Student borrowers have been waiting with baited breath to find out how President Donald Trump plans to tackle the student loan debt crisis, and now a clearer picture has emerged. Secretary of Education, Betsy DeVos, has announced a plan to streamline student loan repayment and provide better customer service and support for borrowers. Here is what the student loan repayment market looks like now:
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- $1.4 trillion in student loan debt spread across 44 million borrowers, according to USA Today College.
- $1 trillion of the student loan debt is federal student loans and the government currently outsources repayment to 9 different servicers (Cornerstone, Granite State, HESC/EdFinancial, MOHELA, Navient, Nelnet, Inc., Great Lakes Educational Loan Services, Inc., FedLoan Servicing and OSLA Servicing).
- Confusing and misleading terms, with some borrowers even entangled in lawsuits with servicers.
DeVos highlighted the following changes for student loan servicers:
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- All student loan repayment services would be streamlined under one company. Currently, four companies are bidding to be the provider: Navient, Pennsylvania Higher Education Assistance Agency (or American Education Services and FedLoan Servicing) and Nelnet and Great Lakes Educational Loan Services (which are submitting a contract together).
- Because there would be one provider, students would no longer have to sign into multiple accounts with multiple servicers to pay student loans. Everything would be located in the same place.
- This streamlined process would allow the federal government to better monitor the servicer to make sure that student borrowers are being treated fairly and receiving adequate customer service and support.
- It would also save taxpayers $130 million over the course of the next five years, as reported by USA Today College.
There are critics to this plan. USA Today College interviewed student advocates who are worried that handing over all federal student loans to one provider would create a “trillion dollar bank,” or a provider who has all of the power to determine repayment, refinancing and payment schedules. The Trump administration insists that interest rates and repayment plans won’t be changing all that much – yet. However, there are plans to potentially eliminate the student loan forgiveness program for those serving in the public sector in the years to come, which would affect more than half a million people according to Business Insider. Additionally, Trump and DeVos would like to make changes to Obama’s rule to forgive the student loan balance after 20 years if borrowers made consistent monthly payments at 10% of their income. Trump has proposed loan forgiveness after 15 years of consistent payment at 12.5% of income. While monthly payments would be a few hundred dollars higher; borrowers would save thousands of dollars over the lifetime of the loan repayment and be forgiven sooner. As of now, there is no timeline for deciding on a primary loan servicer – or for when the changes will come into effect. Student borrowers should continue making their regular student loan payments to their providers until they hear otherwise. As always, we’ll provide updates on the student loan overhaul as they are announced and implemented.