US Department of Education Earns a Failing Grade

Each year hundreds of thousands of students either graduate or leave college with a massive amount of student loan debt. Recent reports are that 70% of all graduates have student loans with an average of more than $37,000 upon graduation. This is a never-ending cycle of personal debt that is fueled by the US Department of Education’s own policies and practices.

 

What’s even worse is that many borrowers find their income isn’t enough to keep up with their monthly payments so they struggle to stay afloat. While the Department of Education (DOE) has programs designed to help these people, the application processes and resources in place make it much too difficult for millions of these people to obtain the financial savings available to them.

 

Unfortunately, the DOE, led by Secretary Betsy DeVos, seems to be making things harder for student loan borrowers. For example, the DOE recently took steps to roll back protections for borrowers, and major student loan service providers are facing lawsuits after being accused of harming borrowers during the repayment process.

 

Here is a closer look at how the Department of Education (DOE) is failing the millions of Americans who carry student loan debt.

 

Complicated Repayment Plans

 

Borrowers are eligible to sign up for one of several repayment plans that could make their monthly payments more affordable. The process, however, can be complicated. First off, borrowers need to know which type of loans they carry to compare their options. With loan names such as Direct Subsidized or Unsubsidized Loans, Subsidized or Unsubsidized Federal, Stafford Loans, PLUS loans, or Consolidation Loans (Direct or FFEL), it’s easy to see why borrowers could be confused.

 

Next, they have to sort through the different repayment plan options, which include Extended Repayment Plan, Revised Pay As You Earn Repayment Plan (REPAYE), Pay As You Earn Repayment Plan (PAYE) Income-Based Repayment Plan (IBR) Income-Contingent Repayment Plan (ICR). While the names may sound similar, each plan can have a very different impact on a borrower’s finances.

 

And borrowers need to be aware that enrollment in these plans isn’t automatic, and they must recertify their eligibility every year for the Income Driven plans. Borrowers must also have a copy of their most recent tax return when they apply.

 

If understanding and following these steps wasn’t enough of a headache, it is now coming to light that student loan servicers are failing to notify borrowers of their options and are even steering them in the direction of more costly alternatives.

 

Student Loan Service Providers Are Facing Lawsuits

 

The federal government awards contracts with several companies who act as servicers for federal student loans. They oversee billing and other customer service tasks such as helping borrowers sign up for repayment plans and loan consolidation. In recent months, some of these loan service providers are facing lawsuits and accusations that they have failed to provide adequate customer service and have harmed borrowers in the process.

 

A class action lawsuit was filed against Great Lakes Educational Loan Services in April 2017 accusing the company of encouraging borrowers who are struggling financially to pursue forbearance instead of considering income-driven repayment options. Income-driven repayment plans could have either made payments affordable or even brought payments down to zero while still allowing borrowers to make progress towards loan forgiveness.

 

Another lawsuit was recently filed by the U.S. Consumer Financial Protection Bureau (CFPB) against Navient, who is the largest federal student loan servicer, contracted by the DOE. The company is accused of “systematically and illegally failing borrowers at every stage of repayment.” The CFPB further alleges that Navient misallocated funds and purposely directed borrowers into forbearance instead of recommending income-driven repayment plans.

 

Borrowers who feel they have received false information or poor customer service from these companies have few options. Borrowers don’t have the ability to select their loan service provider, and they don’t have the option to change companies if they are unhappy.

 

The Department of Education Might Have a Profit Motive Problem 

 

During the 2016 presidential race, then candidate Donald Trump told The Hill that he believes student loans are “probably one of the only things the government shouldn’t make money off — I think it’s terrible that one of the only profit centers we have is student loans.” In 2014, the Congressional Budget Office forecasted that the federal government would make a $127 billion profit from student loans over the next decade.

 

The Education Secretary at that time, Arne Duncan pointed out that profits from student loans helped the Department of Education cut its spending. The cuts just happened to be at the expense of millions of Americans who are drowning in student loan debt. If the Department of Education is using student loans to generate additional funds for its department, what motive do they have to truly help borrowers?

 

Chris Hicks, who runs the Debt-Free Future campaign for Jobs with Justice, a Washington-based nonprofit group, told The Huffington Post that he believes “the student loan program isn’t about helping students or borrowers — it’s about making profits for the federal government.”

 

President Trump’s Administration is Threatening to Take Away Protections from Borrowers

 

As if life wasn’t complicated enough for student loan borrowers, the Department of Education has taken recent steps to roll back protections issued under the Obama administration. Adam Minsky, an attorney whose practice is focused on helping student loan borrowers, told NBC News “[the Obama memos] alerted [student loan] servicers that how they deal with borrowers — the outcomes would be a factor in if they’re awarded a contract. And the idea there was to incentivize the servicers to work harder to help borrowers.” Current Education Secretary Betsy DeVos recently issued a withdrawal memo which has undone Obama’s efforts.

 

The Department of Education also seems to be going after the federal student loan forgiveness program. Currently borrowers who take certain public service jobs might be eligible to have their student loans forgiven after working for 10 years. Borrowers could previously submit a certification letter to FedLoan (another DOE contracted loan servicer) to verify if their employment qualified for loan forgiveness. Now the Department of Education is saying that borrowers cannot accurately rely on FedLoan to determine if they qualify for student loan forgiveness, and that the approval letters, which have already been sent to thousands of borrowers, are not legally binding. This could potentially impact over 550,000 borrowers who are already participating in a public service loan forgiveness program.

 

Student loan debt is certainly a burden that will haunt many former students for years to come, and the Department of Education seems to be showing little sympathy for those who are struggling. The department may oversee education, but when it comes to student loans, they’re earning a failing grade!

5 Ways President Trump may Complicate Student Loan Forgiveness

It’s no secret that millions of Americans are drowning in student loan debt, and those same people were hopeful that the 2016 presidential election would bring some relief. While both candidates made promises to ease the burden on student loan borrowers, Donald Trump’s plans were certainly more vague, and his actions since getting elected have left many worried that they may face even greater struggles in repaying their debt.

Here is a closer look at the comments President Trump made during his campaign:

Trump wanted to scrap the current income-based repayment plan and implement his own plan.

Prior to being elected, Mr. Trump gave a speech in Columbus Ohio where he told the audience that “students should not be asked to pay more on their loans than they can afford.” His solution was to consolidate the current repayment plans into one income-based repayment plan, which would make it less complicated for borrowers.

His plan would cap payments at 12.5% of a borrower’s income and loans could be forgiven after 15 years. The current plan caps payments at as little as 10% of a borrower’s income, but loans aren’t forgiven for 20 to 25 years. However, people eligible for Public Service Loan Forgiveness may have their loans forgiven in as little as 10 years under the current plan.

Trump considers privatizing student loans.

In May 2016, Sam Clovis, the national co-chair and policy director for Trump’s campaign, told Inside Higher Ed that Trump wants the federal government out of the student loan business entirely. During the interview, he mentioned that “we think it should be marketplace and market driven.”

He went on to say that local banks should be the ones lending to local students. This change could make it hard for low-income students to qualify for loans and therefore college could be out of their reach.

Trump’s campaign also believed that colleges should have a role in determining loan worthiness. Clovis explained that this would push colleges to refuse admittance to students unless they were confident that those students could graduate in a reasonable time and find employment. This plan could, for example, impact students who want to select certain majors such as liberal arts because a liberal arts degree might be less likely to help a graduate land a job. Using the same logic, should tuition and fees for a liberal arts degree cost less than for an engineering or business degree?

Trump wanted to stop the federal government from profiting off student loans.

During his campaign, Mr. Trump criticized the fact that the federal government profits off student loans. He went on to say, “that’s probably one of the only things the government shouldn’t make money off — I think it’s terrible that one of the only profit centers we have is student loans.” This could be behind Trump’s push to privatize student loan borrowing.

He also wants to pressure colleges to cut tuition costs. During his inauguration speech, Trump complained that schools are “flush with cash.” While campaigning, Trump said that if the federal government is subsidizing student loans then colleges must be held accountable to make sure they invest in their students. He went on to explain his idea that college endowments could lose their tax-exempt status if they don’t use endowment money to lower costs.

President Trump’s actions so far seem to contradict his promises.

As most candidates running for president, Trump made many appealing promises, but since being elected his actions are making student loan borrowers nervous.  As student loan defaults continue to rise, President Trump’s administration recently took steps to revoke federal guidance, which had barred student debt collectors from charging high fees on past-due loans. Rohit Chopra, a senior fellow at CFA and a former student loan watchdog at the Consumer Financial Protection Bureau, told the Washington Post Trump’s administrations “first move on the student loan default crisis will do nothing to stop the tidal wave of defaults that is sweeping across the nation.”

Will President Trump change the rules for Student Loan Forgiveness?

Trump’s administration also seems to be going after the federal student loan forgiveness program. Currently borrowers who take certain public service jobs (vs more lucrative private sector jobs) might be eligible to have their student loans forgiven after working for 10 years. Borrowers could previously submit a certification letter to FedLoan in order to verify if their employment qualified for loan forgiveness. Now the Department of Education is saying that borrowers cannot rely on FedLoan to determine if they qualify for student loan forgiveness, and that the approval letters, which have already been sent to thousands of borrowers, are not legally binding. This could potentially impact over half a million borrowers who are already participating in the public service loan forgiveness program.

While President Trump’s initial comments on student loans may have seemed hopeful, he has yet to enact any major changes that could relieve the debt burden placed on so many Americans. In fact, the actions taken by his administration so far appear to hurt borrowers rather than help. It’s true that Trump’s presidency is still new so time will truly tell if he follows through on his campaign promises.

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Why 16% of borrowers default on student debt and how you can avoid it

Two Big Reasons Why Student Loan Defaults are on the Rise

Currently, 44 million former college graduates and attendees owed $1.3 trillion in federal student loan debt, and one of every six of those borrowers were in default. That is a staggering number of Americans who are putting their financial futures in jeopardy.  Another 27% of borrowers are also not repaying their loans on a timely basis and may be headed toward default. (Source: Wall Street Journal)

What’s behind the dramatic rise in student loan defaults? The answer has to do with two factors.

The first is that many borrowers fail to truly understand the serious consequences of default, and second is a failure by the U.S. Department of Education to properly educate borrowers about their payment options.

The Consequences of Student Loan Default

Dealing with student loan debt can strain a tight household budget. Additionally, many people working in public service careers, such as teachers and government workers often have lower salaries, which make repaying their high monthly debt payments a huge burden. While these types of borrowers have dedicated themselves to helping others, without careful planning they can struggle financially. It may be tempting for them to skip loan payments.

After all, it’s easy to see the results of not paying certain bills such as having a home in foreclosure, a car repossessed, or even utilities turned off. It may not be so easy, however, to see the consequences of skipping payments on federal student loan accounts. It’s a misconception that can have dire consequences.

If a federal student loan goes into default, it means the borrower hasn’t made payment in 270 days (9 months). It also means the borrower hasn’t made alternate arrangements for their loan such as requesting deferment or forbearance.

Both deferment and forbearance are when repayment of a loan is temporarily stopped. A borrower may need to meet certain conditions in order to qualify such as during a period of unemployment or while enrolled in a qualified graduate study program. Those who don’t qualify for loan deferment, might still be granted forbearance. While both deferment and forbearance are intended to be temporary, many loan servicers, consolidation companies and borrowers themselves rely on these as long-term “solutions.” These are anything but a solution to a debt problem. With deferment and forbearance, your debt grows as that unpaid interest is added to your loan principal each month. That only makes it more difficult to repay and stay out of default.

The government tends to wait much longer than private creditors to act on a borrower not making timely payments. If a student loan borrower stops making payments without first being approved for deferment or forbearance and their loan goes into default, the federal government can and will take action. A borrower’s credit can be ruined for years – making it hard to buy a house, a car, get approved for an apartment rental or even to apply for certain jobs. Their employer can be notified that their future wages will be garnished. The federal government hires collection agencies and currently more than $160 million in student loan debt is being garnished.

Other legal actions can also be taken against a borrower. At that point, a borrower’s options become severely restricted. Their loan balance is immediately due in full, and they are no longer eligible for repayment plans that might have made their loans manageable. Borrowers should also note that bankruptcy courts almost never discharge federal student loan debt.

Stories of Default

A Forbes article titled “3 Grads Reveal What It’s Really Like To Default On Student Loans” tells the stories of borrowers who couldn’t keep up with their payments. Andrew Josuweit graduated into an economic recession with 16 different student loans. When he couldn’t keep up with the payments, his credit score dropped drastically, and he wasn’t able to apply for new credit or even get approved for an apartment. His parents’ credit scores were also impacted because they had cosigned some of the loans, and this hurt his relationship with them.

In this same article, Kristin Bastian admits that “when life happened, [she] pretended [her] student loans didn’t exist.” She had trouble finding a job after graduation and then had a baby. She was barely able to keep up with her bills so she stopped paying her student loans without considering all her options such as a deferment or other payment plans. When she finally landed a job, her HR manager told her that a collection agency had called, and her wages might be garnished.

Student Loan Repayment Options & Programs

Borrowers have options including several different repayment plans that can make their payments more affordable. In addition to repayment plans, borrowers working in certain professions may qualify to have their student loan debt forgiven, though the list of qualifications can be very difficult to understand.

It can be frustrating for borrowers to know and understand their options, and loan service providers are making it even more difficult. For example, Navient, which holds nearly $88 billion in federal government loans, has the lowest number of borrowers enrolled in an affordable repayment plan. Earlier this year, Navient was also sued by the Consumer Financial Protection Bureau because they allegedly tried to cheat borrowers out of repayment rights.

The Consumer Financial Protection Bureau has also spoken out about the high level of consumer complaints against student loan service providers. Borrowers are being encouraged to do their own research on payment plans and may feel that they don’t know who to turn to for help in evaluating the risks and rewards of each student loan payment option. Also, the government’s process required to apply is also cumbersome and can turn some borrowers away consider non-payment as an acceptable alternative.

For those struggling financially, loan default may feel like the easiest and only way out, but borrowers should know that there are resources that can help. TrustRight Student Loan Services can help borrowers quickly and easily view their payment options and eligibility using the free online Personal Loan Evaluation tool. Borrowers can even apply directly to a federal student loan forgiveness or repayment program with the simplified and automated application process for a small fee.

Borrowers should use free resources such as the Personal Loan Evaluation tool from TrustRight to explore their options. It’s important to understand that default is never the answer.

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Student loan forgiveness for teachers: Do you qualify?

When you graduated from college and landed your first teaching job, you likely pictured yourself in a rewarding career helping to shape the lives of future generations. So while you probably didn’t see yourself rolling in the dough with a teaching job, you might not have realized how hard it would be to deal with your student loan debt.

The good news is that the federal government offers student loan forgiveness and cancellation options for teachers who qualify. It may come as no surprise that researching and applying for these government programs can be a bit cumbersome, but don’t let that discourage you. These programs can help you eliminate high monthly payments and thousands of dollars of debt.

To help simplify the process, we’ve summarized your options below including an easier way to submit an application. Keep in mind that these options apply to federal student loans only and not private loan debt.

Student loan forgiveness for teachers 

With this option you can receive benefits faster than the Public Service Loan Forgiveness (PSLF) program mentioned below, but the amount is predetermined and may not be as generous as the PSLF benefit.

The Lowdown:

– You must have been employed full-time as a teacher for 5 consecutive school years.
– The loan must have been taken out before the end of 5 years of teaching service.
– You must work for a school district that is eligible for Title 1 funds or has been designated as a qualifying low-income school.
– You must be current on your student loan payments and not in default.

What You Can Get:

– Up to $5,000 in eligible loans can be forgiven for qualified elementary and secondary schoolteachers.
– Up to $17,500 in eligible loans can be forgiven for qualified math, science or special education teachers at eligible secondary schools.

Federal Perkins Loan Cancellation

The Lowdown:

– You must teach full time for at least a full school year (five years for full benefit).
– You must teach in an elementary or secondary school whose students are from low income families, or
– Teach special education or teach a subject such as mathematic or science that is considered to have a shortage of teachers in your state.

What You Can Get:

– Up to 100% of your Federal Perkins Loans can be cancelled if you qualify.

Public Service Loan Forgiveness Program

This program can be helpful for teachers who have a significant amount of debt.

The Lowdown:

– You must work for a qualifying organization including a government organization or a non-profit for at least 10 years.
– You also qualify if you were employed in AmeriCorp or the Peace Corp.
– You must have made 120 on-time payments towards your loan to qualify, although the payments don’t have to be consecutive so you can have periods of deferment or other employment.

What You Get:

– 100% of your remaining federal student loans can be forgiven after you’ve made those 120 qualified payments.
The amount forgiven is tax-free at the federal level!

These programs provide a huge perk for teaching professionals. Not all graduates saddled with debt have these options. It’s definitely worth looking into to see if you qualify.

The qualifying periods for these forgiveness plans can’t overlap with each other. So you need to consider not only how quickly each plan gives you forgiveness, but in what order you should apply for them.

There are other eligibility requirements, and while the government list of requirements is lengthy, TrustRight Student Loan Services makes the process simple. You can use the online Personal Loan Evaluation tool to quickly view your options and eligibility and even submit an application directly to a federal student loan forgiveness program using our simplified and automated application process.

Don’t let student loan debt weigh you down. Take action today to see how much you can save!

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What you should know about making student loan repayments

It doesn’t take long after finishing your degree for reality to hit you hard with your first bill from your student loan servicer, for example Great Lakes or Navient student loans . But this doesn’t have to be a freak-out moment! Here are some debt-paying strategies for both new graduates and those who have been repaying for a while.

Student loans are either private loans from independent banks or public or federal loans issued by the government. The easiest way to tell the difference is to consult National Student Loan Data Services. If your loan is not listed, it is likely private.

Private loans
Private student loans are the least flexible of loans. They don’t offer much in terms of payment plans and forget about loan forgiveness options. Oftentimes, student loan borrowers decide to concentrate on paying these off early due to this inflexibility, as well as high interest rates.

If paying them off becomes a challenge, you still have options. Some lenders offer deferments if you go back to school or have a financial emergency.

Another option is to refinance your student loans with a lender that can offer lower interest rates. Even a reduction of half a percent could amount to hundreds or even thousands of dollars in savings over a 15-year loan term. But you’ll likely need a very good credit rating or a willing co-signer.

Federal Student Loans
Federal student loans come with way more options than private ones. Here are six plans to consider:

Standard: Fixed payments for up to 10 years.
Graduated: Low payments to start, increasing periodically (usually every two years).
Extended: Extends Standard or Graduated payments to 25 years (with additional interest).
Revised Pay As You Earn (REPAYE): Payments based on 10 percent of your income for 20 to 25 years; the remaining balance is forgiven.
Income-Based Repayment (IBR): Payments based on 10 or 15 percent of your income, capped at the standard payment amount, for 25 years; remaining balance is forgiven.
Income-Contingent Repayment (ICR): Payments based on 20 percent of your income for 20 years OR the amount of a fixed payment for 12 years (whichever is less); remaining balance is forgiven.

The most popular plans for nonprofit and lower-income workers are REPAYE, PAYE and IBR, which reward those who make less money. While you can check with the Department of Education site or your lender, many people end up more confused than when they started.

How you can get student loan forgiveness:
The Department of Education offers several loan forgiveness programs open to those in good standing with their payments.

The Public Student Loan Forgiveness Programs, exclusively for nonprofit and government workers, is simple: make 120 on-time payments while working a qualifying full-time job, and your loans are forgiven in 10 years!

Teachers can get a boost from the Student loan forgiveness for teachers program. To qualify, you must teach at a low-income school full-time for five consecutive years. You’ll receive a $5,000 discount on your student loans when done; however, math, science, and special education teachers can get up to $17,500 back.

In addition, Teacher Cancellation for Federal Perkins Loans forgives 100 percent of Perkins loans for qualified teachers.

Doctors and nurses also have many options available to them based on where they work and whether or not they’re full-time. Read more on student loan forgiveness programs and if you qualify at the US Department of Education’s site.

Always pay on-time
Never forget the importance of making your payments. You can only qualify for student loan forgiveness if your loan is repaid on time each month.

After 270 days of non-payment, your loan becomes “in default,” meaning your loan could be sent to a debt collector, impacting your credit score, which can take years to recover. Collectors also charge additional amounts ranging from 25-40%. Worse, with unpaid federal loans, you could see your wages garnished or lose a government job.

The bottom line
The bottom line is paying off your loans is essential. Do your research on payment plans, learn how to manage private loans, and find out what programs you might qualify for. If you do that, you’ll be able to keep your loans up to date and get out from the burden of student loan debt.