Student Loans: New CFPB Initiatives Launched; Changes to Federal Rules Announced

by the Consumer Financial Services Group

Student loans were recently in the spotlight with the launch by the Consumer Financial Protection Bureau (CFPB) of a new "Know Before You Owe" project and online tool, and the Obama administration's announcement of proposed federal rule changes.

Recycling the "Know Before You Owe" theme used in its mortgage loan disclosure project, the CFPB is requesting feedback on what is actually a draft financial aid offer form that the CFPB labels a "financial aid shopping sheet." The form is to be provided by a college or university to a student who has applied for financial aid. The new student loan project is the product of a partnership between the CFPB and the U.S. Department of Education (DOE).

The DOE is required by the Higher Education Opportunity Act to develop a model format for financial aid offer forms. The shopping sheet is part of the DOE's efforts to fulfill that statutory requirement. In an announcement on its Web site, the DOE stated that the shopping sheet builds on the public meeting it held on September 13, 2011, to solicit recommendations for improving financial aid offer forms.

The DOE and the CFPB describe the shopping sheet as a "thought starter" rather than an official proposal. Another pending collaboration between the CFPB and the DOE is a study of the private student loan market mandated by the Dodd-Frank Act. That study is slated to begin this fall and must be delivered to Congress by July 22, 2012.

Also new to the CFPB's Web site is the "Student Debt Repayment Assistant," an online tool intended to assist students in evaluating their repayment options. The tool includes an explanation of potential options, such as a deferment or forbearance, and a description of their pros and cons.

Just as the CFPB's new initiatives were released, the Obama administration announced two changes to the federal student loan program rules that it intends to implement through executive action.

The first change would move up from 2014 to 2012 a reduction in the cap on the percentage of a student's discretionary income that must be directed to federal student loan repayments under the federal income-based repayment program. Instead of having to pay no more than 15 percent of their discretionary income for student loans for up to 25 years, students eligible for the program will pay no more than 10 percent of their discretionary income and have any remaining debt forgiven after 20 years.

The second change will allow students with at least one federal Direct Loan and one Federal Family Education Loan (FFEL) to consolidate those loans at a reduced rate beginning in January 2012. According to the White House's fact sheet, students would receive a reduction of 25 basis points (a quarter of a percentage point) on their consolidated FFEL loans and another reduction in the same amount on the entire consolidated FFEL and Direct Loan balance.

Ballard Spahr's Consumer Financial Services Group produces the CFPB Monitor, a blog that focuses exclusively on important CFPB developments. To subscribe, use the link provided to the right. The group is nationally recognized for its guidance in structuring and documenting new consumer financial services products, its experience with the full range of federal and state consumer credit laws throughout the country, and its skill in litigation defense and avoidance (including pioneering work in pre-dispute arbitration programs).

For more information, please contact Practice Leaders Alan S. Kaplinsky, 215.864.8544 or kaplinsky@ballardspahr.com, and Jeremy T. Rosenblum, 215.864.8505 or rosenblum@ballardspahr.com; or John L. Culhane, Jr., 215.864.8535 or culhane@ballardspahr.com; Mercedes K. Tunstall, 202.661.2221 or tunstallm@ballardspahr.com; Barbara S. Mishkin, 215.864.8528 or mishkinb@ballardspahr.com; or Mark J. Furletti, 215.864.8138 or furlettim@ballardspahr.com

Copyright © 2011 by Ballard Spahr LLP  (No claim to original U.S. government material.)

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