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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.

Sunshine for student financial products

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Today, Director Cordray is alerting financial institutions about the potentially risky practice of making secret payments to colleges and universities to market deposit accounts, prepaid cards, debit cards, and other financial products to students. We’re calling on financial institutions to voluntarily make these agreements available on their websites.

We’re also releasing a report on college credit card agreements, which shows a continued decline from 2011 to 2012.

Earlier this year, we set out to better understand how financial products are marketed to college and university students. We heard from many colleges, universities, financial institutions, as well as students and their families. We found that financial product marketing partnerships have shifted away from credit cards towards other products.

Congress created reforms to help consumers better understand the nature of these marketing partnerships. The Credit Card Accountability, Responsibility, and Disclosure Act of 2009 (CARD Act) requires credit card issuers to report to us the terms and conditions of any college credit card agreement with an institution of higher education.

This includes the number of credit card accounts, amount of payments made to the company, the number of new accounts, and any agreement between the company and the college or university. You can see these agreements in our public database of college credit card agreements. Check it out and see if your school has an agreement to market credit cards.

Including other products

The CARD Act requirement is limited to credit cards and doesn’t include other financial products marketed through schools. In a public comment submitted to us by the National Association of College and University Business Officers (NACUBO), the association described several best practices, particularly as they relate to debit card arrangements used to access student loan and scholarship proceeds. NACUBO urges institutions to “publicly disclose the terms of any agreements.”

Making these agreements available for students and their families 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. However, not publicly disclosing these agreements raises potential consumer protection risks.

According to a survey of school officials, 69 percent of debit card arrangements are already available to the public. However, finding these agreements can be troublesome. You may even need to file a formal request under state open records laws to see them. Easier access to these arrangements will increase the public’s confidence that these agreements are structured to help students build a bright financial future.

In the new year, we’ll be contacting financial institutions to find out more about their commitment to transparency. We’ll be asking financial institutions about whether existing agreements are made available to students and families in a clear and conspicuous place on their company’s website. Financial institutions or anyone 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 financial product or service, you can submit a complaint online or by calling (855) 411-2372.

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.

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!

Does your college help you know before you owe?

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Today, we’re celebrating the two year anniversary of “Know Before You Owe: student loans” — a project to help students better understand their loan options.

We launched the Know Before You Owe: student loans project in 2011, in partnership with the Department of Education. One of the main features of the project is a financial aid shopping sheet which colleges and universities can use to help students better understand the type and amount of grants and loans they qualify for. The shopping sheet also helps students easily compare aid packages offered by different institutions.

Since 2011, more than 1,800 colleges have voluntarily adopted the financial aid shopping sheet, helping millions of students and their families.

Want to know more about how the project started and how it’s helping students across the country? Take a look:

201306_cfpb_kbyo_graphic1

October 2011: Project launch

In 2011, we released a prototype of a model financial aid offer form. We asked the public to react and tell us what was most helpful when comparing aid offers. Thousands of students, parents, guidance counselors, and college officials provided input.

January 2012: What you told us

We received feedback from thousands of you on almost every aspect of the “financial aid shopping sheet” prototype. Consumers said having a standardized way to receive financial aid information is important. We released a memo detailing your feedback about the shopping sheet to share with the Department of Education.

April 2012: Paying for College

Soon after, we built a beta version of the compare financial aid and college cost tool. The tool, which complements the shopping sheet, works to help students make cost comparisons tailored to their individual circumstances. Students who received their financial aid offers could use the tool to see how college costs could impact their loan payments down the road. Today, students and families can upload the electronic version of their shopping sheet and make adjustments to their budget to see how it impacts their estimated student debt and monthly payments after graduation.

July 2012: The final shopping sheet

After reviewing our memo and reading feedback from the public, the Department of Education unveiled the final shopping sheet. The final version reflects many of the suggestions consumers gave in response to the prototype.

CFPB Director Richard Cordray joined Secretary of Education Arne Duncan for a conference call to discuss the finalized form and encourage college and university presidents to adopt the shopping sheet for the 2013-14 school year.

Today: Hundreds of schools adopt the shopping sheet

201306_cfpb_kbyo_graphic3500 colleges and universities would be using the shopping sheet for the upcoming school year. Today, more than 1,800 schools have adopted it.

While a large number of colleges have chosen to adopt the shopping sheet, not all have, and many of you have asked us why certain schools haven’t.

Consumer information helps us to shop and make good choices. For example, you can often learn about fuel efficiency when shopping for a car or learn about nutrition information when at the supermarket. This information helps us make apples-to-apples comparisons.

Since the shopping sheet is voluntary, some colleges may want to hide the fact that their students leave with loads of debt. A clear comparison might lead to fewer students choosing these schools. Some colleges who haven’t adopted the shopping sheet may be less concerned about the student debt burdens of their graduates, compared to other colleges. If your college doesn’t use the shopping sheet, you may want to ask them why.

To research schools, compare financial aid, and figure out which loans to take, check out our Paying for College tool. Good luck!

To learn more about student loans, check out Ask CFPB. You can also check out reports and other information on our work for students by visiting consumerfinance.gov/students.

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.

Banking on campus forum

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We hosted a forum to discuss financial products and services marketed to college students.

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We’d still like to hear from you. Leave a comment on our Facebook page or tweet at us with #bankingoncampus.

Earlier this year, we published a notice asking about student checking accounts, debit cards, and other financial products. We heard from students, schools, and financial institutions about a range of issues. At the forum, we shared some of our findings about what we learned – check out our presentation.

We also heard from speakers representing the Office of the Attorney General of New York, the U.S. Department of Education, financial institutions, institutions of higher education, as well as students, and consumer advocates.