U.S. Department of Education Releases Report on Strengthening the Student Loan System to Better Protect All Borrowers

Archived Information

U.S. Department of Education Releases Report on Strengthening the Student Loan System to Better Protect All Borrowers

October 1, 2015

As part of a continued effort to protect student loan borrowers and in response to President Obama's Student Aid Bill of Rights, the U.S. Department of Education (Department) today released a new report outlining a series of statutory, regulatory, and administrative recommendations to safeguard student borrowers. The report, developed in consultation with the Department of the Treasury (Treasury) and the Consumer Financial Protection Bureau (CFPB), builds on years of work by the Administration to help Americans manage their student loan debt and protect the most vulnerable borrowers.

"While we're proud of the historic steps we have taken to protect student loan borrowers, there's much more we all need to do," said U.S. Secretary of Education Arne Duncan. "Schools need to do more to keep costs down and help students graduate on time, Congress needs to step up to hold schools accountable and provide better consumer protections; servicers owe borrowers better information about their options; and we, as a Department, are continuing to work to strengthen oversight and improve our coordination across the Administration."

Among the key recommendations in the report to protect federal student loan borrowers:

Increase borrower protections in the federal student loan program

  • Enact the Administration's proposal to create a single, simple income-driven repayment plan for future borrowers
  • Allow servicemembers to consolidate their FFEL or Perkins loans into Direct Loans without losing their interest rate protections under the Servicemember Civil Relief Act (SCRA)
  • Eliminate the tax liability for student loan discharges, including those related to Income Based Repayment and Income Contingent Repayment
  • Create new statutory requirements that hold colleges, and their executives—not taxpayers—responsible for fraudulent acts
  • Restore Pell eligibility for students with successful defense to repayment claims
  • Strengthen protections against predatory third parties that charge borrowers exorbitant fees for services they can access for free at studentaid.gov

Update Debt Collection and Offset

  • Index to inflation the amount of Social Security benefits exempt from offset, consistent with the proposal in the President's 2016 Budget applicable to student loans and other debt owed to the federal government

Enhance Federal Data-Sharing to Improve the Federal Student Loan Borrower Experience

  • Support and seek funding for development of a process to recertify borrowers' eligibility for income-driven repayment over multiple years to simplify the repayment process for many borrowers in these plans
  • Streamline the process for those who are eligible to have their loans discharged because of a disability

Strengthen Federal Student Loan Servicing

  • Improve credit reporting to treat borrowers enrolled in an income-driven repayment program more fairly
  • Enhance the independence of the Federal Student Loan Ombudsman

The report also proposes several steps to protect borrowers of private student loans, which do not come with the same consumer protections and benefits as federal loans, including to:

  • Allow private student loans that lack sufficient repayment flexibility to be dischargeable in bankruptcy
  • Prohibit the practice of placing borrowers in default because of circumstances outside their control — for example, if a cosigner dies or declares bankruptcy
  • Improve the transparency of co-signer agreements

In addition, the report reiterates support for the Joint Statement of Principles released by the Department earlier this week in conjunction with Treasury and CFPB as well as the recommendations made in a joint report issued by the Department and CFPB in 2012.

The full report is here.

Since taking office, the Obama Administration has made it a priority to help Americans manage their student loan debt, including through expanded, improved income-driven repayment options and increased outreach to ensure student loan borrowers have the necessary information about their repayment options. Enrollment in IDR plans has increased by more than 50 percent over the past year and is at an all-time high, with our servicers enrolling, on average, more than 5,000 borrowers in income-driven plans daily.

On Wednesday, the Department announced that the official three-year federal student loan cohort default rate has declined to 11.8 percent for students who entered repayment in FY 2012—a drop from 13.7 percent in FY 2012. That drop crossed all sectors of higher education—public, private and for-profit institutions.

Under the President's Student Aid Bill of Rights directive, the Department has taken significant steps to improve loan servicing, and protect vulnerable borrowers. In August 2014, the Department announced it was changing the incentive structure for servicers to ensure that they are helping borrowers get into an affordable monthly repayment plan and avoid default.

To help prevent students from ending up with untenable student debt in the first place, the Administration has also made unprecedented investments in Pell Grants and tax credits, cracked down on fraudulent and failing career colleges, and greatly enhanced access to quality information about student outcomes through tools like the College Scorecard and Financial Aid Shopping Sheet.