Wisconsin residents who still carry significant debt from student loans may soon have a better time repaying them if President Obama’s recently announced measures work as planned. Currently, more than 70 percent of U.S. students have taken out student loans, making student loan debt the second largest consumer debt after mortgages. Unfortunately, the number of people defaulting on student debt repayment has continued to increase.
President Obama’s new system could lead to debtors getting better customer service, more reliable information about repayments, more compassionate treatment if they have trouble repaying their loans and better repayment terms. Disabled borrowers could also get their loans more easily discharged.
Some critics blame collection agencies for methods that lead more debt holders to default or to hire credit management experts that can minimize repayments. A chronic complaint even from graduates of business schools is that repayment terms are nearly impossible to understand or renegotiate with the collections agencies currently contracted to recover student loan debt. These 22 agencies also routinely fail to notify debt holders about the federal loan rehabilitation program. Investigators also found widespread violations of the Fair Debt Collection Practices Act.
Some 80 percent of all student loans are federally guaranteed, which means the government has a stake in getting as much debt repaid as possible, but without inflicting damage on loan holders who could face economic ruin. Existing loan rehabilitation programs, such as Direct Loans, were developed so borrowers would be able to move out of default. The process of loan rehabilitation starts with a debtor and lender agreeing on a monthly payment that is based on the debtor’s income. Payments can be as low as $5 a month. If payments are made on time for 9 months, the loan is sold to a new lender and is considered fully rehabilitated.
Source: CNBC, “A 6-step plan to defeat student-loan debt collectors,” Diana Nichols, March 21, 2015