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Student loan debt cap disclosures could see changes
WASHINGTON (10/27/11)—Student lending was a hot topic on Wednesday, as President Barack Obama and de facto Consumer Financial Protection Bureau (CFPB) director Raj Date each announced plans that could significantly alter the student loan landscape.

The agencies have taken the first step by developing a sample form and releasing that form for public comment. Date said the CFPB/Department of Education prototype form "makes it easier for students to compare offers side-by-side by using the same format and standard terms" and "clearly distinguishes between loans and scholarships, and lays out options for federal aid."

The CFPB homepage provides an area for general comment on the sample form, and asks commenters to prioritize standard loan disclosure items, including:
  • The school's graduation rate;
  • How the expected amount of student debt compares to national averages;
  • How much the student loan compares to average loans at that school and other schools;
  • Estimated debt and estimated monthly payment following graduation; and
  • The student's likely ability to repay their loans.
The CFPB this week also unveiled a Student Debt Repayment Assistant, a web-based tool that the CFPB said would provide borrowers with access to information on income-based repayment, deferments, alternative payment programs, and more. The CFPB is also planning to collect public and industry comment on the private student loan market in the coming weeks, and "will use this information to prioritize consumer education and policy efforts."

The agency and the Department of Education are scheduled to issue a comprehensive report on the private student lending market to Congress by July 2012.

Student loans were also a topic of discussion in the White House on Wednesday, as President Barack Obama announced a proposal that would cap student loan payments at 10% of a borrower's discretionary income and relieve student debt entirely after payments have been made for a 20-year period, beginning in 2012.

Obama also proposed allowing student loan borrowers to reduce their current interest rate by as much as 0.5% and announced a student loan consolidation program that would allow borrowers to and make a single payment each month, with incentives to encourage on-time repayment. The Obama administration estimated these changes would aid 1.6 million borrowers, and said administration officials would reach out to eligible borrowers in early 2012 to introduce them to this program.

Under current law, students may limit their loan payments to 15% of their income. Student loan debts are also forgiven after 25 years.

Credit Union National Association (CUNA) General Counsel Eric Richard said Obama's student loan initiative seems to be focused primarily on colleges and universities. "To the extent that there are new disclosure best practices, guidelines, or requirements, those might have an indirect impact on the financial institutions that work with schools to create financial aid packages," Richard said, adding that CUNA will assess what, if any, impact the plan could have on credit unions.

For more on the CFPB and Obama administration student loan initiatives, use the resource links.
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