Student Loan Aid May Be on the Way
Winter break is drawing to a close at many colleges and universities and there’s movement afoot to lower the cost of higher education.
For the 200,000 people the U.S. Department of Education estimates put off or give up on going to college because they can’t afford it, the newly installed Democratic majority in the House may work to cut the interest rate on need-based student loans and expanding Pell Grants and tax credits, according to Gannett News Service’s Maureen Groppe. Whether any of those proposal will survive in the Senate or a presidential veto remains to be seen.
For those who went to school and are still paying for it, the Department of Ed is considering limiting the fees universities charge ex-students who default on their loans.
According to the Boston Globe, universities typically charge collection fees of between 33 and 50 percent (and as high as 66 percent, according to U.S. PIRG) of the unpaid tuition or loan. In other words, collection fees can add $6,600 to a $10,000 student loan, sticking the borrower with $16,600 in debt.
Such fees are far greater than those added onto many other types of debt, including the plastic variety. The schools, which set the collection fees, say they need the money to cover their costs and to fund loans to other students.
(Frankly, I’d like to see a breakdown of the collection costs for student loans versus other kinds of debt, especially given that declaring bankruptcy often doesn’t release you from student loan debt. You would think that universities have a better shot at recouping costs than Bank of America or a hospital does and thus have collection costs that weren’t so far out of line. If anyone out there cares to enlighten me, please do.)
The Department of Education is considering a cap closer to the 16 percent average it charges on government-administered student loans. The cap would apply to the Perkins loan program which distributes $1 billion a year or more to low-income students. Under the program, borrowers who fall behind on their payments can be charged “reasonable” collection costs, but reasonable is in the eye of the school that sets the fee.
The proposal is expected out by May 1, followed by a public comment period. The cap could be in place by Nov. 1, the Globe reported. The cap would apply only to Perkins loans, but schools usually follow the Perkins guidelines for other loans they administer.