WASHINGTON -- President Barack Obama on Tuesday laid out a plan designed to protect Americans from defaulting on federal student loans.
More than 370,000 Arkansans have federal student loans, with a combined outstanding debt of $9 billion, according to the White House. Nationally, more than 40 million Americans have a combined $1.2 trillion in student loan debt, and 1 in 8 borrowers default on their loans within three years of graduating.
Before traveling to the Georgia Institute of Technology in Atlanta to speak with students Tuesday, Obama signed a presidential memorandum in the Oval Office creating a "student aid bill of rights."
It requires third-party companies that "service" loans, or contract with the federal government to collect federal loan payments, to be clearer about how loans are handled and what repayment options are available. It also orders the creation of a single website where borrowers can monitor their federal loans regardless of which company services the loans.
The executive action is meant to "streamline and improve the manner in which the federal government interacts with students when it comes to student loans," he said.
Before a crowd of 9,500 students at the university, Obama said the issue is personal for him.
"It took me 10 years to pay off all our student loans. We were paying more for our student loans than our mortgage, even after Malia and Sasha were born. We were supposed to be saving for their college education; we were still paying off ours," he said.
Tuesday's announcement follows several White House initiatives over the past year to give students more options to pay for education, such as capping payment amounts to a percentage of income, expanding the number of Pell grants available and proposing the idea of free community college.
"We're going to require that the businesses that service your loans provide clear information about how much you owe, what your options are for repaying it, and if you're falling behind, help you get back in good standing with reasonable fees on a reasonable timeline," he said.
Arkansas Student Loan Authority Executive Director Tony Williams said by phone Tuesday that some of the changes, such as the single point of contact for borrowers, would be helpful.
"Today you have situations where students lose contact with their loan servicer and their loans are transferred and they're not sure how to locate the proper organization," Williams said. "Students will no longer have the excuse of being able to say that they lost their servicer or their servicer lost them."
The memorandum also mandates that any extra payments made on loans be put on the highest-interest loans first and continues a push to enroll more borrowers into a repayment plan based on income.
The loan authority has worked to place borrowers in more affordable repayment plans in the past, Williams said, but the U.S. Education Department's focus on the issue will help.
"We see over and over again that students are not aware of the income-based awareness programs or for some reason they are not motivated to take the time to actually apply for those programs, those repayment plans," Williams said. "It's been overly complicated in the past. I hope this is a step in the direction of simplification so that students have a better understanding of what is available."
The president's memorandum also instructs the Education Department to create a system to address borrowers' complaints about lenders, loan servicers and collection agencies. The Education and Treasury departments are also directed to consider possible changes to servicing standards and repayment options and whether laws should be changed to allow student loans to be dischargeable in bankruptcy.
Metro on 03/11/2015