One of the best tools for borrowers in repayment is the National Student Loan Data System (NSLDS). The NSLDS is so useful because it provides borrowers comprehensive records of their federal student loans, including amounts borrowed, servicer names, and balances. Tracking down this same information for private loans is considerably more difficult.
The Department of Education should expand the NSLDS database to include loan information about private student loans. Improved private student loan data would prevent fraud, help borrowers avoid defaults, and be a tool for keeping lenders accountable.
Student loans can be sold to other lenders without input from borrowers. Student debt can even change hands multiple times. Borrowers often have a hard time verifying if a lender legitimately owns the debt they are attempting to collect. Expanding the Department of Education Database to include all student loans would address many issues and require little effort from the government.
How would an expanded student loan database work?
The current Department of Education student loan database only includes federal student loans. The existing infrastructure could be used to keep records of private student loans.
Lenders already report loan information to three different credit agencies, so this additional reporting should be easily automated. To make sure the reported information is legitimate, the government can impose civil or even criminal penalties if false information is provided.
Borrowers would be able to log into the newly expanded database to access loan balances and lender information about their federal and private loans. The Department of Education could also fill the site with critical educational resources to aid borrowers in repayment.
Created an expanded database would also help put an end to a deceptive creditor practice.
Ending Zombie Loans
Zombie Debt is a serious problem for student loan borrowers.
A zombie loan “comes to life” when a creditor comes after a borrower for a loan that has already been paid off. Other times, new creditors will buy old loans for pennies on the dollar to collect from the borrower.
Borrowers have a difficult time dealing with zombie debt because it can be very difficult to prove that a loan was paid off years ago.
A government database of student debt could help address this issue. Borrowers would have access to records that would help prove that old loans have been paid off. When creditors buy old loans, borrowers would be able to track the debt. They would also have the information necessary to prevent erroneous attempts to collect the debt.
Better Oversight and Fraud Prevention
Many borrowers feel like they have been duped by their lender when student loan interest rates go up.
In some cases, the change in interest rate is legitimate and done according to the terms of the loan. In other cases, it is the result of a lender error.
At present, if the borrower doesn’t have the original loan contract, it can be challenging to investigate rate change issues. With detailed records, borrowers could quickly investigate whether or not the lender is behaving appropriately.
Mistaken rate changes are one of many issues that a private loan database could address.
If a “creditor” sends a student loan bill to a borrower, it can be difficult for the borrower to verify whether or not the letter is legitimate. If this “creditor” is a bad actor that fraudulently sent the bill, they may also threaten to sue the borrower if they do not start making payments. The borrower, even if they suspect foul play, could be fooled into making payments rather than risking a lawsuit.
In a world with a government-run private student loan database, schemes like this could be easily spotted and avoided.
Reducing Delinquencies and Defaults
Borrowers would not be the only individuals that benefit from a private student loan database.
Legitimate lenders should appreciate the database for a couple of reasons. First, when borrowers have concerns about whether or not the lender can collect on the debt, the database would put a quick end to any confusion. Secondly, there may be situations where the borrower and lender lose contact with each other due to many addresses changes that often take place after college. The database could help the borrower get in touch with the lender. Reconnecting borrowers with lenders could help prevent delinquencies and defaults on student loans.
Real Help for Student Loan Borrowers
When politicians make suggestions to help student loan borrowers, it often takes the form of far-reaching student loan forgiveness programs or new repayment plans.
While these changes would make a huge difference in the lives of borrowers, such programs can be expensive and rarely become a reality.
Creating a student loan database for private loans would be comparatively far less expensive and has the potential to help borrowers and lenders alike. Combining this idea with other cheap fixes to address the student loan crisis could help people one small step at a time.