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What sunshine for student financial products can show us

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Recently, we alerted financial institutions about the potentially risky practice of not readily disclosing arrangements with colleges and universities to market bank accounts, prepaid cards, debit cards, and other financial products to students. Director Cordray called on financial institutions to voluntarily make these agreements available on their websites.

According to a survey of school officials, 69 percent of debit card agreements are already available to the public, since many contracts with public colleges and universities are subject to state open records laws. We identified agreements available in the public domain by checking state open records databases and other websites where agreements were disclosed.

Some financial institutions offer low-cost student financial products as a way of developing long-lasting relationships with students as they start their financial lives. For example, one credit union told us that “over 85 percent of student accounts remain open one year following graduation.” But other financial institutions generate a significant amount of their revenue on these products while students are currently in school.

Here’s how they work

Some of these agreements were difficult to find, but here are a few examples of the different agreements financial institutions have with colleges and universities. We didn’t verify whether these agreements are current, but the examples give us a sense of how some of these agreements work.

1. Direct payments for using school logos

We found several agreements where a financial institution offers a licensing fee in order to use a school’s logo to market its financial products. (In 2008, Congress restricted this practice for student loans, but not for other financial products.) For example, we found an agreement which provides $25 million to a university for use of the school’s logo, among other benefits.

2. Bonuses for recruiting students

Other agreements provide bonus payments based on whether students sign up for a financial institution’s student checking account marketed on campus. For example, one agreement paid a university an upfront payment of $400,000 and an additional bonus of upwards of $200,000 each year if enough new students signed up for the accounts.

3. Discounted prices in exchange for marketing access

Some colleges receive discounted – or even completely free – services in exchange for allowing a provider to market financial products to students. For example, we found many agreements where a financial institution charges a university to transfer loan and scholarship funds to students.

However, some school officials have told us that these charges may be heavily discounted, since these agreements provide the financial institution with unique access to market to students receiving financial aid. This gives the financial institution a foot in the door to generate significant revenue in fees from students, making it worthwhile to provide discounted services to schools.

Committed to transparency?

Many financial institutions offer good products at competitive prices. But as we’ve stated before, voluntarily disclosing these arrangements is a sign of a financial institution’s commitment to transparency when marketing deposit accounts, prepaid cards, financial aid disbursement accounts, and other financial products to students. In doing so, they also want to make sure students know that they have a financial relationship with their school. Responsible financial institutions also want students to know they don’t have to choose their product if they don’t want to.

Actions you can take

Students, schools, financial institutions, or anyone else who wants to share information about the availability of these agreements can email us.

If you are a student, or family member of a student, you can check out our guide to Managing Your College Money and our consumer advisory on accessing student loans and scholarships.

If you have a complaint about a student loan, checking account, or credit card, you can submit a complaint online or by calling (855) 411-2372.

Helping student loan borrowers stay afloat

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This morning, CFPB Director Richard Cordray, Education Secretary Arne Duncan, and Acting Deputy Treasury Secretary Mary Miller convened a meeting with the nation’s largest private student lenders and servicers who work with millions of borrowers and their families.

Unfortunately, too many student loan borrowers are struggling. According to a report we published jointly with the Department of Education, there were more than 850,000 private student loans in default, with even more in delinquency.

Unlike federal student loans, private student loans generally lack flexible repayment options when borrowers run into trouble.

We’ve received thousands of complaints from private student loan borrowers. The most common complaint comes from those who are unable to negotiate a repayment plan that they can actually afford. Many of you have told us that you want to pay back your loan, but you just need a payment plan that works for you, especially when you haven’t yet found a full-time job in a tough market.

Many of the financial institutions represented in today’s meeting received extraordinary assistance from federal government programs when they faced their own financial distress. We were very encouraged to hear that many of them are launching initiatives this year to help their customers weather the storm and get back on their feet.

In the meantime, we’ll keep working to help you find a way to make ends meet. To learn more about your options when repaying private and federal student loans, check out Repay Student Debt. Still need help resolving a student loan issue? Submit a complaint.

Borrowers need more options to avoid default, which is in the best interest of borrowers, financial institutions, and the economy more broadly. We’ll be monitoring this market closely to determine whether or not financial institutions are making progress.

Rohit Chopra is the CFPB’s Student Loan Ombudsman.

Updated at 1:55 p.m.to reflect that Ms. Miller attended on behalf of Treasury Secretary Jacob Lew.

Tell us how you tackle your student debt

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A number of recent graduates have asked us: why is my student loan interest rate so high? And how can I more quickly pay off this loan?

Often borrowers have several loans at different interest rates. If you’re looking to reduce the amount of interest you pay each month, you’ll want to look into whether you can refinance your student loans – but there are relatively few options out there. Another option is to make extra payments toward your loans, which can save you a lot of money, especially when you direct those payments toward the individual loan with the highest interest rate.

However, many of you have told us about problems you face when trying to tell your student loan servicer what to do with your extra payments. Some of you also have told us that you’ve had a hard time getting a straight answer about these payment processing policies.

Tell us your story.

What advice would you give to borrowers just beginning to repay their loans? What worked and what didn’t work? Be sure to include the tag “student loan” with your story. Your story can help us build better tools for student loan borrowers and help borrowers that run into trouble.

For example, some of you have told us that you provide instructions in the “memo” field of your check or through an online “bill pay” service. You’ve also told us that you’ve called your student loan servicer in advance to let them know that your employer might be making a payment on your behalf and you want the payment applied in a certain way. Sometimes this works and sometimes this doesn’t.

Tell us what worked for you.

We’ve also asked student loan servicers to tell us about their policies for handling extra payments, so that we can keep building tools to help you tackle your debt more quickly. And as a reminder, it is unlawful for student loan servicers to charge you penalties or fees for prepaying your student loan.

If you need help today, check out our Repay Student Debt tool to figure out your options, especially if you can’t make your payment. You can also submit a complaint or Ask CFPB.

We look forward to hearing from you!

Consumer advisory: Stop getting sidetracked by your student loan servicer

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Over the last several years, many Americans have been able to save on monthly payments on their mortgages and other loans by refinancing to the low interest rates available in the market.

Unfortunately, with few refinancing options, many student loan borrowers tell us they feel stuck in loans with high rates, well after they’ve graduated and landed a job.

Since many borrowers can’t refinance, one of the only ways to avoid paying unnecessary interest is to pay their high-rate loans off more quickly. According to the Truth in Lending Act, your lender or servicer cannot assess any penalties or fees if you prepay your private student loan.

Recently, we released a report that describes how the payment processing policies of private student lenders and loan servicers may be sidetracking responsible borrowers looking to pay off their loans more quickly. If you have several loans associated with the same loan servicer (the company that sends you a bill each month) and you don’t provide instructions, your servicer will generally decide how to allocate your payments in excess of the amount due.

Leaving this decision up to them isn’t always the best choice.

Your student loan servicer should listen to your instructions about which loan your additional payment goes toward when you submit your payment.

Here’s why providing instructions to your servicer can be a good idea:

  • If you direct any extra money to your highest interest rate loan first, you may save hundreds of dollars or more in extra interest payments and you may be able to get out of debt faster.
  • If you don’t tell them what to do, your servicer will apply extra payments as they see fit, in most cases spreading your money out across all of the loans on your account.
  • This means that you’ll pay down your debt slowly, and you’ll pay more money in interest over the life of your loan.

To help you explain to your servicer what it should do with your money, we’ve put together some sample instructions you can send to your servicer to ask them that they direct any extra payments toward your highest-rate loan. Helpful servicers will generally accommodate your request. You’ll want to be sure your servicer responds to your request so you know if you need to send additional instructions.

You can download a sample letter to mail to your 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:

I am writing to provide you instructions on how to apply payments when I send an amount greater than the minimum amount due. Please apply payments as follows:

  1. After applying the minimum amount due for each loan, any additional amount should be applied to the loan that is accruing the highest interest rate.
  2. If there are multiple loans with the same interest rate, please apply the additional amount to the loan with the lowest outstanding principal balance.
  3. If any additional amount above the minimum amount due ends up paying off an individual loan, please then apply any remaining part of my payment to the loan with the next highest interest rate.

It is possible that I may find an option to refinance my loans to a lower rate with another lender. If this lender or any third party makes payments to my account on my behalf, you should use the instructions outlined above.

Retain these instructions. Please apply these instructions to all future overpayments. Please confirm that these payments will be processed as specified or please provide an explanation as to why you are unable to follow these instructions.

Thank you for your cooperation.

You’ll want to save the message you sent for your records.

For most borrowers, it makes sense to direct any extra payment toward your loan with the highest interest rate – this is the fastest way to save the most money over the long term. For other borrowers, saving the most money might not be their main goal. You may be interested in paying extra each month on certain loans in order to improve your credit profile, qualify for a mortgage, or eliminate a monthly bill. You should weigh all of your options.

You can also submit a complaint online.

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.

For more information on private student loans and other consumer financial products or services, visit Ask CFPB.

Explainer: scoring student loan servicers

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This fall, college graduates across the country will start to send payments on their student loans to their servicers. Loan servicers are companies that collect payments on all sorts of loans, including mortgages, auto loans, and student loans. Sometimes, the original lender will be the one collecting payments. But often, a loan servicer is chosen for you by the lender.

For the bulk of student loans, there’s a fairly unique process to determine who services new loans in the Department of Education’s Direct Loan program. Loan volume is assigned based on how satisfied users are with the servicer, in addition to how well the servicer is at collecting payments and avoiding borrower default. In other words, servicers get more volume if borrowers, schools, and federal personnel give them high ratings and if they are successfully getting borrowers to pay.

We decided to take a closer look at how new volume is awarded to the four largest Direct Loan servicers by analyzing the Servicer Performance Reports released to the public each quarter. These four nonbank servicers are scored on five measures, and they’re graded on a curve.

Scores on each of these equally-weighted categories determine the allocation of new Direct Loan volume to servicers. The final Servicer Performance Report of the year was recently released. Here are the results over the past year.

Servicer performance by metric and by quarter 2012-2013


Servicer Loan defaults (by number of loans) Loan defaults
(by dollar value)
Borrower survey School survey Federal personnel survey
2012-13 Academic Year, First Quarter
FedLoan Servicing (PHEAA) 1.21% 0.71% 74.33 78.00 72.00
Great Lakes 1.46% 0.86% 74.67 83.33 72.00
Nelnet 0.66% 0.40% 72.67 77.33 68.00
Sallie Mae 0.91% 0.56% 73.00 74.00 69.00
2012-13 Academic Year, Second Quarter
FedLoan Servicing (PHEAA) 1.42% 0.91% 75.00 79.33 73.00
Great Lakes 1.70% 1.04% 77.00 77.33 74.00
Nelnet 0.76% 0.48% 75.00 78.33 71.00
Sallie Mae 0.83% 0.49% 72.00 73.33 66.00
2012-13 Academic Year, Third Quarter
FedLoan Servicing (PHEAA) 0.98% 0.58% 73.33 81.33 76.00
Great Lakes 1.03% 0.65% 74.67 83.00 72.00
Nelnet 0.58% 0.36% 77.33 74.00 71.00
Sallie Mae 0.64% 0.37% 74.00 77.00 69.00
2012-13 Academic Year, Fourth Quarter
FedLoan Servicing (PHEAA) 0.91% 0.52% 73.67 77.00 78.00
Great Lakes 1.11% 0.63% 75.67 82.67 76.00
Nelnet 0.59% 0.35% 74.00 77.67 70.00
Sallie Mae 0.54% 0.29% 73.67 78.00 75.00

Now, let’s take a look at the overall rankings for the whole year. A ranking of first means a servicer was the best of the group, and a ranking of fourth means a servicer was the worst of the group in a particular category. Again, these scores are rankings, so first doesn’t mean the servicer is “good,” nor does fourth mean the servicer is necessarily “bad.”

Servicer Rank by Metric 2012-2013


Servicer Loan defaults (by number of loans) Loan defaults
(by dollar value)
Borrower survey School survey Federal personnel survey
Nelnet 1st 1st 2nd 3rd 3rd
FedLoan Servicing (PHEAA) 3rd 3rd 3rd 2nd 1st
Great Lakes 4th 4th 1st 1st 2nd
Sallie Mae 2nd 2nd 4th 4th 4th

Note: First represents the highest ranking for a given metric, fourth represents the lowest ranking.

As shown above, Great Lakes performs the best overall when it comes to borrower and school satisfaction, but the worst when it comes to loan performance. Sallie Mae ranks the worst in borrower, school, and federal personnel satisfaction. Nelnet scores the best on loan performance, but sits in the middle of the pack on the satisfaction surveys.

The Department of Education publishes a formula on how it converts these scores to new volume. Based on these results, it appears that Nelnet will get the highest allocation of new servicing volume of these four servicers, while Sallie Mae will receive the lowest.

What if you don’t like the servicer who is assigned to your loan? While you generally can’t call and request that your loan is switched to a specific servicer, there are some triggers that could lead to a servicer change. For example, with federal student loans, if you “consolidate” multiple types of federal student loans or submit a certification form for loan forgiveness, you might find that you have a new servicer.

We have already begun to supervise both banks and nonbanks in the mortgage servicing industry. Last month, we released a report about what our examiners have been finding, including sloppy account transfers, poor payment processing, and loss mitigation mistakes. We’ve received complaints about similar issues from private student loan borrowers, including complaints about significant problems experienced by military families.

In March of this year, we proposed supervising nonbank student loan servicers to address potential problems and hold financial institutions accountable if they break the law.

If you’re one of the many who are about to face your first student loan bill after graduation, we can help you learn more about your repayment options. Check out our Repay Student Debt tool to learn more. And if you are facing a specific problem on your private or federal student loan, you can file a complaint. Good luck!

Rohit Chopra is the CFPB’s Student Loan Ombudsman. Learn more about student loan performance data.

Reminder: Accessing your scholarships and student loan funds

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Earlier this year, the Federal Deposit Insurance Corporation, another banking regulator we work closely with, fined one of the largest providers of campus debit cards. We issued this consumer advisory to all students expecting to receive scholarship and student loan proceeds onto – what appears to be – a school-endorsed debit card.

Many college students, especially those enrolled in community colleges or who live off-campus, receive scholarships, grants, and student loans that are for more than the cost of their tuition. These funds help them pay rent, get to and from school, and cover other costs, like textbooks. Many schools work with third-party financial companies to disburse these funds directly to students.

Consumers should remember the following:

  • You can’t be required to use a specific bank or card. There may be a financial institution that operates on your campus, but you generally can’t be required to use a specific account or card to access your student aid. If you have received a federal student loan, your school must provide a paper check or cash option.
  • Consider choosing an account before arriving at school. Shop around, and don’t feel limited by the banks operating ATMs on or near campus. Some financial institutions don’t charge you for using any ATMs, and some will automatically reimburse you for fees charged for using an out-of-network ATM. Many institutions also provide a mobile phone app to remotely deposit paper checks.
  • If your school offers it, sign up for direct deposit as soon as possible. If your school offers direct deposit, you may be able to provide the school with your account information in order to access your funds more quickly.

If you have a specific problem with your student checking account and need to resolve it, please file a complaint. If you want to just share your experience with student checking accounts and debit cards, tell us your story and use the tag “financial aid.”

Ask CFPB if you have more questions about student checking accounts.

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