A welcome ‘Bill of Rights’ for student loans

I’m a glass-half-empty person by nature. It’s not that I’m overly pessimistic, but when I focus on the negative, it serves to make me work harder to fix or change something.

So with that mindset, after reading President Barack Obama’s “Student Aid Bill of Rights” memorandum last week, I first saw what it doesn’t do. It doesn’t adequately address the problem of the rising student loan debt that is now an astounding $1.3 trillion. It swipes at the issue, but there aren’t any concrete solutions to the rising costs in higher education that have already indebted so many.

There are some who say there isn’t a crisis, at least not yet. They point to reports that show the average debt — federal and private loans — for graduating seniors is just shy of $30,000.

But that’s the average. Many people owe much more. The figures often don’t count the people who start college, take on debt, and don’t finish. The data don’t include the debt parents are accumulating. And all the debt isn’t being measured anyway, according to The Institute for College Access &Success, a nonprofit whose mission is to make college education more available and more affordable.

“Even for colleges that do report voluntarily, the debt figures in this report may understate actual borrowing because they do not include transfer students or any private loans the college was unaware of,” the organization said in releasing figures on student debt for the class of 2013.

To me, what’s at the heart of the student debt crisis — and I see it as just that — is reducing the need to borrow in the first place. When Obama introduced the bill of rights, which, among other things, directs federal agencies to enhance consumer protections for borrowers, he said “graduates who go into lower-paying fields like social work or teaching, they’re not going to pay the price for following their dreams because they’re going to have even better options in terms of how they repay their loans.”

Right there. That’s the problem. Families need more options that don’t involve loans.

I agree with Lauren Asher, the institute’s president, who said that graduating with heavy debt should not be a foregone conclusion.

Still, there is a lot of glass-half-full substance to the borrower’s bill of rights. The most helpful and concrete plan is the establishment of a new system that will give people a central place to go to file complaints against lenders, loan servicers and collections agencies, and track the result.

The National Consumer Law Center has reported that the “complaint systems used by some collectors display a haphazard approach to resolving borrower disputes.”

The new complaint portal, scheduled to be up by July 2016, will be “a borrower-centric, borrower-friendly regime,” an administration official said in an interview. It will be similar to the consumer complaint system for financial products and services established by the Consumer Financial Protection Bureau.

The complaint portal is “an important step in restoring the balance between borrower rights and a draconian collection system,” wrote Deanne Loonin, an attorney with the National Consumer Law Center and director of its Student Loan Borrower Assistance Project.

The bill of rights has four basic points: access to an affordable education, resources to pay for college, payment options, and quality customer service. Here’s a fifth one I would have added to the recent presidential memorandum: Improve loan counseling.

Borrowers receiving federal loans are required to get entrance and exit counseling. When I looked, some of the online entrance counseling said it would take 20 to 30 minutes to complete. Is that really enough time for young adults to fully understand the features of the loans they are taking out?

“The key is recognizing we know very little about what works in loan counseling,” said Debbie Cochrane, research director for the institute. “We need to know what information is really going to help borrowers make the best decision for them, and for some that may mean not borrowing at all.”

I suspect many students would benefit more from in-person counseling, during which they wouldn’t have to rush through loan terms, repayment options and default consequences. Discussions would also include applicants’ career plans and possible earnings, and the impact debt would have on their ability to balance their personal budget.

Whatever counseling works best, the goal should be to make it clear to borrowers they could be stuck with debt for decades. They have a right to know and be informed throughout their college years what they will owe long before they have to pay it back.

Even with the gaps in the bill of rights, it’s taking this issue in the right direction. I have to be hopeful that meaningful change is coming.