Obama's Student Loan Bill of Rights: Will It Fix Anything?

President Obama issued an executive memorandum Tuesday to the Department of Education and other federal agencies to do more to help student loan borrowers afford their debt payments. He’s calling it the Student Aid Bill of Rights.

It addresses some big issues, like making payments more affordable and giving borrowers a simple way to provide feedback on their loan experiences. However, experts say that these rights only cover some of the problems borrowers encounter, and that it will take time to see how this executive action plays out for student loan borrowers.

“These things aren’t going to immediately improve the economic drag that student loan debt has on the economy,” said Chris Lindstrom, higher education program director at U.S. Public Interest Research Group (PIRG). “There’s any number of outstanding questions that are definitely not spelled out in detail … but we’re optimistic that we can at least follow through on a set of these things and make them happen before the president leaves office.”

With that in mind, here are the main points outlined in this bill of rights (note: despite the use of the word bill, this is not legislation).

A Student Aid Bill of Rights

I. Every student deserves access to a quality, affordable education at a college that’s cutting costs and increasing learning.
II. Every student should be able to access the resources needed to pay for college.
III. Every borrower has the right to an affordable repayment plan.
IV. And every borrower has the right to quality customer service, reliable information, and fair treatment, even if they struggle to repay their loans.

This presidential memo also says the Department of Education will now be responsible for making sure servicers apply overpayments to the loan with the highest interest rate, therefore relieving borrowers of that burden. Currently, there’s no way for borrowers to refinance through the federal student loan program, and the only workaround to pay less interest in the long run is to make more than your minimum monthly payment and request your servicer apply that payment to your highest interest rate loan. However, borrowers have reportedly complained that servicers don’t always follow those instructions.

These changes are generally focused on making things easier for borrowers to understand and increasing access to resources to answer any questions they may have. For example, there’s a directive that the Education Department create a centralized platform for borrowers to access their loan information and make payments.

Get matched with a personal loan that’s right for you today.

Learn more

“That’s a fancy way of saying we’re bypassing the servicers,” said Joshua Cohen, a student loan lawyer based in Vermont. “I think people will love that because people do not like dealing with servicers.”

It’s a common borrower complaint — that servicers don’t communicate well with borrowers, and don’t follow borrowers’ instructions — and the memorandum calls for a better way to collect and address consumer complaints about them.

“I think it’s really encouraging to see a push for a more standardized servicing experience,” said Jesse O’Connell, assistant director of federal relations for the National Association of Student Financial Aid Administrators. Because borrowers don’t have a choice in what entity services their loans, borrowers often feel stuck with a servicer that isn’t meeting their needs. O’Connell said that’s an inequity that can harm individuals and, by extension, the greater economy. “We want to make sure all students are getting a consistently high level of service.”

Borrower advocates are optimistic in light of this executive action, but still have many questions there are about how this order will be executed. Cohen, for one, would like to see more efforts aimed at reducing the cost of college (there’s a section of the memo about increasing grants to encourage schools to cut expenses), in addition to tackling private student loan affordability.

Even though private student loans only make up 13.75% of the $1.2 trillion in outstanding loan debt, that small percentage translates into a large dollar amount — about $165 billion.

“This is great for federal loans, but there’s still no regulation of private loans,” Cohen said. “It would be nice if he had addressed the banking institutions or banking regulations.”