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Student Loan Changes

There is a massive amount of debt out there in the world of student loans.  The last number I saw was debt in excess of $1.4 trillion connected to 43 million Americans.  This total debt number is up over $600 billion in the last year.  The average graduate in 2016 finished school with more than $37,000 in debt attached to their names.  The delinquency rate for student loans is greater than 10%.  This means they are more than 90 days past due with payments or in default.  It is a double-digit increase from the year prior.

Without a doubt there is a need to rework the entire student loan structure.  Most rational people may desire a path that makes it easier to repay loans and even the cost of borrowing more reasonable.  Unfortunately, our current Administration has decided to move in the opposite direction.

The proposed budget was recently introduced by the White House.  You know the document – it is the one with a budgeting error of $2 trillion, however, I digress.  Below are some highlights of the education plan, as outlined by John Wasik in a Forbes column

  • Pell Grants, which are designed for low income students, will be cut by nearly $4 billion.
  • Subsidized student loans will be eliminated. This program helps to keep interest costs low for recent graduates.
  • Income-driven plans will be replaced. These plans are used by millions of borrowers to help keep their payments lower.
  • The Public Service Loan Forgiveness program, which has been promised to borrowers for a decade, will be eliminated.

At the end of the day, the proposed budget will make it harder to borrow money for college and also make it more expensive if you do.  Hey, but this isn’t the only bad news.  Yeah, it gets worse.

Currently there are nine companies that service student loans.  As a group their reputations are not the best.  According to the Consumer Financial Protection Bureau (CFPB), these companies have “fallen down on the job.”  The short version is they have terrible customer service.  So, how does the Secretary of Education recommend the administration solve this service problem?  By consolidating all student loan servicing into the worst performing of the nine providers.

Assuming these recommendations are enacted, Navient will be solely responsible for student loan servicing.  How is their customer service?  Well, so far this year the CFPB has seen an increase of over 400% in complaints against Navient.  Navient is being sued by the CFPB and two states for “cheating borrowers out of repayment rights.”  Their response to an earlier suit was great.  They said they were “under no obligation to help student loan borrowers.”

While many of you may not be concerned about student loans, this is often an issue for my clients.  Whether it is family planning for their kids’ college expenses or some of my young physicians looking at debt of well over $200,000, student loans are something I pay close attention to.  Who knows what Congress will approve with these proposals from the Trump Administration, however, I would say the current message is college will get more expensive and harder for many people to access.

About Dan Johnson, CFP

I am the President and CCO of Forward Thinking Wealth Management, LLC, which is the flat-fee financial planning firm located in Akron, OH, and set up to work virtually with clients across the country. I charge clients a flat fee of $4,800 regardless of asset size. My firm is a solution to what I feel is a broken system where clients pay advisors based on something out of their control - the performance of the market.
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