Information access. There are many helpful tools for student loan borrowers, but not enough borrowers easily find or use the resources. For example, Department of Education (ED) recently updated its web-based tool College Scorecard as an alternative to enforcing accountability measures, like Gainful Employment (GE) regulations that require for-profit colleges to report graduates’ debt and earnings. But is the Scorecard accessible enough to rescind GE regulations that inform consumers at critical touchpoints? Same questions apply to other student loan solutions. If a tree falls in a forest and no one is around to hear it, does it make a sound?
Other interesting student loan topics in news & archive
Data that could help solve a lot of the problems in student loans today is stored away by the Department of Education and higher education institutions - data that can be used to assist borrowers from the time students are deciding which schools to attend to when they're deciding how much to borrow, how much to repay, and how to manage the debt.
The Project on Student Lending Transparency is an effort to unlock that data to assist borrowers. User privacy is often used as an excuse to lock up and hideaway the data. But user privacy is the standard, and we should find ways to assist borrowers without jeopardizing their privacy.
Borrowers can join the Project by sharing just eight data points that include income, credit score, and loan terms. Analyzing the data, we can identify struggling borrowers, and refer them to repayment methods and borrower benefits that could prevent a loan default. Seems obvious, but there are currently eight repayment methods, and many borrowers default on their loans not knowing about income-based repayment options. There are a lot of pitfalls that ensnare borrowers. This is a simple way to prevent common mistakes that can have lasting impact.
The goal is to ensure every borrower has the most affordable loans and the right tools to make good decisions. The student loan industry has very little oversight with most organizations eyeing profits over borrower interests. Without a watchdog that looks after borrowers, this platform can provide the foundation to assist borrowers today. Project on Student Lending Transparency is an ongoing effort to advocate for borrower interests, and every borrower joining the Project helps us inch closer to our goal.
There's been some literature about changes in default settings for student loan repayment plans that could help borrowers avoid some major pitfalls. (https://goo.gl/sVNfVT; https://goo.gl/uyzvmv) It's true. It would definitely help struggling borrowers to automatically pay the lesser of the payments between a standard repayment plan and an income-based plan. And for the borrowers that want to pay down loans faster, they can instead opt-out of an income-based plan into a fixed term plan.
Better yet, can there be one repayment plan? It would be great to just have the current Income-Based Repayment Plan (IBR), which has payments capped to the standard repayment plan (10-year), with easily accessible tools to pay more each month (in recurrence or one-time) for those that want to pay less interest over time.
So the minimum a borrower must pay is 10% of income (with loan forgiveness after 20-25 years).
The maximum a borrower could be billed to pay is a 10-year fixed term amount.
The maximum a borrower could pay is the balance of the loan.
The concern may be that the borrowers who can pay, won't, but it perhaps can be mitigated by adjusting the billable cap by income-tiers (like taxes). Also don't believe in capitalizing interest for federal loans. Anyways, a lot of variables to look at and numbers to crunch, but just a thought.
The irony of student debt
We take out loans for various purchases: cars, homes, or schools. But unlike cars or homes, education isn't tangible. You can't ride your education or live in it. But in America, we take out large loans to attend good schools for good jobs.
We do this because education is closely tied to social mobility, one of the core traits of what makes America, well, America. To access this education that allows us to move up the social ladder and improve our lives, 40+ million of us in the U.S. collectively saddled on $1.4 trillion of student debt (or more than $30,000 per borrower). At $1.4 trillion, student loans have more than doubled over the past 10 years to become the second largest consumer debt, surpassed only by mortgages.
The alarming growth in indebtedness has far outpaced inflation and wage growth, leaving many to ask the question "is it worth it?" or even "is it possible?" While these questions have different answers for different people, it is undeniable that for many borrowers, student loans are a heavy burden to bear. The monthly payments take away from other spending, forcing many borrowers to postpone purchases for homes & cars, retirement planning, having children, and other markers of a good life that education should afford. For some, postponed success is better than no success. For others, it's a cruel turn when paying for the education that promised to improve the quality of life is seemingly making that life less attainable.
Quick, easy win
Cruel or not, the $1.4 trillion in student loans have already been disbursed, and borrowers are now responsible to repay the debt. How can we help borrowers? Loan forgiveness? Employer contribution? Some solutions require long uphill battles and drastic changes in current policies and practices. But one solution, in particular, is simple to implement and can have meaningful impact in the near-term.
With other terms of the loan fixed, minimizing interest rates will ensure that monthly payments are as low as possible. It's a basic concept, but often overlooked by millions of borrowers that neglect to refinance their eligible loans. Refinancing is not for all borrowers, especially if you need the flexible repayment terms or other borrower benefits of federal loans. But for others, it could mean significant savings.
Over the past 5 to 10 years, loan aggregators (like Credible and Lendkey) and direct lenders (like SoFi and CommonBond) have increased borrower-access to lenders, yet an April 2016 Citizens Bank survey revealed that more than half of the borrowers didn't even look into refinancing. Other sources reveal similar statistics. Increased access and lender options alone made little headway.
Maybe the experience is still too cumbersome. The borrower has to find a loan aggregator, request refinancing quotes, and then apply at a matching lender's site. Or they have to apply and compare quotes from multiple lenders, jumping from site to site. It's too many steps, but what's even more deterring is that the borrower has to actively seek refinancing for a loan with 5- to 15-year terms.
Instead, what if your student loans refinanced to lower rates automatically? Wouldn't it be wonderful if your loans shifted from lender to lender with the most affordable interest rates? It would fix your loans into a lower rate the moment you become eligible. And maybe this could really be possible since student loans (unlike mortgages) typically don't have closing fees or origination fees.
Well, it should be possible (or at least something very close to it), so I launched kofunds. Over the entire life of your student loans (whether 5, 10, or 15 years), kofunds analyzes your interest rates against the current market rate, notifying and protecting you from overpaying or any predatory pricing and practices. We do this at no cost to borrowers.
When your loans qualify for lower rates, you'll receive a notification from kofunds. You'll know when and who to refinance with, lowering your monthly payments with little effort. If you're already locked into the best rate, you won't hear from us. You not hearing from us is the goal, and hopefully we can make $1.4 trillion of student loans feel a little more affordable.
Yoonki Lee founded The Project on Student Lending Transparency through kofunds. Supports more comprehensive student loan borrower protections and consumer rights in the US.