New loan regulations protect students

WASHINGTON, D.C. (WATE) – Student loan debt has been steadily increasing as need-based grants fail to keep up with the rise in college costs. Current student loan debt is over one trillion dollars and rising every day.

In an effort to protect students and borrowers, the United States Department of Education announced two new regulations to help protect students and borrowers. Under the new regulations, students will be able to freely choose how to receive their Federal student aid refunds, be given neutral information about their financial aid options and they will no longer be forced to pay excessive fees to access their Federal student aid.

“Over the past several years, partnerships between banks and colleges have led schools to market debit and prepaid cards to students, often giving students the impression that their school is endorsing that financial product,” said Under Secretary Ted Mitchell. “Students are likely to trust this endorsement, making them a particularly vulnerable population. These cards are marketed as a way for students to receive their Federal student aid meant to pay for books, rent, and other necessities. Government reports and investigations by consumer groups found that in some cases, students were either strongly urged or given no choice but to sign up for these accounts as a way to receive their financial aid.”


Mitchell said in some cases students were forced to wait weeks for refunds when trying to transfer money. He said the bigger problem is that many of the fees aren’t disclosed to students clearly, such as overdraft fees or fees for every debit purchase using a PIN. In some cases, he said funds were only available through one ATM meant for thousands of students.

“These fees can add up and be burdensome, especially for college students trying to make ends meet,” said Mitchell. He also said that students “should be able to choose to receive deposits to their own bank accounts, rather than being forced to sign up for campus cards with unreasonable fees and obscure account terms. The new regulations ensure that these goals will be met, and students will have the protections they are entitled to.”

The new regulations will also:

  • Require institutions to give students a greater choice about how to receive their student aid.
  • Prohibit institutions from requiring students or parents to open a certain account into which their student aid refunds are deposited.
  • Require institutions to ensure that students are not charged excessive and confusing fees (e.g., overdraft fees and transaction-swipe fees) if a student selects an account offered directly or indirectly by contractors that assist institutions in making direct payments of Federal student aid.
  • Require an institution to provide students with a list of account options that the student may choose from to receive their student aid refunds, where each option is presented in a neutral manner and makes clear that the student can have their student aid deposited to their preexisting bank account.
  • Require institutions to ensure that electronic payments made to a student’s preexisting account are made as timely as, and no more onerous to the student than, payments made to accounts marketed through the institution.
  • Allow institutions to share limited student information with third-party servicers that offer financial products to allow the continued functioning of disbursement processes, while also protecting private student information, such as Social Security numbers or portions thereof.

The changes were made after a Department’s Inspector General’s report calling for student choice and transparency. The report identified problems including biased or incomplete information provided to students, using student’s information to persuade them to select an account over other options and unreasonably high fees.

Easing student loan debt

Starting in December, five million student borrowers in the Direct Loan program may cap their student loan payments at 10 percent of their monthly income.

The new rules, called the Revised Pay As You Earn (REPAYE) repayment Plan also have a monthly payment cap. After 20 years, REPAYE will forgive remaining debt for an undergraduate student and after 25 years for those who borrowed for graduate study.

The plan will also provide interest subsidy benefit to prevent ballooning loan balances for those whose income-drive payments cannot keep up with accruing interest.

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