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Seeking answers for struggling student loan borrowers

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Thousands of borrowers have told us their stories on how they manage tough times with their student loans. Some students ended up borrowing much more than they expected in order to complete their degree, often because a parent lost a job in the midst of the financial crisis. Others had a tough time finding a job after graduation, making student loan payments difficult to afford.

Many borrowers have found help through income-driven repayment plans, where your payment is capped as a portion of your income. In the past year, more than one million student loan borrowers signed up for income-driven repayment plans on their Federal Direct student loans – an increase of 64 percent.

Too many private student loan borrowers are trapped

The private student loan market boomed in the years leading up to the financial crisis, where many lenders aggressively marketed loans and quickly sold them to investors. While these practices have subsided, too many borrowers with these loans find themselves out of luck and out of options. Unlike federal loans, most borrowers with private student loans don’t have flexible repayment options when they run into trouble. They report receiving very little information or help when they get in trouble, that there are no affordable loan modification options available, and that the alternatives to default are temporary at best.

Last year, Director Richard Cordray and Education Secretary Arne Duncan, along with senior officials from across the government, brought together the nation’s largest student lenders and servicers. We urged them to develop more options to help borrowers avoid default and increase the likelihood of full repayment.

Will student lenders and servicers make a deal?

Today, we’re asking several players in the student loan industry to find out what progress they’ve made. We’re looking to find out what loan modification options lenders and servicers provide, how customers can learn about their repayment options, and how borrowers can get approved. This effort also complements the work of the CFPB and our other regulators to help prevent repayment problems for future borrowers.

Borrowers across the country have told us that they aren’t looking to get off the hook, they just need a payment plan that they can afford. One borrower told us:

“I have no options left in regard to lowering my payment, forbearance, deferment or delaying my payments. I work full time as a teacher, but my student loan payment is more than a third of my income. My [specialty student loan company] just told me that there is nothing I can do but let my private loans go into default and to try to work something out with the collections agency. I have no qualms about paying a monthly fee that I can afford, but currently the money just does not exist.”

But many consumers have asked why their private student lenders won’t make a deal. After all, if lenders and servicers offered lower payments during a tough time, borrowers could avoid default and lenders could get fully repaid over the long run – a “win-win” for all.

In addition, several industry players have shared with us that they are willing to make deals with borrowers and will be launching new programs. But even today, many borrowers still have questions about these new repayment plans: What are the options? How do I enroll? Will other lenders offer similar repayment options?

The inquiry we are launching today can help us get to the bottom of these questions. Here’s an example of the information request that we’re issuing.

If you need student loan help today

If you’re in trouble today, check out our advice for borrowers. You can find a sample letter you can send to your student loan servicer to help get clear options – if they exist – on how to avoid default.

To learn more about other options when repaying private and federal student loans, check out Repay Student Debt. If you still need help resolving a student loan issue, like a surprise default or a payment processing mistake, submit a complaint.

When we hear back from the student loan industry on their efforts, we’ll be sure to update you.

Rohit Chopra is the CFPB’s Student Loan Ombudsman. To learn more about our work for students and young Americans, visit consumerfinance.gov/students.

More momentum for promoting tools for social services programs

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In the six months since we announced the release of Your Money, Your Goals: A Financial Empowerment Toolkit for Social Services Programs, organizations across the country have been at work equipping frontline social services staff to use its information and tools to help their clients learn financial decision-making skills. This comprehensive guide to empowered financial decision-making covers topics like budgeting daily expenses, managing debt, and avoiding financial tricks and traps.

Since last July, the five organizations that joined us in training social services staff have trained over 1,000 frontline social services staff to use the toolkit to help the people they serve take steps to reach their financial goals.

In Los Angeles County alone, over 300 Department of Public Social Services staff have already completed the training, and the NACHC is wrapping up training of the 500 AmeriCorps members who serve patients in local community health centers.

Today, we are pleased to announce that five more organizations are joining the CFPB in this effort. These national and local organizations from across the country include nonprofits, government agencies, and a tribal entity.

  • The U.S. Department of Health and Human Services’ Administration for Children and Families’ (ACF) Office of Regional Operations will train program agencies through its regional offices. The trainings will support ACF special initiatives focused on issues such as early childhood development, anti-human trafficking, family strengthening, healthy marriage and responsible fatherhood programs, and their Assets for Independence program.
  • The Minnesota Financial Literacy Interagency Work Group, which is led by the Minnesota Department of Commerce Commissioner Mike Rothman, is delivering toolkit training through its ten state agency partners, the University of Minnesota Extension, and the state credit union network.
  • The Sault Saint Marie Tribe of the Chippewa Indians, located in northern Michigan, will train tribal and local social services teams to use the toolkit and then seek opportunities to share their new knowledge with other state, regional and national tribal entities.
  • The District of Columbia’s Department of Human Services, with the support of the District’s Bank on DC program, is training both public and private social services staff who work with needy families to help them achieve self-sufficiency.
  • United Way Worldwide is training local affiliates to provide the training to United Way member agency staff in 22 states.

The ten organizations that are participating in this initiative have set a collective goal of training 5,000 frontline staff. Through their work with clients and patients, they will share basic information and tools on setting financial goals, saving for emergencies, tracking and managing income and spending, budgeting, credit, debt, and using consumer financial products and services. They will also be equipped to refer consumers to certified credit and debt counselors and other community resources when they require specialized assistance.

Putting the toolkit to use in your community

If you’re interested in putting Your Money, Your Goals to work in your community, check out the toolkit and training materials. The materials are available in English and Spanish and you can get started with the train-the-trainer video.

Four elements define personal financial well-being

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You probably have a few goals in mind when it comes to thinking about your financial life. You might think about taking more control over bills, or getting to a specific point like paying off a credit card, or making an important purchase. We want to help people improve their financial lives, so we want to help them set goals that can make a real difference, and work toward them. That’s why we talked to consumers across the country, to hear what they had to say about financial well-being and what it means to them.

You can see what we learned in our report on financial well-being.

Savings and income are part of financial well-being, but we learned that they’re not always the most important part. Instead, when people talked about their own financial well-being, four main elements came to light.

Feeling in control
People who have high levels of financial well-being feel in control of their day-to-day and month-to-month finances. They cover their expenses and pay their bills on time, and generally they do not worry about having enough money to get by. This is not just about having money, they told us, it’s about managing it. Think of this as having financial security, in the present.

Capacity to absorb a financial shock
Whether they get in a car accident or are temporarily laid off from a job, these consumers have a safety net such as savings, insurance, or family to help stop a shock from turning into a longer-lasting setback. One way to describe this is feeling financial security, for the future.

On track to meet goals
Consumers with a higher sense of financial well-being tell us they are on track to meet their financial goals. Whether or not they have a formal financial plan, they are setting goals that are important to them, and working toward those goals. Think of this as moving toward financial freedom, for the future.

Flexibility to make choices
These consumers have the financial freedom to make the choices that allow them to enjoy life, whatever that means to them. Whether that is taking a family vacation, going out to eat, or working less to spend more time with family, these consumers have the financial flexibility to do what they value and what makes them happy. This can be described as having financial freedom, in the present.

Applying this framework to your own financial life might help you feel more satisfied with the decisions you make too. When you face a financial choice or task, consider how your actions might affect financial security and financial freedom, today and in the future. To learn more about how consumers described financial well-being in their own words, check out the full report.

7 factors that determine your mortgage interest rate

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Infographic on mortgage shoppingIf you’re like most people, you want to get the lowest interest rate that you can find on your mortgage loan. But how is your interest rate determined? That can be difficult to figure out for even the savviest of mortgage shoppers.

Your lender knows how your interest rate gets determined, and we think you should, too. That’s why we’ve created a new interactive tool that lets you explore the factors that affect your interest rate and see what rates you can expect.

Armed with information, you can have confident conversations with lenders and ask questions to make sure you get a good deal. Here are seven key factors that affect your interest rate that you should know:

1. Credit score

Your credit score is a number that lenders use to help predict how reliable you’ll be in paying off your loan. Your credit score is calculated from your credit report, which shows all your loans and credit cards and your payment history on each one. In general, if you have a higher credit score, you’ll be able to get a lower interest rate. You can use our tool to explore how your credit score impacts the rates available.

Before you start mortgage shopping, get your credit report. Check for errors, and make sure to get them fixed. Examine your debts, and see if there are any you can pay down to improve your score. Learn more about how to raise your score.

Credit scoring is complicated—in fact, you have many credit scores, not just one. You can learn more about how mortgage lenders evaluate your credit history and use credit scores.

It’s a good idea to try to get a sense of your credit score range before you start mortgage shopping. Once you have an idea of your credit score range, put it into our tool to get more accurate rates.

2. Home location

Many lenders have slightly different pricing depending on what state you live in, so to get the most accurate rates using our tool, you’ll need to put in your state. If you live in a rural area, you can use our tool to get a sense of rates for your situation, but you’ll want to shop around with local lenders as well. Making a loan in a rural area can be more complicated, so large lenders may not serve that area.

3. Home price and loan amount

Your home price minus your down payment is the amount you’ll have to borrow for your mortgage loan. Typically, you’ll pay a higher interest rate on that loan if you’re taking out a particularly small or particularly large loan.

If you’ve already started shopping for homes, you may have an idea of the price range of the home you hope to buy. If you’re just getting started, real estate websites can help you get a sense of typical prices in the neighborhoods you’re interested in.

4. Down payment

In general, a higher down payment means a lower interest rate, because lenders see a lower level of risk when you have more stake in the property. So if you can put 20 percent or more down, do it—you’ll usually get a lower interest rate.

If you can’t afford 20 percent down, experiment to see how lower amounts affect your rate.

5. Loan term

The term of your loan is how long you have to repay the loan. In general, shorter term loans have lower interest rates and lower overall costs, but higher monthly payments. Learn more about your loan term, and then try out different choices with our tool to see how your term affects your rate and interest costs.

6. Interest rate type

Interest rates come in two basic types: fixed and adjustable. Fixed interest rates don’t change over time. Adjustable rates have an initial fixed period, after which they go up or down based on the market.

In general, you can get a lower initial interest rate with an adjustable-rate loan, but that rate might increase significantly later on. Learn more about interest rate types, and then use the tool to see how this choice affects interest rates.

7. Loan type

There are several broad categories of loans, known as conventional, FHA, and VA loans. Rates can be significantly different depending on what loan type you choose. You can learn more about the different loan types in our Owning a Home loan options guide.

Now you know

That’s it—know these seven factors and you’ll be well on your way to getting a great interest rate for your situation. And just remember:

  • You don’t need to have all seven of these factors decided before experimenting in our tool.
  • As you consider your budget and learn more about your options, come back often. The more you know, the more accurate the rates will be.
  • As you start talking to lenders, compare their offers to the rates in the tool to see if you are getting a good deal.

Now go forth and find a great mortgage rate!

Accepting applications for our Advisory Board and Councils in 2015

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To be sure that we hear from a variety of experts with diverse viewpoints, we set up the Consumer Advisory Board and two other advisory groups – the Community Bank Advisory Council and Credit Union Advisory Council. These groups allow us to hear directly from small financial institutions. They also provide us with information about emerging trends and practices in the consumer financial products and services industries.

Today, we’re accepting applications for membership on all of our advisory groups. We’re inviting applications from individuals who can provide us with guidance as we carry out our work. Here’s what we’re looking for:

  • Experts in consumer protection, community development, consumer finance, fair lending, and civil rights
  • Experts in consumer financial products or services
  • Representatives of banks that primarily serve underserved communities
  • Representatives of communities that have been significantly impacted by higher priced mortgage loans
  • Current employees of credit unions and community banks
  • Academics (Experts in research methodologies, framing research questions, data collection, and analytic strategies.)

How many seats are available?

  • 10 seats on the Consumer Advisory Board will become vacant in the fall of 2015.
  • 7 seats on the Community Bank Advisory Council will become vacant in the fall of 2015.
  • 8 seats on the Credit Union Advisory Council will become vacant in the fall of 2015.

5 reasons to check out our Owning a Home tools now

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Five reasons to check out out Owning a Home tools now Buying a home and taking on a mortgage is a big financial decision, one most of us will make only a few times in our lives. No matter where you are on your journey, whether you’re currently looking for a home, shopping for a mortgage, or just curious for your future, we have tools and information to help you confidently make good decisions to reach your goals.

This week, we’re launching our latest effort to help you navigate the market, ask the questions, and take the steps that will help you to find the mortgage that’s right for you. We’re calling it Owning a Home.

We’re committed to making it easier for consumers to shop for and get a good mortgage. Here are five ways that Owning a Home can help you find the best mortgage for your situation:

1. Owning a Home helps you know what to expect.

Shopping for a mortgage isn’t like shopping for a new toaster. You can’t easily go online and double check to make sure you’re getting the best price (or, in the case of mortgages, the best interest rate). Owning a Home lets you see real data on what current interest rates look like for your situation.

With a simple visualization, you can tell what kind of rates real lenders are offering to borrowers in your situation, and quickly understand what a good deal looks like for you. Armed with this information, you can plan how much to spend on a new home and know what to expect when you talk to lenders.

2. Owning a Home helps you understand your loan options.

It might seem like real estate agents, bankers, and mortgage brokers speak a foreign language. They use words like “ARM” and “principal” as if you should already know them, and it can be frustrating. Owning a Home demystifies this jargon, so you can have conversations with your lender confidently. We help you understand how the choices you make about your loan will impact your costs and risks.

3. Owning a Home lets you imagine new options.

You can explore different options to see which might be the best fit for you. You can see the factors lenders consider when determining your interest rate, like down payment and credit score. Because the tool is interactive, you can start to see how even small changes affect your interest rate. Considering saving up for a higher down payment before buying? See how different down payment amounts affect your interest rate. Credit score lower than you like? See how your rate could be lower with a higher credit score, and consider if it’s worth it for you to improve your credit before buying a home.

4. Owning a Home is there for you from start to closing.

Use these tools from the very start of your home buying process through to closing. Closing is the time when you dot the i’s and cross the t’s— it’s when you legally commit to your mortgage loan. To help you make sure you don’t miss anything important, we’ve created a detailed checklist and an easy-to-read guide to the forms you’ll be signing during closing.

5. Owning a Home helps you make smart choices to serve your own goals.

All of the tools and resources available on Owning a Home aim to give you the information you need to feel more confident throughout the entire home buying process. Our tools are intended to help you decide what kind of loan you want to get, find a good deal from a mortgage lender, and close like a pro. We’ll help you spot red flags and ask the right questions.

Safer mortgage markets for you

From our very first day as an agency, we’ve been working hard to improve your experience when it comes to purchasing and paying for your home. We developed new forms that make it easier to compare your loan options, using your input to guide our decisions. We’ve also been working to make the market safer, cleaning up bad practices and requiring good ones. In addition, we’ve worked to get responses to your mortgage complaints, and we’ve explored ways to make the closing process less painful.

The CFPB blog aims to facilitate conversations about our work. We want your comments to drive this conversation. Please be courteous, constructive, and on-topic. To help make the conversation productive, we encourage you to read our comment policy before posting. Comments on any post remain open for seven days from the date it was posted.