International Policy Digest

Sponsored Content /08 Jun 2017

Trump’s First 100 Days: No Student Debt Relief In Sight

During his presidential campaign last year, Donald Trump outlined ideas to help students dig out from underneath their educational debt load.

Student debt has skyrocketed to a record $1.4 trillion, with many of those borrowers in default. Many economists believe this is acting as an anchor on the U.S. economy as people with high amounts of educational debt put off buying homes, vehicles and other big-ticket items.

“Students should not be asked to pay more on the debt than they can afford,” Trump said on the campaign trail in October 2016. “And the debt should not be an albatross around their necks for the rest of their lives.”

To help students, Trump said he would introduce a plan to consolidate all loans into a single Income-Based Repayment program (IBR) in which students would pay 12.5 percent of their income toward their loans each month and receive total loan forgiveness after 15 years. This would have increased monthly payments for people in the short-term, but they would have been able to get rid of their debt sooner.

However, none of this has materialized. Students continue to work under a 10 percent of discretionary income cap under the IBR, with loan forgiveness after 20 or 25 years, depending on the plan. Trump has made no mention of supporting a federal student loan refinancing program, something petitioned hard by Clinton during the election.

But it hasn’t all been do-nothing for this administration. In March, Department of Education Secretary Betsy DeVos reversed a rule protecting some students from collection fees on defaulted federal student loans. The reversal of the rule, which had been in place since 2015, opens the door for debt collectors to charge defaulters fees of up to 16 percent of their student loan balances, even if borrowers promise to make good on their loans within 60 days. Although the fees only apply to those who defaulted on their student loans and borrowed a federal loan before 2010 through the Federal Family Education Loan (FFEL) program, approximately 7 million borrowers with $162 billion in loans could be affected.

And then in April, DeVos rescinded the Obama administration’s guidelines for loan servicers. The guidelines said Federal Student Aid (FSA) should ensure servicers work in the best interest of borrowers when considering a federal contract for loan servicers that are up for renewal in 2019. The requirements would have rewarded loan servicers who were committed to helping borrowers stay on track with payments and promptly respond to questions or problems.

Instead, “this move is a big win for companies that have run roughshod over borrowers,” said Rohit Chopra at the time. Chopra is a senior fellow at the Consumer Federation of America, the former student loan ombudsman at the Consumer Financial Protection Bureau (CFPB) and a Department of Education official last year.

A CFPB report in 2015 found loan servicers often don’t inform borrowers of affordable payment plans, misapply payments and do things to maximize their profits at the expense of borrowers. In fact, the CFPB, Illinois and Washington states sued the nation’s largest loan servicer, Navient, in January of these very things, among others. Navient also is facing a class-action lawsuit claiming the company attempted to collect on loans that had been discharged in bankruptcy, and the U.S. Department of Justice sanctioned Navient in 2014 for giving military members wrong information about their loans.

Ironically, Navient is one of the front-runners for the new FSA contract in 2019.

Navient disputes the allegations, saying its role is to collect payment owed by borrowers, not to act as a fiduciary financial advisor. “The servicer acts in the lender’s interest,” it said, adding there is “no expectation that the servicer will ‘act in the interest of the consumer.'”

And so far in Trump’s presidential term, it looks like his administration just may feel the same way.

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