We’ve already heard about some exciting announcements from President Obama on student aid, like free community college tuition and expansion of Pay As You Earn (PAYE). But this latest announcement could be the most significant yet.
On Tuesday, President Obama unveiled the Student Aid Bill of Rights. As the name suggests, this document clearly defines the basic rights of borrowers, and many of the items it lists directly address some of borrowers’ greatest concerns.
The Student Aid Bill of Rights also relates to several other student aid initiatives already in effect, as well as touches upon some significant additions to current policy. So how will this affect your loans? Let’s take a closer look.
What the Student Aid Bill of Rights Says
The Student Aid Bill Rights boils down to four key points. Taken directly from the official announcement, they are:
- Every student deserves access to a quality, affordable education at a college that’s cutting costs and increasing learning.
- Every student should be able to access the resources needed to pay for college.
- Every borrower has the right to an affordable repayment plan.
- And every borrower has the right to quality customer service, reliable information, and fair treatment, even if they struggle to repay their loans.
These are some big goals. So you may be wondering how will they be accomplished, and what impact the changes will have on your loans. Here are new initiatives the president announced to meet these goals.
1. Holding Federal Student Loan Servicers Accountable
Some of the most common complaints we hear at Student Loan Hero result from problems with federal student loan servicers. Borrowers are confused about how to identify which servicer holds their loans, how their payments break down, and other issues related to the quality of customer service. In response, the Student Aid Bill of Rights could bring about some large-scale changes.
It first requires servicers to communicate better with borrowers. For one, servicers must alert borrowers when their loans are transferred. This action is aimed at helping to prevent confusion, especially among borrowers with multiple loans.
Servicers must also notify borrowers who have fallen behind on payments or are attempting to change repayment plans. Again, this part of the policy seeks to help borrowers who may otherwise fall through the cracks.
Perhaps the biggest change is how the Student Aid Bill of Rights resolves servicers’ taking advantage of borrowers with payments and late fees. In response to complaints, an investigation by the Consumer Financial Protection Bureau (CFPB) revealed rampant “illegal practices like charging unfair late fees and harassing debt collection calls.” Some of this activity has related to servicers’ applying payments in a way that’s advantageous for them to charge interest and fees.
The Student Aid Bill of Rights would instead require servicers to apply payments to the highest interest student loans first unless the borrower requests otherwise.
President Obama also plans to set up a “centralized point of access” containing all federal student loan information. This means that borrowers who are confused about which company services their loans will be able to find their balances and other loan information on one website.
2. Discharging Student Loans in Bankruptcy Could Become Easier
One of the more interesting parts of the Student Aid Bill of Rights concerns student loans and bankruptcy. As you may know, it’s currently difficult, but not impossible, to discharge student loans in bankruptcy. Yet, it appears that President Obama might consider relaxing the current restrictions.
The president’s announcement reveals that the government will consider “clarifying the rights of federal student loan borrowers in bankruptcy.” This action could bring about “possible changes to the treatment of loans in bankruptcy proceedings and when they were borrowed under fraudulent circumstances.”
Though neither of these statements promises any changes, the Student Aid Bill of Rights could eventually enable more borrowers to discharge loans in bankruptcy and, in turn, ease the burden of unbearable student loan debts.
3. Increased Government Responsiveness to Student Loan Complaints
Currently, lodging a complaint against your servicer is neither easy nor effective, no matter whether you contact the CFPB or the Federal Student Aid Ombudsman Group. But the new Student Aid Bill of Rights will change all of this by creating one place where borrowers can make complaints and comments.
With the new system, borrowers will be able to submit complaints about nearly any entity involved in student loans: lenders, servicers, debt collectors, and schools.
This new system is designed so that the Department of Education can receive, respond, and act on complaints in a timely manner. With this announcement, the new system should be ready by July 2016.
4. Easier Verification of Income for Income-Based Repayment
Another key part of the announcement related to loan repayment is a simplified system to verify the income of borrowers wanting to enroll in income-driven repayment plans.
Though the details of this initiative haven’t been announced yet, the goal is to make it easier for borrowers to enroll and stay enrolled in income-driven repayment plans.
This aspect of the Student Aid Bill of Rights relates to President Obama’s 2014 announcement about the expansion of the PAYE repayment program. PAYE limits borrowers’ federal student loan payments to 10% of their discretionary income, as well as allows the remaining balance of loans to be forgiven after 20 years of payments.
The expansion would allow people with loans initiated before 2007 to participate in PAYE, thereby making about 5 million more borrowers eligible.
What does the Student Aid Bill of Rights Mean for You?
If you have federal student loans, the Student Aid Bill of Rights could have some major implications. In fact, nearly all federal student loan holders will likely be impacted in some way.
For now, though, you need to sit tight. Many of these changes won’t go into effect immediately, though they should be implemented in the next year or so.
Stay tuned for when these changes go into effect. The best way to do that? Sign up with your email using the form below. We’ll be sure to keep you updated about all of the latest changes and news concerning student loans.
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1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 2.98% APR (with Auto Pay) to 5.79% APR (with Auto Pay). Variable rate loan rates range from 1.99% APR (with Auto Pay) to 5.64% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of July 31, 2020, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 7/31/2020. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at [email protected], or call 888-601-2801 for more information on our student loan refinance product.
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2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
All credit products are subject to credit approval.
Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com.
As used throughout these Terms & Conditions, the term “Lender” refers to KeyBank National Association and its affiliates, agents, guaranty insurers, investors, assigns, and successors in interest.
Assumptions: Repayment examples above assume a loan amount of $10,000 with repayment beginning immediately following disbursement. Repayment examples do not include the 0.25% AutoPay Discount.
Annual Percentage Rate (“APR”): This term represents the actual cost of financing to the borrower over the life of the loan expressed as a yearly rate.
Interest Rate: A simple annual rate that is applied to an unpaid balance.
Variable Rates: The current index for variable rate loans is derived from the one-month London Interbank Offered Rate (“LIBOR”) and changes in the LIBOR index may cause your monthly payment to increase. Borrowers who take out a term of 5, 7, or 10 years will have a maximum interest rate of 9%, those who take out a 15 or 20-year variable loan will have a maximum interest rate of 10%.
KEYBANK NATIONAL ASSOCIATION RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE.
This information is current as of September 9, 2020. Information and rates are subject to change without notice.
3 Important Disclosures for SoFi.
4 Important Disclosures for Splash Financial.
Splash Financial Disclosures
Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet applicable underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates are reserved for the highest qualified borrowers. If approved, your actual rate will be within a range of rates and will depend on a variety of factors, including term of loan, a responsible financial history, income and other factors. Refinancing or consolidating private and federal student loans may not be the right decision for everyone. Federal loans carry special benefits not available for loans made through Splash Financial, for example, public service loan forgiveness and economic hardship programs, fee waivers and rebates on the principal, which may not be accessible to you after you refinance. The rates displayed may include a 0.25% autopay discount.
The information you provide to us is an inquiry to determine whether we or our lenders can make a loan offer that meets your needs. If we or any of our lending partners has an available loan offer for you, you will be invited to submit a loan application to the lender for its review. We do not guarantee that you will receive any loan offers or that your loan application will be approved. Offers are subject to credit approval and are available only to U.S. citizens or permanent residents who meet applicable underwriting requirements. Not all borrowers will receive the lowest rates, which are available to the most qualified borrowers. Participating lenders, rates and terms are subject to change at any time without notice.
To check the rates and terms you qualify for, Splash Financial conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, the lender will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
Splash Financial and our lending partners reserve the right to modify or discontinue products and benefits at any time without notice. To qualify, a borrower must be a U.S. citizen and meet our lending partner’s underwriting requirements. Lowest rates are reserved for the highest qualified borrowers. This information is current as of September 10, 2020.
5 Important Disclosures for CommonBond.
Offered terms are subject to change and state law restriction. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900), NMLS Consumer Access. If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 0.16% effective Sep 1, 2020 and may increase after consummation.