BY MALLORY MEADS—Today, more than 70% of individuals earning a bachelor’s degree graduate with debt. Shockingly, this means that more than 40 million Americans have taken on debt in order to help finance their education. Still, with higher education often being viewed as “the surest ticket to the middle class and beyond,” the issue of student debt has never been more important to ensuring that Americans have access to affordable, quality education without being “so burdened with debt that [they] can’t do anything else.” Moreover, with total student debt reaching estimates of up to $1.2 trillion, it is unsurprising that the economic and social cost of education has become a major concern in the United States.
Student Aid Bill of Rights
Last month, in a presidential memo addressed to the Department of Education and similar federal agencies, President Obama proposed a series of executive actions that he hopes will positively alter the relationship between students and their educational loans.
This initiative, which Obama has labeled the “Student Aid Bill of Rights,” hopes to ensure that every student in America:
- Has access to a high-quality, affordable higher education,
- Is able to easily find the resources they need to pay for college,
- Is able to choose an affordable repayment plan for student loans, and
- Receives quality customer service, reliable information, and fair treatment when repaying loans.
Beginning in July 2016, the Obama Administration will kick start this initiative by launching a “responsive student feedback system” that will provide a simple and quick way for students to file complaints and give feedback about federal student loan lenders, servicers, collections agencies, and schools. Working together, the Department of Education and several other federal agencies will then begin implementing a series of other actions that promise to make “paying for higher education an easier and fairer experience for millions of Americans.” Specifically, these agencies must complete various tasks such as: providing better information to borrowers, ensuring fees charged to borrowers are reasonable and that collectors are fair and transparent, and creating a centralized, easy process for repaying loans.
Ideally, the Obama Administration hopes these initial actions will provide relief while additional changes to regulations and legislation to protect borrowers are currently being considered.
For example, one important change discussed by President Obama was the possibility that student loan debt may soon be dischargeable in bankruptcy. Currently, Bankruptcy Code §523(a)(8) provides that a student may not discharge any qualified educational loans unless the debt will impose an “undue hardship” on the debtor and the debtor’s dependents. Importantly, however, “undue hardship” is not defined anywhere in the Code, and thus courts have been given the freedom to define the term themselves, leaving the result judge-dependent and uncertain. Consequently, fewer than 1,000 students typically try to discharge their loans in bankruptcy each year. President Obama hopes that a loosening of the current bankruptcy code will help ease the burden on students who are in “financial distress.”
Still, despite positive feedback from various sources, several critics of the “Bill of Rights” point out that this initiative is too reactive rather than proactive—focusing exclusively on student’s borrowing experience rather than implementing initiatives that reduce the need to borrow in the first place.
One significant opponent, House Speaker John Boehner, recently responded to the “Bill of Rights” by noting that “while ‘enhancing’ the borrowing experience is all well and good, our goal should be helping parents and students avoid it as best they can,” not pushing more families into the borrowing system. For Mr. Boehner and his aids, this means that the Student Aid Bill of Right’s goals runs counter to the President’s proposed 529 tax on college saving plans, as students and families should be encouraged to invest their earnings in saving for education, not punished for it.
In addition, several other opponents argue that these initiatives do nothing to alter the “true cost of a college education.” Instead, they point out that these initiatives are mostly about shifting the costs onto someone else. These opponents argue for comparatively more dramatic changes such as increasing federal funding to state and local schools, lowering the cost of tuition, shutting down for-profit schools, and capping the amount of money students can borrow.
While the “Student Bill of Rights” is definitely a step in the right direction in helping students manage and monitor their student loans, it is important for students and families to remember that swimming in a sea of unmanageable debt is not the only option. To receive a quality diploma without the debilitating costs, students and families should work together to consider various cost-savvy options such as: attending an in-state public college rather than a private one, working part-time, and living at home. Moreover, learning how to manage debt “starts long before the kids head to college and involves a family discussion about money—the cost of attending college, the importance of picking schools that are not financial stretches, zeroing in on a degree that balances with the cost of education and understanding that paying back debts even a little at a time requires commitment.”
Note: For anyone interested in the “Student Aid Bill of Rights,” President Obama urges you to visit www.WhiteHouse.gov/CollegeOpportunity and sign his declaration to voice your support.