring that more borrowers were aware of and used the income-driven repayment plans such as Pay as You Earn and income-based repayment (Mayotte, 2015).
The Department of Education also recently started collegescorecard.ed.gov, an online tool to eliminate some of the confusion about college costs and benefits for families with children in college. Colleges are required to post on the site net price calculators to help families estimate costs based on income and other circumstances. But experts say many families are foundering. It’s time to pay the students back.
CALL TO ACTION
It seems as though college affordability has finally begun to attract the attention it deserves, regardless of whether or not the issue is just another tactic to attract swing voters in the upcoming election. As students and stakeholders in this issue, it is our responsibility to not only advocate but to keep in mind how the repercussions of our actions, and sometimes our lack of action, will impact generations to come.
It is unlikely that any one person will have the perfect solution to ease the financial stress that comes with paying for college, especially for those in the lower and middle classes of our society. At the very least, we can continue to discuss with our peers, teachers and world leaders to progress toward a solution rather than drown in our own complacency
Resources
Borrowers in Distress. (2013 May 8) Young Invincibles. http://younginvincibles.org/wp-content/uploads/2013/05/Borrower-in-Distress-5.8.13.pdf
Erdley, D. (2015, Oct 10) Retrieved 10/11/15 from http://triblive.com/news/westmoreland/9218142-74/college-aid-financial#ixzz3oPwmpzzr
Mayotte, B. (2015 Oct 7) US News. Retrieved 10/11/15 from http://www.usnews.com/education/blogs/student-loan-ranger/2015/10/07/falling-student-loan-default-rates-still-challenge-borrowers
M. Lindsay Brown 
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