The Student Loan System is a Mess

It’s time for Congress to renew the Higher Education Act, a law that governs how federal student aid is given out.

“It touches on everything from loan limits to accreditation, determining who gets money, how much, and when,” The Chronicle of Higher Education says.

Consumers Union is proposing Congress create fixes to help people with student loans. They begin by highlighting these facts:

  • Student loan debt tops $1 trillion, more than Americans owe on their credit cards.
  • Tuition at public colleges has increased more than 500 percent since 1985.
  • Average family incomes are lower than they were a decade ago.
  • About 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,” Consumers Union says. So, it reasons, the solution should start with the federal government.

Student loan offers are confusing and families often don’t understand the different types, eligibility requirements, and associated costs. Payments often aren’t processed fairly, as the Consumer Financial Protection Bureau recently noted. Loan servicers sometimes do a poor job of communicating information, maintaining and providing records, or working with consumers to resolve issues.

Consumers Union covers all of that and other problems in detail in its recent Degrees of Debt report. Here are the fixes it wants Congress to legislate:

  • Transparent lending options that should be easily comparable.
  • Schools should help students find the most affordable ways to pay for college, through pre-loan counseling and by working with private lenders.
  • Borrowers should be given reasonable, flexible repayment options, including income-based repayment plans, deferments and forbearances, and acceptance of partial payments.
  • Fees should be reasonable and payments should be processed fairly, not spread out to cover multiple loans in a way that triggers extra fees and damage to credit.
  • Require student loan servicers to establish clear procedures and a single point of contact for questions and complaints so they get resolved quickly.
  • Borrowers should have the opportunity to discharge or cancel loans in certain circumstances, including long-term economic hardship.

Some of these solutions are already at least partially in place for federal student loans, but not private ones. Consumers Union wants the protections to become stronger across the board.

Do you support or disagree with the fixes Consumers Union wants? Comment below or on our Facebook page.

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Comments & discussion

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  • JC

    It seems college is just a ruse to keep young people out of the employment market for as long as possible with many employers highly inflating job requirements. With many employers demanding candidates have a college education for unskilled entry-level positions, a college education is seen as a must when, in fact, it is an overly inflated accomplishment in many cases.

    We do not need to spend tax dollars to college educate McDonald’s managers. It’s enough that we support public universities and community colleges, but then providing handouts and even loan forgiveness is simply a waste of money. If you are going to end up stiffing taxpayers by defaulting on $30,000 of taxpayer subsidized loans, maybe instead of four useless years studying something useless like psychology you should have gone to a four-month technical school and learned how to fix bicycles.

    If you can’t afford college, realize that it isn’t for everybody and learn a trade. Do well in high school and get a scholarship or get a job and save money for college. If the taxpayers lend you money, you pay it back or face the consequences. I

  • DdrKari Johnstone

    I graduated from veterinary school with $90000 debt in student loans. I am trying to pay this debt off but because I can’t pay the capitalized interest my loan is over $270000!! . My income for the first 3 years was $35000. Then it increased to $50000. I now make more but cannot pay $2300 a month.
    It should be illegal to do this! I have told Mohela I will NEVER be able to pay this monthly payment

  • Daniel Poterek

    In putting myself through school, I racked up nearly $450,000.00 in
    student debt (both private and federal student loans). I am looking for
    creative ways to help pay off my student debt, so that I can work on
    building a family and a future.

    http://www.gofundme.com/54446s

    http://danielvolunteers.wordpress.com/