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Rescinding borrower protection paints a scary future

Joel Goode, Opinion Editor

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For many students, financial aid is a short-term blessing that can become a long-term curse. Most of us expect moderate, maybe even lucrative, income when we graduate, but not everyone has staked out a money-making career path, and even those who have realize there are no guarantees.

Any student who borrows money should do so honestly, with the sincere goal of repaying the loan. However, debt collection agencies must realize the financial unpredictability of post-collegiate life.

Last Thursday, Secretary of Education Betsy Devos issued a policy statement announcing the Department of Education would revoke 2015 Obama-era protections for indebted students. Specifically, students who used the old banking system known as the Federal Family Education Loan Program (FFELP), as opposed to the more recent system of pulling loans directly from the Department of Education, would be subject to a 16 percent interest rate with no recourse, according to The Washington Post.

Three days before the policy was released, Senator Elizabeth Warren wrote a letter to Devos urging her to keep the 2015 protections in place.

In the letter, Warren explains that borrowers are given an incentive to avoid remaining in default by entering a “rehabilitation period” within 60-days of being contacted by the collection agency. During that time, students can repay their defaulted loan without accruing additional interest.

The protection encourages students to remain in contact with the collection agency to ensure that, even if finances are constrained, an income-based repayment plan can be set up.

This methodology is not just compassionate towards those who financially struggle after college, but it also saves money by encouraging borrowers to repay their loan as soon as possible to avoid remaining in default.  

In other words, there is no empirical financial incentive behind the policy, and Devos’ letter implies as much. The letter simply describes the protections and explains that they will be revoked, with no practical reason as to why other than that there was not a “public referendum” on the amendment to the FFELP.

The DOE has not released data showing that the protections were ineffective in encouraging borrowers to repay their loan.

“Borrowers who languish in default face severe consequences,” said Warren. “Their Social Security and tax refunds can be withheld, their wages can be garnished, they can lose access to federal student aid, and their credit can be damaged, which makes it more difficult for them to rent an apartment or borrow in the future for a home or a car.”

There are a myriad reasons beyond dishonesty and gaming the system that people’s finances collapse, and all this policy does is put destitute people in even more dire financial straights.

FFELP became a defunct method of financial aid in 2010. However, USA students must realize two things:

First, the pre-2010 borrowers affected by this policy are still repaying their loans, like most USA students will be doing a decade from now.

Second, just because this policy does not directly affect USA students does not mean the policy is not the first in a long series of precedents that ultimately will impact members of the current student body.

Allowing legislation like this to chip away at the social safety net of millions of individuals will eventually form cracks that cannot be refilled.

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The student news site of The University of South Alabama
Rescinding borrower protection paints a scary future