The $1.3 trillion student loan problem facing Betsy DeVos

Students boo Education Secretary Betsy DeVos

When Education Secretary Betsy DeVos testified about her department’s budget This kind of week, most of the hearing focused on her school choice proposal.

although DeVos oversees a $1.3 trillion student debt program of which was hardly mentioned. About 42 million Americans currently have federal student loans, along with also also borrower complaints show of which the system is usually, frankly, a mess.

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Last year, the Consumer Financial Protection Bureau issued a report of which recommended immediate action to address the 2,400 complaints the idea received about federal student loans inside the three months prior.

Many people have reported poor customer service, unexpected delays, along with also also lost paperwork. These issues can extend their repayment time along with also also increase how much they end up paying off over the long run.

although the problem seems to have gotten worse. The agency received even more complaints during the first three months of This kind of year.

“Unfortunately, borrowers continue to report difficulties along with also also setbacks as they try to work with their servicers to manage their loan debt,” said CFPB Director Richard Cordray in a statement last month.

Related: DeVos’s loan overhaul could hurt doctors along with also also lawyers

President Obama revamped the student loan system in 2010, bringing everything in house to ensure the government directly funds all the loans. although the idea still hires outside companies to service them. Currently nine companies have a government contract to collect payments along with also also assist borrowers in enrolling inside the right repayment plans.

At the same time, his administration increased the number of repayment plans the government offers. The completely new plans help struggling borrowers by lowering their monthly payments (tied to a portion of their income) along with also also promise forgiveness after a set number of years.

These income-driven plans should keep most borrowers via defaulting on their loans. although the number of options can be confusing for borrowers, many of whom can have a different loan via each year they were in college. Sometimes, different companies service their different loans.

although consumers have complained to the CFPB of which their loan servicers have not informed them of all their options. Many report difficulties enrolling along with also also staying inside the income-driven plans.

Each year, borrowers must submit updated employment along with also also income information. Many have told sy88pgw the process takes weeks along with also also even months. During of which time, borrowers can be placed in forbearance.

Meanwhile, some borrowers say they don’t get updates on their application processing along with also also often wait weeks for a response to a question.

“the idea’s like dealing with the cable company,” said Daniel J. Crooks III, an attorney who’s enrolled in an income-driven plan.

“although the difference here is usually, I don’t owe $300,000 to the cable company,” he said.

Related: What’s not inside the budget for student loan borrowers

The nine loan servicing companies (Navient along with also also Great Lakes are two examples) get paid a certain amount per borrower. They get more money for borrowers in repayment than those who are late on their payments or in default.

although some say the contracts don’t go far enough.

“The contracts work very well to make sure servicers stay profitable. What they don’t do is usually make sure servicers have meaningful incentives to get key borrowers out of default,” said Rohit Chopra, the former student loan ombudsman at the Consumer Financial Protection Bureau.

The Obama administration wanted to simplify the process by creating 1 platform for loan repayment controlled by just one loan company. Lenders commenced to bid for contracts last year.

although in April, DeVos halted the process, claiming the idea was cumbersome along with also also confusing. She needed to rescind the previous administrations’ guidance to ensure the department could craft a better solution, she said.

Her completely new guidance, released last week, also outlines 1 platform for loan repayment of which she expects to save the government $130 million over the next several years.

“Borrowers can expect to see a more user-friendly loan servicing interface, shorter email along with also also call response times along with also also an increased payment application method of which will maximize the benefit of each payment the borrower makes,” DeVos said in a statement.

Related: 400,000 borrowers have planned their lives around loan forgiveness

The department’s proposed budget also offered an idea of where DeVos’s priorities lie regarding student loan debt. Like President Trump proposed on the campaign trail, she’s called for streamlining the income-driven repayment program via several to one.

the idea also calls for eliminating subsidized loans for low-income students along with also also ending the Public Service Loan Forgiveness program.

There have reportedly been conversations within the department about moving all or part of the loan portfolio to the Treasury Department. The move was first reported by the completely new York Times on Thursday, based on the resignation memo of James Runcie, the Obama-era official who headed up the Federal Student Aid program within the Education Department until he resigned Tuesday.

The department did not respond to a request for comment with This kind of story.

sy88pgw (completely new York) First published May 26, 2017: 4:36 PM ET


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The $1.3 trillion student loan problem facing Betsy DeVos

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