What You Need to Know About the Pending Student Loan Bill of Rights

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As the toll of student loan debt creeps up to $1.2 trillion(!) of debt, the government continues to take steps, hoping to avoid another recession.  In early December of 2013, Senators Dick Durbin, Elizabeth Warren, Barbara Boxer, and Jack Reed proposed a bill of rights for borrowers of student loans. 

The first thing to note is that January is likely when you will apply for your student loans for the next academic year.  This legislation has only been proposed (it has not gone through the legislative process or been enacted into law), and will be unlikely to affect the terms of your past and current agreements.  Secondly, this legislation focuses primarily on private student loans, and therefore may not help you much if you only take out federal loans.

The first several pages of the bill regard a proposed set of new regulations for private lenders and how they service student debt.  Mostly these regulations require private lenders to educate borrowers on long-term options, repayment plans, and consolidation (most of which is typically provided in the terms of the loan agreement).  Additionally, lenders may be required to pay 5% of its defaulted student loans if their default rate was between 15 and 20 percent (but this does not mean you personally get to miss a payment).

The next section is the student bill of rights.  This area includes rights such as:

• The right to alternative repayment options to avoid default
• The right to be informed about key terms, conditions, and repayment options
• The right to know who is servicing your loan and be able to contact them
• The right to consistent monthly payment calculations and availability to promotional offers and advertisements
• The right to grace periods when loan servicers are changed or a debt cancellation occurs due to borrower death or disability
• The right to lender accountability including resolution of errors and private loan certification.

The final section has similar regulations as the ones for private loans, but also requires that new rules be drafted with a goal to minimize costs to borrowers.  The bill also requires loan servicers to send letters to borrowers about their repayment options, which is something the Department of Education already has in place.

Will these changes really change the debt burden of students and graduates?  Probably not.  It will be helpful for private lenders to provide more repayment options than forbearance and default, but the debt isn’t going to disappear.  Salaries are not enough to dig new graduates from the mountain of debt they are under.  And, most of these notification requirements are available within the terms of your loan agreement.  If you read them, then there shouldn’t be any surprises, which is what I think most of this legislation is trying to prevent…surprises.  The 46-page piece of legislation may look to some as a miracle, but this is far from an escape clause in your loan agreement. 

Last night’s State of the Union Address had a large focus on fixing the current state of student loans. Therefore, you should expect more legislation similar to the student loan bill of rights to be popping up.  Keep apprised of the changing policies and do your research.  If you actually understand what you are signing, then you will be less likely to borrow large amounts and can appropriately prepare for future payments.  To read the proposed bill, click HERE.

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