HEA Reauthorization – Student Loan Reform OpEd
It seems the never ending discussion continues on the re-authorization of the HEA. While there appears to be no imminent action by the House Education and Workforce Committee there are some ‘common-sense’ student loan reforms that should be included in discussions at schools and among policy-makers. Ultimately theses reforms need to be voiced to the Committee.
Unfortunately for borrowers, and unlike private student loans, loan disclosure information for federal loans is not actually given to borrowers until their loan money is disbursed. As a result of lack of loan disclosure, borrowers are committed to many years, even decades of debt. The information should be required and provided in simple and effective ways that is easy for borrowers to comprehend.
Generous federal loan limits and lending policies/regulations contribute to sometimes, un-necessary over-borrowing and subsequent debt repayment challenges. Under the current system, federal loans are available to students, and their parents, for amounts up to the total school cost of attendance, minus other aid. Schools should be permitted/encouraged, even required, to perform prudent (pre-loan application) guidance/counseling to minimize borrowing and also required to conduct borrower financial literacy instruction.
The alarming number of delinquencies and defaults on federal student loans continue to rise with nearly half of new borrowers unable to put a dent in their principal balance within three years of entering repayment. This is, in part, due to high enrollment in repayment plans, some of which are tied monthly payments to earnings and/or loan forgiveness after a specified number of years. While these plans might be the right fit for some struggling borrowers, they also unknowingly (to uninformed borrowers) prolong repayment and increase overall interest costs, while placing taxpayers increasingly on the hook for unpaid debt.
These low/no cost reforms continue to provide access to higher education financing, reduce taxpayer liability, and ensure students and their families know exactly what they are getting into when borrowing for college.
James Gathard, Principal
National Consulting Services, LLC