President Barack Obama signed a presidential memorandum on Tuesday that would allow federal agencies overhaul how students repaid their loans. The move is intended to make the costs associated with going to college to be an affordable option.
According to Danielle Douglas-Gabriel of the Washington Post, the president's action was intended to promote college access and affordability; one of the programs included capping student loan payments to 10 percent of a student's income for 20 years. Obama unveiled his plan at the Georgia Institute of Technology, a school that Douglas-Gabriel said ranked as one of the best bargains in education.
"Every borrower has the right to an affordable repayment plan," said Obama. "Every borrower has the right to quality customer service, reliable information, and fair treatment, even if they struggle to repay their loans."
According to the Washington Post, student debt has surpassed $1.3 trillion, and the average college graduate has nearly $29,000 in education loans. The memorandum, entitled the Student Aid Bill of Rights, is supposed to help the Education Department to quickly respond to complaints about the student loan process through a new website that should be set up by July 2016.
"Much of the president's plan involves improving the way borrowers interact with student loan servicers, the middlemen who collect and apply loan payments," Douglas-Gabriel wrote. "Obama will require companies, including Navient and Nelnet, to alert borrowers when their loans are transferred to another firm or if they fall behind on payments."
Treasury Deputy Secretary Sarah Bloom Raskin explained to the Washington Post why such a memorandum on student loans was necessary.
"We have to recall the bitter lessons that were learned from our experience in the mortgage industry, which shows us that quality servicing doesn't just happen," Raskin said. "Servicing...is a part of the borrower experience that may not be completely transparent and comprehensible to borrowers."
Shahien Nasiripour of the Huffington Post reported that the president's directives are aimed at targeting a system that gives borrowers few protections from companies and is prone to abuse. Lauren Asher, president of the nonprofit Institute for College Access & Success, thought that Obama made the right decision.
"The president is rightly prioritizing much-needed consumer protections for borrowers, and we urge the actions he's calling for are taken as quickly as possible," Asher said. "It's incumbent on the agencies to follow through as quickly as they can."
Obama elaborated on what actions he has taken so far in the memorandum.
"We have eliminated tens of billions of dollars in student loan subsidies paid to banks in order to increase the maximum Pell grant by nearly $1,000 and provide a path for borrowers to limit payments on many student loans to 10 percent of income," Obama wrote.
According to Nasiripour, the White House may be targeting loan contractors thanks to their cozy relationship with the Education Department. The agency has been unable to recoup $22 million in alleged overpayments to student loan giant Sallie Mae, which has since spun off its loans operation and renamed it Navient Corp.; the department's inspector general made that recommendation back in 2009.
"The steps that the president is announcing [are] going to refocus our system on borrowers," Raskin said. "It's going to improve loan servicing to provide greater customer service, and it's going to ensure that affordable repayment options are available to those who are struggling."
The Washington Post reported that the new rules would only apply to federal student loans, not those made by banks and other private financial firms in the form of education loans. However, the president also hopes that federal agencies would find ways to strengthen consumer protections when it came to private loans.