Significant Student Debt Reforms Quietly Take Flight

Once again, much of the press attention last week focused on the political posturing around the pending doubling of subsidized Stafford loan interest rates. President Obama flew off to address students in Las Vegas, telling them in part that "the No. 1 thing Congress should do for you is to stop interest rates on student loans from going up."

That was followed by a Twitter chat on student loan interest rates and Income-Based Repayment. Meanwhile, a seemingly endless series of proposals and counterproposals continued to make the short but acrimonious flight between the House and Senate.

Unfortunately, as we wrote a few weeks ago, this resulted in more important systemic issues flying under the radar. So, hop on board the Student Loan Ranger Airborne Express and take a quick tour of the student debt landscape here in D.C.

We'll start our trip with a flyby of the White House. The big news here is that the administration is finally working to increase enrollment in Income-Based Repayment (IBR) and the upcoming Pay As You Earn repayment plans.

Only a tiny percentage of the people who could greatly benefit from IBR are enrolled in it, in part because the complexity of the IBR application process bars many borrowers from completing their enrollment. (Check out the Department of Education's IBR calculator to see if you are eligible and if it would reduce your monthly student loan payments.)

Currently, applying for IBR involves first requesting the plan from loan servicers, then collecting and submitting the required documents. To simplify this, the White House has issued a Presidential Memorandum directing the Secretary of Education to create, by September 12, 2012, an online IBR application process that will allow borrowers to directly import their Internal Revenue Service data and complete their application in a single sitting, directly through the Department of Education. This is a great step forward.

In addition, Federal Direct student loan servicers will be required to alert borrowers that IBR is a repayment option before they leave school and upon entering repayment. And within a year, the Department of Education has to create a model exit counseling module for schools that will help students understand and pick the best repayment plan for them.

The memorandum also directs the Secretary to create "integrated online and mobile resources for students and former students to use in learning about Federal student aid" by July 15, 2012. At least as envisioned, this tool would explain the advantages of IBR and Pay As You Earn, improve borrowers understanding of how their student debt impacts them financially, and link to their individual federal loan data to help them determine their best options for repayment. This seems like an ambitious project and a short timeline, but we are eager to see it in practice. We'll let you know if there are any opportunities to provide feedback during or after its creation.

Next, on to the U.S. Senate, where Sen. Al Franken (D-Minn.) recently introduced the Understanding the True Cost of College Act. The bill attacks the monster of student debt with transparency. It would help prospective students understand the true cost of college by requiring the creation of a uniform financial aid award letter using standardized financial aid terms.

It would also establish basic minimums of information that must be included in the letter including: the costs of tuition, fees, room and board, books and supplies, transportation and miscellaneous personal expenses; the amount of financial aid that the student does not have to repay, (such as scholarships and grants); and the net amount the student will have to pay.

Institutions where more than 30 percent of the enrolled students borrow loans to pay for their education would have to reveal their most recent cohort default rate compared to the national average. And all institutions would have to disclose that federal student loans offer generally more favorable terms and beneficial repayment options than private loans.

Ten college presidents have already volunteered to provide a "shopping sheet" in the financial aid packages they send to incoming students starting during the 2013-2014 academic year. The shopping sheets will state the cost of a year of classes, the student's net cost after grants and scholarships, financial aid options to pay that cost, the estimated monthly payments for federal loans, and information about the colleges' retention, graduation, and default rates. While we still support Franken's mandatory legislation, we're glad to see these college presidents voluntarily doing the right thing.

The Student Loan Ranger suggest you hop online and urge your representative and senators to support the Understanding the True Cost of College Act. You can also make sure you continue to get the student debt information you need by following us on Twitter (use #studentdebthelp) and Facebook and downloading our new Educational Debt Manual.

Isaac Bowers is a senior program manager in the Communications and Outreach unit, responsible for Equal Justice Works' educational debt relief initiatives. An expert on educational debt relief, Bowers conducts monthly webinars for a wide range of audiences; advises employers, law schools, and professional organizations; and works with Congress and the Department of Education on federal legislation and regulations. Prior to joining Equal Justice Works, he was a fellow at Shute, Mihaly & Weinberger LLP in San Francisco. He received his J.D. from New York University School of Law.


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