Monday, 28 December 2015

Student loan | Firms to Pay More than $50M for 'Deceptive' Student Loan Practices ...

Student loan | Firms to Pay More than $50M for &#39;Deceptive&#39; <b>Student Loan</b> Practices <b>...</b>

Firms to Pay More than $50M for &#39;Deceptive&#39; <b>Student Loan</b> Practices <b>...</b>

Posted: 23 Dec 2015 12:03 PM PST

WASHINGTON -- U.S. banking regulators on Wednesday ordered two affiliated financial firms to pay more than $50 million in fines and restitution to borrowers over allegedly "deceptive" marketing practices in the disbursement of student loans.

The Federal Reserve ordered Higher One Holdings Inc. of New Haven, Connecticut, to pay about $24 million in restitution to approximately 570,000 students as well as a civil penalty of $2,231,250, the Fed said in a statement.

The Federal Deposit Insurance Corp., in a parallel case against the institution, also ordered Higher One to pay $2.23 million.

The FDIC also brought a related action on Wednesday against WEX Bank, which partners with Higher One, and ordered it to pay $1.75 million in fines.

The FDIC added that both Higher One and WEX Bank will also collectively pay $31 million in restitution as well to an estimated 900,000 consumers.

Higher One provides colleges with financial aid disbursement services for students so they can pay for things such as books and living expenses. The FDIC said the product at issue is a debit card that is offered in partnership with banks.

College-Branded Bank Accounts May Not Be Best for Students

Regulators said Higher One engaged in a variety of deceptive practices, including omitting information about how students could get their financial aid disbursements without signing up for a Higher One product called OneAccount and not telling students about the product's fees, the Fed said.

In a statement on Wednesday, Higher One CEO Marc Sheinbaum said the company has made changes to its products and services to address the issues raised by regulators.

"After joining Higher One in 2014, I charged our team to set new standards for transparency and compliance. Today, the account experience is significantly changed and an even better student experience will be unveiled in 2016," he said.

Last week Higher One announced it had reached an agreement to sell its disbursement business, including OneAccount, to Customers Bank for $37 million in cash.

Finally! <b>Student Loan</b> Relief Is Here – Financial Juneteenth

Posted: 23 Dec 2015 04:34 PM PST

Finally! Student Loan Relief Is Here

By Robert Stitt

As of December 17, 2015, everyone who has a Direct student loan can enter into a new repayment agreement, REPAYE, that has limits set at 10 percent of discretionary income. It does not matter when you took out your student loans or how much you borrowed. The plan will not be perfect for everybody, but for borrowers who are having a hard time making their payments, or simply have not been able to, this may be a true gift.

As with any government program, things are not always as clear as they should be. Black Enterprise provides a basic primer on the new repayment system that is summarized below.

  • All Direct student loans that are not in default are eligible for the REPAYE program. FFEL, Perkins, and other federal loans must first be consolidated into a Direct loan before they would be eligible.
  • Discretionary income is calculated by taking your pre-tax income and subtracting 150 percent of the poverty level for your family size. You may find that your repayment amount is $0 if your income is low enough.
  • The U.S. Department of Education has a repayment calculator available online which can help you estimate your monthly payment in the REPAYE system as well as other plans.
  • Payments will be made for 20 years for undergrad loans and 25 for loans applied to grad school. After this time, the remaining balance will be forgiven, but the forgiven amount will be taxed as earned income.
  • Certain government and nonprofit jobs may be eligible for forgiveness after just 10 years of payments.
  • To qualify, apply at StudentLoans.gov and go to the "Income-Driven Repayment Plan Request". There is no fee to apply and no penalty if you choose not to select this repayment option. Federal loan repayment plans can be changed at any time.

The Institute for College Access & Success put together a pdf that explains the five main repayment plans for students with financial hardship. The chart breaks down eligibility, payments, and loan forgiveness. It can be found at http://ticas.org/sites/default/files/pub_files/existing_idr_options.pdf

The REPAYE plan is a start to a better system. There are still a number of improvements that need to be made, however. For example, all federal loans should be repaid under an income-driven system, and the forgiven amount should not be counted as taxable income. For now, this is great news for a lot of Direct student loan borrowers who have been struggling to make their payments.

Source

Is Offering <b>Student Loan</b> Repayment The New 401(k)? - Fast Company

Posted: 17 Dec 2015 02:02 AM PST

Tom Blair is a software engineer. He's in the enviable position of being a skilled worker who is highly sought after by employers. Careerbuilder recently revealed that software developers are among the more than 100 occupations in the U.S. that have more openings than hiring month-to-month, building on a trend this year that has twice as many employers looking to fill jobs than there are candidates who apply.

In order to become such a coveted talent, Blair took the conventional route and earned a four-year degree in computer and information sciences from Syracuse University. And it cost him. Since graduating in 2005, Blair tells Fast Company, he still owes "roughly $15,000" in student loans.

Now he's getting help. His employer, CommonBond, a New York-based financial tech company, just announced it will be offering assistance with student loan repayment.

CommonBond's cofounder and CEO David Klein tells Fast Company that with about half of the staff currently paying back loans, the decision to help reduce their payments was met with excitement. "In fact, 100% of them with student debt have already enrolled in the benefit," Klein says.

"Offering this benefit relates to a broader theme taking shape in the workplace, which is the growing emphasis companies are placing on financial wellness," Klein explains.

Indeed, CommonBond is joining a small (about 3% of private sector businesses, according to the Society for Human Resource Management) but growing number of companies that are starting to implement this benefit. Klein chalks it up to employers staying ahead of a shift in preferences among millennials, who now make up one-third of the U.S. workforce and are carrying a load of debt.

The average amount carried by each borrower is in excess of $35,000.

According to a report on millennials issued by the White House, total student outstanding loan debt surpassed $1 trillion by the end of the second quarter of 2014, making it the second largest category of household debt, and the average amount carried by each borrower is in excess of $35,000.

No wonder a survey of 1,000 workers with student loans from student loan management company iontuition found that nearly 80% with debt said they wanted to work for a company that offered repayment assistance. Among the individuals surveyed, nearly half (49%) said they would prefer their employer contribute to reducing their debt rather than a 401(k) plan. Klein cites another benefits preference study that found among 400 college-educated millennial participants, 85% would accept a job offer when student loan repayment is included. "Many overwhelmingly prefer debt repayment to other perks, such as 401(k) and health insurance contributions, free food, and gym memberships," he points out. 

It makes good fiscal sense, too. Investment expert Dave Ramsey overturns conventional wisdom that dictates saving for retirement even before building an emergency cash cushion. Ramsey recommends paying off all debt first before trying to stockpile savings in a 401(k). "Back in 2008, when the unemployment rate began to spike, 46% of workers who lost their jobs cashed out their 401(k) accounts altogether," Ramsey writes.

Though not exactly mirroring the recent spate of paid parental leave announcements or diversity initiatives as a means to attract and retain skilled talent, student loan assistance is being thoughtfully rolled out by several companies.

CommonBond's Klein notes that its benefit is $100 per month provided to all employees with student debt, until the loan is fully paid off, so long as they are employed at the company. "Typically, companies that offer this benefit will cap it, either by time or lifetime amount or role," he says, "At CommonBond, there are no such caps."

Pricewaterhouse Coopers (PwC), the global consulting and accounting firm, announced that starting in July 2016, some employees will become eligible for a student loan benefit. About 45% of staff between entry level to six years of tenure could receive $1,200 per year for up to six years, according to Michael Fenlon, PwC's global talent leader. "We targeted the program toward recent college graduates, because they've told us they are feeling the weight of student debt."

Fenlon cites the mounting debt as the company's motivator to offer the benefit. "With $1.3 trillion worth of outstanding student loan debt in the U.S., PwC wanted to be a pioneer in this area, and other companies are already beginning to follow us," he says.

Actually, Caroline Gennaro, corporate communications manager at Chegg, points out that leadership at the connected learning platform launched its debt reduction plan this past April. "In recognition of the burden that outstanding student loan debt puts on Chegg employees, Chegg offers a benefit that helps employees pay down their student loans in two ways," she says.

A $1,000 (less taxes) annual contribution will be made for employees paying down student loans, as well as offering an online student loan management tool that will help employees optimize their payments, Gennaro says.

Chegg's benefit can be used toward any outstanding loan, both private and federal, and all regular full-time employees with any sort of loan are eligible for this benefit. "The contribution is considered taxable income and will be included on the employee's end-of-year W2," she explains. So far, 57 of Chegg's employees have signed up. "One of them actually paid off their loan with our payment," she says.

The Lure Of The Benjamin

When you are trying to get out from under a mountain of debt and pay living expenses, an employer's $1,000 or $1,200 a year might seem like a drop in the bucket.

PwC's Fenlon argues, "Given the time-value of money, that could reduce a person's principal and interest by as much as $10,000 and take two to three years off the life of the loan. Our employees have told us that was significant."

CommonBond's Klein admits that $100 per month might sound small. "But over 10 years—a typical term for a student loan—that's $12,000," he observes. "Additionally, based on our research across the industry, this is the richest student loan benefit that exists, in terms of benefit to the employee," he contends.

Is it really fair to call this a recruiting tool? For Tom Blair, CommonBond's software engineer, it wasn't a factor when he joined the company this August because it hadn't been made available yet. When he learned of it in a company-wide meeting, he was thrilled to know that $100 of his monthly $180 payment would be covered. "If it was available when I was weighing up job offers, it absolutely would have factored into my decision," Blair maintains.

All three company spokespeople insist that offering such help is important for attraction, retention, and engagement. "We're always looking for ways to attract good talent, and this benefit is becoming more and more important to prospective employees," says Chegg's Gennaro. What's more, she notes, "The benefit is also in line with who we are as a company. After all, we are an education company looking to make higher education more affordable."

<b>Student Loan</b> Subsidies Cause Almost All of the Increase in Tuition <b>...</b>

Posted: 21 Dec 2015 09:00 AM PST

In a new NBER paper, "Accounting for the Rise in College Tuition," Grey Gordon and Aaron Hedlund create a sophisticated model of the college market and find that a large fraction of the increase in tuition can be explained by increases in subsidies.

With all factors present, net tuition increases from $6,100 to $12,559. As column 4 demonstrates, the demand shocks — which consist mostly of changes in financial aid — account for the lion's share of the higher tuition.

Specifically, with demand shocks alone, equilibrium tuition rises by 102%, almost fully matching the 106% from the benchmark. By contrast, with all factors present except the demand shocks (column 7), net tuition only rises by 16%.

These results accord strongly with the Bennett hypothesis, which asserts that colleges respond to expansions of financial aid by increasing tuition.

Remarkably, so much of the subsidy is translated into higher tuition that enrollment doesn't increase! What does happen is that students take on more debt, which many of them can't pay.

In fact, the tuition response completely crowds out any additional enrollment that the financial aid expansion would otherwise induce, resulting instead in an enrollment decline from 33% to 27% in the new equilibrium with only demand shocks. Furthermore, the students who do enroll take out $6,876 in loans compared to $4,663 in the initial steady state….Lastly, the model predicts that demand shocks in isolation generate a surge in the default rate from 17% to 32%. Essentially, demand shocks lead to higher college costs and more debt, and in the absence of higher labor market returns, more loan default inevitably occurs.

Sound familiar? Some of these results appear too large to me and the authors caution that they need to assume a lot of monopoly power to solve their model so the results should be taken as an upper bound. Nevertheless, the Econ 101 insight that subsidies increase prices (even net for those who are not fully subsidized) holds true.

I wonder where else (& here) we could apply this insight?

Your Federal <b>Student Loans</b> Just Got Easier to REPAYE | ED.gov Blog

Posted: 17 Dec 2015 05:55 AM PST

girl at computer

Beginning today, Federal Direct Loan borrowers can take advantage of a new repayment plan: REPAYE (the Revised Pay As You Earn Plan).

Some of you may be familiar with the Pay As You Earn (PAYE) Repayment Plan, which caps payments at 10% of a borrower's monthly income and forgives any remaining balance on your student loans after 20 years of qualifying repayment. But this plan is only for recent borrowers.

REPAYE solves this problem. Like the name implies, REPAYE has some similarities to PAYE. First and foremost, REPAYE, like PAYE, sets payments at no more than 10% of income. However, REPAYE—unlike PAYE— is available to Direct Loan borrowers regardless of when they took out their loans.

Should I switch to REPAYE?

If you can't afford your monthly payment under your current repayment plan, you should consider REPAYE or one of the other income-driven repayment plans. These plans can offer needed relief by ensuring that you will never pay more than a certain percentage of your income. If you can afford to pay more on your loan, you should, since this will save you more on interest costs over the life of your loan.

If you're pursuing Public Service Loan Forgiveness, you should consider REPAYE. REPAYE is an eligible repayment plan for the Public Service Loan Forgiveness (PSLF) Program. If you're working toward PSLF and considering consolidating your loans in order to qualify for REPAYE, you should read this first.

If you're currently on Income-Based Repayment (IBR) because you weren't eligible for PAYE, you should consider whether REPAYE might be a better option for you. REPAYE could lower your payments by one-third, from 15% to 10% of income.

Before making your decision, use our repayment estimator to compare what your monthly payment would be under REPAYE and all of our other plans.

Under any income-driven repayment plan, you'll need to "recertify" your income and family size each year.

How is REPAYE different from the other income-driven repayment plans?

So, you already know that your payment under an income-driven plan is a percentage of your income. But REPAYE is different from the other plans. Here are a few differences:

There's no income requirement to enter the plan: Unlike with the PAYE and IBR plans, borrowers don't have to show that that their income is low compared to their federal student loan debt in order to enter REPAYE. In simple terms, that means that the amount of your debt and your income level won't keep you from qualifying.

Borrowers with only undergraduate loans will have a different repayment period than those with graduate loans: Income-driven repayment plans forgive any remaining loan balance after a specific number of years of qualifying repayment—either 20 or 25 years, depending on the plan. REPAYE is a little different than the other income-driven repayment plans. With REPAYE, if you're only repaying loans you received as an undergraduate student, you'll repay your loans for up to 20 years. However, if you're repaying even one loan that you received as a graduate or professional student, you'll repay your loans (including any loans you received as an undergraduate) for up to 25 years. Of course, this difference doesn't matter if you later qualify for Public Service Loan Forgiveness, since your loans would be forgiven after 10 years of qualifying payments.

Married borrowers' payments are calculated differently: The other income-driven repayment plans use the combined income of you and your spouse to set your payment amount only if you file a joint federal income tax return. If you and your spouse file separate tax returns, your payment amount is based on only your income. REPAYE (with limited exceptions) uses the combined income of you and your spouse to set your monthly payment amount, regardless of whether you file a joint tax return or separate returns. This could increase your monthly payment amount. For more information, read our Q&A.

REPAYE payments are not capped at the 10-year standard payment amount: Generally, your payment amount under an income-driven repayment plan is a percentage of your discretionary income. However, this isn't always the case with the PAYE and IBR plans. Under PAYE and IBR, your payment will never be higher than what it would have been under the 10-year Standard Repayment Plan, no matter how much your income increases. With REPAYE, there's no cap on your monthly payment amount. Your payment will always be 10% of your discretionary income, no matter how high your income grows. This means that if your income increases significantly, your REPAYE payment could be higher than what you would have to pay under the 10-year Standard Repayment Plan.

REPAYE provides a more generous interest benefit: If your payment doesn't cover all of your interest, REPAYE pays more of the remaining interest than PAYE or IBR. This can help prevent your loan balance from ballooning and limit the total cost of your loans.

What else should I consider before applying?

Determine whether you have Direct Loans before attempting to switch to REPAYE. If you're not sure which type of loans you have, you can log in to StudentAid.gov to find out. Loans labeled "Direct" qualify for REPAYE, loans without the "Direct" label don't qualify for REPAYE unless you consolidate them. You can apply for a Direct Consolidation Loan on StudentLoans.gov.

Special considerations for borrowers who are currently on IBR:

  • If you don't have Direct Loans, but you've been repaying your other loans under IBR for a while and you're thinking of consolidating to take advantage of REPAYE, it's important to understand that you'll lose any credit toward IBR loan forgiveness that you received before consolidating—you'll have to start over with a new 20- or 25-year repayment period on the Direct Consolidation Loan. So, carefully consider whether having a lower monthly payment amount matters more than the additional time you may spend repaying your loans.
  • Any outstanding interest will be capitalized (added to your loan principal balance) when you leave IBR.

How do I apply for REPAYE?

You can apply for REPAYE—or any other income-driven repayment plan—on StudentLoans.gov. We've made some improvements to the way the electronic application works, so give it a spin.

Looking for the lowest monthly payment? With four income-driven repayment plans, it's easy to overlook a plan or confuse a feature of one plan with another. Let us do the hard part for you. If you're looking for the lowest monthly payment, there's a box you can check on the application to request that your loan servicer evaluate you for all income-driven repayment plans, and put you on the plan with the lowest initial payment.

Where can I get more information?

There's more to know about REPAYE than what you see in this blog post.

Have a question that our resources can't answer? Contact your servicer. They're the best option for individualized advice.
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1 comment:

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