Recently, Treasury Department Deputy Secretary Sarah Bloom Raskin spoke at the University of Maryland and took the Department of Education to task on failing struggling student loan borrowers.
Before laying into the DOE, Raskin first discussed the benefits of a college education, including higher lifetime earnings, less chance of unemployment and greater contribution to the economy. She said, “Education is a major path to upward mobility.”
But after touting the upside to getting a college degree, Raskin focused on the cost of obtaining higher education and the role of student loans. Her first focus was what sector is most impacted by student debt, saying, “We are confronted with the stark reality that middle and lower-income families are less able to afford the cost of a degree.” Then Raskin dug into statistics on debt that are important to know:
#1) As of 2012, 60% of grads come out of college with student loan debt, compared to half that number a decade prior.
#2) Also as of 2012, at for-profit two year schools, borrowers were 358% more likely to have to fall back on student debt than those at non-profit institutions.
#3) As of 2012, roughly 15% of graduates that had been out of school for two years were in default and those from for-profit schools were defaulting at rates approaching 22%.
After Raskin presented these stats, she discussed the fallout from defaulting on student loans, including wage garnishment, decreased credit score and lessened ability to obtain a vehicle loan or mortgage. But then she dug into whether servicing collection efforts were effective in truly helping those struggling with their student loans.
She said that lenders and payment processors should be evaluated to determine whether they recognize immediately “when a borrower is in trouble and can be ready to offer that borrower a repayment program that gives him or her the best chance of successfully repaying their loans.”
Raskin also mentioned that more than seven millions Americans are now in default on their student loans and said: “We must ask the hard questions about why these borrowers were unable to enroll in loan modification programs, such as the Pay As You Earn plan, with their federal student loan servicer to avoid default.”
So what’s the takeaway from this speech?
To sum it up in a nutshell: “Lenders and servicers beware – big brother is watching you.” The Consumer Financial Protection Bureau (CFPB) has been empowered to crack down on shady collection tactics and instances where lenders and servicers are roadblocking borrowers from getting the help they need.
Now it looks like Treasury is going to hold the Education Department’s feet to the fire if things don’t improve. That means that the DOE is going to, in turn, turn up the heat on colleges, lenders and servicers. For borrowers, this speech is an encouragement that the student loan crisis has not been forgotten, even if it’s not getting a lot of love in the legislative arena currently.
You can read Raskin’s speech in its entirety here.
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