Once rehabilitated — by making nine on-time, “reasonable and affordable” payments — a student is no longer in default, and is once again allowed to receive student aid. The new rules relate to how “reasonable and affordable” is determined, and are meant to make payment plans more friendly to students than to lenders.
Maxwell Love, vice president of the United States Student Association, is skeptical.
“We are talking about a massive crisis in this country when it comes to college access and affordability ,” he said, pointing out that default often ruins young people’s credit and also disproportionately affects people of color. “The crisis is so much deeper than just reforming some rules that will affect this group of people.”
These regulations, however, may still make a critical difference for some students, according to Lauren Asher, president of The Institute for College Access and Success.
“We hope the improved regulations will help those on the verge of default to stay in repayment instead, by making them aware of options other than costly forbearances,” she said.
Asher went on to explain that students may be allowed to use income-driven repayment plans (such as IBR and Pay As You Earn), and that for people with very low income, required payments are sometimes as low as $0:
“For those who have already defaulted and want to rehabilitate their loan, the new rule will make it easier for them to do so by making sure they’re first offered a rehabilitation payment based on their income and family size, rather than something arbitrary and unaffordable.”
Asher agreed with Love, however, that these new regulations alone are not enough to fix America’s student loan problem.
“These new regulations are real progress for financially distressed borrowers, but they address just two aspects of a much larger and more complex set of regulations and legislation related to federal student loans,” she said.
As things stand, almost 20 percent of Americans have student loan debt, and more than half of those debtors are concerned about repayment. Even more striking, a third of those debtors never earned a degree.
At least these new regulations may be a glimmer of hope in the darkness. As Asher cautioned, “You only get one chance to rehabilitate a defaulted loan.”