Wednesday, 3 September 2014

Student loan | Presidential Memorandum -- Federal Student Loan Repayments ...

Student loan | Presidential Memorandum -- Federal Student Loan Repayments ...

Presidential Memorandum -- Federal Student Loan Repayments ...

Posted: 09 Jun 2014 11:24 AM PDT

The White House

Office of the Press Secretary

For Immediate Release

June 09, 2014

June 9, 2014

MEMORANDUM FOR THE SECRETARY OF THE TREASURY
THE SECRETARY OF EDUCATION

SUBJECT: Helping Struggling Federal Student Loan Borrowers Manage Their Debt

A college education is the single most important investment that Americans can make in their futures. College remains a good investment, resulting in higher earnings and a lower risk of unemployment. Unfortunately, for many low- and middle-income families, college is slipping out of reach. Over the past three decades, the average tuition at a public four-year college has more than tripled, while a typical family's income has increased only modestly. More students than ever are relying on loans to pay for college. Today, 71 percent of those earning a bachelor's degree graduate with debt, which averages $29,400. While most students are able to repay their loans, many feel burdened by debt, especially as they seek to start a family, buy a home, launch a business, or save for retirement.

Over the past several years, my Administration has worked to ensure that college remains affordable and student debt is manageable, including through raising the maximum Pell Grant award by nearly $1,000, creating the American Opportunity Tax Credit, and expanding access to student loan repayment plans, where monthly obligations are calibrated to a borrower's income and debt. These income-driven repayment plans, like my Pay As You Earn plan, which caps a Federal student loan borrower's payments at 10 percent of income, can be an effective tool to help individuals manage their debt, and pursue their careers while avoiding consequences of defaulting on a Federal student loan, such as a damaged credit rating, a tax refund offset, or garnished wages.

While my Administration has made significant strides in expanding repayment options available to borrowers and building awareness of income-driven repayment plans, more needs to be done. Currently, not all student borrowers of Federal Direct Loans can cap their monthly loan payments at 10 percent of income, and too many struggling borrowers are still unaware of the options available to them to help responsibly manage their debt.

Therefore, by the authority vested in me as President by the Constitution and the laws of the United States of America, I hereby direct the following:

Section 1. Expanding the President's Pay As You Earn Plan to More Federal Direct Loan Borrowers. Within 1 year after the date of this memorandum, the Secretary of Education shall propose regulations that will allow additional students who borrowed Federal Direct Loans to cap their Federal student loan payments at 10 percent of their income. The Secretary shall seek to target this option to those borrowers who would otherwise struggle to repay their loans. The Secretary shall issue final regulations in a timely fashion after considering all public comments, as appropriate, with the goal of making the repayment option available to borrowers by December 31, 2015.

Sec. 2. Improving Communication Strategies to Help Vulnerable Borrowers. By December 31, 2014, the Secretary of Education shall develop, evaluate, and implement new targeted strategies to reach borrowers who may be struggling to repay their Federal student loans to ensure that they have the information they need to select the best repayment option and avoid future default. In addition to focusing on borrowers who have fallen behind on their loan payments, the Secretary's effort shall focus on borrowers who have left college without completing their education, borrowers who have missed their first loan payment, and borrowers (especially those with low balances) who have defaulted on their loans to help them rehabilitate their loans with income-based monthly payments. The Secretary of Education shall incorporate data analytics into the communications efforts and evaluate these new strategies to identify areas for improvement and build on successful practices.

Sec. 3. Encouraging Support and Awareness of Repayment Options for Borrowers During Tax Filing Season. By September 30, 2014, the Secretary of the Treasury and the Secretary of Education shall invite private-sector entities to enter into partnerships to better educate borrowers about income-based repayment plans during the tax filing season in 2015. Building off of prior work, the Secretaries shall further develop effective ways to inform borrowers about their repayment options during the tax filing season in 2015, as well as through personalized financial management tools.

Sec. 4. Promoting Stronger Collaboration to Ensure That Students and Their Families Have the Information They Need to Make Informed Borrowing Decisions. By September 30, 2014, the Secretary of Education, in consultation with the Secretary of the Treasury, shall develop a pilot project to test the effectiveness of loan counseling resources, including the Department of Education's Financial Awareness Counseling Tool. The Secretary of Education shall convene higher education experts and student-debt researchers to identify ways to evaluate and strengthen loan counseling for Federal student loan borrowers. Additionally, the Secretaries shall collaborate with organizations representing students, teachers, nurses, social workers, entrepreneurs, and business owners, among others, to help borrowers represented by these organizations learn more about the repayment options that are available to them in financing their investment in higher education and managing their debt, and to provide more comparative, customized resources to those borrowers when possible.

Sec. 5. General Provisions. (a) Nothing in this memorandum shall be construed to impair or otherwise affect:

(i) the authority granted by law to an agency, or the head thereof; or

(ii) the functions of the Director of the Office of Management and Budget relating to budgetary, administrative, or legislative proposals.

(b) This memorandum shall be implemented consistent with applicable law and subject to the availability of appropriations.

(c) This memorandum is not intended to, and does not, create any right or benefit, substantive or procedural, enforceable at law or in equity by any party against the United States, its departments, agencies, or entities, its officers, employees, or agents, or any other person.

(d) The Secretary of Education is hereby authorized and directed to publish this memorandum in the Federal Register.

BARACK OBAMA

The economy is getting better. Why are so many people still not ...

Posted: 28 Aug 2014 04:00 AM PDT

Students aren't just taking on more student loan debt than ever before — many are still struggling to pay it back when they leave college. And while the economy is getting better, student loan delinquency and default rates aren't.

This isn't what you'd expect. It's natural that people start to fall behind on debt when the economy is in a recession. As the recession worsened, delinquency rates climbed for people with all kinds of consumer debt. Eventually, though, as the economy improves, what goes up should come back down.

That's happened with mortgages, car loans, and credit card debt. But so far, it isn't happening with student loans.

Student loans are the exception as the economy improves

By nearly every metric, an even higher proportion of student loan borrowers are struggling with payments today than in 2010, when the unemployment rate hovered close to 10 percent.

The percentage of the outstanding student loan balance with a payment at least 90 days overdue is higher today — 11 percent — than it was in 2010. That's not true for most other types of consumer debt:

(Federal Reserve Bank of New York)

Federal default rates, which measure the percentage of borrowers who default on their loans in the first two years of paying them back, spiked as the recession hit. At first, the rising rates were blamed on the poor economy. (If a borrower hasn't made a payment in at least 270 days, the loan is considered to be in default.) But they've just kept getting worse, and default rates are higher now than they have been in 20 years:

(Office of Federal Student Aid, US Department of Education)

Default rates are a lagging indicator — the economy was a little better in 2011 than in 2009, but it's improved even more since then. But newer Education Department data suggest the trend isn't going to reverse soon.

Of people with loans made through the Education Department's Direct Loan program, 8.6 percent are currently in default, up from 7.5 percent in 2013. A far higher percentage of borrowers with older loans from the now-discontinued Federal Family Education Loan program are in default: 20.9 percent, up from 19.2 percent in 2013.

The fact that student loan defaults continued to climb as the economy improved suggests that something's wrong.

Student loan debt isn't like other debt

No one can say for sure why student loan delinquencies and defaults aren't falling, but student loan experts say there are a few possible explanations.

Student loan debt is lumped in with mortgages, credit cards, and auto loans for the New York Fed's reports. But student loans don't work quite the same way. If you're months and months behind on a credit card payment, eventually your balance will be charged off or referred to a collection agency, and it won't show up in the New York Fed data. if you're behind on your mortgage, it's possible to sell your house (unless you're underwater — and the proportion of people who owe more than their house is worth is falling). And if you're struggling with a lot of consumer debt, you can declare bankruptcy, wipe out your mortgage and car and credit card debt, and start over.

But bad student loan debt never stops hanging around. You can't discharge it in bankruptcy. It's considered delinquent or in default until it's paid back. This could be why the New York Fed hasn't seen delinquency rates for student loans drop as they have for credit cards, auto loans, and mortgages.

Student loan repayment isn't always a simple process. Borrowers can make standard payments for 10 years, or they can repay their debt based on their income. There are also ways to avoid paying without defaulting through a deferment or forbearance. If loan servicers aren't explaining those options, borrowers might stay delinquent who have other paths available to them.

"I've worked with a lot of people who've just come in saying 'I'm in trouble,' and they bring in envelopes that are sealed and they haven't even looked at the information," says Kevin Fudge, manager for government affairs and community relations at American Student Assistance, which works with students in debt.

Many struggling student debtors aren't college graduates

Young college graduates are facing a much better employment picture than they were a few years ago: Unemployment rates for 25- to 34-year-olds with bachelor's degrees are 3.3 percent, down from 6.2 percent in 2010.

But people who graduate aren't necessarily driving the default problem. Most people who take out student loans eventually graduate, but those who don't are much more likely to struggle to pay back their loans:

(Education Sector)

That means an improving employment picture for college graduates might not be reaching many people who are struggling to pay their loans back. Unemployment rates for people with some college but no degree are better than they were a few years ago, too, but they're still higher than the unemployment rate for college graduates.

Is better news on the way?

The Federal Reserve data showed that the delinquency rate ticked down slightly, from 11.8 percent at the end of 2013 to 10.9 percent. A similar drop happened last summer, but the rate climbed back up again — so it's too soon to say if this is an anomaly or the start of a trend.

A more hopeful sign came from Sallie Mae, soon to be known as Navient. "For the 12 million federal and private loan customers we service, delinquency and default rates are improving," CEO Jack Remondi said on earnings call in July.

Of borrowers who started paying their loans back in 2013, just 11 percent were more than 90 days delinquent on payments in the first six months, according to internal data from the company. In 2010, 22 percent of borrowers fell behind in the first six months. The 11 percent rate is the lowest in nine years, Remondi said.

If other student loan servicers are seeing a similar trend, it could mean that better numbers might be on the horizon. Still, it's not yet clear how quickly improving trends for more recent borrowers will affect the overall numbers for delinquencies and defaults.

Economists at the New York Fed say delinquency rates are higher for student loans taken out during the Great Recession, when unemployed workers went back to college to try to get new skills. That group of borrowers might have had a higher default risk than others. And with a 10-year standard repayment window, those loans will be on the books for many more years.

Student Loan

Wednesday, 3 September 2014