A Department of Education often panned for its stance on education debt announced new rules designed to protect student borrowers.
The department announced Tuesday that in December it will expand eligibility by 5 million to its most forgiving repayment plan.
It also said that at the start of the next academic year, it will restrict colleges’ use of fee-riddled debit cards to discharge loan disbursements.
“Schools outsource the processing of that money to banks and other financial firms in exchange for millions of dollars in contracts,” The Washington Post noted. “But some of the cards come with fees that can eat into student aid, including fees for card purchases using a PIN number rather than a signature.”
The repayment plan, called Revised Pay as You Earn (REPAYE), will be expanded to all loans made by the government.
It had previously been offered as a means-tested program called Pay as You Earn (PAYE) to low income students who took out loans after 2007. It placed a ceiling on borrowers’ bills, equal to one-tenth of their income, and gave borrowers who qualify the opportunities to have debt forgiven after ten or twenty years.
The Post also noted that debtors “with bank-based federal loans that were phased out in 2010” will be able to consolidate debt into a direct loan under REPAYE.
The revamped program is expected to cost $15.4 billion.
Democratic presidential candidates have called on the US government to do more to help the growing ranks of troubled student loan debtors.
Unlike customers of other types of consumer credit, borrowers are currently unable to renegotiate the terms of student debt backed by the federal government except when repayment would cause “undue hardship.”
The rules governing student loans guaranteed by the Department of Education do not typically allow for borrowers to renegotiate the terms of their credit, unlike many other forms of consumer debt.
“A borrower now has to show that making payments on a loan would ‘strip himself of all that makes life worth living,’ according to one court,” Bloomberg has noted.
Read The Post’s story on the new rules here.
