Based on the ever-rising cost of higher education, student loans are the reality for more than half of first-year college students in the U.S.

In response, the U.S. Department of Education (ED), in collaboration with the Department of the Treasury and the Consumer Financial Protection Bureau, released a report Oct. 1, 2015, regarding strengthening the federal and private student loan system in the U.S. The report outlines recommendations designed to safeguard federal and private student loan borrowers, including the role higher education institutions play in this process and the proposed updates.

The key suggestions affecting colleges and universities are the following:

  • Clarify the loan forgiveness process under the defense to repayment provision and strengthen provisions holding higher education institutions accountable for actions that result in loan discharges.
  • Create new statutory requirements mandating higher education institutions determine whether a student seeking to borrow through private education loans has exhausted eligibility for federal student aid and that the institution certifies the borrower’s need for the private loan before the loan is issued.
  • Encourage students’ knowledge regarding their prospective loan situation based on their higher education institution, through ED’s recommended tools, such as College Scorecard and Financial Aid Shopping Sheet.
  • Require higher education institutions participating in the federal student loan program provide entrance loan counseling before the student has signed the Master Promissory Note, as well as provide annual student loan counseling in order to update students on their existing debt.
  • Implement the Office of Federal Student Aid’s complaint system July 1, 2016, to streamline and centralize complaints.

 What this means to you

ED has not released any proposed regulations nor received congressional approval for the above suggestions. However, the proposed centralized complaint system does not require notice and comment rulemaking or congressional consent. The complaint system, within the Office of Federal Student Aid, will generally serve as a center for complaints on the servicing of federal student loans. ED explicitly intends for this complaint system to also provide a platform for students to submit complaints against their schools concerning federal student aid issues, such as how an institution of higher education processes or delivers students’ federal financial aid funds. Given the approaching end to the Obama administration, ED can and likely will implement this change on its own within the next year.