Colleges Establish New Guidelines on Student Loans


Clock displaying "time for change" on face

Certain profit based Colleges, such as DeVry University are set to lose federal government assistance unless they meet new guidelines on student loans as indicated by the United States Department of Education. This excludes non profit colleges such as DePaul University.

Students at non profit colleges make up 88 percent of those in school, but only represent about 1/2 of the defaulted student loans; therefore, the other half pertains to defaults from for profit schools. This is the reason why the “gainful employment” talk within the government has been in recent discussions where if graduates owe too much relative to their income, or too few former students are paying back their student loans, colleges may lose grants and federal tuition loans.

In order to hold federal assistance, for profit schools will have to show that their previous attendees have not defaulted on more than 65 percent of the loans and that the student loan payments do not equate to one third of their total income, or twelve percent of their annual income. Estimates predict that close to 20 percent of such colleges will fail to reach those requirements and only about 95 percent will get to keep such federal government aid programs which may leave up to 5 percent closing down.

Arne Duncan, Education Secretary, said, “We’re asking companies that get up to 90 percent of their profits from taxpayer dollars to be at least 35 percent effective. “This is a perfectly reasonable bar and one that every for-profit program should be able to reach.”

This will all set into place July of 2012; however, schools may not be ruled ineligible until 2015, giving 3 years for readjustment. Talk continues as the requirements are proposed to become more lenient as stocks for profit based schools increased.

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Hard Economic Times Cause Increase in Default on Student Loans


Crossed out dollar sign

September 12, 2011 – Although student loans can help finance a college education for many students who need the extra help, studies released today from the U.S. Department of Education show that student loans are increasingly throwing students in over their heads in debt.

“These hard economic times have made it even more difficult for student borrowers to repay their loans,” U.S. Secretary of Education Arne Duncan said in a press release.

The department’s data shows that the default rate for student loans rose substantially between the fiscal years 2008 and 2009. The overall national student loan cohort default rate rose from seven percent to 8.8 percent. Broken down by department, the data indicates that the rate rose from six percent to 7.2 percent for public institutions, from four percent to 4.6 percent for private institutions and from 11.6 percent to 15 percent at for-profit schools.

These rates account for students whose first loan payment was due between Oct. 1, 2008 and Sept. 30, 2009 and who defaulted before Sept. 30, 2010. There are 320,000 students that fall in this category, out of 3.6 million who took out loans at 5,900 different schools.

The increase in students that are unable to pay off their student loans will not only affect the students, but may also cause schools with the highest rates to face federal consequences, such as losing eligibility for federal aid programs.

Based on the data released today, five schools face possible penalties; these schools are those that had a default rate above 25 percent for three consecutive years, a rate that was more than 40 percent in the most recent fiscal year or both. The institutions are: Tidewater Technical, Norfolk, Va.; Trend Barber College, Houston, Texas; Missouri School of Barbering & Hairstyling, St. Louis, Mo.; Sebring Career School, Houston, Texas; and Human Resource Development & Employment – Stanley Technical Institute, Clarksburg, W.Va.

In response to this increase in student default, the U.S. Department of Education has taken new measures to ensure that schools are accurately and extensively informing students about their financial decisions. These protective measures include a college affordability and transparency list, which shows “schools with the lowest and highest tuition and fees, their average net price and those institutions whose prices are rising at a particularly fast rate, and they allow students to compare costs at similar types of institutions,” the press release stated.

In addition to these changes, the department announced that it will begin measuring default statistics based on a three-year period, rather than the two-year one it has employed previously.

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Citigroup Sells Private Student Loan Company


Pile of money

September 16, 2011 – Continuing its forage into the private student loan industry, Discover Financial Services announced early this month that it plans to purchase $2.5 billion in private student loans from Citigroup.

This move, announced on Sept. 1 and set to go through by the end of the month, comes after Discover purchased Citigroup’s 80 percent share of its private loan business, The Student Loan Corp, in January of this year and a large volume of accounts from the company’s portfolio – an acquisition totaling $4.2 billion.

In addition, Sallie Mae purchased $27 billion of SLC’s federal student loans and assets and Citibank also purchased $8.7 billion. SLC is a top-three originator of private student loans in the U.S. and has more than 50 years of experience in the industry.

In this sale, Citigroup retained $8.7 billion in unguaranteed assets, although it says it plans to continue to shrink those assets over time. For Citigroup, the newest portfolio sale is part that initiative, which involves shrinking its “bad bank” assets, or City Holdings unit, of which the SLC was a part.

Most of the new portfolio is comprised of school-certified loans for students at a four year college and about 80 percent of the loans have already entered repayment. Student loans are often less risky for lenders because students are more likely to pay them back. Discover reported that it only wrote off 0.51 percent of loans on an annualized basis in the second quarter of this year.

In its last fiscal year, Discover reported that it made almost $5 billion in private student loans. It says it expects to become the nation’s third largest originator of private student loans this year.

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Obama Administration Seeks to Reduce Millions of Student Loans


Graduate cap and diploma

President Obama recently announced his proposal to reduce the sometimes excruciatingly high monthly payments current students and recent graduates owe on the loans used to pay for their education.

Recognizing the importance of education in a global economy, president Obama said in a news release, “until Congress does act, I will continue to do everything in my power to act on behalf of the American people.”

The administration hopes to live up to this promise by revising the current “Pay as You Earn” student loan payback program. Beginning next year, current students will have the ability to cap their monthly student loan payments at 10 percent of their discretionary income.

However, it is not only current students that are struggling with their student loan payments. Recent graduates, those who are trying to break into the extremely competitive recessionary job market, are finding themselves without any means to payback their student loans.

To tackle this problem, the administration seeks to grant graduates the ability to consolidate student loans at reduced interest rates and to forgive the balance graduates owe after 20 years of making payments on their student loans. This measure will offer a strong helping hand to graduates who have taken on lower-paying jobs.

By consolidating and reducing graduates’ monthly payments, these improvements to the “Pay as You Earn” plan are meant to work in tandem with the Public Service Loan Forgiveness Program, which forgives all student loan debt for public service workers after just 10 years of payment.

Finally, for borrowers who have both a Federal Direct Loan and a Federal Family Education Loan, the Administration will grant an option to consolidate these loans into a single payment. If borrowers accept the offer to consolidate these federal student loans, they will receive up to a 0.5 percent reduction on the interest rate these loans bear.

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CFPB Releases Student Repayment Assistant


Hands reaching out offering assistance

The Consumer Financial Protection Bureau (CFPB) recently released an automated advice system for student debt on their website. This debt assistant asks borrowers questions about their student loans and financial situation in order to provide them with helpful information on how they can effectively repay their debt.
After determining what kind of loans a borrower has, the student debt repayment assistant offers such advice as:

  • Call your student loan provider and ask for payment reductions or extensions on bills
  • Enroll in the income-based repayment (IBR) program
  • Defer your loans if eligible

This assistant is but one step in the CFPB’s plan to provide help for student loan borrowers.
“The private student loan market is one of the least understood consumer credit markets. It has been operating in the shadows for too long,” said Raj Date, Special Advisor to the Secretary of the Treasury on the CFPB. “Shedding light on this industry will benefit students, lenders, and the market as a whole.”
In an effort to live up to this promise, the CFPB is asking the public to give their personal input on private student loans. The CFPB is asking for student loan borrowers to read and submit responses to a questionnaire on their site.
“It doesn’t matter whether you have two sentences or two pages of input,” the CFPB wants to receive any and all public input about private student loans, as reported on the CFPB’s blog.
The information collected from this questionnaire will aid the CFPB in preparing a report to be brought to congress on student lending.

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Government Announces Brief Opportunity to Consolidate Student Loans


A green and red apple combined together

Between January 1 and January 30, 2012, the U.S. Department of Education (department) will offer Special Direct Consolidation Loans, which are designed to help borrowers manage their debt by grouping federal student loans into a single bill with a single payment.
This special short-term consolidation opportunity is available to those who have both:

  • One or more Direct Loans or Federal Family Education Loans (FFEL) owned by the department and serviced by one of the department’s servicers
  • One or more commercially-held FFELs owned by an FFEL lender and serviced by one of that lender’s servicers

While a borrower must have both a department-owned loan and a commercial-owned loan to qualify for this program, only the commercial-owned loans will be consolidated.
The eligible commercially-held FFEL loans include:

  • FFEL Subsidized and Unsubsidized Stafford Loans
  • FFEL Plus Loans
  • FFEL Consolidation Loans

The loans must be in grace, repayment, deferment, or forbearance to qualify for the program.
The consolidated student loans will receive a 0.25 percent interest rate reduction then take on a fixed rate calculated from the average of all the loans, but cannot exceed 8.25 percent.
The repayment term on the consolidated loan will remain the same as the current terms on the borrowers’ existing loans, but since there will be an interest rate reduction, the total interest payment over the life of the loan will be smaller than a traditional consolidation program would allow.
If eligible, borrowers can still make use of the income-based repayment (IBR) program with these loans.
Finally, by turning commercially-held FFEL loans into Special Direct Consolidation Loans, they become Direct Loans, which allow eligibility for the Public Service Loan Forgiveness Program (PSLF). The PSLF grants full student loan forgiveness after 120 payments from an individual employed in an eligible public service job.

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Occupy Student Debt Mounts Their Attack


Raised protesting fist

On November 21, 2011, the Occupy Wall Street movement mounted an attack against the student loan industry. The “Occupy Student Debt” (OSD) campaign has pledged if they gather support, participants en masse will refuse to make payments on their student loans.
According to the OSD’s website, their protest is built on a pledge to stop making payments on student loans once one million people have signed their online form. This pledge is justified by four principles listed on the OSD’s site.
The OSD asks supporters to sign their pledge if they believe in just one of the following:

  1. Tuition should be federally funded. The OSD believes the federal government should cover the cost of all student loans. They believe the cost would be around $70 billion a year, and claims this money is equivalent to that which the “Pentagon ‘wastes’ in unaccountable spending every year.”
  2. Student loans should be interest free. The protest group feels no government, bank, or agency should profit off the education of the nation’s youth.
  3. Private and for-profit colleges’ spending costs should be transparent.
  4. Current student debt should be entirely forgiven. Immediate forgiveness “is the only just response to this crisis,” as stated on the OSD’s site.

The OSD has said their principles are not demands, but instead are the basis for empowering debtors, since, in their words, “education at all levels is a right and a public good, and it should be properly funded as such.”
The movement’s online form allows for the signatures of debtors, non-debtors, and education faculty members. There is no requirement to verify indebtedness or employ at an educational institution.
The amount of signatures from each group is accessible for all to see. Currently, the pledge only has a total of 1,631 signatures.

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Wells Fargo Announces Lower Student Loan Rates


Percentage sign, with center line a down arrow

Wells Fargo announced Thursday that they will be offering lower interest rates on student loans. But their rates are still nearly half a percent higher than federal student loans.
As reported by The Associated Press, Wells Fargo’s basic undergraduate student loan rates dropped from 7.75 percent to 7.24 percent. That decrease is significant, but doesn’t even come close to 6.8 percent federal loan boast.
The new, lower rate is also only available to those with pristine credit scores. For those students (or parents) who have bad credit, the bank’s loans can carry rates of nearly 14 percent.
Aside from rate differences, though, private student loans continue to pale in comparison to federal loans since they lack the benefits the government-backed forms of financing come with. One of those benefits federal loans continue to entice borrowers with private loans miss out on is the forgiveness of all student debt after 25 years—or just 10 years if a student becomes a public service worker.
But Wells Fargo is clearly making efforts to alleviate their pained borrowers. They also announced a reduction of 0.25 percent to 0.51 percent on existing fixed rates for financing used for community college, used by a borrower with a career, held by parents, and for consolidation loans.
Additionally, if borrowers are eligible for a San Francisco bank note, they may be able to receive an additional rate reduction. Wells Fargo loan holders can receive up to a 0.50 percent reduction on new loans through the San Francisco notes, according to The Associated Press.
With the emergence of two recent (but separate) Occupy Student Debt movements, this may be an attempt to begin winning back public affection.

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Occupy Student Debt Seems to be a Flop


Man falling down over a hurdle

Last month, the Occupy Student Debt (OSD) campaign launched, and cause enormous vibrations in the media world. Articles and news stories erupted, some expressing support and others in opposition to the radical pledge this group was trying to fulfill.
What exactly was this pledge? To rally the masses of students and graduates who are in debt as a result of student loans, and collectively default on their payments.
According to the OSD, the nation should default on their student loans because, in their opinion, education is a right, not a privilege. Consequently, the government should fund all educational endeavors made by its citizens.
“I signed because not only do I have student debt, but millions of people in this country are struggling under the debt burden caused by just the want to be educated, and I believe, like the campaign, there should be a free educational path for people who would like to go from pre-K all the way to PHD,” said a New York University graduate named Susanne, featured on the front page of the OSD’s website.
The campaign’s threats, however, were not to be made a reality until they received one million signatures on their website. Signatures could come from students, education faculty members, or non-debtors who support the movement.
After nearly a month and a high amount of publicity, the OSD has received 2,472 student signatures, 451 faculty signatures, and 604 non-debtors signatures, for a grand total of 3,527 signatures.
“Defaulting is considered a financial felony that will continue to haunt you. Student loans are not something you can easily walk away from, and defaulting is hardly the same thing as missing a credit-card payment. It really is a black mark,” explained Carl Van Horn, a Rutgers University professor, to CBS News.
With the OSD lacking for over 996,000 signatures, it appears the nation recognizes how awful that black mark really can be. The radical ideas of such a campaign may have proven to be too much of a risk—even for those who have stood by the Occupy Wall Street’s campaign since its start in Zuccotti Park.

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Council Member Harry Thomas Settles Student Loan Suit


Man being arrested

Washington D.C. council member Harry Thomas settled a lawsuit brought against him by the Justice Department for outstanding student loans of $16,000.
Acquired in 1983 and 1984, Thomas (D-Ward 5) had suit filed against him in 2005 for nearly $16,000 in student loan principal and interest along with another $4,000 for attorneys’ fees.
The fact that Thomas and the Justice Department entered into an agreement was announced this morning, but the details of that agreement have yet to be revealed. The only hint at what that agreement entailed came from Frederick D. Cooke Jr., Thomas’s attorney, who said he was “pleased with the agreement we reached with the government,” as reported by the Washington Post.
The agreement won’t be filed on the public court docket until next Monday.
Thomas has recently been involved in other legal trouble, as earlier this month federal agents raided his home in northern Washington. Thomas has allegedly used his position in power to divert more than $300,000 of public funds for youth sports to groups he personally supported.
The D.C. Attorney General, Irvin B. Nathan, accused Thomas of using that diverted money to fund an Audi SUV and personal trips to Las Vegas, Nevada, and Pebble Beach, California.
Thomas settled that dispute with the city by agreeing to repay all of the money, less interest and penalties, claiming he did nothing wrong but is only settling the suit since it is “in the best interest of the city,” as reported by the Washington Post.
Thomas’s attorney for the city funds suit, Karl A. Racine, confirmed that Thomas would continue to cooperate with authorities. He said in a short statement that “at the conclusion of this matter, we sincerely believe that there will be no finding of any criminal violations.”

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