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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.

Alerting colleges about secret banking contracts

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If you’re a student preparing to head back to campus, you may encounter offers from banks and other companies that promote debit cards, prepaid cards, bank accounts, and other products branded with your school’s name or logo. When your school makes a deal with a company to market a financial product, it’s important for you to have basic information about this agreement and to understand what this means for your options. Last year, we launched an inquiry into financial products marketed to college and university students to determine whether the market is working for students and families.

We called on financial institutions to publicly disclose agreements with institutions of higher education to market financial products to students. Information about these arrangements is already required to be disclosed when marketing credit cards and private student loans to students—these requirements were put in place after companies were found to have paid schools and school officials in order to steer students into these products.

Making these agreements available for all financial products shows schools’ and companies’ commitment to transparency, helping students and their families understand basic information about these products before you sign up.

We decided to take a look at the financial institution partners of a group of some of the largest universities in America – members of the Big Ten conference – to see if they’ve disclosed agreements on their websites. Together, these schools enroll more than a half a million students.

Of the 14 member schools (yes, there are 14 schools in the Big Ten), it appears that at least 11 have established banking partners to market financial products to students. Of those 11, we were able to easily find only four contracts on the partner websites, but three of those four contracts did not contain important information, such as how much they pay schools to gain access to students in order to market and sell them financial products and services.

University Financial partner Contract available on partner website?
University of Illinois, Urbana-Champaign TCF Bank Partially
Indiana University Unknown -
University of Iowa Hills Bank & Trust Co. Yes
University of Maryland Capital One No
University of Michigan TCF Bank Partially
Michigan State University MSU Credit Union No
University of Minnesota TCF Bank Partially
University of Nebraska Wells Fargo Bank No
Northwestern University US Bank No
Ohio State University Huntington Bank No
Penn State University PNC Bank No
Purdue University Unknown -
Rutgers University Unknown -
University of Wisconsin UW Credit Union No

We’re not the only ones to take note. Recently, the Government Accountability Office also noted that “increased transparency for college card agreements could help ensure that the terms are fair and reasonable for students and the agreements are free from conflicts of interest.”

We’re also sending alerts (here’s an example) to schools to make sure they know that their bank partner has not yet committed to transparency when it comes to student financial products.

If you’re starting school this fall, be sure to check out our guide on student banking. You can learn about various options when looking for a bank account. And remember, you can’t be required to use the bank that pays your school to market to you.

Have you been able to find your school’s contract with its bank partner? Tell us your story and tag it as “student banking.”

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.

Updated August 7, 2014: An earlier version of this post noted that Purdue University and Indiana University had established agreements in place with partner financial institutions, but these agreements are related to real estate. We’ve updated this post accordingly.

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.