Student Loans

Americans owe more than a trillion dollars in student loan debt. That’s more than we owe on credit cards, more than we owe on car loans – and it’s still growing.

So, if you’re going to invest in a college degree, we want you to choose the best deal for your situation. Here at the CFPB we’ve been doing extensive research these last few months. We talked with students and sat down with high school guidance counselors to find out how students make choices about how to pay for college.

We found some recurring themes: Students are overwhelmed with options and aren’t sure how to compare them. In the absence of apples-to-apples comparisons, they’re left to their own devices when making a choice that will have significant consequences for their financial future.

So, what to do about it?

We interviewed financial experts, lenders, policy wonks, and thousands of people like you. You tried our pilots and gave us great feedback – including the fact that this stuff is not easy to figure out — and we heard you.

We’ve distilled the things students said they wish they had known, what experts recommend, and what our pilots have told us could save you money into a set of tools to help you navigate the noise, and to support you every step of the way.

Highlights include:

Choosing a loan

We answer the questions we heard over and over from students trying to figure out how to choose, and offer three steps that can help you get the right loan for you.

Comparing financial aid

When student aid offer letters start arriving from colleges in the spring, you’ll be able to use this tool to make an apples-to-apples comparison between options. A previous pilot of this tool included more automated data, but it didn’t always reflect individual situations accurately. We’re hoping it works better with your personalized offers in hand.

Managing your college money

You’re not going to get the best deal if choosing your first bank account is sandwiched between your first week of classes and your first collegiate meal of instant ramen. This guide will help you plan to get settled financially before you even get to campus.

Repaying student debt

You’ll get a personalized recommendation based on every repayment scenario, whether you’re active-duty military, behind on your loans, working at a non-profit, all of the above, none of the above, or something else entirely.

Real talk

This set of tools is in beta. Which means the tools can only get better from here. But they can only get better if you tell us: Are there parts of this that are hard to use? Did you find jargon you don’t understand? Or, did you find something you’d never heard of before? Did we miss something? Would this help you know what to tell your kid sister about paying for college if she was just starting to look at schools? Let us know!

An important step to ensure that servicemembers and veterans are not seen simply as “dollar signs in uniform.” We continue to work with federal and state agencies to make sure that student veterans can get the most of out of their benefits and avoid crushing student loan debt. Learn more about the GIBill.com settlement.

Cross posted from the US Department of Veterans Affairs.

By Alex Horton

For about two years, VA’s online communications team has been closely tracking the advertising and recruitment efforts of for-profit schools looking to bring in GI Bill tuition dollars. In some cases, these schools have ensnared Veterans looking for info by using official-looking websites, which funneled potential recruits to those schools without any balanced, objective information. We aimed to get the word out in order to help Veterans make the best decision possible.

This all came to a head earlier this year, when a group of state attorneys general led an effort to sue the company that owned GIBill.com, a particularly deceptive site. The company settled, and the website was turned over to VA and now redirects to our GI Bill page.

Today, VA announced the next step in the fight against misleading info campaign waged by schools after your hard-earned benefits. The term ‘GI Bill’ has been trademarked by VA with the U.S. Patent and Trademark Office. VA is the sole owner of the mark, and in the coming months, it will issue terms of use for the phrase. This move goes a long way to enforce accountability to those who would deceive student Veterans for financial gain.

Of course, with millions of dollars up for grabs, schools and marketing firms won’t lie down because of the trademark, so we’ll remain vigilant to ensure Veterans aren’t victims of deceptive recruitment when they decide to make the most out of their education benefits.

Alex Horton is the senior writer for Vantage Point.

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.