“the Ethics Of Student Loan Collections: Borrower Rights And Fair Practices”

“the Ethics Of Student Loan Collections: Borrower Rights And Fair Practices” – Millions of borrowers are waiting for a decision on debt forgiveness. Mandel Gnan/AFP Getty Images Illustration by Julia Schiff

The two-year moratorium on non-private student loan repayments is about to end. On May 1, for 43.4 million borrowers across America, the 0% pandemic interest rate will disappear and regular collections will resume – unless the federal government decides against it .

“the Ethics Of Student Loan Collections: Borrower Rights And Fair Practices”

With the current federal student loan debt totaling $1.61 trillion and the May deadline looming, millions of borrowers are waiting to see what happens next.

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“The president is going to look at what we need to do with student loans before the break ends, or he’s going to extend the break,” White House chief of staff Ron Klain said in an interview with Pod Save America earlier this month, giving the idea that another expansion. either inside the cards.

“The rise in student loan debt has been rapid and unrelenting,” said Mark Huelsman, Director of Policy and Advocacy at Temple University’s Trust Center.

Between 2007 and 2020, student debt ballooned by 144%. “That doesn’t happen without, you know, a series of deliberate policy choices and I would say ignoring policymakers,” Huelsman said.

There has been a lack of federal control over state transfers to public higher education systems. During every recession since the 1980s, Huelsman said, states have lowered the cost of college for students. Community colleges, unlike other state budgets, have what he called a “release valve,” in that students can pay higher tuition when states withdraw their funding.

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Along the way, federal loan policies became easier for the borrower. Until the Higher Education Reforms of 1991 and 1992, federal student loans had a six-year statute of limitations, but the reforms eliminated that policy for all loans taken out after 1986. unlike other debts, without showing undue hardship, federal lenders can’t either. declare bankruptcy to get debt relief.

According to Mark Kantrowitz, founder of finaid.org, this is a very difficult standard to prove – and the guidelines have become more stringent.

Then, there was a change in marketing. “There was a political choice to promote the use of student loans as the primary way we finance college,” Huelsman said, going beyond community colleges to attend private and for-profit schools. Before this change, federal loans were

When student loans became the main way to pay for college, they were advertised and called “good credit,” Huelsman said, on the basis that the loan would provide a higher return on investment for borrowers to finance their education. This newfound confidence in credit came at a time when the cost of living was beginning to rise exponentially, however, eroding the borrowers’ ability to pay.

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The language of “good credit” did not meet the criteria of “good credit”. According to Mark Kantrowitz, the federal government has “accepted a severe penalty for student borrowers.” The combination of complex loan repayment, loan forgiveness schemes and strict bankruptcy laws has led to constant problems. When borrowers default on federal loans, the Department of Education can withhold federal payments such as disability benefits, social security and tax refunds. They can also garnish up to 15% of the borrower’s income to pay the debts.

The average student loan payment is $460 per month – $460 most borrowers don’t have to keep. The suspension of loan payments has highlighted the emotional problems of student debt, including financial difficulties.

“People carry a lot of shame,” said Kyra Taylor, a staff attorney at the National Consumer Law Center, who works with consumers dealing with federal student loan debt.

Debt forces borrowers to forego major life events, such as buying a home or getting married. During the break, many borrowers used the loan repayments to cover necessary expenses or to pay off other debts.

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Economic growth since the debt moratorium began suggests that, in theory, borrowers should start making payments soon. Taylor says things look very different around the kitchen table.

“I’ve talked to a lot of borrowers who are really afraid of getting repaid because they don’t know how they’re going to make ends meet when the payments start again,” Taylor said.

“There is growing pressure on the Biden administration to grant impeachment through executive action, and there is a lot of legal evidence that they can do that,” Huelsman said.

For both Huelsman and Taylor, it’s about giving relief to the neediest, borrowers of color and Black borrowers in particular. The Biden administration has touted its desire to solve the debt crisis and its commitment to racial justice.

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“When you know that your system is disproportionately harming communities of color, that needs to be addressed,” Taylor said. “One reason, to me, that this is a tragedy is that our student loan system reflects the inequality that we have in this country. So we see structural discrimination at work, we see that this burden disproportionately hurts borrowers, that they, too, have trouble paying off their debt. the racial wealth gap.”

According to Taylor, borrowers are not the only ones who can benefit from debt cancellation, which can relieve the Department of Education of a large administrative burden.

Huelsman sees signs that mass debt cancellation may be on the way. “I think you can look away from the fact that the Biden administration was very vocal and proud when they canceled student loans last year,” Huelsman said. President Biden also campaigned for student loan forgiveness, promising to forgive $10,000 in federal loans.

“I think the Biden administration and congressional leaders, to some extent, realize that we can’t go on like this,” Huelsman said. In his view “we are past the point where nothing can be done about student debt.”

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“I’m hopeful that something will be done, either through executive action or congressional action, to cancel student debt,” Huelsman said.

Currently, management and financial experts advise borrowers to be prepared to pay back in two months. “Plan for reinvestment,” Kantrowitz said, urging fundraising in the coming months — where possible — to ease the transition.

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Activists and activists are calling on President Biden to not start paying off student loans and canceling student debt by December 15, 2021. The White House is aiming to start paying off in February, but there is still time to improve the performance of borrowers. Paul Morigi/Getty Images for Us, 45 million

In February, the Department of Education plans to open the student loan collection system to the state for the first time in nearly two years. There is a risk that it will not go well.

Many student borrowers have been hit by unemployment, displacement and emotional distress during this pandemic. Even before the crisis, more than one million people defaulted on student loans each year. Bad credit can be a disaster, ruining your credit and ruining your financial future. And recent history suggests that restarting student loans could cause a permanent crisis of unprecedented proportions.

In 2017, student borrowers living in areas affected by wildfires and hurricanes were automatically eligible for “forbearance,” which is student loan jargon for “you don’t have to make monthly payments.”

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The periods of patience ended the following year. Government officials monitoring the loan program soon began to notice a disturbing trend.

. If you miss a payment, you go down into a kind of limbo called “criminality,” where you can stay for up to nine months. If you continue to miss payments, you fall into another level of hell: permanent, where your wages, tax refunds, and even Social Security checks can be garnished.

When forbearance borrowers had to start making payments again in 2018, delinquency rates began to rise. This went on for nine months and was immediately followed by an increase in the backlog. Some people may not have encountered the debt system and did not know they owed money again. Or they remained unemployed and did not have the money to pay for it, or they lost the habit of paying every month.

The danger is that these errors of fire and rain will happen again on a larger scale. This time, the disaster area is the entire country. The mission is difficult and unprecedented: helping more than 40 million people start paying off their debts immediately. Some of the people most affected by this epidemic will be the most vulnerable to the non-performing loan machine coming back to life.

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