Servicers can help borrowers through the briar patch of college debt, but there are five thorns students, grads and parents often think they can eliminate--but can’t.
Debra Chromy, president of an association of non-profit and state government servicers, the Education Finance Council, today pointed out five myth traps not to fall into about the aid they can give borrowers to help get out of student loan debt traps.
- Servicers can’t lower interest rates.
- Servicers can’t straight out forgive loans over the phone. There are loan forgiveness programs, but they can take investments in time and paperwork to achieve.
- Servicers can’t waive the income requirements for Income-Based Repayment programs for federal student loans.
- Private servicers can’t provide the same benefits on a private loan that exist on federal loan,s such as Income-Based Repayment and public service loan forgiveness.
- Servicers can’t combine all private and federal loans together into one loan payment and keep all the federal loan benefits.
The eight federal student loan programs with 56 options can be a tough process for all borrowers to manage, said Chromy. But, she noted, they can be particularly intimidating for students, grads and families with multiple major money issues. “The system is complex, it’s confusing and it is not easy for people who didn’t finish school, for those who are struggling with other financial burdens and parents who are not financially savvy,” explained the servicing association head.
She said a huge problem for her members is it has never been easy to get 18-year-olds to understand what paying student loans means from a life-long perspective. “This is a family conversation, not just a student conversation. Are you going to be comfortable?" Chromy stressed.
Adding to the stress for young people entering college and the world of large debt for the first time is that with Artificial Intelligence and other rapid technological change, the jobs they planned to train for when they enrolled may not exist when they graduate. Her comments came at a round table on student debt sponsored by the Pew Charitable Trusts, a Washington, D.C.-based think tank.
While students are often warned against borrowing too much, borrowing too little can also be a pitfall, claimed Joanna Darcus, an advocate for low income student loan borrowers at the National Consumer Law Center.
Some people are better off taking on larger debt and working one job instead of two so they can focus on their studies that could lead to high-paying careers, she advised.
Yet some students, including Latinos and residents of the Upper Midwest, don’t borrow as much as they should because they have cultural stigmas to debt, said Darcus.
Offering a way to relieve some of the student debt burden in the nation, American Council on Education Lobbyist Daniel Madzelan said private student loans should be dischargable under bankruptcy. However, he argued federal college loans should not.
The executive for the association, which represents over 1,800 higher education institutions, justified the distinction, noting private lenders can price in the risk of default into their interest rates while federal Stafford Loans have no underwriting standards and Plus Loans have few.
