Last week, the Department of Education Inspector General issued a report called Federal Student Aid: Additional Actions Needed to Mitigate the Risk of Servicers Noncompliance with Requirements for Servicing Federal Held Student Loans. It reviewed the internal oversight of the Federal Loan Servicing Companies. As you can see from the title, the report was not good. Student debt continues to rise and getting good advice is getting harder to achieve.
The report reviewed the compliance and service levels of the major student loan servicers. The Department of Education audited the operations of the Federal Student Aid (FSA) internal controls. This is the department that monitors the loan servicers for compliance with their contracts with the federal government. The report found that the FSA was not holding student loan servicers accountable if they failed to follow rules or ordering changes at the servicers for wrong repeated issues. If the information and rules are not communicated correctly from the top, how can borrowers be expected to get the right information?
With that being said some of the problems is the complexity of the solution. The expectation of the borrower is that they can go to one place and get the loan repayment advice they need. That is the furthest thing from the truth. Just imagine that we go to the Social Security office and ask them to help us with our entire retirement. That is not possible and not expected. Student loan repayment on the other hand has the perception but is not true.
Student Loan Repayment Complexity is Understated
We recently described the need for better student loan repayment advice. At this time, the advice is still fragmented and there is a lack of transparency. What is understated is it is a moving target. For many borrowers, their financial life is in constant change with life events, income changes, and other financial goals. These events now have an impact on student loan repayment.
Since mid-2016, more borrowers are using the Income-Driven Repayment (IDR) methods. As a result, traditional loan repayment strategies are not effective. When using an IDR repayment method, a borrower needs to focus on the Adjusted Gross Income (AGI) and not the interest rate or terms.
With a focus change to managing your AGI, the person needs a CPA or financial advisor. Finding one that understands the loan repayment options is important but hard to find. The loan servicers understand the loan repayment options but cannot give advice on a person’s AGI.
This is why so many borrowers are frustrated with the advice they are given. With the report above, it can be even more maddening since you may not be able to fully trust the advice from the loan servicers.
New Student Loan Second Opinions
As a result of the demand and need for more information, the private marketplace is starting to develop solutions that give borrowers a second opinion on their student loan repayment options. Some companies are starting to offer student loan repayment benefits. These options also have their limitations since many are owned by private lenders and their goal is to refinance a borrower’s loan with their bank. The other current shortcoming is they only focus on the individual borrower and not the household. As I stated earlier more people need to manage their AGI and how their taxes are filed to maximize their repayment options.
At this time, the PayForED Student Loan Repayer solution is the only tool that does manage the 126 options that a married couple faces if they both have federal student loans.
Currently, we have approximately 23 million borrowers that are in repayment. There are also another 21 million people incurring student loans now and will be facing repayment shortly. Having the right rules and regulations are important to solving the student debt problem. Being able to get an objective and independent second opinion regarding your student loan repayment may be just as important now since current advice is limited.