A drowning person wants somebody to throw them a life preserver. People drowning in student debt might have just been thrown a bowling ball.
The government’s new student loan watchdog is ill-suited for the job, critics say. That doesn’t mean you’re doomed if you file a complaint about your student loan. It just reinforces what millions of people know: Paying off college debt is an ordeal, and the convoluted student loan industry makes it even more exasperating.
The latest news confirms your best plan is to rely on the one thing you control – You. There’s no telling what you’ll get if you look to the Consumer Financial Protection Bureau for help.
Robert Cameron was named the bureau’s ombudsman in August. Ombudsman is a fancy term for someone who investigated complaints.
In this case, Cameron will represent borrowers who are fighting with private lenders over loan balances, payments, service quality and other hassles. The first problem with that is that 92% of student loans are federal, not private. He’s not helping the vast majority and that may be a good thing.
Questionable Past with Student Loans
Cameron was one of the top officials at the Pennsylvania Higher Education Assistance Agency. That’s one of servicing companies hired by the Department of Education to process student loan payments.
The PHEAA was a bastion of bureaucratic bungling while Cameron was there. The state of Massachusetts sued it in 2017 for allegedly overcharging borrowers and mismanaging their accounts. The lawsuit said the PHEAA “was aware of those problems yet failed to rectify them.”
Borrowers filed more than 9,000 complaints about PHEAA with the consumer bureau. An investigation into the unit that handled loan forgiveness cases found that 99% of applicants were rejected due to botched paperwork and other mistakes.
The previous ombudsman, who resigned in 2018 in protest of the Trump Administration’s approach to predatory lending practices, was not impressed with his successor.
“It is outrageous that an executive from the student loan company that has cheated students and taxpayers, and is at the center of every major industry scandal over the past decade, is now in charge of protecting borrowers’ rights,” Seth Frotman said in a statement.
Student Loan Debt up 343% in Last 15 Years
To be fair, Cameron was not at the center of every major industry scandal over the past decade. But his appointment didn’t exactly inspire confidence that America’s student loan crisis is trending in a positive direction.f
The total debt of $345 billion in 2004 has skyrocketed to $1.53 trillion. Maybe the Obama Administration’s decision to federalize the student loan program in 2010 wasn’t such a thrifty idea after all.
Loans were handed out like candy and tuition costs accelerated. The student loan business turned into a runaway train, and a lot of passengers didn’t realize what they were in for.
Almost 45 million Americans now have student loan debt. It is money well spent for millions who are applying their college knowledge in the real world.
Millions more spent four or five years attending ivy-covered campuses, and all they have to show for it is a degree in Lesbian Poetry, a job at Starbucks and a monthly payment large enough to lease a Lexus ES 350.
The average balance is $37,172, which works to an average monthly payment of $393. More than five million borrowers have defaulted and 11.4% of loans are more than 90 days delinquent.
Some Millennials Say Loans Not Worth It
A Pew Research Center study found that 36% of loan recipients ages 25 to 39 said the lifetime cots of their degrees outweigh the benefits. Another study found that 28% of loan recipients are delaying “major life decisions” like having children because of their college debt.
Millennial bedroom talk now consists of “Not tonight, Honey. I have a student-loan headache.”
The outlook isn’t totally grim, at least for disabled service personnel. The Trump Administration moved in August to grant automatic student loan forgiveness to veterans who are severely disabled.
As noted earlier, the new ombudsman will oversee private loans, which account for only 8% of outstanding loans. Federal loan complaints will be handled by the DOE’s ombudsman, which is how the Federal Student Aid program was originally set up under the 2008 Dodd-Frank Act.
So the furor over Cameron’s appointment might be overblown since he can only do so much harm – or good. The 8,340 complaints filed with the consumer bureau in 2018 represent only 0.02% of all loans.
In other words, the vast majority of loan recipients don’t think they’re getting jobbed by their lenders. Their biggest problem is just paying the darned things off.
The best way to approach that is like any other debt. You have to attack it before it attacks you. Avoiding that fate requires one thing – a plan. Come up with a budget and stick to it.
If it were as simple as it sounds, bankruptcy courts would go out of business. Fortunately, there are many nonprofit organizations that offer credit counseling in hopes of providing relief.
Certified counselors put you on a budget you can live with so you can afford to make payments on your student loans. If you also are burdened with credit card debt, they may be able to make you part of a debt management program.
A successful debt management program reduces the interest rate on credit cards, but it takes time.
What this really takes is someone who is motivated, realistic and knows where to look for help. If you think that’s the federal government, you might need glasses.
Bill “No Pay” Fay has lived a meager financial existence his entire life. He started writing/bragging about it in 2012, helping birth Debt.org into existence as the site’s original “Frugal Man.” Prior to that, he spent more than 30 years covering the high finance world of college and professional sports for major publications, including the Associated Press, New York Times and Sports Illustrated. His interest in sports has waned some, but he is as passionate as ever about not reaching for his wallet. Bill can be reached at [email protected].
- (NA) (2015, June 30). Yes, Student Debt is Dramatically Affecting Millennials’ Lives. Retrieved from: https://study.com/pages/student_debt_affecting_millennials_lives.htm
- (Sweet, K.) (2019, August 16). Trump appoints student loan industry exec to watchdog job. Retrieved from: https://www.washingtonpost.com/national/higher-education/trump-appoints-student-loan-industry-exec-to-watchdog-job/2019/08/16/78cdff80-c04c-11e9-a8b0-7ed8a0d5dc5d_story.html
- (Cowley, S.) (2019, February 14). Student Loan Servicers’ Frequent Mistakes Went Unpunished, Audit Finds. Retrieved from: https://www.nytimes.com/2019/02/14/business/student-loans-education-department.html