Consumer Bankers Association Education Funding Committee

1. Consumer Bankers AssociationEducation Funding Committee Presented by Michael McFarlane, Senior Vice President – Charter One Bank

2. 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

3. 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.

4. 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)

5. Myth vs. Fact • Fixed Rate Private LoansMYTH: 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.

6. 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.

7. 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 fixed- and variable-rate private loans.

8. 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.

9. 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

10. 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.

11. 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.

12. 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

13. 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 co-signers.

14. 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. 

15. 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

16. Questions? • Michael McFarlane • Senior Vice President • Charter One • michael.mcfarlane@citizensbank.com • (781) 471-1424