A student loan should not mean a lifetime of debt. Maine lawmakers can help.

Originally published by the Maine Center for Economic Policy via Bangor Daily News.

By Jody Harris
May 13, 2017

“Federal student loan borrowers can exercise an array of options from income-driven repayment plans to discharges for disability. Unfortunately, the worst student loan servicers purposely fail to advise borrowers of these options instead keeping their customers in high-cost payment plans on which they are doomed to default. The Maine Legislature should adopt these protections to safeguard our seniors and young graduates trying to pay off student loans since the federal government and the service companies they employ won’t.”

George Danby | BDN

George Danby | BDN

Jody Harris op ed, Bangor Daily News, May 13, 2017

Young people fresh out of high school, parents seeking to help their kids go to college, workers who want to get better jobs — Mainers like these take out student loans. They hope a good education will pave the path to a rewarding career, prosperity and financial security in old age.

In the decades after World War II, the GI Bill and other government-secured loans made those aspirations come true for successive generations. But more recently student loans have transformed from dream makers into deal-breakers, as their cost has soared. A major contributing factor is a student loan servicing industry rife with fraud and abuse.

In 2015, outstanding student loan debt reached $1.23 trillion, becoming the second largest consumer loan debt in the country — just behind mortgages — and contributing to the financial insecurity of generations of families. Parents and grandparents over the age of 60, who co-signed for student loans, are bringing that debt into retirement and using their Social Security benefits to make loan payments. Younger borrowers are delaying buying a house, creating a new business, or starting a family. As many as 15 percent of Maine student loan borrowers — with an average debt load of nearly $30,000 — say they won’t ever be able to pay off their student loans.

With the explosion of student debt also comes the private interests who exploit it. Predatory practices by student loan servicers — those companies that manage payment plans and collect on debt owed — force many former Maine students to pay more than they have to and cheat them into delinquency or default.

Last week, Maine lawmakers heard testimony on proposed legislation that would require licensing and oversight of student loan servicers and prohibit deceptive practices like misrepresenting loan terms, knowingly misapplying loan payments and ignoring a borrower’s income-based repayment options.

It is important for Maine to prohibit loan servicing abuses, as states such as Connecticut have done, because the U.S. Department of Education will not confront this issue. Despite ample evidence that reform is called for, the department rolled back consumer protection requirements in their contracts with student loan servicers this year.

In January the federal Consumer Financial Protection Bureau sued Navient, the nation’s largest student loan servicer, for deceiving customers to save costs. Among the abuses the bureau alleges is that Navient steered borrowers away from repayment plans, which would have scaled their monthly payments to their incomes relieving financial distress for older borrowers moving into retirement and allowing young families to get on their feet.

Delinquency and default have serious, long-term effects on borrowers. Not only does a default on a federal student loan harm a borrower’s credit score, the federal government also has extraordinary collection authority. They can garnish a defaulted borrower’s tax refund or take their Social Security benefits to pay down a loan.

This is a real problem for Maine with a population that is older and more likely to have lower incomes than our counterparts across the U.S. In 2015, the consumer bureau found that the number of consumers age 60 and older with outstanding student loan debt quadrupled and that older Americans carry nearly $70 billion in student loan debt. For seniors already teetering on the edge of financial security, a Social Security “offset” means canceling prescriptions and skipping doctor’s visits.

For new graduates, debt is also a burden. More than three-quarters of University of Maine graduates have student loan debt, yet they cannot rely on student loan servicers to help them with payment plans, loan rehabilitation or discharging their debt.

In the face of the CFPB’s lawsuit, Navient responded that, “The servicer acts [for] the lender … there is no expectation that the servicer will act in the interest of the consumer.” This makes it clear why former students and their parent and grandparent co-signers too often have difficulty working with their servicers to pay off loans without onerous penalties.

It doesn’t have to be this way. Federal student loan borrowers can exercise an array of options from income-driven repayment plans to discharges for disability. Unfortunately, the worst student loan servicers purposely fail to advise borrowers of these options instead keeping their customers in high-cost payment plans on which they are doomed to default.

The Maine Legislature should adopt these protections to safeguard our seniors and young graduates trying to pay off student loans since the federal government and the service companies they employ won’t.

Jody Harris is the associate director of the Maine Center for Economic Policy.