Back in 2011, the Department made the credit standards more stringent for the parent PLUS loans by deciding to stick with five years instead of only 90 days in checking the felonious accounts and charge-offs of the borrower. Obviously, the decision started as a part of the trepidations regarding increased PLUS loan borrowing, increased default rates and elevated PLUS loan acceptance rates.
We have agreed with the main idea in the study that only few consumers who filed for bankruptcy attempted to have a judge decide if their student loans can be discharged. Nevertheless, the conclusions in the study at this point are not supported by the empirical data and do not consider the realities faced by the student loan borrowers.
Always take note that the New York AG is considered one of many states attorney generals who are elevating the shutdown on for-profit college trickery. As for Attorney General Schneiderman, he has taken into action in order to protect students on several scenarios, including the filing of lawsuit that asserts that a particular education institution such as “The Trump Entrepreneur Institute” was not accredited, unlicensed and not federally funded as well as engaged in misleading business practices.
The students who are responsible for financing their education utilizing non-government funding such as hard-earned savings, private student loans, loans from friends or family as well as credit cards are equally commendable for the protection from the state oversight agencies.
The $9.25 million student compensation funding in New York for Career Education Corp. case is regarded as the biggest acquired by any of the AG just recently and it provided relief to majority of former CEC students. Unluckily, it is still not enough to eliminate the student loans debt consolidation. It was Attorney General Schneiderman who gathered evidence of prevalent fraud at the New York CEC campuses. In reality, most of these students only earned soaring student loan debt and without any capability to earn higher wages in order to pay it back. It is important to bring this subject to the Department of Education to utilize the evidence and grant students covered by the settlement a complete release from their student loans.
There are ways to make the most out of the permissible cutbacks or modifications from the overall income.
- Always save for your retirement. The ideal approach to increase your modifications is to save for your retirement day. You can try to comply with the maximum contribution to your 401K retirement plan or the traditional IRA. Always
The issue regarding the interest rate is vital, but barely the only concern for the student loan borrowers out there. In reality, the newly released law only lowered the rates, without doing anything for the current borrowers. It was even recently asked by the CFPB – What about the trillion dollars of debt that was already borrowed? Obviously, it is more than just one trillion since it is now closing on to $1.2 trillion based on the claims of CFPB. This outstanding amount is definitely higher. In reality, there was even a 20% growth in the student loan debt at the end of 2011 up to May 2013 which is relatively faster if compared to the growth of other credit products.
“With the sharing of these complaints to the public, we created better transparency when it comes to consumer financial services and products,” states Richard Cordray, CFPB director. “The database is ideal for consumers as well as for the honest businesses out there. We strongly believe that a marketplace of ideas can go a lot of great things with the help of this database.”
Understandably, the Department does not have the collection-related information readily available on the “Information for Financial Aid Professionals” section in its website. In most cases, the website does not even include the most essential information on how the government educates and recompenses its collectors. You can also find information on how the government website solicits contractors to offer for these profitable collection contracts. With the information, it is highly useful yet it is difficult to find and not considered complete in any way.
Here are some of the key findings in the report:
- About two-thirds of the fresh graduates have student loans with an average balance of more than $27,000.
- On the average, the fresh graduates left college with the student loan debt of up to 60% of their yearly income.
- The latest period of recession increased the loss of high-paying jobs that do not require a college degree while the number of jobs requiring technical training and expertise has increased.
Misidentification of federal government programs as their own programs
The charging of elevated fees for services that are readily available for free is a practice that is not inherently abusive, yet it raises a number of warning signals. At a minimum, it is considered deceptive that majority of companies fail to disclose that their programs are actually federal government programs that can individual can readily access without any cost involved.
No disclosure of fees
High fees was discovered that included the initial fees that go up to $1,600 in some cases while the monthly fees for the ongoing services range from $20-50. These monthly fees are taken into consideration since it is uncertain what services, if any, the consumer is buying on a monthly basis.
The selling of one-size-fits-all approach is also common. Even though there are claims of broad services being offered, majority of companies simply offer loan consolidation. There are several issues with this approach including the fact that consolidation is not suitable for all borrowers and might not be even available to all borrowers.
The report also highlight that a large number of companies provide inaccurate information regarding consolidation, rehabilitation, garnishment, bankruptcy and other serious topics. Obviously, these inaccuracies are striking contrast to the universal claims of sophisticated student loan expertise.
There are several recommendations in order to improve the government bureaucracy as well as simplify the student loan relief programs. Initially, there should be fair and reasonable fees. All the companies should disclose the fees online and the in-all calls with the consumers. The companies should not charge any advanced fees in violation of the federal laws before the services are completed and they should only charge fees that are reasonable. Any misleading advertisements or representations should be avoided. The companies should not participate in illusory or false advertising counting the implication of affiliations or connections with the government agencies. Lastly, the companies must disclose whether their programs are government based and should be available at no cost.
There should also be emphasis on safeguarding the consumer privacy. Companies should not require the borrowers to provide their PIN numbers for the National Student Loan Data System (NSLDS).
With the Student Loan Affordability Act, it was sponsored by U.S. Senator Jack Reed. It should have prolonged the 3.4% rate for two more years while the Congress works on a long-term solution to slow down the quick accumulation of the student loan debt. The Comprehensive Student Loan Protection Act was co-sponsored by U.S. Senators Richard Burr, Tom Coburn and Lamar Alexander. They would have required that for every academic year, all the freshly issued Parent PLUS, Stafford and Graduate PLUS loans would be established to the U.S. Treasury 10-year borrowing rate along with 3 percentage points. It also directed any leftover savings to the Treasury for the main issue of deficit reduction. The two proposed solutions to the present student loan crisis were defeated along the party lines.
With the high stakes along with the substantial amount of money involved, one can think that the government has been highly meticulous in accounting for the payment to the collectors. It is sad to know that the recent Department of Education Inspector General report showcased that in 2012, the Department made payments that are based on estimates. Based on the presentation, the Department was not able to analyze the authentic commissions received by the collection organizations, thus they simply paid out an estimate on the commissions without studying the supporting documentation. Understandably, it was not a small change – it was $448 million in commissions to agencies while $8.3 million on the bonuses.
For the past few months, the student loan debt consolidation policy debate has centered almost exclusively on interest rates. That debate should be over, at least for now. President Obama signed a law today that makes a number of important changes to interest rates for new federal student loan borrowers. The bill ties federal student loan rates to the financial markets. That means that rates will be lower….for now, but could certainly increase as interest rates increase.
The interest rate issue is important, but hardly the only concern for student loan borrowers. In fact, the new lawonly lowers rates going forward, doing nothing for existing borrowers. As the CFPB recently asked, What about the trillion dollars of debt that’s already been borrowed? It’s even more than one trillion, now approaching $1.2 trillion according to the CFPB. This astronomical figure is higher than ever. In fact, there was 20% growth in student loan debt from the end of 2011 to May 2013, much faster than the growth for other credit products.
I attended a meeting recently and sat next to a former Sallie Mae administrator. We discussed about the loans that Sallie Mae distributed before the crisis on credit started. The former executive stated that these loans were not actually bad. He repeated a verbatim on Mr. Lord’s comment that the company was accustomed to creating FFEL loans and not used to saying no to borrowers.
Last week, the New York Attorney General announced a ground-breaking settlement with Career Education Corp., one of the largest for-profit colleges in the U.S. This settlement highlights the crucial role student loan debt consolidation that state law enforcement agencies play in protecting students from for-profit college deception. Too many states have abdicated their consumer protection role, leaving many non-traditional and low-income students – working parents, veterans, non-English speakers, and older people who need new job skills because of today’s rapidly changing job market – at the mercy of for-profit colleges that prey on their dreams and mislead them about their job prospects after graduation.
The New York AG is one of many states attorneys general who are increasingly cracking down on for-profit college deception. Attorney General Schneiderman has taken action to protect students on several fronts, including by filing a lawsuit that alleges that an educational institution, The Trump Entrepreneur Institute, was unlicensed, unaccredited, non-federally funded and engaged in deceptive business practices. Students who finance their educations with non-governmental funds, such as private student’s loans, hard-earned savings, credit cards, or loans from family or friends, are equally deserving of protection from state oversight agencies.
New York’s $9.25 million student restitution fund in the Career Education Corp. case is the largest obtained by any AG in recent years and will provide much needed relief to many former CEC students. Unfortunately, it will not be enough to wipe out their student loans debt consolidation. Attorney General Schneiderman gathered evidence of widespread deception at New York CEC campuses that goes to the heart of why students enrolled – to obtain the skills necessary to earn higher wages and improve the lives of their families. The reality is, however, that most of these students have only earned high student loan debt and no ability to earn the higher wages necessary to pay it back. We therefore urge the Department of Education to rely on this evidence and grant students covered by the settlement a complete discharge of their student loans.
Every young woman who is profiled in the story appeared to be on the path to success. Yet four years after high school, not one of them has achieved a four year degree since only one is currently studying full-time while the rest are handling student debt loans.
PLUS Loans are the only federal student loans debt consolidation that come with some “creditworthiness” requirements. Basically, the government will deny an application if the parent is considered delinquent for 90 days or more on the repayment of a debt or has been the subject of a default determination, bankruptcy discharge, foreclosure, repossession, tax lien, wage garnishment, or write-off of a student loan in the past 5 years. Parents can appeal denials based on extenuating circumstances.
In 2011, the Department tightened the credit standards for parent PLUS loans by deciding to go back five years instead of just 90 days in looking at a borrower’s delinquent accounts and charge-offs. The decision stemmed at least in part from concerns about increased PLUS loan borrowing, very high PLUS loan acceptance rates and increased default rates. (We don’t really know the extent of PLUS loan defaults, however, because the Department does not include PLUS loan in the cohort default rate statistics).
The fact that so many PLUS loan borrowers are struggling with student loan debt consolidation should not be all that surprising given the rough economic conditions in our country, combined with the relatively high cost of PLUS loans and the limited number of repayment options. Most Direct PLUS loans have fixed interest rates of 7.9%. Going forward, the new fixed rate (at least for now) is 6.41% with origination fees of just over 4%. Most distressing of all, parent PLUS borrowers are not eligible to repay through the income-based repayment programs.
Getting a clear inventory of your loans is important.
- Always remember that it is vital to start determining exactly what type of loans you currently have and the status of your loans. You can check out your federal loans on the National Student Loan Data System where you require a PIN that was given by the Department of Education. Additionally, you can even acquire a PIN for NSLDS as well.
recent New York Times article focuses on the low college entry and completion rates for lower-income students. Greg Duncan, an economist at the University of California, Irvine summarizes these troubling trends in the article: “Everyone wants to think of education as an equalizer-the place where upward mobility gets started…But on virtually every measure we have, the gaps between high-and low-income kids are widening. It’s very disheartening.” The Times article digs deeper into these troubling trends to help shed light on why it is so difficult for many low-income individuals to complete college.
The attorneys submitted comments as a response to the CFPB’s formal request for information tackling both the success and failures of the latest efforts to alter the home mortgages and how these lessons can be applicable to the student loans. The attorneys stated that the borrowers with payments that are high have described how hard it was to work out any kind of payment plan with the private lenders.
Despite all of the government money spent on financial aid, the difference in college graduation rates between our nation’s top and bottom income groups has widened by nearly 50% over two decades. We need to reset our nation’s policy priorities so that student borrowers are given the opportunity for a fresh start, to finish school, and hopefully climb the economic ladder.
Priority Agenda for Higher Education this week, listing priorities for federal and private student loan assistance. The priorities focus on the goals of promoting equal access to higher education, giving borrowers a chance to go back to school, restoring a reasonable safety net, and ensuring that federal funds target the needs of students. These solution-oriented priorities can help restore the original goals of federal student aid to make higher education more accessible.
On Thursday, the HCM Strategists which is a public policy consulting group comprised of higher education experts including college presidents, elected officials and foundation leaders published a report calling for modifications to simplify the
More than two years have passed since the Department of Education pulled the private collection agency handbook off of its web site and as far as we can tell, the handbook has yet to reappear in public. (You can find the old handbook from 2009 on our site).
The Department does have some collection-related information available on the “Information for Financial Aid Professionals” section of its web site. For the most part, however, this site does not include the most important information about how the government instructs and compensates its collectors. There is also some information on the government web site soliciting contractors to bid for these lucrative collection contracts. This information can be useful, but it is hard to find and far from complete in any case.
The Social Security along with other federal benefits is not considered as secure just like in the past. There is a major change that occurred back in 1996 in which the Congress allowed the federal agencies to acquire parts of the Social Security payments to gather debts owed to these agencies. Other critical benefits are also considered part of this authority, including the Railroad Retirement as well as the Black Lung benefits.
The Consumer Financial Protection Bureau (CFPB) is requesting information about ways to provide relief for private student loan borrowers. Comments must be received on or before April 8, 2013. This is a critical opportunity for borrowers and their advocates to provide input on student loan debt burdens and recommendations to help borrowers.
Our experience is that private lenders have been generally inflexible in trying to assist financially distressed borrowers. Unlike the federal student loan programs, there is no federal law requiring private student lenders to offer particular types of relief or flexible repayment. Private student loan borrowers are generally at the mercy of their creditors.
The restoration of the variable interest rates on the student loans is considered suitable for students in the short term while the interest rates are low. In case the economy eventually improves, the variable rates will likely increase than the fixed rates currently faced by the students. Fortunately, this bill puts a limit on how high the rates will go.
Social Security helps give aging and disabled Americans peace of mind. No matter how destitute we become, Social Security is meant to give us some measure of confidence that we will be able to get by.
Social Security and other federal benefits are not as secure as they used to be. A major change occured in 1996 when Congress allowed federal agencies to seize portions of Social Security payments to collect debts owed to those agencies. Certain other critical benefits are also part of this authority, including certain Railroad Retirement and Black Lung benefits. (The Treasury Department has a list of federal benefits that cannot be taken).
Based on our experience, private lenders have been typically inflexible in attempting to help out troubled borrowers financially. Unlike with the federal student loan programs, there is no federal law that requires the private student lenders to offer types of relief or flexible repayment options. The private student loan borrowers are generally at the mercy of their creditors.
The restoration of bankruptcy relief is vital, but it is not the main issue of this request for comments from the CFPB. Take note that the CFPB is specifically requesting for comments regarding the scope of the hardships faced by the borrowers, current options for the borrowers, past and current loan modification programs for other debts, consumer reporting and credit scoring, servicing infrastructure, lender participation, spillover effects of private student loan problems and borrower awareness.
Unfortunately, the bad news about student loan debt burdens keeps coming. The Education Sector recently highlighted a number of troubling trends, including:
From 1994 to 2009:
The percent of graduates taking out loans increased from 42% to 62%,
Median monthly loan payments as a percentage of monthly salary increased by 1.2% during this period. For the lowest income group of graduates, this figure increased from 13% to 34%,
Starting 1994 up to 2009
The percentage of graduates applying for loans has increased from 42% up to 62%. The middle monthly loan payments as percentage of the monthly salary have increased by 1.2% during this time frame. For the graduates included in the lowest income group, it has increased from 13% to 34%.
In May 2012, Student Loan Collection Agency Complaint Systems Need Massive Improvement, focusing on major gaps in the federal student loan collection agency complaint system. The report found that the U.S. Department of Education (the Department), as well as its contractors, failed to provide a transparent complaint process for borrowers struggling to get out of default.
- The Truth about Student Loans and the Bankruptcy Undue Hardship Discharge
- CFPB Urged to Require Private Student Loan Modifications
- Open Letter to Lenders: Stop Making Excuses, Start Helping Borrowers
- Putting Borrowers First
- Student Loan Debt Relief “Industry” Targets Desperate Borrowers
- The Tragedy of Student Loans
- U.S. Warned on Student Debt Peril, Financial Times Reports
- The American Dream 2.0, New Report Recommends Federal Student Aid Overhau
- Student Loans and “The Tax Man”
- Sorting Out the Income Driven Repayment Options