Student Loan Bill of Rights: A Call to Arms?
NEW YORK ( MainStreet) In an attempt to tackle the private student loan crisis, Senator Dick Durbin (D-Ill.) introduced the Student Loan Borrowers' Bill of Rights at a press conference in Chicago on December 3, that would provide basic protections for students flirting with default on their loans. The bill is co-sponsored by Senators Elizabeth Warren (D-Mass.) and Barbara Boxer (D-Calif.).
Private loans have no limits on interest rates and few repayment plans, unlike federal loans, for which income based repayment is available to borrowers.
Among the bill's protections:
- The right to have options such as alternative payment plans to avoid default.
- The right to be informed about key terms and conditions of the loan and any repayment options to ensure changing plans won't cost more.
- The right to know your loan's servicer and who to reach out to when there is a problem.
- The right to consistency when it comes to how monthly payments are applied. Lenders and servicers should also honor promotions and promises that are advertised or offered.
- The right to grace periods when loans are transferred between servicers or in the case of debt cancellation when the borrower dies or becomes disabled.
- The right to accountability, including timely resolution of errors and certification of private loans.
The bill originated with one of Durbin's constituents. Hannah Moore, a 32-year-old Chicago resident graduated from the Harrington College of Design with a two-year degree -- and about $90,000 in student loans. She said she routinely made $800 monthly payments for over three years. In 2008, Sallie Mae allowed her to spread her payments out over 25 years. But she was making lower payments while the interest continued to capitalize and were added to her principal balance.
Moore said she made regular payments of $800 a month for over three years, that she was never late an often paid early, but the compounding interest drove payments to $1,700 per month. Her current balance is about $155,000.
When Moore found no relief from Sallie Mae, she contacted Durbin's office, and her story led to Durbin's proposed legislation. Newark, Delaware-based Sallie Mae spokesperson Nikki Lavoie did not respond to a request for comment about the Student Loan Borrowers' Bill of Rights.
Dory Rand, president of the Woodstock Institute, a Chicago-based public policy organization who attended Durbin's press conference at DePaul University, said, "Part of the problem is that the for-profit lenders don't offer the same loan modifications as a federal loan--if you lose you job, there is no income-based repayment option available to you."
"I don't feel I can make any large purchases," Moore said at last Tuesday's news conference, even though she now has a full-time job as a project manager at a furniture design company. "I have no credit cards. I don't want to be dependent on my parents in this way. I want my parents to be able to retire. I'm watching this about to spiral out of control again."