The “Income-Based Repayment” plan allows recipients of federal student loans to cap their monthly payments at 10 to 15 percent of their income. Some borrowers may even have their loans forgiven after years of steady payments. Problematically, Sallie Mae, which owns about 40 percent of outstanding federal education debt, has enrolled less than half of these debtors — about 15 to 18 percent — in IBR.
Outstanding federal debt has reached about $1 trillion, with the average borrower owing around $26,000. IBR is President Barack Obama’s foremost tool for combating the crisis. With millions of loan recipients eligible for IBR, Sallie Mae appears not to be doing their part to lessen the financial burden of recent graduates.
Because of the Federal Deposit Insurance Corporation’s accusations of discriminatory and unfair loan-servicing practices, the Department of Education has announced that Sallie Mae will receive the fewest new contracts next year of the four major loan servicers. Their loan-servicer contract is up for review next June, and the renewal is contingent upon their compliance with federal law. Bad news for Sallie Mae, as the Department of Justice has also accused them of violating the Servicemembers Civil Relief Act, which is intended to lessen financial pressures on active-duty members of the military.
“It’s very expensive work, for example, to enroll a borrower into something like an Income-Based Repayment program,” said John Remondi, president and CEO of Sallie Mae, in a July conference call with investors and analysts. He went on to insist the company does its best to get borrowers the fastest and cheapest repayment options. It doesn’t stand to reason, though, that students would be declining a cap for their monthly payments. Sallie Mae is likely attempting to save themselves the cost of enrolling their clients in IBR, as well as continuing to turn a profit on their outstanding loans.
The White House’s announcement that students can apply for IBR directly through the Department of Education rather than going through their loan provider is great news for future loan recipients. That means that rather than being at the mercy of the potentially crooked Sallie Mae, borrowers can expect to receive all the breaks they are entitled to.
College is expensive, and the unfortunate reality is most families cannot easily afford it. This gives loan companies the upper hand, and it’s of the utmost importance that the FDIC and the Education Department hold them in compliance of federal law, as well as generally fair practices. Sallie Mae’s inevitable penalization will hopefully remind the corporation of the reason it exists in the first place — affording people without means a quality education.
Opinion columnist Katie Wian is an English junior and may be reached at [email protected].