On Wednesday, President Obama announced a new proposal to ease the burden of student loan debt. The “Know Before You Owe” initiative will allow students with multiple government-backed loans to consolidate them into one loan under the federal Direct Loan program with an interest rate reduction of 0.25% to 0.5%. The administration estimated that about 5.8 million students could be eligible for loan consolidation. The new initiative would also accelerate the easing of income-based loan repayments. Income-based loans restrict repayment to 15% of a student’s disposable income; the new initiative would reduce the repayment to 10% in January 2012, rather than 2014, as currently scheduled. In addition, any students with federal student loans in 2012 and at least one of the previous four years would have any remaining debt forgiven after 20 years instead of 25 years under current law. President Obama said that giving student borrowers more money for home ownership, small business startups, or retirement will “give the economy a boost.” Education and student advocates hailed the proposal as a boon to the approximately 36 million Americans currently paying off student loans. However, some experts have pointed out that it may not be enough to make up for the doubling of student loan interest rates, set to take effect in July 2012. Read a blog post on the “Know Before You Owe” initiative from Education Secretary Arne Duncan and Domestic Policy Advisor Melody Barnes at the White House website.
The House Committee on Education and the Workforce’s Subcommittee on Higher Education and Workforce Training held a hearing Tuesday on the Education Department’s continuing transition from some bank-based loans to administering 100% of government-backed loans through the federal Direct Loan program. Subcommittee Chair Virginia Foxx (R-NC) cited an Oct. 13 security breach on the Direct Loan Servicing Center’s borrower website as evidence that the program is not adequately protecting students’ financial and personal information. During the seven-minute breach, users were able to see other borrowers’ repayment histories and bank routing numbers. A federal student aid official acknowledged the site disruption as well as other customer service concerns in a notice posted the following day. Student-aid administrators who testified at the hearing noted that their workload has increased since the transition to direct lending, because they are “doing most of the work that customer-service representatives used to do at the banks and guarantee agencies.” Office of Federal Student Aid chief operating officer James Runcie enumerated several strategies taken to smooth the transition, including the installment of a “chief customer experience officer” to oversee customer advocacy and protections. He also conceded that student loan default rates have risen since the change, which Chair Foxx attributed to a loss of financial education services for student borrowers. Several of the panel’s Democrats credited economic and unemployment factors for the default increase, and argued that the transition has been much smoother than program critics had projected.
From the New England Council’s Weekly Washington Report Higher Education Update, Oct. 31, 2011. NEBHE is a member of the Council and publishes this column each week.
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