Student Loan Bill of Rights is a federal government initiative designed to protect borrowers from abusive actions by education servicer. The goal of this bill is to protect borrowers from predatory lending practices by education services corporations. This bill has become a cause celebre for many Americans and is the reason why it is likely to pass into law this year. Education Bill of Rights is similar to other bills concerning higher education. Most similar bills concentrate on protecting students from schools that abuse the student loan system.
Under most states’, student loan bill -of-rights laws allow a servicer to have a license via the state. However, these laws also often prevent services from:
omitting critical information from the student loan bill of rights. For example, many laws contain an authorization that requires the school to provide a copy of the student loan payment history to the borrower. However, there is no requirement that the school inform the server what the payment history is or who pays. Also, when a bill of rights provision goes into effect, there is no limitation on how many times a student loan servicer may contact the borrower. In short, the borrower could keep track of numerous communications from the server. This can lead to harassment and excessive communication between both parties.
Another problem with the original student loan bill of rights is that it only covered certain aspects of servicing borrowers. For example, the bill required schools to give notice about certain changes in interest rates or repayment terms. While some modifications would be appropriate such as a cap on interest rates, others such as lowering the amount of payments that have to be made each month could go against the purposes of the bill. In addition, the original bill did not restrict the services from pursuing late fees. For these reasons, the Student Loan Bill of Rights became ineffective as it contained some dangerous provisions. As a result, many borrowers are stuck with a collection agency after they have paid their student loans.
The Student Loan Bill of Rights, along with the original student loan bill of rights, was reintroduced into Congress by Rep. Barney Frank (D-PA). Frank has already made several attempts to amend the federal student loans bill of rights. One amendment would have permitted the secretary of education to deny a federal loan if the borrower has engaged in unacceptable behavior. Another amendment would have allowed borrowers who have received a waiver to repay their loans to do so provided that the waiver does not make any adverse provision about other borrowers who are not subject to the provisions of the waiver. Neither amendment passed.
Instead of addressing the problems with the federal student loan bill of rights, Frank introduced another bill, the Private Student Loan Recovery Act, or the Hope Act. Although similar to many previous federal remedies, this new act has been criticized for being too restrictive of private student loans. Proponents of the Private Student Loan Recovery Act argue that existing federal remedies such as the Federal Family Education Loan Program and the Federal Perkins Loan Program are inadequate. For example, the Federal Perkins Loan program currently requires borrowers to seek out unsubsidized and subsidized student loans from private lenders, in order to obtain loans that may be discharged from federal debt when an individual graduates from a college. Meanwhile, the Federal Family Education Loan Program does not require private lenders to provide unsubsidized student loans to borrowers, unless they are participating in the program. This means that borrowers who have exhausted all federal funding for federal loans are not able to seek out private lenders to repay them.
The Student Loan Bill of Rights also threatens borrowers of loans taken out under the William D. Ford Federal Direct Loan Program, known as the Direct Loan Consolidation Loan Program. The bill states that borrowers who have consolidated their Direct Loans will be ineligible for subsidized assistance under the William D. Ford Federal Direct Loan Program for one year. This means that a Direct Loan Consolidation Loan would have to be repaid instead. The William D. Ford Federal Direct Loan Program was introduced by former President William D. Ford; it is the direct descendants of the original Ford Motor Company financial services loans that were made directly to students in education.
This bill has received strong support from Congressional leadership and President Bush’s staff, who believe that the bill is necessary to protect American workers and stimulate the economy. Opponents argue that the bill goes against the spirit of the Fair Debt Collection Practices Act and could open the door to abuses by collection agencies. The bill is currently in committee in the House and is expected to come up for a vote soon. If the bill passes the House and becomes law, as many expect, the first student loan bill to be reintroduced into Congress will be the Stop Student Loan Interest Evasion Act. This act will impose penalties on institutions that have engaged in practices that encourage the evasion of repayment. Many school districts are already using settlement agreements with collection agencies to prevent action from being taken against them, but the new act would make it much easier to use these same procedures against unwilling students.