More than 44 million Americans currently have student loans, and the total amount borrowed has reached a staggering $1.3 trillion. The delinquency or default rate on these loans is over 11%, meaning that millions of Americans are unable to pay back billions of dollars in debt. Simply put, this is a crisis in the making.
According to the Consumer Financial Protection Bureau (CFPB), the number of complaints from borrowers has increased by 325% between 2016 and 2017. And the nation’s largest student loan company, Navient, has been sued for allegedly making it more difficult for students to pay back their loans.
Are Private Loan Servicers or the Federal Government at Fault?
Navient replied to the accusations by releasing its own report, showing that around 90% of the complaints it receives actually concern federal student loan policies that mislead unsuspecting borrowers. Most of the Navient complaints centered on the following issues:
- Inability to obtain a courtesy credit bureau fix–Only the federal government can clear a missed payment from a credit report, but many borrowers call their private servicer about this issue and complain about it when they are unable to get assistance.
- Trouble registering for an Income Based Repayment (IBR) plan–Again, the borrower must apply to the federal government, not the private loan servicer. Navient points out that the application cannot be performed over the phone, and that many borrowers are simply unaware of this program.
Navient claims that borrowers’ lack of knowledge about interest, projected revenue from a chosen career path, and repayment options are at the root of many if not most student loan defaults and delinquencies. But the suit against Navient claims that instead of educating its clients, it steered them towards forbearance and deferment–even when those clients may have qualified for a better repayment plan.
What’s the Future of Federal Policy on Student Loans?
The income-based repayment plan and public service loan forgiveness are federal programs that went into effect in 2007 while George W. Bush was president. These programs reduce the strain on borrowers, but critics view them as little more than a handout. As the cost of these programs became clear, the Obama administration tried, but ultimately failed to introduce caps on student loan forgiveness in a budget proposal.
The Trump administration has many borrowers and consumer advocates worried about the future of income based repayment and student loan forgiveness. Yet the administration’s student loan repayment proposal is not much different from repayment plans instituted by earlier administrations: monthly payments capped at 12.5% of your income, and forgiveness after 15 years. Note, however, that any amount the federal government forgives will be treated as taxable income!
The biggest concern is the future of the Public Service Loan Forgiveness Program, which forgives Direct Loans and Federal Direct Consolidation Loans for borrowers who work more than 30 hours per week in an eligible public service job or non-profit job and who make 120 eligible on-time payments under an income-driven repayment plan. Private loans are not eligible for forgiveness.
According to draft budget documents obtained by the Washington Post, the Trump administration is planning to do away with the public service loan forgiveness altogether. But that doesn’t mean that people enrolled in the program will be abandoned. Instead, they will likely be grandfathered into the new repayment program, under which they would receive forgiveness five years later.
Call an Ohio Student Loan Lawyer Today
At Luftman, Heck & Associates, our goal is to help our clients overcome their financial difficulties and to reach a brighter future. If you are in debt and looking for a way out, we can help. Our Ohio debt lawyers can advise you on your best options, and help you take legal action against predatory borrowers if necessary.
To find out more about overcoming your student loans, call us today at (888) 726-3181 for a free consultation.