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Got Private Student Loans? The Consumer Financial Protection Bureau Wants Your Input

March 20, 2013 | Adam S. Minsky, Esq. Policy & Reform Private Student Loans

The Consumer Financial Protection Bureau (CFPB) has been gathering information about problems with private student loans for quite some time. From this information, the CFPB put together a comprehensive report about the horrors of private student loans. I’ve also blogged about the problems with private student loans myself. In short, private student loans stink.

Now, the CFPB is seeking input on how we can solve one of the biggest problems with private student loans: repayment management. As you probably know, one of the main issues with these loans is inflexible repayment options. Programs such as Income-Based Repayment, loan consolidation, and loan forgiveness, which are offered for many federal student loans, generally do not exist for private student loans, and it can be difficult to postpone your payments during periods of economic hardship. Often, your only choice is to either pay your minimum monthly payment under the only repayment plan that is offered by your lender, or default. The CFPB is trying to gather information on what private student loan borrowers need to stay afloat, and how they can obtain things like loan modifications or repayment plan adjustments that can make loan repayment more manageable and affordable.

The CFPB wants YOUR input. To read more about what the CFPB is looking for and how you can contribute your thoughts, experiences, and ideas, click here. Submissions must be received by April 8, 2013, so don’t delay!

Policy & Reform Private Student Loans

The White House and U.S. Dept. of Education Release New “College Scorecard”

March 6, 2013 | Adam S. Minsky, Esq. Policy & Reform

The White House and the U.S. Department of Education have released a comprehensive “college scorecard” system which is supposed to provide detailed information on a college’s “bang for your buck.” Hundreds of colleges and universities are measured by the scorecard, and it takes into consideration a college’s costs, graduation rate, loan default rate, average student loan amount borrowed, and employment prospects. The federal government hopes to continue refining the scorecard and adding other indicators such as employment figures and earnings potential.

I’ve checked out the scorecard. It actually provides some very helpful and easy-to-understand information to prospective college students and their families, but it’s also lacking in some key areas:

  • Costs: The scorecard shows you not only how much it costs per year to attend a particular school, but it also factors in average financial aid awards at the school and shows you how the total average cost has changed over the past several years. This is particularly useful because often, the cost of attending an institution will increase during a student’s attendance.
  • Loan Default Rate: This measures the percentage of students who default on their federal student loans within three years of graduation. The measurement also compares the college’s default rate to the national default rate to give prospective students a sense of how the school compares nationally. My biggest gripe with this measurement is that it does not factor in default rates on private student loans, which are often far more difficult for graduates to manage and repay, and private loan default rates have been rapidly increasing over the past decade.
  • Average Borrowing Rates: This measurement is particularly useful in that it does not just show you how much total federal student loan debt a typical graduate has at the time of graduation; it also shows you what the average monthly payment would be on those loans. Again, however, this measurement does not factor in private student loans and so in my view, it grossly underestimates the total amount borrowed and thus can actually be misleading.

I think they’ve got the right idea in creating this scorecard, and the more information that is available to students and their families, the better. There are areas that need tweaking, and I’m hopeful that the scorecard will be refined and improved over time. To read more about the scorecard, click here. To check out the scorecard yourself, click here.

Policy & Reform

Bold New Report Proposes Major Reforms to Student Financial Aid

January 30, 2013 | Adam S. Minsky, Esq. Pay-As-You-Earn Policy & Reform

The New America Foundation, a nonprofit think tank, has published a new report proposing a complete revamping of student financial aid and student loan repayment. Given the extent of the student loan crisis in America (student debt has outpaced credit card debt two years ago, over two-thirds of borrowers are having trouble making their payments, and economists have likened the growing student loan debt crisis to the subprime mortgage crisis that triggered the Great Recession), something clearly must be done.

Some of the proposals include:

  • Increasing Pell Grant funding to minimize student loan debt burdens for low-income students.
  • Simplifying federal student loan repayment by having a single income-sensitive repayment plan similar toIncome Based Repayment (IBR) or Pay As You Earn (PAYE).
  • Completely eliminate higher-interest and higher-burden federal student loans such as Grad PLUS loans and Parent PLUS loans (which have led to an exploding parent loan debt crisis).
  • Eliminate education and financial aid-related tax credits and instead provide additional direct financial aid to students.
  • Tie the availability of financial aid to a school’s performance in providing an education and career path for its students, thereby increasing accountability and return on investment.
  • Restore bankruptcy rights to private student loans.

Not to toot my own horn here, but these proposals mirror some of my own proposed student loan reforms that I posted about last year. Clearly, something needs to be done, and we need MAJOR reform. Do you agree with the proposals put forth in this new report? Read the report and decide for yourself.

Pay-As-You-Earn Policy & Reform

Consumer Financial Protection Bureau To Oversee Debt Collection Agencies

December 4, 2012 | Adam S. Minsky, Esq. Policy & Reform

The Consumer Financial Protection Bureau (CFPB) has recently announced that it will oversee the largest debt collection agencies starting in January 2013. Consumer advocates were quite pleased with this announcement.

The CFPB is a fairly new government agency created by the Obama Administration that has been taking some steps to address numerous problems impacting consumers, particularly student loans. CFPB recently created a complaint system for private student loan borrowers, and also issued a first-of-its-kind comprehensive report on systematic problems with student loan servicing.

Now the CFPB seems to be taking on debt collectors, at least at a basic level. If you remember, student loan debt collectors have enormous collection powers. The U.S. Department of Education paid $1.4 billion to private, third-party debt collectors last year to collect on federal student loans. It is truly a booming business. Unfortunately, debt collectors often violate the law by harassing or misleading debtors, including student loan borrowers. Hopefully, the CFPB’s new oversight of these agencies will start curbing some of the abuses we’ve been seeing.

To read more about the CFPB’s new oversight, click here.

Policy & Reform

U.S. Dept. of Education Issues New Regulations for “Pay As You Earn” Program and Other Fed Loan Issues

November 13, 2012 | Adam S. Minsky, Esq. Pay-As-You-Earn Policy & Reform

Last week the U.S. Department of Education released some new regulations governing various federal student loan issues. Here’s a handy overview of the details:

  • The “new and improved” IBR program, as I’ve been calling it, will be called the “Pay As You Earn” program. This new repayment plan option for “new borrowers” will allow for monthly payments of 10% of discretionary income (as opposed to 15%) and a 20-year repayment term (as opposed to 25 years), with forgiveness of the remaining balance thereafter. As I’ve written about previously, this is a great repayment plan option, but it won’t be available to most borrowers who have already graduated and are in repayment now. The regulations confirm that the Dept. of Education will exclude most of these borrowers from the “Pay As You Earn” program.
  • The regulations also attempt to streamline the process for applying for a discharge of federal student loans on the basis of Total and Permanent Disability. Specifically, the regulations allow for some Social Security Disability determinations to support discharge applications, and the regulations make it easier for a representative to assist the borrower in the discharge process.
  • Finally, the new regulations try to address some of the ongoing problems with federal loan servicing by offering simpler IBR recertification forms.

Ultimately, these new regulations are a mixed bag. They certainly include some positive changes for federal student loan borrowers, but they do little to aggressively address systematic problems with the federal loan borrowing and servicing system. To read all the details on the new regulations, click here.

Pay-As-You-Earn Policy & Reform

5 Student Loan Reforms That We Desperately Need

October 4, 2012 | Adam S. Minsky, Esq. Policy & Reform

We’re certainly entering the final stretch of the presidential election, and I find myself thinking (wishing) about all the reforms I want for student loan borrowers, regardless of who wins. President Obama has certainly done somepositive things for student loan borrowers during his term, but these initiatives largely just nibble around the edges of the problem. We need much more comprehensive reform. At the same time, Governor Romney has put forth no specific policy proposals about how he would address the student loan debt problems in this country. Well, here are a few things I’d like to see.

  • Restore bankruptcy protections for student loans. Right now, most people are unable to discharge their student loans in bankruptcy, which makes student loan debt different from almost any other type of consumer debt. Like a chronic illness with no cure, those student loans will cripple you forever. There’s a bill in Congress to change this. Pass it!
  • Provide relief to private student loan borrowers. Private student loans stink because all the great programs that exist to help student loan borrowers are only applicable to federal loans. Private student loans are, in my opinion, worse than any other type of consumer debt. There’s a bill in Congress that would extend federal student loan benefits to private student loans. Pass it!
  • Fix the U.S. Department of Education. As I discussed in detail in my recent article, the U.S. Dept. of Ed is a dysfunctional disaster. Even for those who are in good standing and are trying to do the right thing by paying back their loans efficiently, this agency repeatedly fails borrowers simply because of its inability to provide adequate services. Fix it!
  • Extend “Improved IBR” to all borrowers. President Obama recently accelerated “improved IBR” for new borrowers, which will allow for lower payments on federal loans based on income, as well as a shorter repayment period before forgiveness kicks in. I see no reason why we should be discriminating against pre-existing borrowers. Extend improved IBR to everyone.
  • Address Insane Tuition Hikes. Underlying the explosion of student loan debt in this country is the obscene levels of tuition, which have increased at astronomical rates over the past two decades. This needs to stop, and we need some bold and creative solutions. Provide incentives for schools that lower tuition; withdraw federal aid for schools that raise tuition without meeting core employment benchmarks; encourage cheaper educational programs; and create apprenticeship tracks that provide students with real-world experience and can serve as an alternative to the traditional college degree model.

Policy & Reform

What Has President Obama Done for Student Loan Borrowers, Anyway?

September 6, 2012 | Adam S. Minsky, Esq. Policy & Reform

The presidential election is certainly heating up, and we’re seeing a lot of rhetoric come from both sides about a whole bunch of issues. Of course, student loans and access to a college education are issues near and dear to me. While the following should not at all be taken as a full-on endorsement of President Obama (my law practice is strictly non-partisan), here is a legitimate list of what the President has done for student loan borrowers since he took office:

  • Removed private lenders from the federal student loan industry. Prior to the amendments to the 2010 Higher Education Act signed by the President, private lenders (such as Sallie Mae) were permitted to directly lend federally “guaranteed” loans: private money backed by the U.S. government. The President’s legislation eliminated this massive private-lending program so that now, the only entity lending federal student loans is the U.S. government. This is good for borrowers because it ensures uniformity in federal lending and provides more direct access to the many beneficial federal lending and repayment assistance programs that are out there that would not be available to these federally-backed private loans (such asPublic Service Loan Forgiveness.
  • Improved Income-Based Repayment. President Obama fast-tracked an IBR improvement which will allow new federal student loan borrowers to pay only 10% of their income (as opposed to 15%) and have their loans forgiven after 20 years (as opposed to 25). While this won’t impact anyone who is already repaying their federal loans, it’s great news for current and soon-to-be students.
  • Kept federal loan interest rates low. President Obama signed a compromise law passed by Congress that insured that undergraduate subsidized federal loan interest rates stayed low, at 3.4%. The interest rate was slated to double to 6.8%, which would have cost students thousands of dollars.
  • Doubled funding for federal Pell Grants. Pell Grants are grants, not loans, available to low-income borrowers. Increasing funding directly helps the people who need it the most, and helps reduce or eliminate their potential student loan debt burdens.
  • Maintained tuition and student loan interest tax credits. These tax credits lower the tax burden for borrowers paying for tuition or paying off the accumulating interest on their student loans. It’s not much, but it does legitimately help people.

These are all real, tangible benefits for student loan borrowers, and I’m glad we’ve seen these positive changes. Of course, it hasn’t been all good news. While I think the President’s initiatives have resulted in net gains for student loan borrowers, we have also seen some federal subsidizes eliminated for certain federal loans. Moreover, federal student loan debt collectors have been getting support from all levels of government. These changes concern me.

Ultimately, however, I am generally pleased with what the President has done for student loan borrowers in his first term. I just hope we see a lot more changes. We have a LOT more work to do, and we need major institutional reform- reform that makes it easier, not harder, to get an education and get ahead in life.

Policy & Reform

New Student Loan Complaint System at the Consumer Financial Protection Bureau

July 17, 2012 | Adam S. Minsky, Esq. Policy & Reform

The Consumer Financial Protection Bureau (CFPB) is a federal new agency designed to look after the interests of consumers in all walks of life. CFPB has a strong student loan focus, and they recently announced that they will be taking complaints from consumers about private student loans. This is fantastic news. While there are several programs to help borrowers manage federal student loan problems, private student loans are uniquely problematicand there aren’t any real institutional structures in place to assist borrowers with private student loan issues. CFPB will investigate your problem and will try to work with your private lender to reach a solution.

While the new complaint system is unlikely to result in any immediate change to the private student loan sphere, CFPB will act as a central clearinghouse for private student loan issues and will hopefully play a major future role in regulating private student loans in the future.

To read about this new project, click here. To share your private student loan horror story with CFPB, click here. To submit a complaint to CFPB, click here.

Policy & Reform

Federal Legislation Slams Student Loan Borrowers, Despite the Recent Student Loan Deal

July 10, 2012 | Adam S. Minsky, Esq. Policy & Reform

There was recently a lot of hullabaloo in Washington about student loans. Undergraduate federal student loan interest rates were set to double, and this would have increased the cost of an undergraduate education by many thousands of dollars per student. Luckily, just days before the increase was slated to take effect, a divided Congress and the President passed a law keeping interest rates where they are. This was hailed as a rare bipartisan victory for students during a time of hyper-partisanship and legislative gridlock.

Few, however, have been talking about the serious negative legislative changes that are slated to take effect soon and will impact students in a big, big way:

  • For undergraduate federal subsidized loans, the government will no longer cover interest during 6-month grace periods post-graduation. This will effectively tack on hundreds, if not thousands, of dollars onto undergrads’ student loan bills after they graduate. Students will collectively pay $18 billion more out of pocket over the next decade because of this change.
  • For graduate students, the government will no longer cover interest at all for federal graduate loans while students are in school and in their grace period after they graduate. This will cost graduate students an additional $2 billion out of pocket over the next decade.

The compromise bill passed by Congress last month certainly was a good thing, but we have a long, long way to go before we see real changes that will help student borrowers. Until then, the bad news will continue.

Read more here.

Policy & Reform

Intriguing Updates Regarding Grad PLUS Grace Periods

June 5, 2012 | Adam S. Minsky, Esq. Policy & Reform

A couple of weeks ago, I blogged about federal student loan servicing problems with Grad PLUS loans. Specifically,some graduating students are being told there is a Grad PLUS grace period, when there is no such thing.

Well, it turns out that Grad PLUS loans *do* in fact have some sort of grace period. Starting with loans disbursed in 2008, Grad PLUS borrowers are entitled to a six-month deferment period after graduation (see this Department of Education overview). This is effectively a grace period, even if it is not called one. It turns out I was wrong; this IS the result of a well-intentioned policy change! Who woulda thunk?

That said, there are still serious problems. This deferment period is being unevenly applied– and that’s an understatement. In fact, my unscientific assessment is that at least half of graduating grad students are being affirmatively told that they have NO such deferment period for their Grad PLUS loans and they must place them in forbearance to avoid getting billed the first month following graduation (I myself graduated law school in 2010, with Grad PLUS loans only disbursed in 2009 and 2010, but I was told there was no grace or deferment period). Some students are having success by informing ill-informed customer service representatives that they are, in fact, entitled to a deferment period, but even this a mixed bag. Let this post be part correction, and part friendly notification: graduating students with Grad PLUS loans disbursed after July 2008 are in fact entitled to a 6-month post-graduation deferment period. Whether you will get it, however, is another matter.

Policy & Reform

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Books by Adam S. Minsky

The Student Loan Handbook for Law Students and Attorneys

The Student Loan Handbook for Law Students and Attorneys

Student Loan Debt 101

Student Loan Debt 101: The Definitive Guide to Understanding and Managing Your Student Loans

Student Loans for Parents and Cosigners

The Student Loan Guide for Parents and Cosigners

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