The post Organizations Urge President Biden To Extend Student Loan Payment Pause appeared first on Consumer Federation of America.

The post Advocate Urges Senate Banking Committee to Take Action on New Financial Products to Protect Consumers appeared first on Consumer Federation of America.

The post CFA Joins Coalition Urging President Biden to Extend and Expand PSLF Waiver and IDR Adjustment appeared first on Consumer Federation of America.

The post Organizations Urge President Biden to Extend Student Loan Payment Pause appeared first on Consumer Federation of America.

Payments on these loans have been paused since March 2020, during which time interest charges have also been suspended and the federal government has halted collection efforts against borrowers in default. The student loan payment pause has been one of the most important investments the federal government has made in Americans’ financial lives in a generation—a recognition that the inadequacies of the existing student loan safety net could not protect families in the midst of an economic and public health crisis.

The post CFA Again Joins Coalition Urging President Biden to Continue Pause on Student Loan Payments appeared first on Consumer Federation of America.

When Congress passed the first of the modern income-driven repayment (IDR) plans in 1992, it made a promise to borrowers that federal student loan payments would be affordable, and that even if borrowers were low-income, through eventual cancellation, their student loans would not be a lifetime burden. IDR has failed to deliver on every aspect of that promise. The groups urged the Biden Administration to restore faith in IDR through the creation of an IDR waiver.

The Biden Administration recently recognized and took steps to address similar failings in the Public Service Loan Forgiveness (PSLF) program by implementing a waiver that would allow the millions of public service workers to finally benefit from the promise of PSLF. While the groups applauded and celebrated these efforts, they urged the Administration to simultaneously address the parallel failures of the IDR program through a similar waiver.

The post CFA Joins Organizations Urging Secretary of Education to Implement IDR Waiver appeared first on Consumer Federation of America.

The post Secretary of Education Must Take Executive Action to Deliver on the Promise of the Public Service Loan Forgiveness appeared first on Consumer Federation of America.

The post CFA Joins Coalition in Letter to Speaker Pelosi about Student Debt Cancellation appeared first on Consumer Federation of America.

Payments on these loans have been paused since March 2020, during which time interest charges have also been suspended and the federal government has halted collection efforts against borrowers in default. The student loan payment pause has been one of the most important investments the federal government has made in Americans’ financial lives in a generation—a recognition that the inadequacies of the existing student loan safety net could not protect families in the midst of an economic and public health crisis.

The post CFA Joins Coalition Urging President Biden to Continue Pause on Student Loan Payments appeared first on Consumer Federation of America.

• Prohibiting the use of confessions of judgment as an unfair credit practice that eliminates notice and the right to be heard;
• Prohibiting certain abusive collection practices directed at service members, including threats to reduce rank or revoke security clearance;
• Requiring discharge of private student loans due to total and permanent disability;
• Prohibiting collection of medical debt for the first two years and credit reporting of debt arising from any medically necessary procedures;
• Requiring debt collectors to obtain consent before using electronic communications and provide written validation notices;
• Amending the FDCPA to expand and clarify coverage, including extending coverage for all federal, state, and local debts collected by debt collectors;
• Adjusting statutory damages in the FDCPA for inflation and indexing them to index for inflation in the future; and
• Clarifying FDCPA coverage for non-judicial foreclosures.

The post CFA Joined 87 Groups to Support HR 2547 – The Comprehensive Debt Collection Improvement Act appeared first on Consumer Federation of America.

The post 97 Organizations Demand Immediate Department of Education Action to Deliver Promised Public Service Loan Forgiveness appeared first on Consumer Federation of America.

The post CFA joined Other Groups in Urging the President to Advocate for Critical Budget Related Protections appeared first on Consumer Federation of America.

The post Groups Urge DeVos to Extend the Suspension of Federal Students Loans appeared first on Consumer Federation of America.

On March 20, 2020 CFA wrote to the President and Congress urging the adoption of a series of measures to address a wide range of consumer protection issues resulting from the coronavirus. While a few of the priorities identified by CFA were included in the final bill, including some measures related to paid sick leave and mortgage relief, most were not.

“Protecting consumers is not just a matter of economic justice, it is also the best way to protect the economy,” said CFA Executive Director Jack Gillis. “CFA will continue to fight to ensure that these critical measures are adopted. Enabling consumers to stay financially healthy is critical to staying physically healthy.”

“Congress must focus on a more comprehensive package to aid consumers. Many of the measures that are most needed were included in the House COVID-19 response bill, but the Senate failed to include them in their Senate bill. We look forward to working with members to ensure that these critical measures are quickly adopted,” said CFA’s General Counsel and Legislative Director, Rachel Weintraub.

The Good News: the bill did take limited steps, along the lines advocated by CFA, to:

Create a comprehensive national paid sick leave policy. Lack of paid sick leave threatens to nullify hard won gains from social distancing. CFA recommended adoption of a comprehensive national paid sick leave policy that must ensure that all employees (and their employers) and independent contractors, have the economic support they need to provide paid leave. With this bill and the Families First Coronavirus Response Act, Congress has provided up to 80 hours of paid sick leave for employees but there are significant gaps. Employers do not have to provide full pay, businesses with fewer than 50 employees and Federal employees of the executive branch can be exempted.

Protect homeowners and renters from economic hardship. CFA recommended forbearance be provided to economically distressed mortgage buyers and to halt evictions and foreclosures for people impacted by the COVID-19 virus. Congress adopted limited measures to address those concerns. On the plus side – impacted consumers with federally-backed mortgages – Fannie Mae, Freddie Mac, Federal Housing Administration, Veterans Affairs, or Rural Housing loans – can receive payment forbearance for 180 days, renewable for another 180.  Renters living in properties with federally backed mortgages can get rent relief if the owners seek and get forbearance on their loans. Temporary forbearance can be had without documentation or paperwork. On the other hand, the bill doesn’t cover the 15 million loans held in bank portfolios or in private label securities meaning that not all mortgage consumer will be treated the same. Also, there is no clear provision liquidity needed by nonbank servicers who provide the great majority of the FHA, VA and RHS loans through Ginnie Mae.

The bill does less to address other measures advocated by CFA to protect the financial well-being of the most vulnerable Americans. For example:

• The bill provides limited assistance for student borrowers. The CARES Act exempts some, but not all, federal student loan recipients from making payments on those loans for six months, with the interest waived during that period. But borrowers will still need to make up the payments later. Holders of Perkins Loans, FFEL loans held by a bank or other financial institution, and private student loans are not eligible for forbearance. CFA continues to call for all student loan payments to be canceled for the duration of the crisis, with the government making payments on their behalf.

Missing from the bill are the following critical consumer protections:

• The bill does not curtail high-cost lending schemes. CFA had called for new consumer protections against high-cost credit, such as payday loans, refund anticipation loans, and car title pawns, to prevent vulnerable COVID-19 impacted consumers from being trapped in a cycle of debt. The bill failed to address this concern and CFA continues to call for a 36% usury limit on such loans.
• The bill fails to suspend debt collection or place a moratorium on negative credit reporting. The bill does little to protect consumers’ credit records during the crisis. The bill’s provision on credit reporting is actually weaker than the current industry standard for disaster victims.
•  The bill fails to protect against utility shutoffs. CFA will continue to push for a moratorium on all utility shutoffs during the crisis.

• The bill fails to maintain consumers’ access to affordable communications services. At a time when remote communications are more critical than ever, the CARES Act failed to provide broadband subsidies for low-income Americans and failed to require broadband providers to drop data caps, overage fees, and throttling practices for services needed during the crisis. Nor does it take any steps to require big data platforms to promote public interest messaging or to crack down on misleading advertising and price-gouging.
• The bill does nothing for hotel customer and airline passengers while providing extensive financial assistance to corporations. It does not require the airlines to provide refunds or eliminate price-gouging change fees during the crisis. It also fails to address the airline industry’s lack of price transparency. Nor does it condition support for hotel chains on their agreement to honor requests for room and event cancellations without penalty.

The post Now That the Coronavirus Act Has Passed It’s Time to Address Critical Consumer Protection Measures appeared first on Consumer Federation of America.

“Assistant Director Frotman has been a champion of the 44 million Americans who owe student debt. His work at the CFPB has curbed industry abuse and reclaimed hundreds of millions of dollars for student borrowers,” said Christopher Peterson, Director of Financial Services at the Consumer Federation of America. “When student loan borrowers mail their payment checks in each month, they should bear in mind that the Trump administration is turning its back on ensuring their rights are protected.”

Frotman’s resignation comes on the heels of Mulvaney’s decision to close the CFPB’s Office for Students and Young Consumers, the only federal entity dedicated entirely to protecting student borrowers and young adults from abusive financial practices. Under Frotman’s leadership, the Office for Students and Young Consumers helped to return over $750 million to student borrowers and end a variety of financial schemes that preyed on young people.

“The truth is that the President’s consumer protection agenda is a dumpster fire,” said Peterson. “The administration has seized control of an independent consumer watchdog and is strangling one of the only agencies in Washington dedicated to looking out for the rights of ordinary Americans.”

BACKGROUND:  CFPB’s Office for Students & Young Consumers and the CFPB Student Loan Ombudsman

For seven years, the Bureau’s Office for Students and Young Consumers, led by an independent Student Loan Ombudsman, stood up for student loan borrowers and young people:

• Returning more than $750 million to student loan borrowers and halting predatory practices that harmed millions in pursuit of the American Dream. Individual student loan borrower complaints handled by the Office for Students were the catalyst for a range of high-profile federal and state actions that shut down companies that defrauded consumers, halted widespread abuses, and returned more than $750 million dollars to students and student loan borrowers across the country.
• Helping more than 60,000 borrowers demand answers from student loan companies. Since 2012, borrowers in all 50 states submitted complaints to the CFPB describing widespread breakdowns at every stage of the student loan repayment process. For these borrowers, submitting a complaint often led to thousands of dollars in money back.
• Holding predatory companies like Navient and ITT Tech accountable for their predatory practices. Last year, the CFPB sued Navient, the nation’s largest student loan company, for cheating borrowers with every type of student loan at every stage of repayment. The CFPB also took on the largest for-profit colleges, including ITT Tech, Corinthian Colleges, and Bridgepoint Education, and halted illegal student loan servicing practices at the biggest banks, including Wells Fargo, Discover, and Citibank.
• Exposing the effects of student debt on the economy and society. The Office for Students and Young Consumers was among the first to raise alarms about the far-reaching effects of student debt. It exposed the heavy toll student debt takes on military families, described the growing debt burden shouldered by older Americans, revealed industry abuses that deny repayment rights to teachers, nurses and other public servants, and documented the significant impact of student debt on communities of color.
• Calling out widespread abuses by student loan debt collectors.The Office for Students and Young Consumers reported widespread student loan servicing failures and partnered with the Obama Administration and state law enforcement officials to develop expansive new consumer protections for borrowers. The Office for Students served as a forceful advocate expanding state-level oversight of the student loan industry, supporting state banking regulators and state legislators as they pushed for expanded borrower protections in state capitals.
• Getting results in a broken student loan system that fails current and former students across their financial lives. The Office exposed how student loan companies were driving borrowers into default when their cosigner died or filed bankruptcy, even when borrowers had been paying their bills on time each month. It also showed how credit card companies and banks continue to push students into high-fee cards and accounts and pushed for strong new rules to reign in high-fee providers. The Office exposed how federal debt collection contractors raked in billions of dollars of taxpayer money, while setting up the most vulnerable student loan borrowers to fail.

The Trump Administration is Erecting Barriers to Opportunity For Millions of Young Consumers

More than 44 million Americans now owe more than $1.5 trillion in student loan debt—a burden that has tripled in the past decade.  Americans owe more in student loan debt than any other type of consumer debt other than home mortgages.

Distress in the student loan market is widespread. More than 11 million Americans are past due or in default on a student loan, despite the availability of income-driven repayment options for the vast majority of borrowers. For the last 3 years, one borrower has defaulted on a federal student loan every 28 seconds.  Student debt distress damages borrowers’ credit, denies access to major economic milestones like homeownership, and drives economic and racial inequality.

Concerns over student loans is not a partisan issue. Republican Federal Reserve Chair Jerome Powell has noted that student debt could slow economic growth and cause long-term negative effects on borrowers.

As student loan borrowers suffer widespread abuses at the hands of a runaway student loan industry, the Trump Administration has taken a series of aggressive actions to pull back consumer protections, obstruct independent oversight, and ensure that the largest student loan companies are never held to account for predatory practices. These actions come as the Administration readies the rollback of rules to hold the for-profit college industry accountable, deny debt relief to defrauded student loan borrowers, and bar the courthouse doors to students and consumers ripped off by predatory actors.

Contact: Christopher L. Peterson, 202-387-6121 x1020

The post Student Loan Watchdog Resigns, Alleges Trump Administration Compromised Oversight of Student Loan Market appeared first on Consumer Federation of America.

This change in direction comes amid growing concern that the federal government has turned a blind eye to widespread failures in the $1.5 trillion student loan industry. In the same move, the CFPB indicated a clear shift away from its core consumer protection mission–listing a new plan to pull down “outdated, unnecessary, or unduly burdensome regulations” under the Bureau’s purview. In 2015, the Bureau announced plans to write “industry-wide rules to increase borrower protections” as part of a series of initiatives to address “widespread failures” across the student loan servicing industry.

The Bureau’s now discarded rulemaking included plans to adopt rules that would have:

• Created consistent industry-wide standards for the entire student loan debt collection industry;
• Established new provisions to hold debt collectors accountable to student loan borrowers if errors occur or if collectors break the law;
• Provided student loan borrowers with access to clear, timely information; and,
• Improved publicly available data to support research and policy-making.

This is the latest in a series of regulatory and enforcement moves that indicate how the Trump Administration plans to direct the Consumer Bureau to prioritize corporations over consumers.

“In this step, the Trump Administration is scrapping the CFPB’s plans to clean up widespread mistakes, deceptive practices, and confusion in student loan debt collection,” said Christopher Peterson, Director of Financial Services and Senior Fellow at the Consumer Federation of America.  “The White House is making an affirmative decision to withhold needed assistance to 44 million student loan borrowers.”

The Trump Administration is Erecting Barriers to Opportunity for Millions of Young Consumers

Currently American families owe $1.5 trillion in student loan debt—a burden that has tripled in the past decade.  Americans owe more in student loan debt than any other type of consumer debt other than home mortgages.

“Problems in student lending can be especially problematic for struggling families, because unlike most debts, student loans are usually not dischargeable in bankruptcy.” explained Peterson “Student loans follow borrowers for life.”

Distress in the student loan market is widespread. More than 11 million Americans are past due or in default on a student loan, despite the availability of income-driven repayment options for the vast majority of borrowers. For the last 3 years, one borrower has defaulted on a federal student loan every 28 seconds.  Student debt distress damages borrowers’ credit, denies access to major economic milestones like homeownership, and drives economic and racial inequality.

Concerns over student loans is not a partisan issue. Republican Federal Reserve Chair Jerome Powell has noted that student debt could slow economic growth and cause long-term negative effects on borrowers.

As student loan borrowers suffer from widespread mistakes, misleading practices, and systemic failures in the student loan industry, the Trump Administration has taken a series of aggressive actions to pull back consumer protections, obstruct independent oversight, and ensure that the largest student loan companies are never held to account for predatory practices. These actions come as the Administration readies the rollback of rules to hold the for-profit college industry accountable, deny debt relief to defrauded student loan borrowers,  and bar the courthouse doors to students and consumers ripped off by predatory actors.

“The rules that would have protected 44 million people struggling to repay historic levels of student debt from deceptive practices and capricious mistakes are critical to America’s future,” said Peterson. “The American public needs to stand up for itself by insisting that our government and financial services leaders provide reasonable consumer protections.”

Contact: Christopher L. Peterson, 202-387-6121 x1020

The post White House and CFPB Scrap Plans for New Student Loan Consumer Protections appeared first on Consumer Federation of America.

“Shuttering the CFPB’s student lending office is an appalling step in a longer march toward the elimination of meaningful American consumer protection law,” explained Christopher Peterson, Financial Services Director at CFA. “This action actively promotes greater profits for a handful of debt collection businesses at the expense of mistakes, neglect, and confusion for millions of student loan borrowers.”

BACKGROUND: CFPB’s Office for Students and Young Consumers

For seven years, the Bureau’s Office for Students and Young Consumers, led by an independent Student Loan Ombudsman, stood up for student loan borrowers and young consumers:

• Returning more than $750 million to student loan borrowers and halting predatory practices that harmed millions in pursuit of the American Dream. Individual student loan borrower complaints handled by the Office for Students were the catalyst for a range of high-profile federal and state actions that shut down companies that defrauded consumers, halted widespread abuses, and returned more than $750 million dollars to students and student loan borrowers across the country.
• Helping more than 60,000 borrowers demand answers from student loan companies. Since 2012, borrowers in all 50 states submitted complaints to the CFPB describing widespread breakdowns at every stage of the student loan repayment process. For these borrowers, submitting a complaint often led to thousands of dollars in money back.
• Holding predatory companies like Navient and ITT Tech accountable for their predatory practices. Last year, the CFPB sued Navient, the nation’s largest student loan company, for cheating borrowers with every type of student loan at every stage of repayment. The CFPB also took on the largest for-profit colleges, including ITT Tech, Corinthian Colleges, and Bridgepoint Education, and halted illegal student loan servicing practices at the biggest banks, including Wells Fargo, Discover, and Citibank.
• Exposing the effects of student debt on the economy and society. The Office for Students and Young Consumers was among the first to raise alarms about the far-reaching effects of student debt. It exposed the heavy toll student debt takes on military families, described the growing debt burden shouldered by older Americans, revealed industry abuses that deny repayment rights to teachers, nurses and other public servants, and documented the significant impact of student debt on communities of color.
• Calling out widespread abuses by student loan debt collectors. The Office for Students and Young Consumers reported widespread student loan servicing failures and partnered with the Obama Administration and state law enforcement officials to develop expansive new consumer protections for borrowers. The Office for Students served as a forceful advocate expanding state-level oversight of the student loan industry, supporting state banking regulators and state legislators as they pushed for expanded borrower protections in state capitals.
• Getting results in a broken student loan system that fails current and former students across their financial lives. The Office exposed how student loan companies were driving borrowers into default when their cosigner died or filed bankruptcy, even when borrowers had been paying their bills on time each month. It also showed how credit card companies and banks continue to push students into high-fee cards and accounts and pushed for strong new rules to reign in high-fee providers. The Office exposed how federal debt collection contractors raked in billions of dollars of taxpayer money, while setting up the most vulnerable student loan borrowers to fail.

The Trump Administration is Erecting Barriers to Opportunity For Millions of Young Consumers

More than 44 million Americans now owe more than $1.5 trillion in student loan debt—a burden that has tripled in the past decade.  Americans owe more in student loan debt than any other type of consumer debt other than home mortgages.

Distress in the student loan market is widespread. More than 11 million Americans are past due or in default on a student loan, despite the availability of income-driven repayment options for the vast majority of borrowers. For the last 3 years, one borrower has defaulted on a federal student loan every 28 seconds.  Student debt distress damages borrowers’ credit, denies access to major economic milestones like homeownership, and drives economic and racial inequality.

Concerns over student loans is not a partisan issue. Republican Federal Reserve Chair Jerome Powell has noted that student debt could slow economic growth and cause long-term negative effects on borrowers.

As student loan borrowers suffer widespread abuses at the hands of a runaway student loan industry, the Trump Administration has taken a series of aggressive actions to pull back consumer protections, obstruct independent oversight, and ensure that the largest student loan companies are never held to account for predatory practices. These actions come as the Administration readies the rollback of rules to hold the for-profit college industry accountable, deny debt relief to defrauded student loan borrowers,  and bar the courthouse doors to students and consumers ripped off by predatory actors.

“The Trump Administration’s decision to close the one office in the federal government exclusively dedicated to protecting student loan borrowers is an about-face on the President’s student lending campaign promises,” said Peterson. “The Trump Administration is turning its back on a generation of student loan borrowers.”

Contact: Christopher L. Peterson, 202-387-6121 x1020

The post CFPB Shutters Student Protection Unit That Returned $750 Million to Consumers appeared first on Consumer Federation of America.

Last year, CFA published an analysis revealing that over 1 million borrowers had defaulted on their federal student loans in 2016. In addition, numerous regulators and states have pursued enforcement actions against other major student loan companies, like Navient.

Proponents of the Senate bill noted that it included “consumer protections” for student loan borrowers. The provisions included:

• Financial literacy. The bill directs the Financial Literacy and Education Commission (FLEC) to study and pursue financial literacy best practices for student loan borrowers. However, according to public records, FLEC already studied this five years ago. In addition, the Consumer Financial Protection Bureau (CFPB) already launched financial education initiatives for student loan borrowers, under its own statutory mandate.
• Private student loan rehabilitation. The bill also includes language championed by the largest student loan industry player, Navient. The bill would amend the Fair Credit Reporting Act to give private lenders a new way to report plans that cure student loan defaults. However, unlike the Higher Education Act requirements for federal loans, private lenders would not be required to offer borrowers rehabilitation plans.
• Auto-defaults. In 2014, the CFPB uncovered a dangerous practice used by private student lenders, called “auto-defaults,” where a borrower would automatically be put into default if a co-signer died. The Senate bill restricts private student lenders from engaging in this practice. However, in 2016, the banking lobby representing all major private student lenders informed the CFPB it would be discontinuing this practice. The Senate bill appears to be solving a problem that the CFPB has already fixed.

In our view, these provisions were included so that the bill’s proponents could pretend that there was meaningful action to attack our country’s serious student loan issues. In reality, the Senate’s bill would do virtually nothing to address the massive levels of student loan defaults and servicing abuses. While this bill has not yet been passed by the House, it is important for the public to know that help is not on the way for America’s student loan borrowers.

The post Senate Banking Deregulation Bill Leaves Scraps for Student Loan Borrowers appeared first on Consumer Federation of America.

Christopher Peterson, a Senior Fellow at the Consumer Federation of America and the John J Flynn Endowed Professor of Law at the University of Utah, made the following statement:

“The long-standing view of both federal and state governments has been that the Higher Education Act does not override state laws that provide additional protection to student loan borrowers, as long as those laws do not actually conflict with federal law. Now the Trump Administration is attempting to trample states’ authority and the best interests of student loan borrowers to pad the bottom line of debt collection businesses.”

“The Trump Administration’s action is legally dubious and should be ignored by state regulators working to protect millions of Americans who deserve honest and fair treatment from debt collectors.”

“Nowhere in the Administration’s interpretation document does the Department of Education cite statute from Congress that says the Department is authorized to block state efforts to hold debt collection business accountable for illegally overcharging the public. That’s because such a law does not exist.”

“In its announcement the Department of Education said, it ‘continues to oversee loan servicers to ensure that borrowers receive exemplary customer service and are protected from substandard practices.’ But, last year a million Americans defaulted on their student loans. There is nothing exemplary about a million American families facing a financial crisis each year.”

“In the past, the Department of Education always told its contractors to follow state law because it’s the law. Now Secretary DeVos is trying to make it easier for student loan debt collectors to use deceptive tactics in collecting student loans.”

Contact: Christopher L. Peterson, 202-387-6121 x1020.

The post The Trump Administration is Attempting to Shield Student Loan Companies from State Consumer Protection Laws appeared first on Consumer Federation of America.

State attorneys general are prosecuting bad actors that are cheating student loan borrowers. The Attorneys General of Illinois, Washington, and Pennsylvania, have joined the Consumer Financial Protection Bureau (CFPB) in suing the nation’s largest student loan company, Navient (formerly known as Sallie Mae), for violating the law.

Illinois Attorney General Lisa Madigan led an effort to enact a new landmark law that would hold student loan companies to higher standards, which would help to reduce student loan defaults.

It’s not just Illinois. States across the country are working to put into place new protections for student loan borrowers. (The Higher Ed, Not Debt campaign put together this map to track all of the activity.)

However, Congress is considering stripping the rights of states to protect borrowers from student loan servicing abuses. Tucked away on page 464 of a bill being considered this week is language that would nullify state laws related to student loan servicing and debt collection.

A bipartisan group of 25 Attorneys General is vigorously opposing efforts of the federal government to undermine states’ rights and nullify their laws. The AGs wrote that preempting state laws would “defy the well-established role of states in protecting their residents from fraudulent and abusive practices.”

CFA believes that preemption of state consumer protection laws should be done on a case-by-case basis and only when a state law is less protective of consumers. This provision is a gift to the student loan industry that will do nothing to help curb abuses and the needless number of student loan defaults occurring every day.

The post Analysis: House Bill Attacks State Protections for Student Loan Borrowers appeared first on Consumer Federation of America.

“Swapping student debt for mortgage debt can free up cash in your family budget, but it can also increase the risk of foreclosure when you run into trouble,” said Rohit Chopra, Senior Fellow at the Consumer Federation of America and former Assistant Director of the Consumer Financial Protection Bureau. “For borrowers with solid income and stable employment, refinancing can help reduce the burden of student debt. But for others, they might be signing away their student loan benefits when times get tough.”

As the largest source of mortgage credit in America, Fannie Mae’s announcement could have a significant effect on the mortgage market and student borrowers. More than 43 million Americans owe $1.4 trillion in outstanding student debt.

Fannie Mae updated its Selling Guide to permit originators that sell loans to the mortgage giant to offer a new refinance option for the purpose of paying off a student loan. Proceeds from the refinancing will go directly to the student loan servicer to fully pay off at least one loan.

The policy change will likely have the effect of greater availability and lower interest rates for homeowners refinancing their mortgage to pay off student debt. Fannie Mae’s announcement expands upon a program launched last year with SoFi to offer a similar product.

Homeowners who tap home equity to pay off student debt give up their rights to income-driven repayment options on their federal student loans, which cap federal student loan payments at roughly 10% of their income. Income-driven repayment is a critical safeguard during periods of unemployment or other income shocks that help avoid the consequences of default. Homeowners may also be trading away loan forgiveness options available to teachers and others who work in public service.

Private student loans generally lack flexible repayment options like income-driven repayment. Borrowers with Parent PLUS loans also have more limited options, compared to other federal student loans.

According to Fannie Mae and SoFi, homeowners with outstanding cosigned student loans had an average balance of $36,000, and those with outstanding Parent PLUS loans had an average balance of $33,000.

Borrowers should also consider the tax implications of refinancing student debt. Borrowers who itemize their deductions and whose income is too high to qualify for the student loan interest deduction may be able to take advantage of tax benefits through the mortgage interest deduction when using mortgage credit to pay off student debt.

Fannie Mae also announced additional guidelines that impact how mortgage originators should consider student debt burdens. Mortgage originators can now consider a borrower’s monthly repayment burden as either the reported repayment level on a consumer’s credit report, 1% of the outstanding student loan balance, or a calculated payment that fully amortizes the loan.

According to data from the National Association of Realtors, 71% of non-homeowners believe their student debt has delayed them from buying a home.

“For too many borrowers, student debt feels like a big barrier to the dream of homeownership. While these changes won’t change those feelings overnight, they may help the mortgage industry adapt to the financial realities of today’s aspiring homeowner,” Chopra said.

The announcement underscores the need for close monitoring by the Consumer Financial Protection Bureau of student loan servicers and mortgage originators. The consumer agency has previously reported widespread failures in the student loan servicing industry, including inaccurate payoff statements and other practices that lead to default.

CFPB oversight will help to ensure that lenders offering student loan cash-out refinance products provide clear disclosures to borrowers and avoid engaging in illegal practices that previously plagued the mortgage market.

Contact: Rohit Chopra, rchopra@consumerfed.org

The Consumer Federation of America is an association of more than 250 non-profit consumer groups that, since 1968, has sought to advance the consumer interest through research, education, and advocacy.

The post Fannie Mae Announces Policy Change for Homeowners with Student Debt appeared first on Consumer Federation of America.

“The Administration’s first move on the student loan default crisis will do nothing to stop the tidal wave of defaults that is sweeping across the nation,” said Rohit Chopra, Senior Fellow at the Consumer Federation of America and the former Student Loan Ombudsman at the Consumer Financial Protection Bureau. “With more than 3,000 Americans defaulting on a student loan every day, this just adds insult to injury.”

Current guidance forbids the guaranty agencies that collect on defaulted debt to tack on large collection fees if the student loan borrower makes – and honors – a repayment arrangement within 60 days of the notice of default. Federal student loans typically enter a default status when borrowers are 270 days late on their payments. Due to servicing mistakes, many borrowers may be learning about problems with their loan for the first time. These agencies are entitled to “reasonable” collection costs under existing law, but hefty fees were considered inappropriate for borrowers who promptly seek to address their default.

The action applies only to borrowers who took out loans from banks and other institutions, not Federal Direct Loans.

One of these agencies, USA Funds, fought the Education Department for the right to charge large collection fees to these borrowers who quickly make arrangements to get out of default.

Last week, the Consumer Federation of America released an analysis that showed that 1.1 million Americans defaulted on a federal student loan in 2016. Americans are now in default on $137 billion in federal student loans.

Contact: Rohit Chopra; rchopra@consumerfed.org

The Consumer Federation of America is an association of more than 250 non-profit consumer groups that, since 1968, has sought to advance the consumer interest through research, education, and advocacy.

The post In First Move on Student Loans, Administration Announces Fee Hike on Struggling Borrowers appeared first on Consumer Federation of America.

“3,000 preventable student loan defaults each day in America is 3,000 too many.” said Rohit Chopra, Senior Fellow at the Consumer Federation of America and formerly the Consumer Financial Protection Bureau’s Student Loan Ombudsman. “Our broken system works well for the student loan industry, but is failing borrowers, taxpayers, and our economy.”

As of the end of 2016, 42.4 million Americans owed $1.3 trillion in federal student loans. These figures exclude borrowing through private student loans, credit cards, and home equity loans to finance the growing costs of college. The Federal Reserve System puts total outstanding student loans at $1.4 trillion, which includes federal and private loans, but excludes other loans used to finance higher education.

Student loan servicers, the companies paid to collect payments, are responsible for enrolling borrowers in repayment plans to help them avoid default. For example, the Pay As You Earn (PAYE) and Revised Pay As You Earn (REPAYE) plans help to cap payments at roughly 10% of income, alleviating the burden of student debt.

Highlights of the Consumer Federation of America’s initial analysis of the recently-released Education Department data, as of December 31, 2016, include:

• Average amount owed is $30,650 per federal student loan borrower. Average amount owed per borrower continues to tick up, rising 17% since the end of 2013, when borrowers owed on average of $26,300.

• $137 billion in default. For federal loans originated by financial institutions (FFEL) and the US Department of Education (Direct), a total of $137.4 billion in balances were in default, a 14% increase from 2015. This cumulative level of defaulted balances includes loans which defaulted in previous years. Defaulting on a federal student loan comes with severe consequences. Borrowers can face seizure of their tax refund, garnishment of their wages, and an inability to pass employment verification checks.

• 1 million Direct Loan defaults in 2016. In 2016, 1.1 million Federal Direct Loan borrowers defaulted. Federal law typically defines a federal student loan default as being 270 days past due. Borrowers defaulting for the first time slightly decreased compared to 2015, though borrowers re-defaulting slightly increased compared to 2015.

• Data withheld for new defaults in bank-based student loan program. The Education Department did not release data on loans entering default in the bank-based FFEL program. The largest holder of these loans is Navient, with $87.7 billion in outstanding loans as of the end of 2016. “With more than 16 million Americans still on the hook for bank-based federal student loans, the cost of being kept in the dark is real,” said Chopra.

• Total federal student loan portfolio increases $79.4 billion. Total outstanding federal student loans, including loans owned or guaranteed by the government, increased $79.4 billion in 2016, roughly the same as the $80.2 billion increase in 2015.
• Navient lags in enrollment on new affordable repayment plans. The Education Department contracts with four major servicers to collect payments from borrowers on loans owned by the federal government. Of these servicers, Navient, formerly known as Sallie Mae, had the lowest percentage of borrowers enrolled in the PAYE and REPAYE plans among those in repayment, deferment, and forbearance. The Consumer Financial Protection Bureau, the Illinois Attorney General, and the Washington Attorney General recently sued Navient for misconduct related to student loan servicing and other violations.

AES/PHEAA had the highest levels of enrollment, though this is likely attributable to its status as the exclusive servicer for Public Service Loan Forgiveness. Borrowers generally benefit from this program only if they enroll in an affordable repayment plan.

 The full set of data is available on the Department of Education’s website in the Federal Student Aid Data Center.

Borrowers struggling with student loans should visit the Consumer Financial Protection Bureau’s Repay Student Debt tool, available here.

Contact: Rohit Chopra, 202-939-1018

The Consumer Federation of America is an association of more than 250 non-profit consumer groups that, since 1968, has sought to advance the consumer interest through research, education, and advocacy.

The post New Data: More Than 1.1 Million Federal Student Loan Defaults in 2016 appeared first on Consumer Federation of America.

“While much of the confirmation debate focused on education from Pre-K to high school, the Secretary will have to spend significant energy on higher education, including overseeing the Department’s student loan bank and the 43 million borrowers it serves.

Every single day, thousands of Americans are defaulting on their student loans. With more than 8 million in default and millions more on the brink, the new Secretary can’t hide from this trillion dollar trouble.

Large financial institutions and government contractors are responsible for keeping borrowers on the road to repayment, but have fallen short. The new Secretary needs to put borrowers and taxpayers first, rather than focusing on helping the student loan and for-profit college industries pump up their profits.”

Contact: Rohit Chopra, 202-939-1018, rchopra@consumerfed.org

The Consumer Federation of America is an association of more than 250 non-profit consumer groups that, since 1968, has sought to advance the consumer interest through research, education, and advocacy.

The post New Education Secretary Faces Trillion Dollar Trouble appeared first on Consumer Federation of America.

The information is particularly timely: the six-month transition period that most new college graduates are given before they are required to begin paying down their student loans comes to an end in November and Class of 2012 graduates with student loans will shortly begin to make their first payments.

“This November, many new college graduates will need to factor student loans into their spending and saving plans,” said Nancy Register, director, America Saves. “This may be the first time many students have had to create a budget and savings plan to ensure they can meet both their financial responsibilities and save for their future.”

“By following a few simple guidelines, graduates can take control of their finances and make student loan repayment manageable,” said Martha Holler, senior vice president, Sallie Mae. “Proactively planning and working with your loan servicer now will make for a successful transition to repayment.”

As graduates begin their careers in a challenging economic environment, America Saves and Sallie Mae are pleased to offer the following student loan repayment tips to help graduates successfully pay down their debt:

1. Know how much you owe each month. Keep track of what you spend for one month and create a budget that includes your student loan payment. You may find that you will need to cut out unnecessary items in order to pay down your debt or that you can pay a little extra each month to pay down your debt even faster. Contact your student loan servicer or visit their website to calculate different payment scenarios that best fit your budget and personal situation. Proactively planning payments helps save you time and money!

2. Make payments automatic. Signing up for automatic debit is an easy option that electronically deducts payments from your checking or savings accounts, saving you time, stamps and, most importantly, providing you with peace of mind that you have made your loan repayment on time. Bonus: many servicers may even provide you with a lower interest rate just for signing up!

3. Make payments each and every month. Resist the option of putting off your payments, as deferment or forbearance typically mean you’ll pay more over the life of the loan. It’s empowering to tackle your payments now.

4. If you do fall behind, get help. Call your loan servicer to discuss your options – or if they are calling you, answer the phone. A different payment plan or a temporary postponement of payments may give you the extra time you need. If you need help organizing your finances, a licensed nonprofit consumer credit counseling service can offer free budget counseling.

5. Update your servicer with any changes. If your situation changes, your student loan servicer needs to know about it. Keep your loan servicer updated with any change in mailing address, email and phone numbers. Accurate personal details will help ensure you receive all the information you need about your payment due dates, helping you stay on track no matter what the change in your situation.

6. Beware of scams! Some fraudulent companies might claim to offer you easy ways to erase or lower your loan payments. If you have any doubt about services being offered, get in touch with your student loan provider.

7. Build an emergency fund in case of unpredictable circumstances. Aim to save $500 to $1,000 to meet unexpected financial challenges like paying a parking ticket, repairing the brakes on your car or covering dental expenses. Saving even small amounts each month can add up and give you the peace of mind to know you can weather financial emergencies while continuing to pay down your student loan.

Download the tip sheet.

For more tips on planning for college or student loan repayment, please visit CollegeAnswer.com.

For more tips, advice and resources on how to save money and build personal wealth visit AmericaSaves.org.

Contacts: Alex Slater, alex.slater@clydestrategies.com, 202-679-4550; Patricia Nash Christel, patricia.christel@SallieMae.com, 302-283-4076; Katie Bryan, kbryan@consumerfed.org, 202-939-1018

America Saves, launched in 2001, is an initiative of the Consumer Federation of America involving more than 1,000 non-profit, government, and corporate groups that encourages individuals and families to save money and build personal wealth. For more information visit AmericaSaves.org

Sallie Mae (NASDAQ: SLM) is the nation’s No. 1 financial services company specializing in education. Whether college is a long way off or just around the corner, Sallie Mae turns education dreams into reality for its

25 million customers. With products and services that include 529 college savings plans, Upromise rewards, scholarship search tools, education loans, insurance, and online banking, Sallie Mae offers solutions that help families save, plan, and pay for college. Sallie Mae also provides financial services to hundreds of college campuses as well as to federal and state governments.  Learn more at SallieMae.com. Commonly known as Sallie Mae, SLM Corporation and its subsidiaries are not sponsored by or agencies of the United States of America.

The post America Saves and Sallie Mae Offer Tips to Help Graduates as Their Student Loan Repayments Begin appeared first on Consumer Federation of America.