Student Loans

Last month, we released a report to Congress with the Department of Education on the private student market. This report helped shed light on how the private student loan market works and where there are opportunities for improvement.

When we design a form or develop a regulation, we work to gather continuous feedback. The same goes for our reports. Since releasing the private student loan report, we’ve been talking to researchers, consumer groups, and industry players to share our results and get feedback. Based on this feedback, we developed ways to make better estimates on certain market statistics, particularly in areas where our data set was incomplete.

While there aren’t any changes to the key findings and recommendations, we released an update today to reflect new methodologies our research team used to calculate some statistics in the report: first, the proportion of private student loan borrowers who exhausted their Federal Stafford Loan options; and second, the extent to which schools certified a borrower’s need for a private student loan.

Compared to the original estimates, the update shows that the number of borrowers who exhausted their federal options is lower than our original estimate, and the level of school certification is higher.

Check out the updates.

Do you have more suggestions about future topics for research on student loans? Share your ideas and tag your story with “student loans.”

At the Consumer Financial Protection Bureau, we are working to understand the impact of the recession on young consumers and to learn more about what increasing levels of student debt mean for the economy as a whole. But we also know that millions of borrowers are struggling and need help now.

Today, the Consumer Financial Protection Bureau has partnered with the U.S. Department of Education to release a new web tool for borrowers who have fallen behind on their student loan payments. Our tool should help borrowers understand their options, communicate effectively with their servicer or debt collector, and work to bring their loans out of default or delinquency. Addressing the problems of delinquency and default – problems too often ignored – provides these borrowers with opportunities to rebuild their credit, go back to school, or buy a home.

Check out the Student Loan Debt Collection Assistant.

Delinquency and default are an often-overlooked, but quickly growing, segment of the student loan market. Over a quarter of all student loan borrowers are at least one monthly payment behind. Millions of federal student loan borrowers have defaulted on their loans.

These borrowers, like so many other young Americans, were hit hard by the recession. The unemployment rate among young college graduates is more than twice the rate of their older counterparts. Of those who have found work, more than a third of college graduates under age 25 have taken jobs that do not require a college degree. These young adults will feel the impact of graduating into a recession for a decade or more – it will take 10 to 15 years for their salaries to catch up to those who had the benefit of graduating into a healthy job market.

Over the past decade, student debt has grown to an average of over $22,000 for graduates of public colleges and universities and over $28,000 for private school grads. That’s a 20% increase. A growing number of borrowers – greater than one in eight – have debts of $50,000 or more. For too many, this grim economic reality makes making each loan payment in-full and on-time a monthly struggle.

The consequences are serious and the stakes are high. Default can result in thousands of dollars in penalties and fees, damaged credit and can even get you hauled into court. This is a concern for young student loan borrowers, because, unlike virtually all other types of consumer debt, student loans generally cannot be discharged in bankruptcy. That can make a fresh start all but impossible.

For millions of federal student loan borrowers, curing default has an added benefit. A loan in default cannot qualify for income-based repayment, an alternative payment plan that can have a monthly “payment” as low as $0 for extremely low-income borrowers.

If you’ve fallen behind on your loans, check out our new web tool, available here on ConsumerFinance.gov and at the new StudentAid.gov, launched by the U.S. Department of Education earlier this week.

The CFPB is working on a number of fronts to help make the student loan market work better for consumers. Working with the Department of Education, the CFPB launched a Know Before You Owe project to solicit input on a “financial aid shopping sheet.” The initiative should help students understand the debt implications of their college choice. And the CFPB set up a student loan complaint system to help ensure that private student lenders and servicers are responsive to potential mistakes and problems that borrowers encounter.

Repaying student debt can be challenging; but, for millions of young Americans, college remains a great investment and the surest path to future financial security. By knowing your rights and options, you can take control of your student loans and get back on track – it may be easier than you think.

This past year, we’ve been working with the Department of Education on a project to help colleges provide clear and comparable financial aid information. Over the course of that project, we learned that more standard information could spur the innovation of apps and digital tools to allow students to better understand their decision to take on all forms of debt, whether it’s a federal student loan, private student loan, credit card, or other financial product.

A few months ago, we took a crack at a first version of what a financial aid comparison tool could look like. The beta test of our Financial Aid Comparison Shopper was a success, and we are working hard to launch the full version in the next school year.

Our early prototype was designed to help students and families make smarter choices about financing college, and we asked students, parents, high school counselors, and college financial aid officers to give us their feedback on how to improve the tool.

A survey conducted by an association representing high school counselors found that over 80 percent of their members said the tool was “useful” and that nearly half would recommend the tool to students/families without a single modification. But we think we still have more work to do to build the best tool for students and parents.

For example, we designed the tool for students and families with financial aid offer letters in hand. Based on the feedback we received, some users were trying out the tool to take a guess about what certain colleges might cost them before they’d even applied. Going forward we will need to make sure that users understand the purpose of the financial aid comparison tool and that it complements existing tools offered by others.

A key feature in the beta test that received positive feedback was the “military benefits calculator.” This is an important element for veterans and active-duty servicemembers, and we will be thinking carefully about how to improve it further.

During our beta test we also got some very specific feedback that was especially helpful. For example, some of you told us to include geography if we have a school search, since some colleges have the same name. Others said we should add more “hover overs” to explain more detail about some terms. And perhaps your most common suggestion dealt with how we tried to make the estimated monthly student loan payment relevant to the user. (We converted the amount into “textbooks” as a placeholder, which generated some strong opinions! We now have more ideas on what we might replace it with!)

Here are some next steps for this project:

• Design: We’re pouring over web analytics about how users interacted with the tool. This will help us figure out what worked well, what was confusing, or what didn’t work.
• Data: We need to refine what information would be most useful to students and parents in their decision making process. We plan to consult further with some of the higher education data gurus to figure out what would be most helpful.
• Integration: We also want to figure out how this might interact with existing tools and initiatives offered by government agencies and the private sector. For example, we’ll want to make sure it complements other work, like the financial aid shopping sheet and the proposed college scorecard.

Going forward, we’ll definitely want to share updated designs and functionality to get further feedback. If you’re interested in participating further, please email us at students@cfpb.gov with the subject line “Comparison tool feedback.”

We’ll be sure to include you on our project update list. There will be more opportunities to provide feedback throughout this process, particularly in the areas of design, data, and integration.

Thanks to all of you that have participated in the project so far, and, with your help, we look forward to creating an even better version of the financial-aid comparison tool over the coming months.

For many students and parents, figuring out how to pay for college can be complicated and confusing. The decision to borrow for college should be the best investment a student will ever make.

But before the financial crisis, some families took on mortgages they didn’t fully understand and are now struggling to make ends meet and save their homes. While less talked about, many student loan borrowers also used products outside of the federal student loan program that they might not have fully understood.

What we’ve heard

Making sure that borrowers have clear information to make the best possible choice is critical. But borrowers have told us they didn’t know that private student loans don’t always have the same repayment options as federal student loans. These options allow borrowers to cap their payments as a portion of their income – a valuable option when times are rough. In addition, private student loan borrowers generally have fewer options in the bankruptcy process, compared to credit cards and other consumer loans.

But like borrowers struggling to stay afloat on their mortgages, private student loan borrowers have told us that they too need assistance. This past winter, we put out a request for information to find out more about their experiences.

Today, the Consumer Financial Protection Bureau published nearly 2,000 comments we received in response to that request. The comments include stories from individual borrowers, parents, school officials, and others.

One theme clearly rose to the top. Many private student loan borrowers expressed confusion and frustration when paying back their loans, especially when trying to get on an affordable payment plan.

One woman told us about the $90,000 debt she incurred to get a degree. Like other students who graduated in the middle of the financial crisis, she struggled to find a job to make ends meet. Interest and fees have led her debt to balloon to over $120,000. She said she’s been unable to get a new payment plan, and her loan has been sent to a debt collector. She worries that that the American Dream is out of reach.

This was just one of many stories of borrowers struggling to make ends meet.

Getting help

Fortunately, many of these borrowers are making use of the CFPB’s new student loan complaint system, launched a few months ago. Borrowers across the country have shared stories and submitted complaints about the process of obtaining or paying back a student loan.

These submissions have touched every stage in the lifecycle of a private student loan—from marketing and origination through repayment and servicing to default, bankruptcy and debt collection. Not surprisingly, we heard a lot about the challenges borrowers have faced in periods of unemployment and financial hardship.

Many borrowers submitting complaints to the CFPB have gotten some good news from their lenders, who have corrected billing problems and informed their customers about options for enrolling in an affordable payment plan.

Cracks in the system

The Dodd-Frank Wall Street Reform and Consumer Protection Act also requires the Bureau to analyze private student loan borrower complaints and offer recommendations to the Treasury Secretary, Education Secretary, and Congress.

To help us get a more complete picture of the private student loan borrower issues, today we issued a notice in the Federal Register and wrote to state attorneys general, schools, and advocacy groups such as Queens Legal Services – who is here today – seeking information about the complaints they hear. Once we figure out all of the cracks in the system, we’ll work with our government partners, industry, and schools to address them. Already, our new consumer agency has been working with the Department of Education to make sure students know before they owe.

You or someone you know might feel that changes to the system won’t help if you’re struggling today. Based on the comments we published today, you are not alone. Visit our website where you can use our student debt repayment assistant, file a complaint, or just tell your story.

With your first-hand knowledge of how the market impacts consumers, you’ll be able to help us understand how to help the next generation of students make smart student loan choices and make sure that their college education truly is a path to a better life.

Rohit Chopra is the CFPB’s student loan ombudsman. This post is excerpted from prepared remarks for a town hall on student debt in Queens, New York, hosted by Rep. Gregory Meeks.

A few weeks ago, the CFPB released an early prototype of a new tool to help students and families make smarter choices about financing college.

The CFPB recognizes that we can develop better products and policy with the help of the public. Already, we’ve heard from so many participants about what’s working well and what we should tweak.

On May 17th, we will be closing the first round of beta testing and will start analyzing your feedback. This will help our designers, developers, and experts on the team to determine where we need more testing and input. We’ll be sure to share our findings from the feedback on this blog.

Learn more about CFPB projects for students

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Our goal is for students and families to have an even more useful interactive tool for next year’s financial aid season to help them make one of the most important decisions of their financial lives. To get updates on this initiative and other projects for students, subscribe here.

Like all of our Know Before You Owe projects, your feedback is critical. If you haven’t had a chance yet, take a few minutes and chime in on what you think about our beta version today!

Tomorrow, April 27th, I will join the President and First Lady at Fort Stewart, Georgia, where he will sign an Executive Order directing the Departments of Education, Defense, and Veterans Affairs, in consultation with the Consumer Financial Protection Bureau (CFPB), to take steps to ensure that servicemembers, veterans and their families can get the information they need about the schools where they spend their education benefits. His directive also strengthens oversight and accountability of the schools that offer educational programs to the military.

I applaud this effort to see that servicemembers, veterans, and their families get the most “bang for their buck” when they use their educational benefits. During the past year I’ve traveled to military installations in 15 states and spoken to active-duty, National Guard, and Reserve military members and their families. I’ve also met with veterans and their families, as well as those who advocate for them. One issue that has come up repeatedly in my conversations with them is the challenge of making an informed decision on where to use GI Bill and Military Tuition Assistance benefits. How do they find a quality school that will charge them a fair price, provide adequate support, and set them up for success after graduation without a mountain of student loan debt holding them back?

Too often the schools being selected are for-profit institutions more notable for their slick marketing than for their academic credentials and sound value, much less the gainful employment history of their graduates. Here are just a few stories I’ve heard on my travels:

• An active-duty military spouse at Fort Campbell, Kentucky, was under the impression she was attending a “military-affiliated college” (she wasn’t; it was a for-profit school with no official military status). After she filled out an interest form she was called 10-15 times a day until she enrolled. When she had trouble logging on to her online class, she couldn’t get anyone from the college to help her. She failed the class due to lack of access but was charged the full fee.
• National Guard education officers in Ohio and North Carolina told me they are besieged by for-profit colleges desiring access to the troops. They noted that if they hold a job fair, over half the tables may be for-profit colleges, and that servicemembers may see a school’s presence at a job fair as an implied promise that you will get a job if you graduate from that school.
• A veteran at a forum I attended in Chicago, Illinois, had used up her benefits and incurred $100,000 in student loan debt for Bachelor’s and Master’s degrees from a for-profit college, but was unable to find an employer who was interested in her degrees. She was still working at the same job she had before she went to college.

The CFPB has been working on military education issues. This month at ConsumerFinance.gov we began testing a new online tool, the Financial Aid Comparison Shopper, which includes a military benefits calculator, to help people compare options at different colleges, as well as see graduation and retention rates. We have set up a student loan complaint system, and my office reviews all complaints from servicemembers, veterans, and their families. And we’ve been coordinating with the Federal Trade Commission and the Departments of Justice, Education, Veterans Affairs, and Defense on military education issues.

It’s in everyone’s interest to see that military education dollars are well-spent. If they are, they will provide our country with educated veterans and family members who, like the World War II generation before them, can become the engine that drives our economy forward.

Holly Petraeus leads the Office of Servicemember Affairs at the Consumer Financial Protection Bureau. Last year, she wrote about the incentives that lead for-profit colleges to see servicemembers as “nothing more than dollar signs in uniforms.”

Learn more about the Know Before You Owe project for student loans.