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What 2017 meant for student loan borrowers

Education Secretary Betsy DeVos
Chip Somodevilla | Getty Images
Education Secretary Betsy DeVos

Student debt is the second biggest form of debt in the United States and makes up about 10.6 percent of all consumer debt. Currently, 44 million Americans hold a total of over $1.3 trillion in student loan debt.

"The student debt in this country is more than all of the auto debt and credit card debt combined," Congressman Rodney Davis tells CNBC Make It.

Since student debt affects so many Americans, here is a look back at five of 2017's biggest stories about college affordability and student loans:

1. Memphis became the first city to offer employees student loan reduction benefits

In June, Memphis announced the launch of a Student Loan Reduction Program for all full-time city workers, becoming the first major U.S. city to offer this benefit.

Memphis city workers will receive monthly contributions of $50 towards principal repayment of their student loans — small change, considering that for the 27 percent of adults who borrowed money to finance their education, the average monthly payment is $533, according to the Federal Reserve.

Still, the program aims to help alleviate a growing problem facing a city with a shrinking population. In 2016, student loan debt in Memphis grew nearly 5 percent, compared with 3 percent nationally.

"We are proud to be the first municipality in the country to offer this kind of student debt assistance to our workforce. We view this as an important investment in our employees," said Alex Smith, City of Memphis Chief Human Resources Officer.

2. Department of Ed loan collection policy could make it harder for students to pay their loans

Under the Obama administration, the Department of Education was incentivized to award Federal Student Aid contracts to debt collection companies with the strongest records of helping borrowers and the lowest rates of loan defaults.

One of Education Secretary Betsy DeVos' first majormoves was to revoke this policy, making it more likely for the government to award Federal Student Aid contracts to companies that sell their services for the lowest price. These low-cost collection companies often offer riskier loans and provide less support to individuals trying to navigate the student loan maze.

DeVos characterized this decision as an effort to "limit costs," and borrowers of federal student debt should pay closer attention when working with their debt collection company. Current loan-servicing contracts are set to expire in 2019.

3. National Collegiate may be forced to forgive over $5 billion worth of disputed loans

Shortly after DeVos' decision, one of the largest owners of private student loans in the country was sued by multiple borrowers for aggressively collecting payments on debt for which they did not have proof of ownership.

National Collegiate, a conglomeration of 15 trusts that hold 800,000 private student loans worth $12 billion was forced to pay nearly $19 million in penalties and borrower refunds and may be forced to forgive over $5 billion worth of disputed loans because of alleged "abusive and illegal" collection practices.

New York attorney general Eric T. Schneiderman told CNBC Make It in an emailed statement, "These reports are deeply concerning, but are unfortunately consistent with the increasingly cynical and freewheeling culturewe've seen take hold of the student loan industry."

4. The class of 2017 missed out on $2.3 billion in free college aid

Every year, the U.S. Department of Education gives over $120 billion in federal grants, loans and work-study funds to more than 13 million college students, making it the largest provider ofstudent financial aid in the country. In order to receive their share of these funds, students must fill out the Free Application for Federal Student Aid, otherwise known as the FAFSA.

But according to NerdWallet, the high school class of 2017 missed out on over $2.3 billion worth of free college aid — money towards tuition that doesn't need to be repaid — simply by not filling out the form.

NerdWallet found that 49 percent of all high school graduates of the class of 2017 were eligible to receive a Pell Grant, which is provided by the federal government and does not have to be repaid.

However, only 36 percent filled out the FAFSA. By not completing the FAFSA, Pell-eligible graduates missed out on $3,583 on average. For the 2017-18 school year, Pell Grants can offer students up to $5,920 for college.

5. House GOP bill could eliminate student loan forgiveness for half a million public servants

On Dec. 1, House Republicans released a 542-page higher education bill that could reshape how Americans pay for college.

The PROSPER Act includes a major overhaul of the $1.3 trillion federal student loan program. It changes how much parents and students are able to borrow, and would entirely eliminate certain loan-forgiveness programs.

Currently, over half a million public servants (public school teachers, police officers and social workers, etc.) who make regular payments on certain federal student loans can have their remaining debt forgiven after 10 years through the Public Service Loan Forgiveness (PSLF) Program.

Ending this program would drastically impact public servants who have made significant financial and career decisions based on PSLF provisions.

6. DeVos cuts relief for defrauded student

In 2016, the Department of Education found that for-profit giant Corinthian Colleges was guilty of defrauding students. Corinthian, which ran Everest Institute, Wyotech and Heald College has since shut down, but tens of thousands of its former students still struggle with student debt from the fraudulent college.

The Obama administration's policy was to forgive these loans, but on Wednesday, Betsy DeVos announced that the Department of Education would not be providing total forgiveness for many borrowers after all.

Going forward, the Department of Education will provide forgiveness based on how borrowers' earnings compare to the earnings of graduates from similar vocational programs. If they earn less than 50 percent of what their counterparts make, the Department of Education will forgive 100 percent of their loans. If a borrower's earning are comparable, they will receive less assistance.

"No fraud is acceptable, and students deserve relief if the school they attended acted dishonestly," said DeVos in a statement. "This improved process will allow claims to be adjudicated quickly and harmed students to be treated fairly. It also protects taxpayers from being forced to shoulder massive costs that may be unjustified."

"The department cannot suddenly change the rules to provide less relief," said Abby Shafroth, a staff attorney at the National Consumer Law Center to the Washington Post. "Changing course now is unfair to defrauded borrowers who were misled first by Corinthian and now by the department, and is likely to be challenged in court."

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