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Working together to protect student veterans

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We’re joining the Departments of Veterans Affairs (VA), Defense (DoD), and Education (ED) to better protect servicemembers, veterans, and their family members who are attending college. We’ve signed an agreement to carry out a comprehensive strategy to strengthen our enforcement and compliance work.

This new agreement is part of a larger effort to prevent abusive and deceptive recruiting practices by schools serving servicemembers, veterans, spouses and other family members. This includes working to ensure that these servicemembers and others have the right information to make informed choices with their education benefits and that colleges are providing these students high-quality academic and student support.

Our agreement requires the agencies to:

  • Have a point of contact for sharing information
  • Share complaints about schools
  • Alert each other of suspected fraud, deception, or misleading practices; and/or
  • Notify each other of any agency action that could lead to a college’s loss of eligibility, a suspension of enrollment, or a termination of license

Before this agreement, an agency could have been looking into a particular school or even taking away the school’s eligibility for federal funds without the other agencies knowing about it. Now, we have a system for sharing important information and coordinating efforts.

Recently, we also worked with VA, DoD, and ED to launch an online student complaint system. Here, students can report negative experiences at schools and training programs. The complaints are forwarded to schools and also shared with other law enforcement agencies. The student complaint system has already received over two thousand complaints.

We look forward to even more successful work together in the future.

What happens to your student loans if your school is shut down

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When you’re told that your college will be shutting down, there can be a lot of uncertainty about what comes next. Here is some helpful advice to help you navigate the situation.

This information and answers to other common questions about student loans are also available through Ask CFPB.

If you have federal student loans

If you have federal student loans and are currently enrolled or recently left a college or university that has shut its doors, you may be able to discharge (cancel) your loans if you apply for a loan discharge.

This option is only a possibility if your school closes. If you are attending a school that is sold, you may not be eligible to ask for discharge under this process, even if your school no longer offers your program of study.

If you do have your federal loans discharged and you end up transferring credits to a similar program, you may have to pay back the loans that were discharged.

You may have to pay income taxes if you get your student loans discharged when your school closes. If you don’t think you can afford to do so, you can petition the IRS to reduce your tax bill. Contact the Office of the Taxpayer Advocate to learn about your options.

If you have private student loans

Generally, if you have private student loans, you will still be responsible for repaying them. However, some states may have programs that assist students with private student loans in the event of a school closure. In addition, some private student lenders may offer options to assist certain borrowers in this situation.

If you think you won’t be able to afford to repay your private student loan, you should contact your student loan servicer immediately to learn more about your options. And if you run into trouble, you can also submit a complaint online or by calling (855) 411-2372.

If you’re offered an option for a “teach-out” to complete your program

If your school has announced that it is closing, you may be offered a “teach out,” an arrangement through which you may be able to complete your program and receive your degree or certificate.

If you accept a “teach-out” to complete your program at your school or another school, you will be responsible for repaying all of your student loans. If you decline a “teach-out” offer and the school closes, you may not have to pay back your federal student loans.

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

Consumer advisory: Co-signers can cause surprise defaults on your private student loans

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Today, we released a report that describes complaints we received related to the private student loan industry’s practice of placing borrowers in default even when their loans are current and in good standing. We’re also warning consumers that they can avoid surprise defaults by pursuing a co-signer release.

The vast majority of private student loans today have a co-signer (typically a parent or a grandparent). Having a co-signer can often lead to a lower interest rate, which can save you money in the long-term, because the co-signer will have to repay the loan if you don’t.

However, your loan might also contain provisions that allow your student loan servicer to put you in default — even if you’ve been making your payments on time.

That’s because your co-signer is also on the hook for your loan and therefore changes in their behavior can impact your loan, causing your loan to default and making your entire balance due all at once. We’ve received complaints that private student loan servicers are placing borrowers into default when their co-signer dies or files for bankruptcy.

Co-signer release

If you are a co-signer or have a student loan with a co-signer and you are in repayment, you should look into what’s called “co-signer release.” You should consider this option to avoid a surprise default. Both the borrower and co-signer can benefit from obtaining the release.

Many lenders advertise that a co-signer may be released from a private student loan after a certain number of consecutive, timely payments and a credit check to determine if you are eligible to repay the loan on your own. If your lender offers co-signer release, you will want to ask about this benefit and remove your co-signer as soon as you are eligible.

Unfortunately, many student loan servicers do not tell you when you are eligible to have your co-signer released, so you need to ask them how to do this.

To help you get started, we’ve put together sample letters you can edit and send to your student loan servicer. You can download sample letters to send by mail, or you can just cut and paste the text below into the “Send a Message” or “Contact Us” feature when you log into your account on the servicer’s website.

I want more information about how to obtain a release of my co-signer

I am writing to you because I am seeking the release of my co-signer on my loan. Please conduct a review of my account to determine if I am eligible for co-signer release.

If you determine that I am not eligible to have my co-signer released from my loans, please provide an explanation, including the following:

  • What is your current co-signer release policy?
  • For what reason(s) am I ineligible for co-signer release?
  • If I am not eligible for co-signer release now, when will I become eligible?
  • What steps do I need to take to qualify for co-signer release?
  • Do you anticipate modifying these requirements in the future? Will any future modifications apply to me when I seek to release my co-signer?

If I am unable to exercise this option at this time, please update/annotate my account to reflect that I intend to seek co-signer release as soon as possible. Please contact me at the point-in-time at which I am eligible to have my co-signer released.

In addition, if you are unable to provide any of the information or documentation I have requested or otherwise cannot comply with this request, please provide an explanation.

Thank you for your cooperation.

I am a co-signer, I want to be released

I am writing to request that I be released from my obligation to repay any loans associated with this account. Please conduct a review of this account and make a determination as to my eligibility to be released from my obligation.

If you determine that I am not eligible, please provide an explanation, including the following:

  • For what reason(s) am I ineligible for co-signer release?
  • What steps do I need to take to qualify for co-signer release?
  • What is your current co-signer release policy?
  • Do you anticipate modifying these requirements in the future? Will any future modifications apply to me when I seek to be released from this obligation?

If I am unable to exercise this option at this time, please update/annotate this account or accounts to reflect that I intend to do so as soon as possible. Please contact me at the point-in-time at which I am eligible for co-signer release.

In addition, if you are unable to provide any of the information or documentation I have requested or otherwise cannot comply with this request, please provide an explanation.

Thank you for your cooperation.

We also have other sample letters you can send to your student loan servicer to give payment instructions and others you can send to a student loan debt collector.

Remember, if you’re having a problem with a student loan, you can submit a complaint online or call us at (855) 411-2372.

If you have questions about repaying student loans, check out our Repay Student Debt tool to find out how you can tackle your student loan debt.

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

Explainer: Federal student loan interest rates to jump

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Updated on May 7, 2014

Right now, many students and families across the country are receiving financial aid offers and deciding how to pay for college. Most students will need to shop for student loans now, and some of you have asked us what the new rates will be. While rates aren’t set in stone yet, interest rates on new federal student loans are expected to jump this July.

We’ve updated our Paying for College tool using our best guess of what the rates will be, so you can have a better estimate of what your monthly payment might be after graduation.

Interest rates on most federal student loans are based on a certain type of bond that the Treasury Department issues, known as the ten-year note. The yield is the rate at which investors charge the federal government for borrowing money. Next month, there will be a Treasury bond auction, and that rate will set federal student loan interest rates.

Here’s what federal student loan interest rates on new loans might look like, compared to this past year.

Current and estimated interest rates on federal student loans

Loan type Interest rate on loans taken out between July 2013 and June 2014 Estimated new rate on loans taken out between July 2014 and June 2015
Direct Subsidized and Unsubsidized Loans (for undergraduate students) 3.86% 5.09%
Direct Unsubsidized Loans (for graduate/professional students) 5.41% 6.64%
Direct PLUS Loans (for parents and graduate/professional students) 6.41% 7.64%

Higher rates will mean a higher monthly payment after graduation. You can simulate this on your own by using our Paying for College tool, but here’s a quick summary of the changes.

Estimated monthly payment for every $5,000 in balances entering repayment

Loan type Monthly payment for this year’s rate Monthly payment for next year’s rate (estimated) Total increase over ten years
Direct Subsidized and Unsubsidized Loans (for undergraduate students) $50.29 $53.25 $355.49
Direct Unsubsidized Loans (for graduate/professional students) $54.04 $57.13 $370.84
Direct PLUS Loans (for parents and graduate/professional students) $56.55 $59.72 $380.59

Yet many students end up borrowing more than $5,000 for their education. For instance, graduate students borrowed an average of approximately $18,600 in PLUS Loans per year, according to the National Center for Education Statistics. With interest rates set to go up, many graduate students who borrow after July will pay an additional $1,400 over ten years of repayment for each year they are in school, compared to this year’s rate.

We’ll be sure to update these rates in our tool once they’re finalized. In the meantime, you should use your Financial Aid Shopping Sheet and our Paying for College tool to help you figure out how your school choice might impact your loan payments after graduation.

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

Updates

Updated on May 7, 2014:
Today, the Treasury Department released the rate for the ten-year note, which sets the interest rates for federal student loans. Interest rates on new federal student loans taken out between July 2014 and June 2015 will indeed be higher compared to last year’s rates. The actual rates are lower than the previous estimates noted above, which were based on Congressional Budget Office projections. The Department of Education will post the official interest rates, but here is a preview of the rates we expect:

Loan type New interest rate on loans taken out between July 2014 and June 2015
Direct Subsidized and Unsubsidized Loans (for undergraduate students): 4.66%
Direct Unsubsidized Loans (for graduate/professional students): 6.21%
Direct PLUS Loans (for parents and graduate/professional students): 7.21%

The Perkins Loans interest rate for undergraduate and graduate/professional students remains fixed at 5 percent.

Choosing a college is a big deal. We can help!

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This month, students across the country will receive college acceptance letters. For many people, the excitement of being one step closer to realizing their dream or reaching a major life milestone is coupled with anxiety about how to pay for it and the prospect of taking on student loan debt.

Compare your financial aid offers now.

To help you navigate these new waters, we’ve just launched a crisp new version of our Paying for College tool kit. Making apples-to-apples comparison of your financial aid offers has never been easier. Now you can compare offers from community college, bachelor’s, certificate, and graduate programs. We’ve incorporated a more user-friendly design and reintroduced the GI Bill calculator, which gives servicemembers the ability to calculate the benefits available to them through the GI Bill and tuition assistance programs.

We also heard from you that you wished our tool would provide information that complemented what schools are providing to students in their financial aid packages. We’re currently piloting a way to do just that. More than 2,000 schools have adopted the Financial Aid Shopping Sheet (developed in partnership with the Department of Education), which they’ll send to prospective students this year. Using this shopping sheet, you’ll be able to compare information, like average debt after graduation, side by side. If you don’t have a financial aid offer, we’ll show you where to find cost info for each school.

If you’re considering student loans to help you pay for school, you’re not alone – many students need loans to cover their full cost of attendance. If you have to take out student loans, comparing your options can help you find the student loan best suited for your needs.

We’re excited for your new adventure, and we know that choosing a college is a big deal.

Oh, and — congratulations!

We’re protecting students from predatory lending

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Today, we filed a lawsuit against ITT Educational Services, Inc., accusing the for-profit college chain of predatory student lending. We believe that ITT used high-pressure tactics to push many students into expensive private student loans that were likely to end in default.

This is our first public enforcement action against a company in the for-profit college industry.

“Today’s action should serve as a warning to the for-profit college industry that we will be vigilant about protecting students against predatory lending tactics,” said Director Richard Cordray.

You can read the press release, read Director Cordray’s full remarks, and view the formal complaint against ITT.

You can also watch a recording of today’s press conference.