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New federal student loan refinancer
Wells Fargo & Company is considering whether to jump-start its shrinking student-lending business by catering to borrowers holding U.S. government loans. The bank has identified students as a fast-growing market, along with deposit accounts, credit cards and a mobile-banking app, the firm sees federal-loan refinancing as a way to build relationships with college-age consumers.
Student Loan Default Study
While there is considerable research on causes of student loan default there is less research in the eventual outcomes once a borrower enters default status. A recent American Enterprise Institute study examines the complex maze of options that face borrowers once they default and finds no standard route for borrowers looking to exit and get their loan payments back on track. And it finds that while default has many negative implications for borrowers, it’s not the end of the road for borrowers — seven out of 10 exit default or pay their loans off within five years.
What Happens After Borrowers Default and Why
- Observers often think of student loan default as a terminal status. But 70 percent of borrowers bring their federal loans back into good standing within five years after default.
- Five years after defaulting, 30 percent of borrowers fully pay off their loans. Others bring their loans into good standing through resolution processes, but typically do not make progress paying down their loans even several years later.
- Within five years after exiting default, 30 percent of borrowers take out more student loans, and another 25 percent default again on new or existing loans
- Defaulters who pay down their loans can incur large fees, but fees are largely waived for those who complete resolution processes even if they do not pay down their balances afterward.
- The default resolution policies are complicated and counterintuitive, and they can treat similar borrowers differently for arbitrary reasons. We recommend a simpler and fairer system that levies a consistent fee, protects taxpayers, and allows for faster resolution after the first default.
Full report can be accessed at:
As part of the July 25, 2018 proposed regulations related to Borrower Defense to Repayment (BDTR), the U.S. Department of Education (ED) proposed some key changes to the composite score ratio (CSR) calculations. These changes are a result of the discussions from the financial responsibility subcommittee which was formed as part of the BDTR negotiated rule-making process. These proposed changes have both positive and negative impacts on the CSR calculation. Key changes are as follows:
Proposed Borrower Defense to Repayment Regulations and the Impact on the Composite Score Ratio
Whether the nation’s $1.5 trillion student-debt problem represents a crisis is a matter of debate among policy makers and experts. But ask regular voters what they think and the answer seems pretty clear.
More than half of Republicans, 67% of Independents and 71% of Democrats agree that student debt is a crisis, according to a recent poll of 1,000 voters conducted by Lake Research Partners and Chesapeake Beach Consulting on behalf of Americans for Financial Reform and the Center for Responsible Lending, two consumer advocacy organizations.