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Consumer Advisory: Student loan debt relief companies may cost you thousands of dollars and drive you further into debt

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Today we took action to put an end to two student loan debt relief scams that illegally tricked borrowers into paying upfront fees for federal loan benefits. In a joint filing with Florida’s Attorney General, we shut down student loan debt relief company College Education Services and, separately, we filed a lawsuit against Student Loan Processing.US for running illegal debt relief services. We allege that both companies exploited vulnerable student loan borrowers, made false promises about their debt relief services, and charged illegal upfront fees.

We are warning all student loan borrowers who have trouble managing their student debt to watch out for scams run by companies promising “student debt relief.” These companies prey on distressed borrowers who run into trouble and struggle to figure out what comes next. In some cases, borrowers do not think their student loan servicers can help them and seek help from a third party. Others are lured in by aggressive marketing practices that target the most vulnerable student loan borrowers.

In many cases, these companies promise thousands of dollars in savings on your student debt by falsely claiming special expertise or a relationship with the Department of Education, only to enroll you in a payment plan that’s available for free for all borrowers with federal student loans — all at a cost of hundreds of dollars or more. In other cases, these companies fail to deliver on their promises, leaving you with more debt and less time to avoid financial distress or default.

Last year, we warned you that you don’t have to pay someone to help with your student loan. You should also be aware of these warning signs to help you avoid student loan debt relief scams and information on getting help if you are a victim of this scam.

Warning signs that a student loan debt relief company may be trying to rip you off:

Pressure to pay high up-front fees. It can be a sign of a scam when a debt relief company requires you to pay a fee up-front or tries to make you sign a contract on the spot. These companies may even make you give your credit card number online or over the phone before they explain how they’ll help you. Avoid companies that require payment before they actually do anything, especially if they try to get your credit card number or bank account information. Not only is free assistance available through your student loan servicer, many times taking payment for debt relief services before providing help is illegal.

Promises of immediate loan forgiveness or debt cancellation. Debt relief companies do not have the ability to negotiate with your creditors for a “special deal” under these federal student loan programs. Payment levels under income driven payment plans are set by federal law and, for most borrowers, loan forgiveness is only available through programs that require many years of qualifying payments.

Demands that you sign a “third party authorization.” You should be wary if a company asks you to sign a “third party authorization” or a “power of attorney.” These are written agreements giving them legal permission to talk directly to your student loan servicer and make decisions on your behalf. In some cases, they may even step in and ask you to pay them directly, promising to pay your servicer each month when your bill comes due.

Requests for your Federal Student Aid PIN. Be cautious about companies that ask for your Federal Student Aid PIN. Your PIN — the unique ID issued by the U.S. Department of Education to allow access to information about your federal student loans — is the equivalent of your signature on any documents related to your student loan. If you give that number away, you are giving a company the power to perform actions on your student loan on your behalf. Honest companies will work with you to come up with a plan and will never use your PIN to access your student loan information.

How to get help

Submit a complaint online or call us at (855) 411-2372 if you have been the victim of a student loan debt relief scam or if you are getting runaround from your student loan servicer. You should also instruct your student loan servicer that they should only provide information about your student loan directly to you.

If you have questions about repaying student loans, check out Repay Student Debt to find out how you can tackle your debt – even if you’re in default. You can learn about your options, and what you might want to specifically ask for when speaking with the company attempting to collect from you. Another great resource to visit is Ask CFPB for answers on many more of your student loan questions.

Even if you’ve fallen behind, you may have options

There are federal student loan repayment programs that can help remove the default status from your credit report. Be sure to learn about what’s available through our tools before paying hefty fees for something that likely won’t live up to your expectations or that you can get for free.

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

Veterans: Take advantage of student loan forgiveness, but don’t let it damage your credit

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For some veterans, their time in uniform caused a severe service-connected disability. This dramatically impacts their life after transition out of the military.

For 100-percent service-disabled veterans who have student debt, the Department of Education offers a valuable benefit to help them avoid financial distress – the chance to have their loans discharged (forgiven). Under federal law, veterans can seek federal student loan forgiveness if they receive a 100 percent disability rating by the Department of Veterans Affairs (VA). Private student lenders are not required to offer this benefit, but some do on a case-by-case basis, so be sure to ask.

We encourage all consumers to check their credit report regularly, but we want to especially encourage veterans who use this benefit to be sure that their student loan servicer (the company that collects payments) is providing correct information about their loan discharge to credit bureaus (the companies that compile and sell credit reports).

We continue to hear from veterans and servicemembers about the unique servicing obstacles they face as they seek to pay off student loan debt. We are concerned that, in some circumstances, when veterans are able to discharge their student loans due to their disability, they may experience damage to their credit report if their student loan servicer provides incorrect information to the credit bureaus. These mistakes, if uncorrected, can result in a negative entry on their credit report that makes it harder and more expensive for these disabled veterans to get credit, buy a car or take out a mortgage.

For example, one service-disabled veteran submitted a complaint to us describing how his credit score fell by 150 points as a result of this type of error. His score went from a nearly perfect “super prime” credit score to a much lower score simply because he received loan forgiveness.

I can’t get anyone to listen to me! I am a 100 percent disabled Veteran who has had his credit score ruined by a broken credit scoring system. I had my student loans…discharged…in August 2013…I went from 800 to 650 in less than 2 months. I am fighting to survive because a company from my own country is killing me.

Consumers are harmed when companies furnish inaccurate information to credit reporting agencies. An error in a credit report could make a big difference in whether someone receives a loan, qualifies for a low interest rate, or even gets offered a job. These credit-reporting problems, if uncorrected, can hurt veterans in this situation for decades.

For example, here’s what could happen if a veteran tried to buy a home after a credit reporting error caused similar damage to her credit profile and score and this damage went uncorrected. If she used a VA home loan to buy a $216,000 home, she could pay more than $45,000 in additional interest charges over the life of her mortgage (depending on the length and terms of the mortgage), since this error would cause her to qualify for a much more expensive loan.

Here are two important reminders for service-disabled veterans who have discharged their federal student loans:

    1. Check your credit report.

    If you received loan forgiveness due to your service-connected disability, your credit report should not state that you still owe the debt. Other borrowers who receive a disability discharge are monitored for three years by the Department of Education. But if you received a discharge based on VA documentation, you don’t have to worry about this step and your credit report should show that you no longer owe the loan, not that it was “assigned to government” for monitoring. And remember, you can check your credit report for free.

    If you have discharged older federal loans made by banks, pay even closer attention.

    Most federal loans taken out before 2010 – loans generally made by banks and other private entities but guaranteed by the federal government – require your lender to update the information on your credit report after your loan has been discharged. Even though no new loans are issued under this program, there are still millions of borrowers repaying this type of loan. Veterans who have discharged these loans should be sure to check their credit report regularly, since the rules regarding disability discharge changed in 2013.

    2. If something doesn’t seem right, contact the credit reporting company and dispute the error.

    Understanding how discharged loans show up on your credit report can be complicated. If you file a dispute and it still doesn’t get corrected, submit a complaint with us and we’ll work to get you a response from the company. You can call us at (855) 411-2372 or submit a complaint online.

Last year, we put companies on notice that they must investigate disputed information in a credit report, and that we will take appropriate action, as needed. We will also continue to closely monitor complaints from veterans and other disabled student loan borrowers to make sure student loan servicers are furnishing correct information to the credit bureaus about disability discharges. All financial services providers that serve veterans should redouble their efforts to ensure that veterans are not penalized for receiving the benefits they earned and deserve for their sacrifices.

Holly Petraeus is Assistant Director of the Office of Servicemember Affairs and Rohit Chopra is the CFPB’s Student Loan Ombudsman.

Struggling private student loan borrowers are still searching for help

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In the years leading up to the financial crisis, many of the same subprime lending practices that led to troubles in the mortgage market also existed in the private student loan market. Like the homeowners who turned to their mortgage servicer to modify their loans but ran into customer service dead ends, lost paperwork and other breakdowns, many private student loan borrowers are looking for a clear path to stay current and avoid default.

Today we’re releasing a new report summarizing complaints from private student loan borrowers about difficulties faced when working with a lender or servicer to avoid default.

While federal student loans have a number of loan modification options to help borrowers avoid default, private student loan servicers and lenders may not make it easy for borrowers to get help in times of distress, which may have consequences for not only your financial future, but also for the broader economy.

For example, our analysis of complaints reveals that many of you tried to find out more information by calling your lender or servicer, but received conflicting or inaccurate information as you were bounced between call center staff. Many of you told us how you were provided no option at all, driving you into default, even though a reduced payment plan might be in the best interest of both you and your lender.

Request for repayment options

After listening to you and to the student loan industry, we’ve developed some advice for borrowers who want accurate information on alternative repayment plans and loan modification options, including a set of instructions that you can consider sending to your private student loan servicer (the company that sends a bill each month).

You can download the sample letter and mail it to your lender or servicer, or you can use the text below to provide instructions using the “Send a Message” or “Contact Us” feature when you log into your account on the servicer’s website.

Although some companies are willing to help borrowers during a time of financial distress, unfortunately, not all private student loan companies offer assistance when consumers are struggling to repay their loans. Using this letter may help you get a clear answer and avoid long hold times and transfers from one call center representative to another.

I am writing to you because I need to reduce my monthly private student loan payment due to a financial hardship. I am requesting a payment that allows me to meet my other necessary living expenses.

Please conduct a review of my account to determine whether I am eligible for an alternative repayment plan.

[This paragraph is optional] I believe I can afford to pay $____ per month toward my loan(s). If you require details on my monthly income and expenses, I have attached a worksheet which you can use to make an evaluation.

If you require additional authorization in order to reduce the amount of my monthly payment, please consider this letter a written request that you contact my lender or other authorized party to conduct a review of my account and provide a response within 15 days of receipt of this letter.

If you do not grant this request for a reduced payment plan, I will be at risk of default. If I receive a reduced payment plan, I may be able to avoid default, which is in the best interest of all parties.

If you determine that you are unwilling to provide a reduced payment plan, please provide the following information:

  • What available reduced payment options do you offer other than forbearance?
  • For what reason(s) am I ineligible for these repayment programs?
  • If I am not eligible for these repayment programs, when will I become eligible?
  • What steps do I need to take to qualify for these repayment programs?
  • Do you anticipate modifying these repayment programs in the future?
  • Where on your website can I find additional information on these alternative repayment programs?

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.

I hope we will be able to agree upon an acceptable repayment plan.

Thank you for your cooperation.

These instructions may help you get valuable information on repayment options to reduce your monthly payment or to temporarily postpone making payments. You can also download a sample financial worksheet that you can use to determine the maximum amount of money you can put toward student loans.

Some student loan companies have told us that they may ask for recent pay stubs or a bank statement to verify income and expenses. Consider including these documents with your request, which you can mail or send through your private student loan servicer’s website after you login.

We also have other sample letters you can send to your student loan servicer to give payment instructions or request that your co-signer be released and others you can send to a student loan debt collector.

If you’re experiencing a problem with a student loan or debt collection, 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.

Don’t let your student debt stop you from serving your country

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Last year, the CFPB launched an initiative to enlist the support of public service employers to help their employees tackle their student debt. We also published a report, which estimated that approximately one-fourth of the labor force is working in a public service profession and potentially eligible for existing benefits to help them manage their student loans.

Today, we joined the Department of Education, the Peace Corps, and the Corporation for National and Community Service to release new resources for employees, volunteers, and recent graduates with student loan debt. Whether you choose to serve in the military, volunteer in the Peace Corps, or pursue national service, we know that managing your money while serving your country can be hard. This is particularly true if you have student loans.

To help, we’ve developed new customized guides for members of the military, for Peace Corps volunteers, and for participants in national service programs with student debt. In addition, we have partnered with the Peace Corps and the AmeriCorps programs to help their members understand how to qualify for loan forgiveness and other student loan benefits—part of our financial education project focused on public service and student debt.

Student loan borrowers working in public service have access to a range of existing benefits designed to help them manage their debt. One program provides borrowers that spend a decade or more in service with the opportunity to have their loans forgiven after 10 years (120 months) of on-time payments. There are also a range of other existing benefits for servicemembers, teachers and other public servants.

Getting started

If you’re working in public service, you should be careful when considering options that postpone your monthly payment, such as forbearance. Generally, these options are designed to help borrowers weather a short-term financial shock rather than to serve as the foundation of a long-term strategy to manage your debt. In many cases, they will lead to a much higher balance when you complete your service and resume making payments.

Here is some helpful advice to help you understand your options. This information and answers to other questions about student loans are also available through Ask CFPB.

  • Most borrowers should say no to deferment and forbearance. When you put off making payments, interest may continue to accrue. This means that once you complete your service, you’ll discover that your student loan balance has grown. You may also miss out on the chance to count your service toward loan forgiveness. Some national service programs may offer to help you with your student loan interest once you complete your service, so make sure you ask about this benefit before you decide how to manage your loans.
  • Service in the military, Peace Corps and national service programs is “public service.” This means that, if you have qualifying loans, every month you serve while enrolled in an income-driven payment plan is a month that counts toward Public Service Loan Forgiveness. Under this program, if you make 120 qualifying monthly payments while working for an eligible public service organization, you are eligible to have any remaining balance forgiven on your qualifying loans.
  • Income-driven payment plans are the best bet for most borrowers in service. If you have federal Direct Loans, an income-driven payment plan, like Income Based Repayment (IBR) or Pay As You Earn (PAYE), is the best plan for most people working in public service. Your monthly “payment” may be as low as $0 per month, but you’ll make progress toward loan forgiveness each month you’re enrolled. And, if you have subsidized loans, for the first three years, you won’t be charged more in interest than the amount of your monthly payment.
  • You may qualify for other benefits, too. For example, servicemembers may be entitled to lower their interest rate under the Servicemembers Civil Relief Act (SCRA). If you are a Peace Corps volunteer or servicemember, you can qualify for loan cancellation if you have a Perkins loan. Check to see if you’re eligible for these benefits before consolidating your loans – you could lose the benefits, otherwise. Contact your student loan servicer to learn more about benefits for borrowers engaged in service.

Your student loan complaints revealed that student loan servicers don’t always make it easy to enroll in benefits for servicemembers. After hearing from you, federal regulators fined a large student loan servicer for its mistreatment of military families and ordered tens of millions in refunds.

Tell your employer about the CFPB’s pledge to tackle student debt for public servants. We will provide your employer with guidance and training on how to help you and your colleagues navigate their benefits.

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.

Special notice for Corinthian students

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Today, we announced a lawsuit against for-profit college chain Corinthian Colleges, Inc. We allege that the company lured in tens of thousands of students to take out private loans to cover expensive tuition costs by advertising bogus job prospects and career services. Our lawsuit also alleges that Corinthian used illegal debt collection tactics to strong-arm students into paying back those loans while still in school.

Corinthian Colleges, Inc. is one of the largest for-profit college companies in the United States, operating more than 100 school campuses under the names Everest, Heald, and WyoTech.

Today, we’re also publishing a special notice for current and former Corinthian students to help you navigate your options in this time of uncertainty, including information on loan discharge options.

If you experience difficulty with your student loan you can submit a complaint online or by calling (855) 411-2372. You can also find more information about options for repaying your student loan on our website.

Student loan debt doesn’t have to be scary: Leah’s story

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Just a year away from graduating with $23,000 in student loans, Leah didn’t know how she was going to make her payments. They were a constant source of stress in her life; she would lie awake at night thinking about how she was going to pay off her student debt. She was worried about her future.

We understand that fear – it’s why we built our Paying for College tool. It helps students and recent graduates inform themselves about the true cost of college and the repayment options available after graduation.

Leah learned about the Income Based Repayment option, which helped to significantly lower her monthly payments. “It’s a lot less stressful now,” she says; “It feels amazing… My husband and I don’t feel like we’re living paycheck to paycheck. I wasn’t informed when I was taking out my student loans of the reality of after college. And now students have the CFPB website to know in advance and be informed of what to expect when they graduate. I took charge of my student loan debt. Now other students can take charge of theirs thanks to the CFPB.”

Do you have a story like Leah’s? Do you want to find resources for students and graduates? Or are you interested in what other people are saying about their experiences with financial products and services? Check out Everyone has a story.