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Earlier this year, we asked you to share your stories about student debt stress. More than 30,000 of you responded, telling us that student loan servicers (the companies that send you a bill each month) can make it harder to manage your loans and may contribute to our nation’s growing student loan default problem.
Last month, we published a report based on your stories and issued a call for industrywide reforms to protect consumers.
Building on this work, today, we released our annual report on student loan complaints , taking a closer look at the problems experienced by certain student loan borrowers. We are particularly concerned about repayment problems facing those with older federal student loans that were made by banks and other private lenders. We found that servicing issues may make repaying student debt even harder for this group of borrowers, in particular.
Federal student loan borrowers may have loans made directly by the Department of Education (Direct Loans) or loans made by a private lender. Most federal student loans were made by private lenders until 2010 when the program (known as the Federal Family Education Loan Program or FFELP) was ended. These loans were once the most common way to borrow for college and borrowers with these loans still make up nearly a third of all student loan borrowers— owing more than $370 billion in outstanding debt.
Today’s report found that federal student loans made by private lenders may have a greater rate of borrowers in default and delinquency than the broader student loan market. This raises concerns about whether distressed borrowers with these loans are getting adequate information on repayment options from their servicers.
In fact, while the CFPB estimates that more than 1-in-4 student loan borrowers are delinquent or in default market-wide, today’s report reveals that at least 30 percent of FFELP borrowers—more than five million in total— are behind on their loans or are already in default. As one FFELP borrower told us:
“I have a loan with [servicer] and I have not been given any help dealing with my payment options. I have filled out applications for an [income-based repayment plan] and forbearance. Customer service is constantly giving me false information and not helping me to get my payments lowered…Please, help me. I am trying hard not to allow my loans to go into default. I am not trying to ignore my loans but how can I pay a $2,000 monthly payment. They are not helping me to resolve this payment to a payment that I can afford.”
Today’s report also notes:
- Borrowers with federal loans made by private lenders report that they run into roadblocks when trying to access income-driven repayment plans, despite the right under federal law to do so. Borrowers with these loans generally have a right to enroll in payment plans that set their monthly payment based on their income. The complaints we received show that some student loan borrowers had trouble getting accurate information, having paperwork processed on time and staying on track once they were able to enroll. These problems can increase costs for borrowers and may contribute to driving some borrowers into default.
- More than 1-in-5 of these borrowers are past-due or are not making payments, but are not yet in default. We also asked some of the largest student loan companies to share information about how their customers with these loans are doing. We looked at a sample of this data and found that more than 12 percent of these borrowers are behind and more than 10 percent are in forbearance (asking their servicer to let them take a break from making payments)—potentially signs of significant distress. We also know that more than four million borrowers with these loans are already in default, based on data published by the Department of Education.
- Ninety-five percent of these borrowers are not enrolled in income-driven repayment plans. For the first time, today’s report sheds light on how many of these borrowers are enrolled in income-driven repayment plans. We found that, despite the widespread availability of these plans, the overwhelming majority of borrowers in our sample were not enrolled. This is particularly concerning given that borrowers in the standard monthly payment plan default on their loans at nearly five times the rate of borrowers who enrolled in income-based repayment, by one recent estimate.
Continuing signs of student debt stress among borrowers with federal loans made by private lenders is cause for concern. There remain many unanswered questions about how these borrowers fare over time, in part because there is very little public information available about the performance of federal loans made by private lenders.
Today’s report also calls for better information about the entire student loan market, including more details about delinquencies, defaults, and how borrowers in income-driven payment plans fare over time. It also shows why last week’s call to establish clear and consistent industry-wide standards is an important part of the Bureau’s ongoing work to help make sure student loan borrowers are treated fairly.
If you have questions about repaying your student loans, check out our Repay Student Debt feature of Paying for College to find out how you can tackle your student loan debt.
If you have a problem with your student loan, you can submit a complaint online or call us at (855) 411-2372.This post was originally published on the Consumer Finance Protection Bureau's blog. Link: http://www.consumerfinance.gov/blog/new-signs-of-trouble-for-student-loan-borrowers/ Author: Seth Frotman
If you’re a student starting college for the first time or transferring to a new college, you may be busy meeting new roommates and going through orientation. During these first few weeks, you may also need to get a checking or prepaid debit account.
On campus, a bank account may be marketed to you that is co-branded with your college’s logo and may be attached to your campus ID through a debit card. But remember, just because an account has been sponsored by your college, it doesn’t always mean that it’s a good deal for you.
Since we launched our Safe Student Account Scorecard project earlier this year, we’ve been talking with students, colleges, and financial institutions to better understand what students need to know before they pick an account. Many colleges partner with financial institutions to sponsor banking products. In some cases, companies pay colleges millions of dollars in exchange for exclusive marketing arrangements. Colleges may also negotiate with companies to offer products that have lower fees or better terms than what students could get if they asked for the same deal on their own. However, a report by the Government Accountability Office revealed that many college-sponsored accounts were no better than what students could find themselves after shopping around, and in fact, were sometimes worse. To spur greater transparency, we have called on companies to publish their arrangements.
We know that it can be time-consuming for you to understand all of the details in the student account offered through your college. Keep these three things in mind so you can set yourself up to make a smarter choice:
1. Just because an offer looks like official mail from your college, you don’t have to accept it. Some colleges take steps to promote products through official email and mailings, and sometimes are compensated by banks for their efforts. For example, a college might use its official email communications with incoming freshmen to promote a sponsored account by encouraging students to use the “hot new” campus ID from its bank partner. A college may also choose to use printed materials at orientation or other official communications in order to highlight a banking partner, or may offer an official session at orientation to be presented by the financial institution.
- 2. Some staff on campus may work for your college’s banking partner. It’s always okay to ask questions when you’re deciding whether to open an account. Officials at your college can help you understand product terms and features in order to make an informed choice, but you should also ask questions about who you’re talking to. For example, a bank might provide in its contract that it will lend bank employees to staff the student ID card office. Your college may also rely on bank employees to promote an official campus student ID that can be linked to a checking or prepaid debit account during new student and parent orientation, allowing bank employees to market their financial product in a role traditionally filled by college administrators.
- 3. Your college may get paid when you open an account. We’ve heard that some companies may pay colleges a fixed amount for each student that opens and uses the college-sponsored account. You should ask questions about how your college gets paid and keep in mind that if you feel rushed or pressured into opening a college-sponsored account, it might be because your college wants to sign you up to maximize its revenue under the deal.
How could this impact the fees you pay while in college?
As we have warned students in the past, the financial products you use can contain high fees. In fact, other banking regulators have fined and required that restitution be paid by providers of college-sponsored accounts for alleged unfair and deceptive practices over fees charged to students, including an over $11 million settlement between the Federal Deposit Insurance Corporation and the largest provider of college-sponsored accounts.
Ultimately, the account you select can support your saving goals and help you avoid fees. Many banks offer programs to help you manage your spending and saving. Taking advantage of free account alerts through email or text message can help you avoid overspending, as can simply keeping track of your purchases and withdrawals and monitoring your account balance regularly.
If you have a problem with your student checking account, you can submit a complaint. If you just want to share your experience with student checking accounts and debit cards, tell us your story and select “campus debit card” under the “Tag your issue” field.
Check out our checklist for opening a bank or credit union account. If you have more questions about student checking accounts, check out Ask CFPB, our online, database of frequently asked financial questions and answers.
Help other students by sharing this post on Facebook and Twitter.This post was originally published on the Consumer Finance Protection Bureau's blog. Link: http://www.consumerfinance.gov/blog/new-students-should-look-closely-at-college-sponsored-bank-accounts-and-shop-around/ Author: Seth Frotman and Rich Williams
Earlier this year, we asked you to share your #StudentDebtStress story. More than 30,000 of you answered, telling us about payment processing problems, servicing transfer snags, customer service confusion, and obstacles for borrowers in alternative repayment plans. You can check out the comments that were posted.
For borrowers who are experiencing financial distress and looking for a way to pay back their federal student loans, income-driven repayment plans can be the key to helping you make ends meet. But for some borrowers seeking to tie their federal loan payment to their income, we know the road can be rocky. You’ve told us about problems related to enrolling in income-driven repayment plans that ended up costing you hundreds of dollars in unexpected payments. These problems include delays in processing your paperwork and incorrect information from customer service personnel.
I submitted the required documentation for the 2015 [income-based] repayment plan 8 weeks before the expiration of my previous IBR application, and within the time period [my servicer] indicated. Due to [my servicer’s]delays, my IBR application was not processed timely. While waiting for them to process my application, [my] monthly payment jumped from approximately $200 a month to $1400 a month, causing me to go into overdraft on my checking account. [My student loan servicer] failed to process my application timely even though my application was complete and no documentation was missing and failed to communicate the huge increase in payment.
Filling in the gaps
As the Bureau and other federal agencies consider ways to improve the student loan repayment process, stories like these focus our attention and raise new questions about how common these problems may be. That’s why we’re sending a letter to student loan companies asking for more information about how they make sure student loan borrowers have the information they need stay on track.
The most common income-driven repayment plans are Income-Based Repayment (IBR) and Pay As You Earn (PAYE). Each year, borrowers in income-driven repayment plans are required to submit information, generally an income tax return, proving that they still qualify for an affordable monthly payment (known as “recertification” in student loan-speak).
We’d like to learn more about how well the process of recertifying works for most people. Because student lenders and student loan servicers are not required to release this information publicly, we don’t know how many borrowers fail to recertify on time. When borrowers don’t recertify on time, their payments will snap back to the amount they would have owed under a standard 10-year repayment plan—a jump of hundreds of dollars per month, in many cases. This can be a shock to those already struggling to make these payments.
Earlier this year, the Department of Education released the first public information about recertification rates, noting that more than half of all borrowers in its sample (57 percent) missed their deadline to recertify and had their payments snap back.
What you need to know
We’ve put together some helpful advice and information for borrowers enrolled in income-driven repayment plans.
Why it’s important for your recertification to be processed on time each year
If you’re having trouble affording your federal student loan payments, getting enrolled in an income-driven repayment plan may be an important first step to staying on the road to repayment. These plans help you get a payment you can afford. If your recertification is not processed on time, it can:
- Cause the amount you owe each month to snap back to a payment you may not be able to afford. When your recertification isn’t processed on time, even if you tell your servicer you still want to keep your payments affordable, you will probably have a gap where you are required to pay an amount that doesn’t reflect your financial circumstances. You may not realize that things aren’t going according to plan until your bank has processed an automatic payment at the higher amount or you’ve been hit with surprise overdraft fees.
- Cost you thousands more over the life of your loan. When you enroll in an income-driven repayment plan, you may pay less each month than the interest that accrues on your loan. This means that your loan balance can grow over time. But these plans do offer an important protection for people who recertify on time each year and continue to qualify for a lower payment— any unpaid interest does not get added to your outstanding principal balance (so you don’t have to pay additional interest on the interest) unless you choose to leave the plan. But, if you miss your deadline to recertify, you lose this benefit. For some borrowers, this can cost thousands of dollars over the life of a loan.
- Delay the date you’re eligible for loan forgiveness (and may cause you to make unnecessary extra monthly payments). The two largest income driven plans, Income-Based Repayment (IBR) and Pay As You Earn (PAYE), feature loan forgiveness after 25 or 20 years of payments, respectively. This means that if you have high debt or low income over a long period of time, you may still have an end in sight, even if you are only making low payments. If your recertification isn’t processed on time and you need to use forbearance while your recertification is being processed, you can’t count those months toward loan forgiveness.
- Reduce the amount of interest that the government will pay on your behalf. For borrowers with subsidized federal loans, income-driven repayment plans feature another important benefit. For three consecutive years (36 months) from the time you first sign-up, the government will waive any interest charges your monthly payment does not cover, as long as you demonstrate partial financial hardship. Because the clock on this benefit starts running immediately and won’t pause even if you don’t recertify, you are giving up a benefit every month after your payments snap back.
Over the next few weeks, we’re going to keep working with leaders at the Department of Education and the Department of the Treasury to figure out how to address problems like these for student loan borrowers. Check back here for more information about what we’ve learned through our public inquiry and what comes next.
If you have questions about repaying your student loans, including questions about income-driven repayment plans, check out Repay Student Debt to find out how you can tackle your student loan debt.
If you have a problem with your student loan, you can submit a complaint online or call us at (855) 411-2372.
Seth Frotman is a Deputy Assistant Director of the Consumer Financial Protection Bureau and the Acting CFPB Student Loan Ombudsman. To learn more about the CFPB’s work for students and young Americans, visit consumerfinance.gov/students.This post was originally published on the Consumer Finance Protection Bureau's blog. Link: http://www.consumerfinance.gov/blog/when-you-make-student-loan-payments-on-an-income-driven-plan-you-might-be-in-for-a-payment-shock/ Author: Seth Frotman