Policy Brief Features Stories of Struggling Borrowers and Spells out Urgently Needed Reforms
WASHINGTON, D.C. — Consumers Union, the policy division of Consumer Reports, called on Congress today to adopt a number of reforms urgently needed to restore fairness to the student loan system. The consumer group spelled out its reform agenda in a policy brief highlighting recent research on the mounting student loan debt crisis and stories from consumers struggling to finance college and pay off record-high debt. Congress is preparing to debate the reauthorization of the Higher Education Act in 2014.
“Millions of Americans are facing a mountain of debt with no end in sight after graduating from college,” said Suzanne Martindale, staff attorney for Consumers Union and the author of the policy brief. “It’s time for Congress to adopt reforms that help students find the most affordable options for financing college and provide borrowers with reasonable safeguards and flexible repayment options to manage their obligations responsibly.”
Americans now owe over $1 trillion in student loan debt, more than what is owed on credit cards. Tuition has increased over 500 percent since 1985 at public colleges, which admit the majority of students nationwide. At the same time, average family incomes are lower than they were a decade ago, making it increasingly impossible for many families to pay for college without loans. Currently two-thirds of college students graduate with student loan debt, averaging $26,600.
The federal government is the largest student lender, with roughly 85 percent of the market, but banks and financial companies also offer student loans. Private student loans can come with high, variable interest rates, and unlike federal loans, they do not come with guaranteed flexible repayment options. Unfortunately, students and their families often receive confusing financial aid letters from colleges that fail to explain differences between grants and loans, or between federal and private loans. As a result, borrowers may not realize until after graduation the full extent of the debt burdens and responsibilities they face.
“The student loan debt crisis is growing each year and threatens the futures of countless families and ultimately our economy,” said Pamela Banks, senior policy counsel for Consumers Union. “Struggling borrowers across the country are counting on Congress to help bring some fairness to our broken student loan system.”
Consumers Union’s “Degrees of Debt” policy brief highlights a number of problems borrowers encounter along with the reforms needed to provide needed relief, including:
Confusing student loan offers: Consumers Union focus groups of students and their parents show that many find it difficult to understand their options for financing college and are frustrated by the confusing financial aid application process can be. Consumers Union is urging Congress to require schools to provide students and their families with clear, easy-to-understand financial aid offer letters that plainly show the differences between the kinds of aid available and an estimate of what their monthly payment will be once they graduate.
Borrowing too much or borrowing the wrong kinds of loans: Students and their families often fail to understand the difference between federal and private loans and end up borrowing more than they need or at too high a cost. Schools should provide students with pre-loan counseling to review loan costs and eligibility requirements so they can identify the most affordable financial aid options.
Difficulty refinancing or reducing monthly payments: Many borrowers struggling to keep up with their payments, especially those with private loans, are unable to obtain flexible repayment options. Consumers Union is calling on Congress to require all lenders to offer flexible, affordable and manageable repayment options, including income-based repayment plans, deferments and forbearances, as well as acceptance of partial payments.
Unfair fees or issues with how payments are processed: Some borrowers get hit with unexpected fees, such as late fees even though they have set up automatic payments, or fees to get a temporary suspension of payments. Others complained to Consumers Union that they were unable to reduce their principal even though they were making payments in excess of what was due on a monthly basis. Fees should be reasonable and lenders should be required to apply excess payments to the balance instead of to interest.
Trouble with loan servicers: Many consumers who shared their stories with Consumers Union expressed frustration with loan servicers who gave inconsistent answers, failed to maintain accurate records, or simply refused to work with them to resolve outstanding issues. Congress and the CFPB should require student loan servicers to establish clear procedures and a single point of contact for questions and complaints. Complaint handling, resolution and appeals should be centralized and monitored by regulators.
Unfair or deceptive practices: Many student loan borrowers told Consumers Union about unfair or deceptive practices, such as schools marketing high-cost career college programs despite knowing that graduation or job placement rates are low, or aggressive and harassing debt collection practices. Consumers Union is pressing Congress and the CFPB to prohibit deceptive marketing, abusive collection and servicing practices, and other fraudulent practices. The Department of Education should issue a strong “gainful employment” rule to prevent students and taxpayers from subsidizing low-performing career colleges.
No relief from overwhelming debt: Many borrowers who shared their story with Consumers Union expressed despair at being unable to keep up with student loan payments or to save up for anything else. Others discussed their struggles with bankruptcy, with their student loans still hanging over them. Congress should enable student loan borrowers to obtain loan discharges or cancellations in certain circumstances, including long-term economic hardship.
Contacts:
Michael McCauley, Consumers Union, 415.902.9537 (cell) / 415.431.6747 ext 126 (office) or mmccauley@consumer.org
David Butler, Consumers Union, 202.462.6262 or dbutler@consumer.org
