October 3, 2024

Bucks Blog: Keeping a Closer Eye on Student Loan Servicing Firms

Companies that service student loans will get more scrutiny from the federal government under a new rule proposed by the Consumer Financial Protection Bureau.

On Thursday the bureau proposed a rule that would allow it to supervise big student loan servicers, the companies that manage loans on behalf of borrowers and lenders. Servicers send out statements, collect payments, answer questions, track interest and generally provide day-to-day oversight of the loans.

The bureau already regulates big banks that service loans, but the vast majority of student loans are serviced by “nonbank” financial companies, the bureau said. Under the new rule, servicers with a million accounts or more would fall under the agency’s umbrella, whether or not they are considered banks. That would give the agency authority over the seven largest servicers, which handle nearly 50 million loans.

An agency spokeswoman declined to identify the top servicers that would come under the agency’s scrutiny. But data from the Student Loan Servicing Alliance indicate that Sallie Mae is by far the largest nonbank servicer of student loans, with nearly $197 billion in servicing volume at the end of 2011. Other big servicers include American Education Services and ACS Education Services.

“The student loan market has grown rapidly in the last decade, and servicers are now facing the stress of an increasing number of delinquent borrowers,” Richard Cordray, the agency’s director, said in a prepared statement.

The new rule would give the bureau the authority to make sure the servicers comply with federal consumer laws and are all following the same rules. The proposal would give the agency authority to regulate companies that service both federal loans and private loans.

The bureau has been looking into problems with student loan servicing. Complaints received from borrowers include difficulty in getting accurate information from servicers about how much is owed, confusion over fees, delays in having payments credited and difficulty in getting help when borrowers run into financial trouble.

Comments on the proposed rule will be accepted for 60 days after it is published in the Federal Register.

Have you had trouble with a student loan servicer? Tell us about your experience.

Article source: http://bucks.blogs.nytimes.com/2013/03/14/keeping-a-closer-eye-on-student-loan-servicing-firms/?partner=rss&emc=rss

Bucks Blog: Sallie Mae Lowers Top Loan Rates for Graduate Students

Graduate students may now be able to qualify for private student loans at lower interest rates from Sallie Mae, the education finance company announced on Wednesday.

Sallie Mae said it would lower the maximum interest rates on its “smart option” private student loans made to graduate students, reflecting their educational achievement and greater earnings potential.

Fixed-rate loans for graduate students will now range from 5.75 percent (where they start currently, for undergraduates and graduates) up to 8.875 percent, compared with as high as 12.875 previously. Rates for variable rate loans for graduate students will now range from the current 2.25 percent up to 7.5 percent, compared with as high as 10.125 percent previously. (The top rates for the loans will remain the same for undergraduates.)

The new rate ranges for graduate students are aimed at making the loans more competitive with the federal Plus Loan for graduates, which graduate students typically turn to if they don’t qualify for lower-cost federal loans (like Perkins loans and Stafford loans), or need to borrow more than the limits set for those loans.

Federal Plus Loans for graduates carry a fixed rate of 7.9 percent and a 4 percent origination fee.

Sallie Mae’s loans don’t have origination fees, but they lack some borrower protections available with federal loans, including income-based repayment plans that can help students stay on track with their loan payments. The federal government is looking at ways to make repayment options for private loans more flexible.

Students should consider carefully what type of loan might be best for them, based on their field of study and potential earnings, Charlie Rocha, senior vice president for student lending products at Sallie Mae, said in a telephone interview.

Students obtaining M.B.A. degrees, for example, and going to work in the private sector may expect higher salaries that will enable them to pay off their debt more quickly and may benefit from the lower interest rates now offered by Sallie Mae, he said.

But students who are going into the nonprofit or public sector, where salaries may be lower and there may be more of a need for a flexible repayment, may be better off with federal loans and the protections they offer.

The potential savings offered by Sallie Mae’s loans depend on the interest rate, as well as the repayment option chosen (students can choose to make interest-only payments, or lower fixed monthly payments, while in graduate school, or they can defer payments until after graduation). Sallie Mae says that for a $10,000 loan, borrowed at 6.75 percent over a term of 10 years, and deferred for two years, the savings compared with a federal Plus loan would be more than $1,800. The savings are greater if the rate is lower, and if payments are made while the student is in school.

The interest rate on the Sallie Mae loans is based on the borrower’s credit history, so only students with good, established credit are likely to qualify for the lowest rates. (The lowest rates have been available already, to qualifying students, though Sallie Mae doesn’t disclose what proportion of students have been able to obtain the best rates.) Students with less credit experience would probably pay rates at the higher end of the range, Mr. Rocha said.

The rates on the variable-rate loans can fluctuate, of course, so students must carefully consider whether they can afford higher payments if interest rates rise.

The rates are available as of April 1. Students must be in a master’s or doctorate program but can be enrolled either full-time or part-time.

Do the lower rates seem attractive to you? Or would you prefer the protections of a federal loan?

Article source: http://bucks.blogs.nytimes.com/2013/03/06/sallie-mae-lowers-top-loan-rates-for-graduate-students/?partner=rss&emc=rss

Bucks Blog: A Look at Repayment Options for Private Student Loans

Agence France-Press — Getty Images

2:45 p.m. Updated / To correct a statistic on households with student debt and to correct the date by which comments are due.

The federal government is looking into ways to help consumers burdened with private student loans — including potential ways to help them refinance their debt at lower interest rates.

The Consumer Financial Protection Bureau recently published a formal request for information from consumers, lenders and others involved in the student loan market, seeking “more detailed information on ways to encourage the development of more affordable loan repayment mechanisms for private student loan borrowers.”

Rohit Chopra, the agency’s student loan ombudsman, said in a recent call with reporters that the request is an “important first step” in the agency’s quest to make student-loan repayment more flexible and easier for borrowers.

The request follows a report last fall from Mr. Chopra about complaints the agency had received from borrowers of private student loans.

Student debt, Mr. Chopra reiterated, is no longer an exception but the norm: 40 percent of households headed by someone under 35 have student debt. Student debt tops $1 trillion, and some policy makers are concerned that it may affect the ability of young people to qualify for other loans, like those for cars and for buying first homes.

While the bulk of student debt is made up of federal student loans, more than $8 billion in private loans are in default, according to the agency’s research. Private loans are those made outside the federal student loan program. Most private loans are more expensive than federal loans, and lack certain borrower protections offered by federal loans, including income-based repayment plans for borrowers facing financial difficulty and options for borrowers in default to get back on track.

Some borrowers have expressed frustration that there are limited options for refinancing their student debt at currently low market rates, as borrowers can often do with home loans. Unlike a mortgage, however, which is secured by a home, a student loan is not secured by specific collateral — so interest rates tend to be higher.

But while student loans may never be available at rates as low as those available for mortgages, there are ways to measure relative risk with such loans that could still lower their cost, Mr. Chopra said. For instance, he said, while a loan made to a college freshman may be considered one level of risk requiring a certain interest rate, that risk level decreases after the student graduates, gets a job and demonstrates a steady repayment record — and that person may be then eligible for a lower rate.

Responses to the request for information will be accepted until April 8.

Do you think it makes sense to offer refinance options for student loans?

Article source: http://bucks.blogs.nytimes.com/2013/02/28/a-look-at-repayment-options-for-private-student-loans/?partner=rss&emc=rss

DealBook: Citigroup’s Deal to Sell OneMain Collapses

Citigroup‘s effort to sell a consumer-lending business has collapsed in recent days, as wobbly markets and a lackluster economy shut down hopes for a deal, a person with knowledge of the matter said.

Last year Citigroup began exclusive talks with a pair of private equity firms and Berkshire Hathaway, Warren E. Buffett‘s conglomerate, to sell OneMain, a lender that offers home equity and personal loans to risky borrowers. The talks coincided with the bank’s broader effort to shed noncore businesses in the aftermath of the financial crisis.

But Citi and its suitors all agreed to abandon the OneMain effort after the bidders, which included the private equity firms Centerbridge Capital Partners and Leucadia National, concluded that it would be difficult to finance the business. To do so, the firms would have had to bundle new loans and sell them as securities to investors. The securitization market for private loans has been scare since the crisis, however, as investors have balked at the risk attached to such products.

Still, Citi has not abandoned plans to sell OneMain, which remains profitable. The bank is likely to put the unit on the block again if the markets regain stability, said the person with knowledge of the matter, who spoke on condition of anonymity. For now, OneMain will remain in the bank’s CitiHoldings division, alongside other businesses it intends to divest over time.

CitiHoldings, created in 2009 as a home for such unwanted and noncore assets, has steadily shrunk over the last two years. In 2010, in perhaps the most significant unloading of CitiHolding assets, the bank sold a student loan business to Discover for $600 million.

“The objective of Citi Holdings is to reduce noncore assets in an economically rational manner that is in the best interests of our stakeholders,” Shannon Bell, a Citigroup spokeswoman, said. She declined to comment on the collapse of the OneMain deal, which was reported earlier by Bloomberg and The Wall Street Journal.

Article source: http://feeds.nytimes.com/click.phdo?i=8ac59ea75d3eaca0e70fcc2c885aa88b

Bucks Blog: New Tool Helps Evaluate Student Loan Options

Worried about paying back your student loans? The federal Consumer Financial Protection Bureau now offers an online “student debt repayment assistant” tool that can help you evaluate possible options.

The tool doesn’t actually accept applications for changes to your loans. But by asking four basic questions, it provides a guide to the steps you can take to explore various alternatives.

The tool first asks if you have federal (government) loans, nonfederal (private) loans or a combination of both. The answers are important because that determines what options are available. If you aren’t sure, the tool links to the National Student Loan database, where you can search for loans made to you and determine if they’re federal or private.

The database also provides the name of the loan servicer — the company that collects your payments — if you don’t know. That is also important because ultimately the tool advises you to call your servicer (which may be different from the company that originally made the loan). The tool explains the various options for you to ask about, like a deferment or a forbearance, and the pros and cons of each.

The site also explains the Department of Education’s “income-based repayment” option, which can limit monthly payments on federal student loans (but not private loans) if your debt is high compared with your income.

The tool provides a chart with estimated payments based on income and family size, and provides a link to a calculator on the Education Department’s Web site that can more precisely estimate what your monthly payment would be under such a plan.

Neither the consumer bureau’s chart, nor the Department of Education calculator, has been updated to reflect President Obama’s proposal, announced on Wednesday, to reduce the income-based repayment cap to 10 percent of income, for some students graduating next year and thereafter. Rather, they still reflect the current cap of 15 percent. A spokeswoman for the Education Department said its calculator will be updated after the president’s proposal goes through the necessary regulatory review process.

If you try the tools, let us know in the comments section if you find them helpful.

Article source: http://feeds.nytimes.com/click.phdo?i=6e1cfe13e1eb01c0b3f30b9a553fc21d

Burden of College Loans on Graduates Grows

While many economists say student debt should be seen in a more favorable light, the rising loan bills nevertheless mean that many graduates will be paying them for a longer time.

“In the coming years, a lot of people will still be paying off their student loans when it’s time for their kids to go to college,” said Mark Kantrowitz, the publisher of FinAid.org and Fastweb.com, who has compiled the estimates of student debt, including federal and private loans.

Two-thirds of bachelor’s degree recipients graduated with debt in 2008, compared with less than half in 1993. Last year, graduates who took out loans left college with an average of $24,000 in debt. Default rates are rising, especially among those who attended for-profit colleges.

The mountain of debt is likely to grow more quickly with the coming round of budget-slashing. Pell grants for low-income students are expected to be cut and tuition at public universities will probably increase as states with pinched budgets cut back on the money they give to colleges.

Some education policy experts say the mounting debt has broad implications for the current generation of students.

“If you have a lot of people finishing or leaving school with a lot of debt, their choices may be very different than the generation before them,” said Lauren Asher, president of the Institute for Student Access and Success. “Things like buying a home, starting a family, starting a business, saving for their own kids’ education may not be options for people who are paying off a lot of student debt.”

In some circles, student debt is known as the anti-dowry. As the transition from adolescence to adulthood is being delayed, with young people taking longer to marry, buy a home and have children, large student loans can slow the process further.

“There’s much more awareness about student borrowing than there was 10 years ago,” Ms. Asher said. “People either are in debt or know someone in debt.”

To be sure, many economists and policy experts see student debt as a healthy investment — unlike high-interest credit card debt, which is simply a burden on consumers’ budgets and has been declining in recent years. As recently as 2000, student debt, at less than $200 billion, barely registered as a factor in overall household debt. But now, Mr. Kantrowitz said, student loans are going from a microeconomic factor to a macroeconomic factor.

Susan Dynarski, a professor of education and public policy at the University of Michigan, said student debt could generally be seen as a sensible investment in a lifetime of higher earnings. “When you think about what’s good debt and what’s bad debt, student loans fall into the realm of good debt, like mortgages,” Professor Dynarski said. “It’s an investment that pays off over the whole life cycle.”

According to a College Board report issued last fall, median earnings of bachelor’s degree recipients working full time year-round in 2008 were $55,700, or $21,900 more than the median earnings of high school graduates. And their unemployment rate was far lower.

So Sandy Baum, a higher education policy analyst and senior fellow at George Washington University, a co-author of the report, said she was not concerned, from a broader perspective, that student debt was growing so fast.

Indeed, some economists worry that all the news about unemployed 20-somethings mired in $100,000 of college debt might discourage some young people from attending college.

A decade ago, student debt did not loom so large on the national agenda. Barack and Michelle Obama helped raise awareness when they spoke in the presidential campaign about how their loan payments after graduating from Harvard Law School were more than their mortgage payments.

“We left school with a mountain of debt,” Mr. Obama said in 2008. “Michelle I know had at least $60,000. I had at least $60,000. So when we got together we had a lot of loans to pay. In fact, we did not finish paying them off until probably we’d been married for at least eight years, maybe nine.”

Even then, Mrs. Obama said, it took the royalties from her husband’s best-selling books to help pay off their loans.

In 2009, the Obama administration made it easier for low-earning student borrowers to get out of debt, with income-based repayment that forgives remaining federal student debt for those who pay 15 percent of their income for 25 years — or 10 years, if they work in public service.

But if the Obamas’ experience highlights the long payback periods for student debt, their careers also underscore the benefits of a top-flight education.

“College is still a really good deal,” said Cecilia Rouse, of Princeton, who served on Mr. Obama’s Council of Economic Advisers. “Even if you don’t land a plum job, you’re still going to earn more over your lifetime, and the vast majority of graduates can expect to cover their debts.”

Even believers in student debt like Ms. Rouse, though, concede that hefty college loans carry extra risks in the current economy.

“I am worried about this cohort of young people, because their unemployment rates are much higher and early job changing is how you get those increases over their lifetime,” Ms. Rouse said. “In this economy, it’s a lot harder to go from job to job. We know that there’s some scarring to cohorts who graduate in bad economies, and this is the mother of bad economies.”

And there is widespread concern about those who borrow heavily for college, then drop out, or take extra years to graduate.

Deanne Loonin, a lawyer at the National Consumer Law Center, said education debt was not good debt for the low-income borrowers she works with, most of whom are in default.

Unlike most other debt, student loans generally cannot be discharged in bankruptcy, and the government can garnish wages or take tax refunds or Social Security payments to recover the money owed.

Students who borrow to attend for-profit colleges are especially likely to default. They make up about 12 percent of those enrolled in higher education, but almost half of those defaulting on student loans. According to the Department of Education, about a quarter of students at for-profit institutions defaulted on their student loans within three years of starting to repay them.

“About two-thirds of the people I see attended for-profits; most did not complete their program; and no one I have worked with has ever gotten a job in the field they were supposedly trained for,” Ms. Loonin said.

“For them, the negative mark on their credit report is the No. 1 barrier to moving ahead in their lives,” she added. “It doesn’t just delay their ability to buy a house, it gets in the way of their employment prospects, their finding an apartment, almost anything they try to do.”

Article source: http://feeds.nytimes.com/click.phdo?i=693f8c0f215fee146dbec49f572f7474