Changes to Federal Loan Programs Reviewed
At a meeting Dec. 12, 2006 assembled by the Department of Education, a committee discussed potential changes to regulations in federal student loan programs, according to a Dec. 13, 2006 article by Kelly Field titled “Rulemaking Panel Begins Debate on How to Change Federal Student-Loan Programs” that appeared in The Chronicle of Higher Education.
The committee, made up of individuals such as students and representatives of higher education institutions, guarantee agencies and lenders, will report to Secretary of Education Margaret Spellings in the spring with “a package of proposed rules,” the article stated.
Priority Items on Initial Agenda
As reported in Field’s article, there are several key elements that will be included in the recommended rules to Spellings. These include:
· Repayment Program Based On Income. In response to student groups and the Project on Student Debt that have asked the Department of Education to relieve the burdens of loan-repayment for those with low incomes, the panel is considering a “plan to create a new ‘partial economic-hardship deferment.’ ” Borrowers’ payments would be limited to a maximum of 15 percent of their discretionary income, calculated at 150 percent of the poverty level. The figure also would take family size into consideration.
· Identity Theft Victim Loan Discharge. Current law stipulates that fraudulent funds illegally borrowed in the victim’s name only can be discharged in court and only when the court has reached a decision that a crime has been committed. The proposal entails adopting the identity theft definition as outlined by the Federal Trade Commission and the Fair Credit Reporting Act in order to avoid the long wait required for the court rendering.
· “Preferred Lender” Lists Used by Colleges. The Department of Education, concerned that some institutions are being influenced by benefits provided by lenders to colleges, will review colleges’ use of preferred lender lists. Colleges maintain that the lenders they suggest simply represent companies with the most benefits and best rates offered to students.
· Unlawful Incentives for Guaranteed-Loan Programs. The article said that the panel will scrutinize whether lenders offer illegal “inducements to secure loan applications” from borrowers or if lenders generate advertising that misleads the consumer.
Other Proposed Additions Discussed
According to Field’s article, a much-needed suggestion that would greatly benefit institutions of higher education across the country was posited by Alisa M. Abadinsky, a University of Illinois at Chicago student-aid official. She recommended that the money collected on defaulted Perkins loans be returned to the schools that awarded the loans instead of going to the U.S. Treasury, as currently is the case, the article said.
Eileen K. O’Leary, chairwoman at the National Direct Student Loan Coalition, also proposed that loan servicing companies “be required to provide borrowers with periodic reminders of their repayment options,” the article said.
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Student Loan Girl