Are There Viable Possibilities Now for Student Loan Reform?

It’s hard to avoid the clichéd statement—and every pundit has been saying it over and over again—this was truly an historic election. Not only was President Barack Obama re-elected, but a number of very progressive candidates, such as Elizabeth Warren, seized seats in Congress as well. It seems clear: the values of the American public are changing.

When it comes to people who are struggling or unable to pay off their student loans, Warren’s win is significant for several reasons. First, Warren is not a fan of student lenders. She was also behind the creation of the Consumer Financial Protection Bureau, which is now working in earnest on issues relating to the student lending crisis. Moreover, Warren once said, “Student loan debt collectors have power that would make mobsters envious.” While Warren is a freshman senator, she is joining several colleagues who are genuinely concerned about Americans who are struggling or unable to pay off their student loans. If she, along with Senators Brown (D-OH), Harkin (D-IA), and others, can garner bipartisan support for legislation that will bring relief of some sort to distressed or defaulted borrowers, the indentured educated class might just see actual results in the coming years.

As many of my readers are aware, I have been advocating for the indentured educated class for close to three years. When I first began making visits to the Hill and meeting with Congressional leaders and their staffers, all of them agreed that the U.S. was facing a student lending crisis. However, they would not state this fact publicly. Now that outstanding student loan debt has surpassed $1 trillion, the tune has changed and there is open and public acknowledgment of the problem. While many experts, such as Sandy Baum, are arguing that this figure is not troubling, I beg to differ. I also wonder if Dr. Baum receives suicidal notes from desperate borrowers or if she has listened to the hundreds and hundreds of stories, like I have, from Americans across the country, across the globe for that matter, who are drowning in student loan debt and forgoing things once related to the American dream. Many of these debtors have given up on the idea of buying a home, having children (those notes, the ones from young woman who wish to become
mothers, are the most heartbreaking), or saving for retirement. It’s not just young people who are struggling. Indeed, has Dr. Baum heard from retirees who are barely keeping their heads above water, and are one paycheck away from financial disaster because of their own loans or the loans of their children?

But I won’t quibble with Dr. Baum and others who insist that there isn’t a problem. It’s painfully clear that
there is a problem, and one that needs to be solved. Here is a list of potential solutions that could help both
borrowers and taxpayers:

Parents who take out Parent Plus Loans and then lose their children and people with permanent disabilities deserve relief—don’t let the IRS tax the loans that were forgiven; parents who have lost children and have Parent Plus Loans, should not find out that these loans, while forgiven once their child has died, is considered taxable income. One example is Regina Friend, a mother who lost her son to an apparent suicide in 2011. Although the Parent Plus Loan she took out with Sallie Mae for $58,000 was forgiven, Friend has been hit with a $14,000 from the IRS. The same situation goes with individuals
with permanent disabilities.

Private Student Debt Swap. Now that Senator Sherrod Brown (D-OH) has been re-elected, I urge his office to reintroduce this bill again. If passed, the U.S. government would assume ownership of private loans, thus making repayments on these loans more flexible for borrowers. (The terms of repayment for private loans are overwhelmingly unfavorable to borrowers, and most lenders to not offer plans to those who have lost their jobs or are recent, unemployed college graduates). When this bill was first introduced, Brown’s office said it would save money for taxpayers.

Restructure Consolidation Offers. Allow student borrowers the option reconsolidating their loans if they are dissatisfied with their lenders. After all, if homeowners can refinance, why can’t student loan borrowers?

End Contracts with Debt Collectors. The IRS realized that outsourcing work to contractors to track down distressed taxpayers was costing the government money. Instead of paying debt collectors inordinate sums of money to hunt down distressed borrowers, the Department of Education could do this in-house. They already have a model: the IRS. In so doing, the Department could develop better relationships with borrowers who are struggling to pay back their loans, and they could cut out middlemen who make money by squeezing as much out of these struggling borrowers as possible. It’s unjust and it’s costly to taxpayers.

Reinstate Usury Laws on Private and Federal Loans. Stop punishing people who have defaulted with interest
compounded on interest on loans they are struggling or unable to pay back. This is usury at its worst, and
only helps to line the pockets of debt collectors. If the Department of Education ended contracts with debt
collectors and created programs that would actually help defaulters, this could save taxpayers money.

Institute a New Deal Program. Help recent graduates get back to work and pay down their loans by offering
their service in government funded projects.

Absolute No-Brainer: Increase Pell Funding. And don’t allow it to be funneled into for-profits. It’s a simple
as that.

Another No-Brainer: Restore Bankruptcy Protections. These protections should never have been taken away in the first place, and they should be reinstated immediately. Stop fighting wars, paying defense contractors, and instead invest in Americans seeking degrees. While many Americans, and rightly so, are cynical about the political system, the outcome of the recent election might just lead to actual changes and relief for student loan borrowers. Of course, many pundits argue that gridlock will continue to haunt Congress from passing legislation that will help the country move forward. But it’s hard not to see, at least from this vantage point, the possibility of legislation being passed that might just help out the right people this time around. And it’s high time that taxpayers and student loan borrowers received some attention.

– Cryn Johannsen