Consumer Bankers Association
Education Funding Committee
Presented by Michael McFarlane, Senior Vice President – Charter One Bank
Consumer Bankers Association (CBA)
The Consumer Bankers Association (CBA) is the trade
association for today's leaders in retail banking - banking
services geared toward consumers and small businesses.
CBA Mission Statement: The Consumer Bankers Association
preserves and promotes the retail banking industry as it strives
to fulfill the financial needs of the American consumer and small
business.
Education Funding Committee
Representing major student lenders, the Education Funding
Committee is the public policy voice for private-sector providers
of loans to students and families for higher education.
Current Members: Bank of America, Chase, CIT, Citizens Bank, CLC, Discover, First
Marblehead, PNC, Suntrust, Wells Fargo
Priorities
• Promoting a private student loan market that is ethical,
efficient, fair and reliable by representing CBA members
through effective working relationships with Congress and
federal regulators.
• Monitoring actions at the CFPB and working with the Bureau
which has become very engaged on private student lending
and related issues.
• Facilitating communications between representatives of
students, schools and policymakers.
• Working with federal agencies, Congress, and the higher
education community, to promote an accurate and positive
understanding of the role of private student loans and the
loan providers that make them.
Myth vs. Fact
Today’s Market Originations
Student loan issues are front and center but many are looking to
get a better understanding of student loans, the loan market,
the role of the government vs. the private sector, and other
student loan/higher education related issues.
Did you Know?
93% of all new student loans are originated by the federal
government? ($114 billion –Page R-15 Dept. of Ed Budget)
Private lenders only originate 7% of today’s loans? ($7 to $8
billion)
Myth vs. Fact
Fixed Rate Private Loans
MYTH: Private student loans are all variable products with
extremely high interest rates.
FACT: CBA member banks offer students the choice of fixed-rate
or variable-rate products. All of the major lenders - who provide
95% + of all private education loans - offer competitively priced
fixed-rate higher education loans and give students the option
of choosing which product and interest rate works best for
them.
Despite the stories and political rhetoric, fixed-rate products are
a common offering today.
Myth vs. Fact
Consumer Protections
MYTH: Private student loans can pose more risk for borrowers
than federal student loans.
FACT: Federal loans, in contrast to private student loans, are
provided without the most basic consumer protection – a
determination of the borrower’s ability to repay.
Explanation: The rigorous underwriting of today’s private
student loans helps ensure students and families borrow for
college at manageable debt levels. Income-based repayment
and other deferments and forbearance policies can offer relief
for struggling borrowers, but it is better for both borrowers and
taxpayers to consider ability to pay ahead of time.
Myth vs. Fact
Loan Cost
MYTH: Government loans are always less expensive for borrowers
than private loans.
FACT: When measuring the true cost of credit through an APR
comparison, private loans often compare favorably to unsubsidized
federal loans, particularly PLUS Loans for parents and graduate
students.
Explanation: It depends on the individual characteristics of the
borrower, but for many, private loans offer better terms and pricing.
Borrowers (and usually co-signers) with solid credit histories will find
private loans offer a lower interest rate and lower (often zero) fees,
than PLUS loans in particular, which carry a 6.41 percent interest rate
and charge a 4.288 percent origination fee. This is true for both fixedand variable-rate private loans.
Myth vs. Fact
Private Loan Disclosures
MYTH: Students and families do not receive adequate
information about private student loan terms before borrowing.
FACT: Lenders provide three notices containing 18 disclosure
items about private loan terms at three different times before a
private loan is made. These disclosures are required by law. The
Federal Reserve conducted extensive consumer testing before
establishing these new disclosure requirements, which have
been in effect since February 2010.
And most lenders go well beyond providing only the information
required. For instance, most offer online tools to assist with loan
repayment, money management, and budgeting.
1087 Report
1087 Report required by The Dodd-Frank Wall Street Reform
and Consumer Protection Act was released August 29, 2012
• Private student loan origination rapidly grew and then
precipitously declined - <$5 billion in 2001 to over $20 billion
in 2008 to <$6 billion in 2011
• During the growth period underwriting standards loosened
• Since 2008 lenders have changed their underwriting and
marketing practices
• Many borrowers might not have clearly understood the
differences between Federal and Private student loans
• Many borrowers are struggling to repay their private student
loans
December 2013 MeasureOne Report
(Survey of 7 major lenders)
• Over the past five years, federal loans outstanding increased from nearly
$600 billion to more than $1 trillion.
• During the same period, outstanding private loan balances have grown at a
much slower pace and have basically leveled off since 2011 at $80 billion.
• Private student loans with serious delinquencies (90+ days past due)
peaked at the height of the recession in 2008-2009 and have steadily
declined by 49 percent even as the percentage of loans in repayment has
almost doubled.
• As of the 3rd Quarter of 2013, only 3.00 percent of private student loans
were seriously delinquent.
• During the last four academic years, more than 90 percent of
undergraduate and 75 percent of graduate private student loans included a
cosigner.
• School certification has been universally adopted for private loans to
undergraduate and graduate students.
CFPB
• The Dodd-Frank Wall Street Reform and Consumer Protection
Act established a student loan ombudsman within the
Consumer Financial Protection Bureau.
• Pursuant to the Act, the ombudsman shall compile and analyze
data on private student loan complaints and make appropriate
recommendations to the Secretary of the Treasury, the
Director of the Consumer Financial Protection Bureau, the
Secretary of Education, and Congress.
• CFPB began accepting consumer complaints about private
student loans in March 2012 and private student loan
complaint data were added to CFPB’s public Consumer
Complaint Database in March 2013.
CFPB
Oct 2012 Annual Report of the CFPB Student Loan Obudsman
• Outstanding student loan debt is now over $1 trillion
• CFPB has handled approximately 2,900 private student loan
complaints
• Many of the complaints related to improper classification of
payments, untimeliness in error resolution, inability to contact
the appropriate personnel in times of hardship
• Active-duty service members sometimes experience difficulty
exercising their rights under the Servicemembers Civil Relief
Act
• Student loan borrowers face challenges when attempting to
refinance or modify their debt
CFPB
• On April 22, 2014 the CFPB released its semi-annual report on
the private student loan market
• The report focused on issues with co-signers, particularly
accelerated default in the case of death or bankruptcy for the
co-borrower.
• The paper, authored by Student Loan Ombudsman Rohit
Chopra, relies on 2,300 complaints on private student loans
from October 2013 to March 2014.
• Complaints represent 0.02% of 18.5 million borrowers
• It alleges widespread use of accelerated default as well as
student borrowers facing obstacles in releasing their cosigners.
Sen. Durbin’s Borrower Bill of Rights
Durbin’s bill provides six basic rights for all federal and private student loan
borrowers:
• The right to have options such as alternative payment plans to avoid default.
• The right to be informed about key terms and conditions of the loan and any
repayment options to ensure changing plans won’t cost more.
• The right to know your loan’s servicer and who to reach out to when there is a
problem.
• The right to consistency when it comes to how monthly payments are applied.
Lenders and servicers should also honor promotions and promises that are
advertised or offered.
• The right to fairness, like grace periods when loans are transferred or debt
cancellation when the borrower dies or becomes disabled.
• The right to accountability, including timely resolution of errors and certification of
private loans.
The bill places a special focus on servicemember and veteran borrowers by requiring
loan servicers to provide each borrower with a liaison specifically trained in the
benefits available to military borrowers.
Current Focus
• Promoting responsible borrowing
• Providing greater repayment flexibility to borrowers
in financial duress
• Offering Refinancing products
• Continuing to work with Congress to ensure only
meaningful and effective legislation is passed
• Working with NASFAA on Reauthorization
recommendations
• Working with the Department of Education on
Negotiated Rule Making
Questions?
Michael McFarlane
Senior Vice President
Charter One
michael.mcfarlane@citizensbank.com
(781) 471-1424