U.S. senators are attempting to tackle the nation’s student loan debt crisis with a newly proposed bill that would place the burden of repayment responsibility on universities’ shoulders.
Richard Durbin, D-Ill., Elizabeth Warren, D-Mass. and Jack Reed, D-R.I., introduced the Protect Student Borrowers Act of 2013 in December, emphasizing the urgency needed for colleges to respond to rising student debt.
The average debt per college graduate in 2012 was $29,400, the highest ever recorded, according to an annual report by the Institute for College Access and Success.
A recent report by the Consumer Financial Protection Bureau reviewed 3,800 complaint cases and revealed a rising number of private student loan borrowers who struggle with debt, high interest rates and few, if any, alternative payment plans. Among the complaints in the report were issues such as borrowers unaware of repayment plan options or unable to resolve issues in a timely manner.
Durbin and his two supporters devised the Student Loan Borrower Bill of Rights to establish rules of fairness and transparency between borrowers and loan providers. In a statement to the Washington Informer, Durbin said these rights will ensure students know exactly which options they have available to them when it becomes hard to keep up with debt.
“With student loan debt far outpacing the rise in starting salaries, many of these borrowers find they are unable to make their monthly payments,” Durbin said in a statement.
“When lenders refuse to work with them on a repayment plan, they begin a downward spiral that is difficult to turn around. That debt keeps them from being able to purchase homes, cars or other goods, which fuel our economy … Every borrower should have basic protections when it comes to their student loans.”
The full bill points fingers at colleges and says schools with a student-loan default rate of more than 30 percent would be fined 20 percent of the total amount owed by their students, while schools with default rates between 15 and 20 percent would be fined 5 percent of the total debt.
According to the U.S. Department of Education, 5,957 borrowers from UH entered repayment between Oct. 1, 2009 and Sept. 30, 2010. Out of this population, 584 defaulted during the one-year period. That puts the official 2010, 3-year Cohort Default Rate for the University at 9.7 percent, which is less than both the national default rate of 14.7 percent and the Texas default rate of 17.3 percent.
Assistant Director of Student Financial Aid Lear Hickman sees the University’s approach to disbursing loans as something positive.
“There are advantages for institutions with low default rates like UH, which include the option to disburse loans in a single installment to a student if that student’s loan period is less than or equal to one semester,” Hickman said. “Most students prefer the single disbursement option versus receiving their loans in several installments throughout the semester.”
Hickman said the University’s CDR has increased throughout the years. Currently, the CDR calculation is based on three years. Before, the CDR was based on a two-year monitoring period. The DOE put these changes into effect in 2013 to make default rate statistics more accurate.
“The department is replacing its CDR calculations from two-year to three-year calculations as required by the Higher Education Opportunity Act of 2008,” according to a press release by the DOE.
“Congress included this provision in the law because more borrowers default after the two-year monitoring period; thus, the three-year CDR better reflects the percentage of borrowers who ultimately default on their federal student loans.”
The release also said the department will make many efforts to better inform and assist struggling students, their families and colleges. According to the release, certain schools are subject to penalties for having two-year default rates of 25 percent or more for three consecutive years, or more than 40 percent for one year. As a result, these schools will lose eligibility in federal student aid programs unless they bring successful appeals.
Further, the release stated that any school with a three-year CDR of 30 percent or more must “establish a default prevention task force” and propose a management plan to the department. There were 221 schools that had three-year default rates higher than 30 percent in the last monitoring period.
Hickman said that although the University cannot speculate on pending legislation, UH will fully comply with any applicable law. As of now, the University has an extensive default management plan for student borrowers.
“The University continues to make efforts to prevent loan default,” Hickman said. “Measures include hiring a default coordinator to contact and counsel students who drop to below half-time enrollment and are about to enter repayment. The University’s financial aid staff is also working with the Bauer College of Business on unified, campus-wide messaging addressing personal money management and borrowing wisely.”
The bill currently sits at the desk of a congressional committee.
It is about time.
It’s unlikely to happen soon. For-profit schools have lobbyists like Heather Podesta and millions of dollars to throw around. There are too many politicians beholden to Corinthian Colleges, Apollo Group, and the other schools that prey upon veterans, people of color, women, and the underemployed.
If the Bankruptcy law would allow for profit loans to discharged( which was the case prior to 10/2005) the tricks that are played on consumers, especially veterans, would decrease. As to the non profit educational institutions, and especially those that are like auto assembly lines, I still believe they should be liable for repayment of student loans. Who would extend a loan to someone who cannot repay based upon debt to income ratio? I would if I knew the loan would be repaid by someone else..guaranteed! Very little effort is made up front and during the student tenure to spend time counseling on debt. Also, most non profit( and for profit) institutions offer no help to students who leave before graduation. Today, that burden is on the taxpayer.
It won’t get past the committee. But, it makes the sponsors look like they’re doing something.