Treasury pushes to reduce student-loan defaults

  • Article by: KASIA KLIMASINSKA and JANET LORIN , Bloomberg News
  • Updated: July 26, 2014 - 2:00 PM

The U.S. Treasury, which finances more than 90 percent of new student loans, is exploring ways to make repayment more affordable as defaults by almost 7 million Americans restrain economic growth.

Leading the effort is Deputy Secretary Sarah Bloom Raskin, who joined the department in March after more than three years as a Federal Reserve governor. As higher-education debt swells to a record $1.2 trillion, Raskin is alert to parallels to the mortgage crisis.

Back then, “we would see signs on telephones polls with 1-800 numbers urging homeowners to call to stop foreclosures. People generally got into more trouble when they used those services,” she said in an interview. Driving past the same telephone poles recently, she saw signs “urging people to call a 1-800 number for helping paying student loans.”

Raskin has reason to worry: Most of those loans are backed by the federal government. In addition to trying to facilitate stronger growth, she’s focusing on the effect such debt has on the government’s financing needs and ways to improve servicing and collection.

Among the options under consideration is boosting participation in underused Education Department programs that reduce monthly payments by tying them to a percentage of income for those who struggle while extending the term of the loan. The Treasury and Education departments are working with tax preparers Intuit Inc. and H&R Block Inc. to reach borrowers during the tax-filing process and provide information about student loan repayment options.

“The income-based plans provide borrowers with good options to keep their loans current, and keeping those loans current is very important from the perspective of the U.S. government’s balance sheet,” Raskin, the Treasury’s highest-ranking woman ever, said in a July 16 interview. “We need precision around how much we have to raise in order to meet the demand for student loans.”

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