Student Loan News, Week in Review

Published on Author Kelsey Radcliffe

The Consumer Financial Protection Bureau addresses a slew of servicing complaints, a university president makes strides toward lowering tuition and reducing student debt, and servicers working for the Department of Education continue to collect debt from defrauded Corinthian students – despite their potential eligibility for debt cancellation.

Student Loan Servicers Not Acting in their Borrowers’ Best Interests, CFPB Reports 

The Consumer Financial Protection Bureau reported that some student loan borrowers who were trying to make larger payments on their loans in an attempt to pay them off early were actually placed on an income-based repayment program by their loan servicer without their consent. This effectively lowered their monthly payments and lengthened their repayment term, increasing the overall amount due on their loans if the borrower were to follow the new payment plan.

Many borrowers report issues with their servicer when it comes to prepayments – the extra money is typically not applied to the principal balance of the loan unless explicit instructions are included with the payment itself. The CFPB has advised borrowers making prepayments to check their accounts and make sure they are still on the same repayment track. Borrowers have also reported that servicers pushed them into forbearance instead of switching to an income-based repayment plan. With forbearance, interest still accumulates while no payments are made. Since certain income thresholds can qualify for a $0 repayment plan without entering forbearance, forbearance isn’t necessarily in the borrowers’ best interest.

Read the full story here.

Washington College President Makes Strides Toward Lowering Tuition and Reducing Student Debt 

Sheila Bair was once the chair of the FDIC, in charge of regulating bankers. In 2006 she foresaw the coming mortgage crisis, and in her new role as president of Washington College, she sees another financial catastrophe on the horizon: students who are too indebted to contribute to the economy, effectively causing another recession. Bair wanted to reduce student debt immediately, and a member of her team proposed the idea of giving grants to students upon graduation — not only reducing their debt, but also motivating them to graduate. When the school couldn’t afford to fund these grants out of its existing budget, Bair set up a program called “Dam the Debt” to fund the grants with donations. She also modified an internal policy to direct all unrestricted donations to student scholarships, so most major gifts the school received went towards lowering students’ tuition bills. This past spring, the grant reduced students’ federal debt loans by more than 10 percent.

Bair also implemented the Saver’s Scholarship to reward families for saving for their children’s tuition. If part of a student’s payments come from a tax-advantaged college savings plan, the scholarship would lower tuition bills by $2500 annually. In December, Bair froze tuition and is now considering a four-year freeze so incoming freshman wouldn’t need to worry about annual tuition increases. She is also considering a modified Income Share Agreement plan for Washington College.

Read the full story here.

Loan Servicers Working for Ed. Dept. Continue to Collect Debt from Defrauded Corinthian Students 

Senator Elizabeth Warren (D-Mass.) led an investigation on the Department of Education’s treatment of former Corinthian College students. The for-profit university shut down last year after students had been defrauded, and students at 91 Corinthian campuses are eligible to apply for debt relief. Despite this eligibility, Warren’s investigation found that nearly 80,000 former students are in some form of debt collection with the Education Department. More than 30,000 have had tax refunds and government payments seized and over 4,000 are having their wages garnished.

In order to have their debt discharged, former Corinthian students need to apply individually and wait for approval. Warren called the process a “complex, resource intensive, unnecessary and baffling scheme” since the Department could have created a system that automatically discharged debt for those students who were defrauded. Of the roughly 22,000 debt cancellation applications received from former Corinthian students, only 3,787 have been approved.

Read the full story here.

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