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
Ballard Spahr's Consumer Financial Services Group
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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
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