Today, the federal government through the Department of Education is the nation’s largest non-mortgage consumer lender, owning or guaranteeing $1.4 trillion in education loans. Today, in an open letter, Navient CEO Jack Remondi explains the major drivers and recommends five common-sense fixes.
HOW DID WE GET HERE?
- A surge in college enrollment. Since 1985, college enrollment has grown more than 60 percent, and now stands at 20 million students.
- Dramatically rising college costs. Since 1983, college costs have grown more than 700 percent—five times greater than inflation.
- Significant increases to federal student loan limits. Undergraduate four-year loan limits expanded from $17,125 to $27,000 and graduate loan limits are now uncapped.
- Shifts in student composition. More “independent” students, those over 25 years of age, are now going to college and can borrow at higher limits.
- Debt without a degree. Just 59 percent of students graduate from bachelor’s degree in six years.
- Slower repayment of federal student loans. Nearly 50 percent of all Direct Loan balances are enrolled in income-driven repayment plans, some of which are “negatively amortizing.”
5 COMMON-SENSE STUDENT LOAN SOLUTIONS
- Providing better information before borrowing - Consumers need better information upfront about what it will cost them to earn their degree, the likely starting salary for their planned field, and estimated payments if they borrow. An investment in a customized counseling program with a special focus on at-risk students would easily pay for itself in better outcomes for borrowers. The government should issue truth-in-lending disclosures to consumers before they sign on the dotted line.
- Improving the college completion rate - Borrowers who don’t graduate are economically worse off than those who never attempt college. The best intervention is before a student decides how much to borrow and before they drop out. Schools that grow their graduation rates should be encouraged and rewarded.
- Simplifying repayment- Today, there are more than 50 different repayment options. Borrowers must navigate this maze of complexity as they begin repaying their student loans. Repayment options and enrollment processes should be simplified.
- Helping borrowers pay off faster- Low-payment, longer-term loans help struggling borrowers get back on track, but many borrowers would save significantly by paying loans off faster. The Department of Education and its servicers can encourage borrowers to understand how interest works and how paying extra can help save money and speed up pay off. Government disclosure forms should clearly show the higher cost of longer-term repayment options.
- Improving borrower contact with servicers- For loans Navient services, 90 percent of borrowers who default did so without engaging with their servicer for a full year, despite many attempts to reach them. Yet, nine out of 10 times, when we are able to reach borrowers who are delinquent, we help them avoid default.
In full disclosure, Pugliese Associates represents Navient, a leading provider of asset management and business processing solutions for education, healthcare, and government clients at the federal, state, and local levels.