4 Ways the New Student Aid Bill of Rights Will Impact Your Loans

“We can and should do much more to give students affordable ways to meet their responsibilities and repay their loans.”

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:

  1. Every student deserves access to a quality, affordable education at a college that’s cutting costs and increasing learning.
  2. Every student should be able to access the resources needed to pay for college.
  3. Every borrower has the right to an affordable repayment plan.
  4. 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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