Yesterday, President Barack Obama held a White House briefing and signed a Presidential Memorandum calling for new refinancing options, expanding access to income-based repayment, better outreach to distressed borrowers, and more accountability for student loan servicers.
Later this week, the Senate is scheduled to vote on Senator Warren's Bank on Students Emergency Loan Refinancing Act, which would allow borrowers to refinance federal and private student loans at lower rates. Representatives Miller and Tierney have also introduced a companion bill in the House.
In a statement issued today, Senior Policy Counsel Maura Dundon said:
Yesterday, President Obama took significant steps to make student loans fairer and more affordable. In his remarks, the President discussed new options for consumers struggling to meet their student loan obligations, including increased access to income-based repayment options, greater protections for military service members, and stronger standards for student loan servicers.
The sum total of outstanding student loan debt is over $1 trillion dollars. The weight of the debt is taking a heavy toll on American families:
- One in seven borrowers defaults on federal student loans within three years of beginning repayment. For-profit college students are especially vulnerable;
- 30% of federal direct student loans are in default, forbearance, or deferment;
- Borrowers cannot rely on servicers to help them successfully manage their loans and stay out of default;
- The Federal Reserve and housing industry groups have reported concern that student loan debt is contributing to lower rates of savings, homeownership, and entrepreneurship among young Americans.
The slate of proposals and actions are designed to ease the burden of student debt including expanding access to income-based repayment options, reforming student loan servicing practices, and ensuring active duty military are awarded the protections afforded to them under the Servicemember Civil Relief Act.
The announcement included important provisions for the Department of Education to strengthen the financial incentives for student loan servicers to help borrowers repay their loans on time, reduce payments to manageable amounts, and increase borrower satisfaction. Re-negotiating contracts with servicers will incentivize high-quality interactions with borrowers. The Department will also take steps to reach out to distressed borrowers directly and through tax preparation and other financial services providers.
President Obama underlined the importance of the Servicemember Civil Relief Act, especially its provisions that lower interest rates on servicemembers' loans. Interest rates on federal student loans will be automatically reduced for all eligible servicemen and women with Direct Loans without the hassle of more paperwork.
Finally, the President reiterated his support for the Bank on Students Emergency Loan Refinancing Act. The bill would allow borrowers to refinance their federal and private student loans at lower rates – the same way mortgage borrowers were permitted to refinance their mortgages after the height of the foreclosure crisis. In his remarks, the President embraced this proposal; the Senate is scheduled to vote on the bill this week.
About the Center for Responsible Lending: The Center for Responsible Lending is a nonprofit, nonpartisan research and policy organization dedicated to protecting homeownership and family wealth by working to eliminate abusive financial practices. CRL is affiliated with Self-Help, one of the nation's largest community development financial institutions.
For more information, Contact: Catherine An, 202-349-1878, email@example.com