Article By : Patrick Mansfield | U.S. Consumer Finance
WASHINGTON, D.C. — Recently, the Consumer Financial Protection Bureau (CFPB) released the Student Loan Payback Playbook. This document contains a series of prototype disclosures that suggest and outline affordable pathways that borrowers can utilize to relieve student loan debt stress.
The playbook shares information about repayment options from loan servicers available to any students in need of an affordable monthly payment plan they can manage. The Playback Playbook would be provided through a number of channels, including on monthly statements and bills, emails from loan providers or when students log into loan accounts.
CFPB Director Richard Cordray reported, “Millions of consumers needlessly fall behind on their student loan debt, despite their right under federal law to a payment they can afford. The Payback Playbook, which has grown out of our joint work with Illinois Attorney General Lisa Madigan and her colleagues, is designed to help ensure student loan servicers provide personalized information, tailored to the borrower’s individual situation. This will help these borrowers take action, stay on track, and steer clear of financial distress.“
Some 43 million people have student loan debt, currently estimated to be in the vicinity of $1.3 trillion. Under programs run by the Department Education, anyone with federal student loan debt can make payments more affordable by allowing borrowers to repay their loans based on income, as opposed to setting payments based on the loan amount. Even as options for repayments expand, the struggle with debt continues to grow among borrowers. It is estimated one out of four borrowers are wrestling with student loan debt. This despite many income-driven repayment options.
Based on a recent government audit, it is believed 70 percent of borrowers of defaulted direct federal loans have incomes that qualify for reduced monthly student loan debt payments. But an unsettling majority of borrowers struggle needlessly. These findings illustrate what is likely the biggest problem: borrowers are not getting the information they need about repayment options or could be encountering obstacles that prevent them from attempting to enroll in programs.
The Prototype Student Loan Payback Playbook:
The prototype playbook wants to educate borrowers on repayment options for managing their loan payments through the dozen of available plans. It will present borrowers with three personalized payment options. The CFPB currently plans to make sure any borrower who has missed a payment or is at risk of default will get a copy of the playbook with options and simply written instructions that describe how to lower payments.
Among the options will be:
Requiring lenders and servicers to provide borrowers with personalized information tailored to circumstances based on different payment plans. Info would include number of payments over the term of the loan, monthly payment amounts and would payments change over time.
The Payback Playbook would avoid the confusing fine print that most borrowers pay little attention to anyway. It would use straightforward, clear content that simplifies different plans, picking the best for their specific situation and demonstrating how to manage payments effectively.
The playbook would be revised to keep up-to-date information. Borrowers would know of plan changes, including length of time before the loan is paid off or forgiven.
The playbook is available online.
The Consumer Financial Protection Bureau is also soliciting public feedback on the prototype until June 12, 2016. Over the next few months, expect the Board of Education to finalize the prototype's disclosures, utilize public feedback and ensure loan servicers get the finalized version to borrowers.