The U.S. Department of Education’s inspector general has released a scathing report detailing the department’s failure to hold student loan companies accountable and the resulting harm to borrowers from a series of malpractices. The independent watchdog’s report finds that loan servicers often failed to provide student loan borrowers with accurate information about their repayment options and placed them in more expensive plans even when more affordable options were available.
The alarming revelation comes on the heels of the nation’s top student loan official resigning from his post, declaring that the government “turned its back on young people and their financial futures … abandoning the very consumers it is tasked by Congress with protecting.”
These two disturbing events should serve as a wake-up call to the dire state of student loan indebtedness in America. If the federal government is failing to protect borrowers and look out for their interests, then leaders across all sectors must fill the void to help a generation being harmed by a broken system.
The latest figures are startling: 44 million people are on the hook for $1.5 trillion in outstanding student loans, a total debt size that’s more than tripled since 2005. Seven million undergraduate students now rely on federal loans to enroll in college, and seven in 10 students are graduating with over $30,000 in debt on average. While a college degree is still a great investment for the large majority of students, more must be done to help the many borrowers that end up walking on a financial tightrope.
Most concerning is the reputation that student loan companies have earned for harming borrowers. Citibank, Wells Fargo and Discover have all been fined for illegal student loan practices, and five states recently sued Navient for “illegally failing borrowers at every stage of repayment.” These lawsuits validate complaints that borrowers have expressed for years. Since 2011, the federal government has received 60,000 complaints from borrowers citing lost payments and paperwork, unexpected fees and conflicting information from their loan servicers that often leads to costly mistakes.
The combination of these factors is pushing the system to crisis levels. Every 28 seconds, another borrower defaults on his or her loans, joining eight million already in default. And the consequences are severe, such as seized wages and revoked driver’s licenses.
Beyond the impact to the current generation of graduates, the mounting student loan crisis risks scaring off the next generation of young people from ever attending college. Among a myriad of benefits, a college degree still provides a major boost to a young person’s lifetime earning potential. Some business leaders have fanned the flames by advocating that students skip… (continue reading)