Tag Archives for " Loans "

Colleges Establish New Guidelines on Student Loans

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

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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H&R Block Will Not Offer Refund Anticipation Loans this Tax Season

September 13, 2011 – H&R Block, the nation’s largest tax preparer, announced today that it will not be able to offer refund anticipation loans during the 2012 tax season due to an increase in the amount of tax returns the company prepares and the decline in demand for the high-cost loans.

This is the second consecutive year in which the company has not offered these loans, eliminating them last year as a result of an Internal Revenue Service (IRS) regulation that did not allow banks to fund them.

In preparation for the 2011 tax season, the IRS announced that it would no longer provide tax companies with the debt indicator, which was the figure they used to determine the anticipated refund amount.

“Refund Anticipation Loans are often targeted at lower-income taxpayers,” IRS Commissioner Doug Shulman said in a 2010 press release. “With e-file and direct deposit, these taxpayers now have other ways to quickly access their cash.”

Last year, only a few smaller tax firms were able to offer the service through a single bank, Republic Bank and Trust in Kentucky. H&R Block expressed concern that regulations were only applied to certain banks and tax preparation agencies, not all.

Regardless, the company maintains that eliminating this service from its offerings did not and will not affect its success.

“We evaluated our options to determine what was best for our clients, the business and our shareholders,” H&R Block President and CEO Bill Cobb said. “Knowing we had a strong 2011 tax season without (refund anticipation loans), our analysis did not present a compelling reason to bring back the product in 2012.”

As evidence of this, the company gained 18.6 percent more first-time clients in 2011.

A refund-backed loan offers the amount of the taxpayer’s federal tax refund with a short-term payback, which was helpful in the times when the IRS took up to eight weeks to issue the refund checks. According to a press release from H&R Block, however, the IRS payments will be issued within a two week period in the 2012 season. This is one reason behind the decrease in demand for the loans.

Another reason H&R Block cited for stopping the service was the high fees associated with the loans. According a release from the Consumer Federation of America, this year the fees for refund anticipation loans were $61 for a $1,500 loan, signifying a 169 percent APR – although it is paid off in just a few weeks.

To compensate for those who would have applied for the loans, the company announced that it would continue to offer other options, such as refund anticipation checks, which allow individuals to use to their refund to pay tax preparation fees.

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Cash America to Wind Down Online Payday Loans

September 16, 2011 – Pawnshop operator and payday loan provider Cash America International, which is based out of Fort Worth, Texas, announced today that it plans to spin off most of its online lending subsidiary, Enova International.

Enova will now have a common stock in the New York Stock Exchange, signified by the symbol “ENVA.” Cash America will spin off the ownership through a public offering projected at $500 million; however, the company says it plans to maintain 35-49 percent of its stake. Three other companies will be joint underwriters: UBS Investment Bank, Barclays Capital Inc. and Jefferies & Co.

Enova’s services include consumer payday loans of an average of a little over $500, servicing not only the U.S., but also Canada, the U.K. and Australia. Cash America is the world’s largest pawn shop chain, and entered the payday loan business in 1999. Although the company’s focus is the pawn shop business, payday loans made up about 37 percent of Cash America’s income in the first six months of 2011.

Cash America said that problems with the companies’ partnership had arisen because investors were unable to differentiate between the online lending portion and the concrete business. Enova CEO Timothy Ho said separating from Cash America will give Enova its own identity.

Analysts say the move will also help Cash America’s stock ratings, as the harsh regulations associated with payday loans can pose problems for the company. The pawn shop industry is less regulated and is continuing to expand quickly.

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Auto Borrowers More Likely to Pay Back Loans

September 16, 2011 – In spite of a tough economic climate, auto loan borrowers are proving that they are able to make their loan payments on time.

A study from TransUnion credit and information management company released in August shows that the national rate of borrowers who are 60 or more days past due on their loan payments, known as the auto delinquency rate, decreased in the second quarter of 2011.

The rate was 0.53 percent last year but now sits at 0.44 percent, in the seventh straight quarter in which the delinquency rate has dropped – even with auto loan size increasing. Although rates are usually expected to be lower in the early quarters of the year, the company’s studies have seen a year-to-year decreasing trend.

“Over the last seven quarters – on a year over year basis – we have seen delinquencies trend downward as consumers continue to pay down debt,” Automotive Vice President for TransUninon’s financial services business unit Peter Turek said. “With auto sales improving, more auto loans are opened by consumers placing downward pressure on auto delinquency rates.”

He added that the auto market has not felt as large of a hit as other loan industries. “A consumer’s ability to repay is also helped by the recent low interest rates for new and used car loans, making purchase decisions and monthly payments more affordable,” Turek said.

In general, auto loans have a lower delinquency record because cars can be more quickly and easily repossessed than a home. As a result, borrowers are more likely to make these payments before other financial obligations. TransUnion estimates that the rate will continue to decrease during the rest of the year.

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Subprime Auto Loans Rise Since Financial Crisis

September 19, 2011 – A borrower’s poor credit score might no longer keep him or her from getting a new or used car loan. After becoming more cautious as a result of the financial crisis of 2008, auto lenders are now showing that they are more willing to lend to subprime borrowers.

On Tuesday, August 30, Experian Automotive announced the results of its study on auto lending in the second quarter of 2011. The study reported that the rate for subprime new vehicle loans increased by 22.4 percent from 2010, from 18.21 percent to 22.29 percent.

“Even with a tepid economic recovery in the first half of the year, automotive lenders were willing to increase their level of risk,” Experian Automotive Director of Automotive Credit Melinda Zabritski said in a press release. “This was good news for automotive manufacturers, as nearly half of all consumers fall into non-prime, subprime and deep subprime risk categories. Providing loans to these risk tiers opens the market to significantly more prospects.”

The area that saw the greatest increase was in new car loans for borrowers in the highest risk category, deep subprime, which soared 44.1 percent from 1.48 to 2.13 percent. In addition, the average credit score for both new and used auto loan borrowers decreased by an average of 8-10 points and the average time period for loan repayment extended by one month.

Overall, the total percent of subprime auto loans made in this last quarter was 40.8 percent, up from 37.2 percent at this time last year. In 2007, before the financial crisis, this rate was 46.2 percent.

This recent increase, Experian Automotive experts suggest, marks an increase in the risk lenders are willing to take on auto loans to increase their business – especially in a lagging economy. Some experts also suggest that auto loans are easier to grant to subprime borrowers because repossessing a vehicle is much easier than foreclosing a home.

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Obama Administration Seeks to Reduce Millions of Student Loans

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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Government Announces Brief Opportunity to Consolidate Student Loans

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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Disaster Relief Loans Offered to Tropical Storm Lee Survivors in Virginia

Tropical Storm Lee survivors in Virginia are now able to receive low-interest disaster loans from the U.S. Small Business Administration (SBA), as announced this week in an SBA news release.
SBA administrator Karen G. Mills made these disaster loans available after receiving a letter from Virginia Gov. Robert McDonnell on Nov. 9.
Virginia’s Department of Emergency Management’s website reports McDonnell first appealed to the Federal Emergency Management Agency (FEMA), but his petition for help was denied.
“Getting businesses and communities up and running after a disaster is our highest priority at SBA,” said Mills.
The loan amounts available are:

  • Up to $40,000 for homeowners and renters to repair and replace personal property damaged in the storm.
  • Up to $200,000 for homeowners to repair and replace damaged real estate.
  • Up to $2 million for businesses and non-profit organizations of any size to repair real estate, equipment, and inventory.

These disaster relief loans will be offered with interest as low as 2.5 percent for homeowners and renters, 3 percent for non-profits, and 4 percent for businesses. All of these loans are available with terms of up to 30 years.
The deadline to apply is January 13, 2012 for physical property damage loans, and August 14, 2012 for economic injury loans.
A Disaster Recovery Center will open this week, allowing survivors to have questions answered, the loan program explained, and to help complete and submit the applications for these loans.
Individuals and businesses unable to make it to the Disaster Recovery Center can get information and applications by either calling the SBA’s Customer Service Center at 1-800-659-2955, emailing disastercustomerservice@sba.gov, by download at www.sba.gov, or by direct application at https://disasterloan.sba.gov/ela/.

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The FDIC Announces a Possible Replacement for Payday Loans

Martin J. Gruenberg, chairman of the Federal Deposit Insurance Corporation (FDIC), gave a recent speech that covered some of the FDIC’s steps taken to curb the harmful effects payday loans have had on lower-income and minority families.
After determining “7 percent of U.S. households [who] do not have bank accounts, and another nearly 18 percent who may have an account still utilize non-bank financial services such as check cashers and payday lenders,” as stated by Gruenberg, the FDIC is shifting focus to “expanding access to insured financial institutions to all Americans.”
The measures the FDIC has begun to take include the testing of a project recommended in the past: the Small-Dollar Loan Pilot Program.
This program’s aim is to provide banks with a business model that would allow them to offer the same services payday lenders offer, but to allow those services to be profitable to both borrowers and banks alike.
The loans offered by this program are for $2,500 or less, have a term of 90 days or less, and carry an annual percentage rate (APR) of 36 percent or less. They have low origination fees, if any, and banks’ decisions to offer the loans are to be made within 24 hours of receiving an application.
Gruenberg reported that after testing the program on 28 volunteer banks, the Small-Dollar Program “demonstrated that banks can offer safe, affordable small-dollar loans as an alternative to high-priced sources of emergency credit.”
He said the FDIC is “hopeful that the results of the testing will encourage more banks to offer such products.”

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