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Updates to remittance transfer rule resources and a correction to the rule

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We strive to make financial markets work for both consumers and the entities we regulate. Critical to that goal is making sure that businesses – both small and large – have what they need to understand and comply with our new regulations, which are designed both to help consumers and make a fair playing field for companies that play by the rules.

Today, we’re releasing an update of our small business guide for our international electronic money transfers rule (also known as the remittance rule). This updated guide reflects the most recent changes to the rule and will make it easier to understand the requirements, which will take effect on October 28, 2013. Although the guide is not a substitute for the rule, it highlights issues that businesses, in particular small businesses and those that work with them, should consider while implementing the new requirements.

Along with the guide, we are releasing a video that gives an overview of the rule, the recent changes, and our responses to questions raised regarding interpretation and implementation of the rule.

These versions of the guide and video replace those versions released in late 2012 and which are now out-of-date.

We are also making a technical correction to the remittance rule to make a clarification and correct an error to the May 22, 2013 amendments.

More compliance resources

We have some more information to help industry understand and comply with the new requirements, including:

A closer look at the trillion

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A few weeks ago, we released new estimates on the size of the student loan market, which is approaching $1.2 trillion, with federal student loans crossing the $1 trillion mark. While there’s been a lot of discussion about changes to federal student loan interest rates on new loans, many of you have asked: what’s happening with the trillion that’s already been borrowed?

We took a closer look and here’s what we found: there are over 7 million borrowers in default on a federal or private student loan. We also estimate that roughly a third of Federal Direct Loan Program borrowers have chosen alternative repayment plans to lower their payments.

To learn more, we decided to analyze data released from the Department of Education, pulled from the National Student Loan Data System. We took a close look at the Federal Direct Loan and the Federal Family Educational Loan (FFEL) Programs. Federal loans also include the campus-based Perkins Loan program, which represent less than 1% of the total outstanding. The data below represent loan status as of June 2013.

Repayment status for federal student loan programs

Outstanding balance including accrued interest in billions of dollars

In-school Grace Repayment Deferment Forbearance Default Other Total
Direct 133.8 (24%) 40.4 (7%) 237.4 (42%) 75.6 (13%) 48.3 (8%) 30.5 (5%) 3.2 (1%) 569.2 (100%)
FFEL 12.2 (3%) 6.6 (2%) 256.3 (60%) 46.5 (11%) 42.8 (10%) 58.8 (14%) 6.3 (1%) 429.5 (100%)

Number of recipients in millions

In-school Grace Repayment Deferment Forbearance Default Other Total
Direct 7.9 (28%) 1.9 (7%) 10.8 (39%) 3.2 (12%) 1.8 (6%) 2.1 (8%) 0.1 (0%) 27.8 (100%)
FFEL 0.9 (4%) 0.5 (2%) 12.9 (56%) 2.3 (10%) 1.6 (7%) 4.4 (19%) 0.3 (1%) 22.9 (100%)

It’s hard to compare the Direct and FFEL programs to each other, since a much larger portion of Direct Loan borrowers are still in school. In addition, no new loans have been made through the bank-based FFEL program since 2010. Many borrowers have both types of loans. Here’s a closer look at the estimated average balance for borrowers in each loan status:

Average balance by repayment status for federal student loan programs

Outstanding balance including accrued interest in thousands of dollars

In-school Grace Repayment Deferment Forbearance Default
Direct 16.9 21.3 22.0 23.6 26.8 14.5
FFEL 13.6 13.2 19.9 20.2 26.8 13.4

A noteworthy number of borrowers are in default. Defaulting on a federal student loan has serious consequences. Unlike other consumer credit, borrowers in default on a federal student loan might see their tax refund taken and their wages garnished without a court order. However, there are options to get out of default and get the default notation on your credit report removed.

There are ways to avoid default on a federal student loan, even when you think you can’t afford your payment. Here’s a closer look at the repayment plans Direct Loan borrowers are choosing:

Repayment plan choices by federal direct loan borrowers

Includes loans with known status in repayment, deferment, and forbearance

Outstanding balance
Billions of dollars
Recipients
Millions of recipients
Average balance
Thousands of dollars
Standard 10-year plan 139.9 9.84 14.2
Plans based on income 72.3 1.58 45.8
Income-contingent repayment 20.1 0.63 31.9
Income-based repayment 50.9 0.91 55.9
Pay as you earn 1.3 0.04 32.5
Plans not based on income 107.4 3.35 32.1
Extended repayment 62.1 1.63 38.1
Graduated repayment 27.8 1.27 21.9
Extended graduated repayment 17.5 0.45 38.9
Other alternative repayment plan

4.4 0.23 19.1
Total of loans in these plans 324 15 21.6

Borrowers looking to reduce their payments can choose a plan where their monthly payment can be tied to a portion of their income after submitting documentation. The newest of these plans is Pay As You Earn, where your payment is equal to roughly 10 percent of your income above the poverty line. After 20 years, any remaining balance you might have is forgiven.

There are also plans that allow you to extend your payments over a longer time period (extended repayment) or to have your payments increase over time (graduated repayment). You can also combine both features (extended graduated repayment). All of these plans will incur more interest over the life of the loan, but don’t require much documentation to enroll in.

Roughly a third of Direct Loan borrowers in repayment, deferment, or forbearance are enrolled in an alternative repayment plan. Most of these borrowers are enrolling in plans that don’t require income documentation. Based on the average balances we estimate for borrowers in each plan, it’s possible that many borrowers in plans not based on income might be better off with an income-based plan. If borrowers were aware of and able to easily enroll in income-based plans through their servicer, many federal student loan defaults could have been avoided.

We recently released a report that analyzed input from consumers, industry, and experts about the potential impacts of unmanageable student loan debt and how to spur affordable repayment and refinance options for private student loan borrowers.

We’ll keep monitoring the student loan market to understand how it’s working and to help consumers navigate a complicated system. To learn more about student loans, check out Ask CFPB. You can also check out reports and other information on our work for students, visit consumerfinance.gov/students.

Rohit Chopra is the CFPB’s Student Loan Ombudsman.

What we’re hearing from private student loan borrowers

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Today, we released a mid-year update analyzing complaints from private student loan borrowers. The update explores some of the challenges consumers face when dealing with their lenders and servicers.

Last October, we published a report that detailed problems reported by borrowers. We found that student loan borrowers expressed frustration about their lack of repayment options and their inability to refinance or modify their loans. In addition, we saw many examples of active-duty servicemembers having difficulty accessing benefits under the Servicemembers Civil Relief Act (SCRA).

Lenders and servicers reported that these publications provided a helpful roadmap on ways to improve customer service.

Since then, consumers have voiced some of the same concerns, but we have also identified some emerging challenges. Complaints submitted since October revealed borrowers had a number of concerns about processing of payments, obtaining documentation about their loans, finding accurate information about their loan status and repayment options, and accessing basic account information.

While some lenders and servicers are addressing concerns about difficulties faced by military borrowers, the problem has not gone away. Regrettably, we continue to receive complaints from servicemembers with student loans having trouble accessing benefits under the SCRA.

Read the full mid-year update.

Having trouble repaying a student loan? Check out our Repay Student Debt tool. To learn more about our work for students and young Americans, visit consumerfinance.gov/students.

Financial coaching services to transitioning veterans and economically vulnerable consumers

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Whether you are a veteran transitioning to life in the civilian world or a consumer facing economic challenges – for example, seeking work after becoming unemployed or coping with a housing crisis – having a trusted, well-informed advisor can increase your odds of success. That’s why we’re launching a new initiative – the first consumer education and financial literacy program to be funded by the Civil Penalty Fund –aimed at providing direct financial coaching services to transitioning veterans and economically vulnerable consumers.

Approximately 250,000 servicemembers leave active duty each year. Many could benefit from trusted financial management support to aid their transition into civilian life. With a potential drawdown of active-duty military forces in the next few years, these numbers could increase over time.

There are also millions of consumers who may be economically vulnerable, including 49.1 million people living below the poverty line and more than 68 million who are financially underserved. These consumers are the most likely to lack access to a bank or credit union account and to use alternative financial services that may be less appropriate and more costly.

Our project aims to provide financial coaching services at critical points in consumers’ lives as they move along the path to financial stability. That includes veterans transitioning to civilian life, along with their spouses and surviving spouses, and economically vulnerable consumers seeking assistance from social service providers.

Beginning in 2014, financial coaches will be placed in locations where consumers currently receive other services, such as job training or housing counseling. The program will enable us to deliver direct services to transitioning veterans nationwide at locations that we identify in partnership with other federal agencies. The sites will be selected based on need and veteran population density. For economically vulnerable consumers, 20 local organizations will be selected from across the country to integrate and oversee the delivery of financial coaching services.

Over three years, it’s estimated that tens of thousands of consumers will be served.

If you’re interested in learning more, check out our draft solicitation in support of this project. If you are a financial coaching provider or a vendor with experience managing nationwide federal contracts and programs, we welcome your feedback and will host a conference on August 28th for interested vendors and potential subcontractors.

Our first financial literacy report to Congress

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Today, we’re publishing our first financial literacy report to Congress. It discusses our approach to financial literacy and the work we’ve done to help consumers make better informed choices about their personal finances and achieve financial goals.

As Director Richard Cordray puts it in his introductory message, “Empowering people to take more control over their economic lives is absolutely essential to our mission. But consumers should not have to go it alone, without ready access to a trusted source of impartial and expert information about matters of consumer finance.”

Our approach to financial literacy is made up of three important principles:

Make sure people have the help they need, when they need it.

As one example, if you’ve got a question, we can steer you to some help right away. Ask CFPB provides unbiased answers to commonly asked questions we’ve heard from people like you.

Research and identify financial education methods that work.

Our research will help us form a basis for evaluating and designing financial education policies and programs, to be shared with other agencies and financial educators.

Collaborate with other groups to apply and fine-tune the best approaches.

We have conducted more than 300 stakeholder meetings to learn about what consumers need and to let them know what we have to offer. We talked with many groups, including faith-based organizations, organizations that serve minority populations, and financial education organizations.

We aim to help consumers as they face large life decisions, such as going to college and buying a home. We also aim to help with smaller decisions with large consequences, such as starting a habit of savings, managing debt, and passing along financial life skills to their children.

If you’ve been following our blog, you’ll probably recognize many of the accomplishments described in the report. But if you want to catch up, the report is a comprehensive resource.

The CFPB blog aims to facilitate conversations about our work. We want your comments to drive this conversation. Please be courteous, constructive, and on-topic. To help make the conversation productive, we encourage you to read our comment policy before posting. Comments on any post remain open for seven days from the date it was posted.