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Know Your Rights: Obama’s Student Aid Bill of Rights

Student loans are a constant source of distress to college students in the US. The White House estimates that over 70% of students earning a bachelor’s degree graduate with debt averaging at around $28,400. And not all of these debts are expected to be paid back. In fact, in the first quarter of 2015 alone, the National Student Loan Data System reported that over $42 billion of directly subsidized loans were in default.
Now, as the cost of college education soars, the Obama Administration continues to find newer ways to help students bear the heavy burden of student loans. Its latest step forward in this direction is the Student Aid Bill of Rights, which is a memorandum signed by President Obama directing the Department of Education and other federal agencies to help borrowers in their monthly loan payments.
But what does this latest development mean for the average student-borrower? We provide the 3 most important changes being proposed by this Student Aid Bill of Rights:
1. An organized and centralized complaint system
On July 1, 2016, the Secretary of Education will launch a website that will allow borrowers to lodge their complaints against lenders, collection agencies, and even higher education institutions. This will provide an organized platform where borrowers can voice out their concerns over student loans.
In the past, no such website existed so borrowers usually had to call or write to different agencies just to have their comments heard. Also, these problems were usually filed within these respective agencies and so were not readily available to the public.
What this new website allows is unparalleled public access to an organized database of comments, suggestions, and grievances over the student loan industry. As a result, trends can be detected much easier and problems addressed much faster.
In addition, the website allows the public to scrutinize which lenders provide the best customer service to its clients which allows for more competition in the industry. This information is also important because the government provides additional funding to lenders with high ratings. As such, the public can evaluate whether lenders receiving funding are really able to hold up their end of the bargain by providing satisfactory customer service.
2. More open communication between lenders and borrowers
The Bill also provides for increased communication between lenders and their borrowers. For example, notices will have to be given when the loans are transferred to other lender companies, when the loans become past due, or when the borrowers begin but do not complete applications to change repayment plans.
These are all aimed to help borrowers make responsible and informed decisions regarding their loans. While most lenders already provide these written communications, the Bill seeks to standardize this practice across the whole industry in the interest of fairness to all borrowers.
An important part of the Bill also calls for lender companies to apply prepayments primarily to those loans which are most burdensome, i.e., those with the highest interest rates, unless the borrower explicitly desires to allocate it elsewhere. Previously, some lenders were able to apply the prepayments to loans with lower interest rates, retaining the most burdensome loans and thereby trapping the borrower in mire of high interest and penalties.
With the new changes, borrowers can sleep easier at night knowing that all of their payments will go a long way at reducing their primary loan balance.
3. Leniency in Bankruptcy
Finally, the Bill seeks to review the current bankruptcy rules regarding student loans with the hope of making them much more understanding to the plight of students. Currently, when a student becomes bankrupt, student loans are not dischargeable. The Bill recognizes that this provides unnecessary burden to individuals already at the end of their ropes, and thus desires to ease the hardship of their circumstances by either discharging the loans at bankruptcy or providing for repayment plans to help these students get back on their feet.
It is worth noting that these 3 major changes are not the only provisions in the Student Aid Bill of Rights, as the memorandum also provides for a single portal for borrowers to obtain loan information, a review as to the reasonableness of the fees charged by lenders, and many more.
While all of these seem great on paper, the real test is with their approval. We should remember that these are all recommendations by the President to the federal agencies and to Congress and, as such, do not have the full force of law yet. As such, student-borrowers and their families must wait with bated breath as to which changes will be accepted and which will not.

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