5 Things You Should Know About the New Student Aid Bill of Rights

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If you’re among the 40 million borrowers who have been struggling to manage federal student loan debt, a little help is on the way. This week, President Obama signed the Student Aid Bill of Rights.

The Department of Education will collaborate with other federal agencies in an effort to assist borrowers with repaying their student loans. Plans are in the works to assist with securing affordable monthly payments and provide a system for logging complaints against lenders.

“Today’s actions will help borrowers responsibly manage debt, improve federal student loan servicing, and protect taxpayers’ investments in the student aid program,” said the White House in a statement.

Considering the fact that the average student loan debt is $28,400, and about 650,000 borrowers who began repayment in 2011 defaulted on their student loans, this is welcome news. Here are five things you should know so that you can get the most out of this new bill.


1. All prepayments will be treated the same

Lenders are now required to apply prepayments to the debt with the highest interest rate first unless you instruct them otherwise. Now there will be no guessing games when it comes to figuring out where your payments will go.

“Right now, there’s no standard. Some lenders will apply the prepayment randomly, some will apply payments to the loan with the earliest due date, and other lenders will apply payment to the loan with the lowest interest rate,” says Mark Kantrowitz, a college finance expert and publisher of FastWeb.com and FinAid.org. Applying prepayments to the loan with the highest interest rate will save you the most money over the life of the loan.

2. You don’t have to wait until next year to log a complaint

Although a new online complaint system will be available next July, you can log complaints about your federal student loan servicer by calling 1-800-4-Fed-Aid. Once the updated complaint system is in place, you’ll be able to submit complaints about federal student loan collection agencies, your lender, servicer, and even your school. If you have a complaint about a private student loan, you can reach out to the Consumer Financial Protection Bureau, which has its own complaint system in place.

Don’t be shy about making a complaint — you’ll have plenty of company. The CFPB reports there were more than 5,300 complaints about private student loans between October 2013 and September 2014, a 38% increase from the previous year.  Before logging a complaint, make sure you have all your federal loan information handy. You can get information about your loan from the National Student Loan Data System.


3. Pell Grants are about to get fatter

The maximum Pell grant award was increased to $5,730 for the 2014-2015 school year. President Obama has proposed that the grants are set to keep pace with inflation. It might not be a major windfall, but every bit helps.  The national average cost of tuition, fees, room, and board at a private, nonprofit four-year college was $42,429 during the 2014-2015 school year, according to The College Board.

4. Education tax benefits will expand

Currently, the American Opportunity Tax Credit provides up to $10,000 during the course of a four-year college stint. Now, proposals have been made to extend the tax credit to five years. In addition, plans are in the works to do away with taxes on forgiven student loan debt that is part of income-based repayment plans.


5. It might become less difficult to discharge a student loan in bankruptcy

Contrary to popular belief, there are rare cases in which a student loan can be included in a bankruptcy proceeding (such as undue hardship) or fully discharged (in the case of identity theft). President Obama has charged his advisers and the Consumer Financial Protection Bureau with investigating whether changes need to be made to how student loans in bankruptcy and in cases of fraud are handled.

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