Legislators and student leaders are taking different approaches to address the problem of college students struggling to repay student loans.
President Barack Obama’s administration released a report Sept. 30 that recommended Congress increase protections to those who have taken out student loans. One of the recommendations suggests Congress change a 2005 law that makes it difficult for students to discharge private student loans when filing for bankruptcy.
Daniel Roddick, a financial aid analyst for student financial support in the University of California Office of the President, said discharging a loan when declaring bankruptcy means the person no longer is obligated to pay that loan.
The proposal only calls for a change in the standards for private loans that do not offer flexible repayment plans like federal student loans. According to the report, U.S. students borrowed more than $6 billion in private student loans during the 2012-2013 academic year.
The report also stated private loans lack the safety net and consumer protections offered by federal student loans, such as income-driven repayment plans that allow students to make payments based on their discretionary income. Many private loans do not offer similar flexible repayment plans.
Roddick said discharging student loans, either federal or private, when declaring bankruptcy does not happen as often as discharging other types of consumer debt. He added students have to prove that they are unable to pay the loan over the entire repayment period.
Kate Moser, a spokesperson for the UCOP, said 45 percent of UC graduates have no student loans at the time of graduation. She added UC graduates on average have less loan debt than graduates of comparable universities nationwide.
Zach Helder, external vice president of Undergraduate Students Association Council, said he and his office went to Washington, D.C. over the summer to meet with legislators. He said his office is supporting some bills currently in Congress that address the problem of students being unable to pay their loans, such as the Fairness for Struggling Students Act of 2015 and the Student Loan Repayment Assistance Act of 2015.
“If students are unable to pay their loans, they are saddled with default with no avenue to improve their credit,” Helder said. “The most basic thing like getting a credit card is impossible when you default on your loans.”
The Fairness for Struggling Students Act would allow students with private loans to discharge their debt when filing for bankruptcy. Helder said Republican legislators said they thought it would incentivize students to prematurely file for bankruptcy.
The Student Loan Repayment Assistance Act of 2015 will modify the way the tax code affects employers who make payments on their employee’s student loans, Roddick said.
The proposed act would allow recent college graduates’ employers to help pay off as much as $50,000 of student loans in exchange for tax credit, which allows certain individuals to pay less in taxes, Helder said. Democratic legislators liked the idea for its provision for loan forgiveness, and Republican legislators support it because it would give tax credit to businesses, he added.
However, despite the proposed changes, some students still expressed concern about student loans.
“Coming out of college you’re trying to look for a job, and then once you get a low-paying entry job, you still have a ton of loans to pay off,” Andre Leite, a second-year communication studies student said. “You’re going from broke to still broke.”
Other students are taking different approaches to address student loan debt issues.
Sam Alavi, director of the Associated Students of University of California Davis’ Office of Advocacy and Staff Representation, said her office is lobbying state legislators for lower tuition costs so students will not have to take out as much in student loans.
“We try to emphasize it is the state’s responsibility to pay for higher education and the problem of student loans comes from higher tuition,” Alavi said.
Some students also thought the problem of student debt should be addressed by focusing on the cost of tuition.
“The amount of money that students have to pay to get an education is ridiculous,” said Margarita Bolanos, a fourth-year Spanish community and culture and geography/environmental studies student. “The main problem isn’t with the loan system itself but with how costly tuition is in general.”
Congressional committees are assessing both bills.
The undergraduate student government will vote Tuesday to endorse resolutions that would support the bills.
Contributing reports by Amanda Wilcox, Bruin contributor.
I think a reasonable approach to this issue is a ten fold solution:
1) Increase state budgets so the “state supported” percentage is back at 60-90%. Nowadays it has dropped to about 10-12%. Some of these public unversities are almost at the level of becoming “semi-private” colleges. This is where most of the student debt crisis originated from. These state reductions lead to tuition increases, which increased the debt.
2) Increase the amount of Pell and Cal grant funding to cover basic tuition, plus a good percentage of room and board (if coming from out of the area) at a state university.
3) Reinstate bankruptcy protection for student debts at least six years old. Maybe full discharge in a chapter 7 and full or partial in a chapter 13 or 11.
4) Reduce the severity of a student loan default when it comes to Experian, Equifax, Trans Union and FICO that it doesn’t become “a life without credit” if a default occurs. A default due to a job loss, or economic recession, etc shouldn’t be a death sentence to finding an apartment, getting a new car, and shouldn’t force one out of their home. Maybe a few points decline, not a huge decline.
5) Enroll all graduates in income based repayment of both government and private loans.
6) Do not keep compounding interest when in deferment or forbearance.
7) Allow students to refinance at the current rates.
8) Limit collection penalties and change the practices when one is in default. Adding a 20% collection fee is outrageous. It is best not to burry someone in fees when they are already struggling financially. I would also ban ceasing property as well. Wage garnishments are OK in some cases, but they should suspend a garnishment the next month when one makes a voluntary payment the month before. Accelerating loans is also a suspect practice when one is struggling. Collectors instead should offer reasonable payment plans that take into account one’s new income situation, and the real reasons for the default (job loss, medical, etc).
9) Prohibit states from suspending professional license renewals when student loans are in default.
10) More disclosure of costs to borrowers at the outset.