Major Wins on Outreach and Rules for Struggling Borrowers; Other News

Win #1: Education Department Kicks Off IBR Outreach Campaign
Win #2: New Rules Strengthen Protections for Distressed Federal Loan Borrowers
Concerns About “Pay It Forward”
TICAS VP Explains How to Simplify the FAFSA at Federal Commission Meeting
CFPB Report Analyzes Private Loan Complaints


Win #1: Education Department Kicks Off IBR Outreach Campaign

This month the U.S. Department of Education launched a much-needed outreach campaign to tell struggling borrowers about IBR and related programs. Email messages are going to about 3.5 million borrowers showing signs of financial distress or carrying higher than average debt. Since IBR went live in 2009, TICAS has repeatedly called for just this kind of targeted outreach to help struggling borrowers lower their monthly payments and stay out of default. We’re thrilled to see this part of President Obama’s college affordability plan put into action, and we’ve suggested a couple of tweaks to make it easier for borrowers to respond.

 Read our blog post on the new IBR outreach campaign.

Win #2: New Rules Strengthen Protections for Distressed Federal Loan Borrowers

Responding directly to public comments TICAS and others submitted this summer, the Department of Education has issued final regulations that strengthen some important protections for borrowers. In one key win, the final rules require that borrowers seeking to rehabilitate defaulted loans must first be offered a monthly payment amount based on what they would pay in IBR: no more than 15 percent of the borrower’s discretionary income. This critical change will make it easier for borrowers to get out of default and repay their loans by ensuring that the payments required to rehabilitate a loan really are “reasonable and affordable” as required by law.  

Read our blog post on the new rules, which prompted  this New York Times “Your Money” article.

Concerns About “Pay It Forward”

TICAS has joined with national, state, and local student and education organizations to express concerns about the “Pay It Forward” concept, which has attracted the interest of lawmakers in a number of states. Proponents claim it offers students a debt-free degree by eliminating up-front tuition costs, instead requiring them to pay back a percentage of their income over a lengthy period of time after graduation. While well intentioned, we’re concerned that “Pay It Forward” could shift college costs even further onto students, in large part by potentially accelerating state disinvestment from public colleges and need-based state grants. Instead, policymakers should support efforts that increase need-based student aid and state support for public institutions.

Read the statement.

TICAS VP Explains How to Simplify the FAFSA at Federal Commission Meeting

The federal Financial Literacy and Education Commission (FLEC) held an October meeting on college decision-making attended by Treasury Secretary Jack Lew, CFPB Director Richard Cordray, and Education Secretary Arne Duncan. As an expert panelist, TICAS’ Pauline Abernathy explained our proposals for improving how people learn about and apply for federal student aid, including basing federal aid eligibility on the tax and wage data available when students typically apply to college. This would dramatically simplify the FAFSA process and tell students how much aid they can expect before, rather than after, they apply to colleges. 

Read the official meeting summary.

CFPB Report Analyzes Private Education Loan Complaints

The Consumer Financial Protection Bureau’s (CFPB) Student Loan Ombudsman released its second annual report, analyzing the 3,800 complaints it received from private loan borrowers over the last year. The report contained some troubling findings, driving home the importance of the CFPB’s authority to oversee this market and protect borrowers. For example, some borrowers found that payments made in excess of their monthly minimum were not applied to the loan with the highest interest rate, but rather spread across all loans, undermining their attempts to reduce total loan costs.

Read the report, and the New York Times article with a quote from TICAS.

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