ECASLA, TARP, TALF, “put,” participation, the conduit. So many mechanisms, all designed to keep federal student loan borrowers protected during these times of financial uncertainty. Yet without a small wording change, the current laws will leave a portion of federal student loan borrowers in the lurch when they are most in need—as the federal loan rehabilitation program has ground to a halt.
The Student Loan Rehabilitation Program, a right promised to every federal student loan borrower, essentially has been derailed by a collision of the liquidity crunch and a myopic interpretation of legislative language. When borrowers default on their federal student loans, the loans’ guarantor assumes ownership of the loans. Under the Rehabilitation program, borrowers can make 9 consecutive on-time payments and restore their loan to good standing by removing the default from their credit record and regaining eligibility for federal student loan funds in order to continue their education if they chose. In the past, after a borrower had completed these 9 months of on-time payments, guarantors would sell the loan back to a lender, and the new “rehabbed” loan would resume a regular payment schedule.
FFELP guarantors, such as ASA, also used Rehabilitation as a “teachable moment” to help defaulted borrowers obtain financial literacy and debt management skills, as the opportunity to start over made these borrowers particularly open to learning skills that would have an immediate impact on their lives.
The result? Borrowers were able to continue repaying their debt, now with the help of solid debt management skills and without a federal default on their record; and the guarantor had recouped the federal government’s investment (aka taxpayer dollars) in the borrower’s education
However, due to the current conditions of the credit market, no buyers exist for Rehabilitated loans, and the Student Loan Rehabilitation Program has effectively ceased. Borrowers who hope to clear their credit records via Rehabilitation to purchase homes or return to school in a difficult job market are not able to do so. Lenders and guarantors will no longer offer Rehabilitation because rehabilitation loans are not included in the current legislative language for ECASLA or Lender of Last Resort—programs that ensure uninterrupted access for the new borrower, but, in their current state, neglect the needs of the defaulted borrower. All borrowers, regardless of status, deserve the right to the remedies put in place by Congress for the federal student loan program.
The solution is simple: Allow Rehabilitation loans to be included in Participation or Put Agreements with the Department of Education. Now more than ever, hard times—and student loan default—may hit any U.S. family. The ability to Rehabilitate their loans maybe the difference between being able to make it in these times or not. Borrowers are keeping up their end of the bargain in good faith. Shouldn’t we do everything we can to assist them with their future? After all, that was the point of the loan in the first place.
Posted by Shelley Saunders on February 12, 2009 at 09:20 AM EST
why did you take down the post informing people that they can consolidate their defaulted loans or non defaulted loans with direct loans on an income contingent basis. the least you can be is honest. How can you sleep at night decieving people on their options.That is why president obama is shutting you down
Posted by timeforchange on March 28, 2009 at 09:48 AM EST
elimination of ffelp is exactly the kind of change americans were looking for when we voted mr. obama president of the usa. the days of becoming rich on the backs of students in this country with loans that are protected by the government are over. asa and companies like you time has come to an end. ffelp will be cut regardless of how much you try to lobby! thank god for a president that will once again do whats right for the people.
Posted by timeforchange on March 28, 2009 at 09:45 AM EST
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Shelley Saunders
Vice President, Strategic Services
In her current role as American Student Assistance’s vice president of Strategic Services, Shelley Saunders serves as the organization’s primary contact for Congress, as well as for national organizations such as the American Council on Education, the American Association for State Colleges and Universities, the National Association of Student Loan Administrators (NASLA), and others. Her main focus is to educate the public policy making community on the positive results American Student Assistance has realized through its focus on student loan borrower financial Wellness.
In her 12-year career at American Student Assistance, Saunders has played an integral role in several of the organization’s global projects, including designing a new client-server based life-of-the-loan processing system and developing corporate strategy and tactics. She most recently held the position of vice president of Borrower Services.
Saunders has appeared on numerous Clear Channel radio broadcasts in the Washington, D.C. area. Her areas of expertise include the public purpose role of federal student loan administrators, as well as general facts about student loan origination and repayment.
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