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President Barack Obama prepares to sign the presidential memorandum on the Student Aid Bill of Rights in the Oval Office of the White House on March 10, 2015.
To date, more than 70 percent of U.S. college graduates have student loans, which has now bypassed credit cards as the second-largest source of debt in the United States following mortgages. And the default rate continues to rise.
The National Student Loan Data System reported that in the first quarter of 2015, over 12 percent of the $350 billion dollars of direct subsidized loans in repayment were in default, as were 25 percent of the $236.2 billion of Family Federal Education Loans (FFEL).
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Unless something intrinsic is done immediately to correct intrinsic problems in the system, there is no doubt the number of borrowers in default will continue to grow.
"The debt collectors ... are the most to blame for the student loan debacle—and are the biggest reason so many young people seek my help. In fact, the customer service is challenging even for a credit expert."Fortunately, under this new bill, the DOE and other loan agencies are being asked to create a new system by 2016 that will provide borrowers with "quality customer service, reliable information, and fair treatment, even if they struggle to pay their loans."
To do this, they must find better ways to help with loan repayment, such as a centralized website to make it easier to file complaints and to see all your student loans in one place; a better process for borrowers who become disabled to get their loans discharged; and my personal favorite: to allow only federal employees to collect on defaulted loans rather than private debt collectors.
The debt collectors, I believe, are the most to blame for the student loan debacle—and are the biggest reason so many young people seek my help in getting their student loan out of collections. In fact, the customer service is challenging even for a credit expert.
I get calls from clients every day telling me they went to Wharton or MIT and are frustrated that they have to hire a credit management expert to resolve issues with a collection agency about their student loan because they can't get anywhere with them after hours on the phone.
Holding debt collectors accountable
Until recently, 22 different collection agencies were in charge of collecting on defaulted student loans. But after months of investigation by the DOE, it was found that the agencies were in violation of federal and state credit-collection laws—for providing inaccurate information on the lowest minimum payment acceptable for a federal loan rehabilitation program, as well as for violating the Fair Debt Collection Practices Act.
President Obama is now mandating that lenders offer borrowers reasonable repayment options and quality customer service.
It's a start, but we still have a long way to go before we see any real progress. In the meantime, if your federal student loan is currently in default, here's what you can do to get it out of collections—now.
