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President Trump’s Education Budget Leaked — And Student Loan Borrowers Won’t be Happy

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More details from President Donald Trump’s long-awaited education budget leaked to the Washington Post on Wednesday. The proposed plan would slash $10.6 billion from federal education initiatives, including after-school programs, public service loan forgiveness, and grants for low-income college students, according to the Post.

Here’s what we know so far:

This May Be the End of Public Service Loan Forgiveness

Trump has long promised to dramatically scale back the role of government in education, a plan heartily supported by Betsy Devos, the embattled Education Secretary appointed by the president earlier this year.

Among the programs on the chopping block is the Public Service Loan Forgiveness initiative. Implemented in 2007, the PSLF sought to reward student loan borrowers who took jobs in nonprofits or the public sector by allowing them to discharge their federal student loan debt after 10 years of on-time payments.

Over half a million students were enrolled in the program, and the first cohort would have been eligible for loan forgiveness this October.

Now, the future of the initiative is uncertain. There are no details on whether eligible students will be grandfathered into the program, as has been the case when previous student loan assistance programs were phased out. A Department of Education representative didn’t immediately return a request for comment.

Disgruntled college graduates took to social media Thursday to cry foul.

Changes are Coming to Income-Driven Repayment Plans

As it stands there are five different income-driven repayment plans available to student loan borrowers. The proposed budget calls for one single IDR plan, which could potentially be good news for borrowers.

Typically, under the current IDR plans, borrowers are eligible to have their loans forgiven after 20 years of on-time payments, and their monthly payments are capped at 10% of their income. Trump’s new budget would decrease the payment period from 20 to 15 years but would increase the payment cap to 12.5% of income, the Post reports.

But advanced degree earners wouldn’t be so lucky. Trump’s plan would not only raise the income cap for borrowers who earned advanced degrees, it would lengthen the repayment period. IDR plan payments would be maxed at 12.5% of their income, up from 10%, and they would have to pay for 30 years rather than 25.

Low-Income College Students Could Lose Child Care Services

Update: The official White House budget was released May 23 and does not seem to include this rumored budget cut.

Trump’s budget would slash the entire $15 million budget for CCAMPIS, a federal grant program that funds on-campus child care services for low-income parents. Dozens of campuses received grants under the program.

$700 Million Cut from Perkins Loans

While Pell Grant funding remains untouched under the proposed budget, the plan would slash more than $700 million in funding from Perkins loans, according to the Post. Perkins loans are low-interest federal student loans for low-income undergraduate and graduate students.

Federal Work-Study Programs Scaled Back

The Federal Work-Study program offers part-time jobs to college students who prove financial need. Their earnings help cover their education expenses. Under the proposed budget, the program would lose $490 million, or about half its budget.

What’s next?

We wait. The final proposed budget is still set to be released May 23, and the particulars could still change. After that, it will have to pass muster with lawmakers in Congress. To write a letter to your representatives,  contact them here. 

 

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RushCard Fined $13 Million For System Outage That Impacted 45,000+

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RushCard Fined $13 Million For System Outage That Impacted 45,000+

Nearly a year and a half after a system failure left tens of thousands of RushCard customers without access to funds on their prepaid debit cards, the Consumer Financial Protection Bureau has ordered parent company UniRush to pay $10 million in restitution to customers and a $3 million fine. The company will split the fines with MasterCard, which was in charge of processing RushCard customer transactions at the time.

Green Dot, one of the largest issuers of prepaid debit cards in the U.S. announced earlier this week that they will acquire UniRush in a $147 million deal.  In a statement detailing the terms of the acquisition, Green Dot said it would eat any potential regulatory fines that RushCard might face in the wake of the 2015 system failure.

Read More: MagnifyMoney’s RushCard Prepaid Debit Card Review

In its order, the CFPB said the botched MasterCard transition, although it was 13 months in the making, led to “a rash of preventable failures.” UniRush and MasterCard failed to “properly prepare for the change in processors and failed to adequately test the new system.”

“Throughout this frustrating saga, UniRush’s customer service efforts failed to address problems adequately,” Richard Cordray, director of the CFPB, said in a statement Wednesday. “All of this stemmed from a series of failures that should have been anticipated and prevented.”

The CFPB’s investigation has helped color in the details, and the extent of the damage is staggering.

At the time of the system failure, RushCard representatives did not give a clear answer on how many of their prepaid cardholders were impacted by the glitch. A Yahoo Finance investigation found the source of the glitch occurred when UniRush attempted to transition from one payment processor to a new payment processor, MasterCard. According to the CFPB, the problems officially began on October 10, 2015, and lasted until October 12, 2015, but created a ripple effect of errors and miscommunication that lasted weeks in some customers’ cases.

The glitch led to delayed direct deposits for more than 45,000 of the company’s 675,000 customers, leaving them without access to their paychecks or even government benefits. Thousands more customers accidentally overdrafted their accounts because UniRush “erroneously double posted deposits” into some accounts, leaving the balances artificially inflated, the CFPB says.

During MasterCard’s transition, 1,110 consumers’ accounts were incorrectly suspended, the agency found. Some users could not access funds they set aside in Rush Goals funds, which are meant to be used like a savings account.

One of the most surprising claims in the CFPB’s order is that UniRush used funds consumers loaded onto their RushCards to offset negative balances caused by its processing errors. In the midst of the confusion, some consumers were told their cards had been flagged for fraud and their funds frozen as a result.

One of UniRush’s biggest failures throughout the snafu was inadequate customer service support for impacted customers. Customers reported waiting hours on the phone only to be hung up on by customer service representatives.

“UniRush had no contingency plan that could handle the surge in customer complaints,” Cordray said. “Additional customer service agents who were hired were not sufficiently trained, which meant they often were unable to resolve people’s questions and complaints.

Russell Simmons, UniRush-co-founder and the celebrity face of the brand, said in a statement the ordeal had been “one of the most challenging periods in my professional career.” In the wake of the outage, Simmons responded to disgruntled customers personally on Twitter and Facebook to apologize and offer assistance.

“I cannot thank our customers enough for believing in us, remaining loyal and allowing us to continue to serve their needs,” Simmons said in a statement.

A UniRush spokesperson offered this statement in response to an e-mail from MagnifyMoney:

“RushCard welcomes our settlement with the CFPB. We maintain that our company did not engage in any wrongdoing, and do not admit to such in our Consent Order with the CFPB.

Since the event in 2015, we believe we have fully compensated all of our customers for any inconvenience they may have suffered through thousands of courtesy credits, a four-month fee-free holiday and millions of dollars in compensation.

The vast majority of our customers are incredibly loyal and have either remained with us or returned to RushCard. In fact, the last quarter of 2016 marked the largest number of new customer sign-ups in our company’s history.

With this settlement behind us, we are eager to focus all of our energy now on serving our customers and providing them with the best services available in the prepaid industry.”

In the fall of 2016, the CFPB finalized long-awaited regulations that will add federal protections for millions of Americans who use prepaid debit accounts. Those regulations will go into effect October 2017. The new rules will offer similar consumer protections as debit cards.

How RushCard Will Pay Fines to Customers

According to the CFPB, the amount each RushCard customer can expect to receive depends on what kinds of inconveniences they faced once the glitch occurred. They have attached a fine amount to each type of incident consumers faced as a result of the botched transition.

RushCard parent company UniRush will send funds to affected consumers, the agency said.

  • $25 to each consumer who experienced a denied transaction during the extended blackout period on October 12, 2015.
  • $150 to each consumer whose card was placed in a possible fraud status that prevented them from making purchases or withdrawing funds.
  • $100 to each consumer who received balance information in October 2015 incorrectly indicating that there were no funds in their account.
  • $100 to each affected consumer whose ACH deposits were not processed in the week after the payment processor conversion.
  • $250 to each consumer whose ACH deposit was returned to the funding source, improperly loaded onto an expired or inactive card, or was unable to be successfully processed by UniRush in October 2015.
  • $150 to each affected consumer that UniRush offset due to a negative account balance incurred because of rescission of a duplicate ACH deposit or delayed processing of an ACH debit transaction.
  • $150 to each consumer who could not transact or access account funds because the account was not transferred onto the [MasterCard/MPTS] payment-processing platform or improperly transferred to the MPTS payment-processing platform in a status that would not allow the card to function.
  • $150 to each consumer who could not transact or access account funds because a lost or stolen card was not promptly replaced or the replacement card did not function after the payment processor conversion.
  • $150 to each consumer who initiated a cash load that was not promptly posted to the account following the October 12, 2015, payment-processing conversion.
  • $50 to each consumer whose card-to-card transfer(s) were not processed immediately following the October 12, 2015, payment-processing conversion.

 

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3 Lies Your Student Loan Company Might Tell You

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3 Lies Your Student Loan Company Might Tell You

Student loan servicer Navient found itself in hot water with a consumer watchdog on Wednesday, when the Consumer Financial Protection Bureau announced a long-anticipated lawsuit against the company. Navient, formerly known as Sallie Mae, is the nation’s largest servicer of both federal and private student loan debt. For years, the CFPB alleges, Navient loan servicers steered borrowers who were struggling to repay their loan debt in the wrong direction, “providing bad information, processing payments incorrectly, and failing to act when borrowers complained.

One of Navient’s biggest transgressions, the CFPB alleges, is that Navient representatives encouraged borrowers to put their loans in forbearance even when it wasn’t the best option. By doing so, Navient potentially added $4 billion to its own coffers in the form of additional interest charges.

The lawsuit is a major wake-up call for the student loan servicing industry as a whole. It should also trouble the millions of student loan borrowers who may rely on their student loan servicer for advice when they are deciding how to repay their debts. With vast numbers of customers to support and an increasingly complicated menu of federal repayment plan options to sort through, student loan servicers may not be the best sources of guidance.

Here are three lies student loan servicers may tell you:

1. “Can’t pay? You’re better off putting your loans in forbearance.”

When you can’t scrounge up the money to cover your student loan bill, forbearance can sound like a dream option. Forbearance allows borrowers to pause student loan payments for up to 12 months at a time. Your loan servicer may encourage you to put your loans into forbearance because it is a much easier process on their end. But here’s what they may not tell you: Interest will continue to accrue on your loans. So while you enjoy the break from those student loan bills, your loan balance will balloon more and more every day. Over time, you could bring your loans out of forbearance only to find out you now have even higher monthly payments because your balance has increased.

If you know you will be unable to make your federal student loan payments for an extended period of time, a better option may be to enroll in an income-driven repayment plan. IDR plans can reduce your payments to an affordable amount based on your annual income (sometimes as low as $0/month). Interest will still accrue if you enroll in an IDR plan; however, the government may cover your unpaid interest charges if your monthly payment is not enough to cover them. That benefit lasts for up to three consecutive years from the date you enroll in the IDR plan. And it does not apply to borrowers whose loans are forbearance.

Another perk of IDR plans is that your remaining debt is generally forgiven after your plan period is over – from 20 to 25 years, depending on which plan you are enrolled in (see chart below).

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Source: https://studentaid.ed.gov/sa/

It is especially important for people who work in nonprofit or government jobs to understand their income-driven repayment plan options. After making 120 consecutive federal student loan payments (10 years) while working in the public or nonprofit sector, you may be eligible for public student loan forgiveness. But if you are in forbearance, you are not making any payments at all, which means you do not get credit toward your 120 payments goal. If you are in an income-driven repayment plan, however, those payments will count toward your public student loan forgiveness required payments.

2. “Once you enroll in an income-driven repayment plan, you’re set for life.”

Contrary to what your student loan company may tell you, it is absolutely vital to re-apply for income-driven repayment plans each year. That is because the plans are based on your annual household income. If your income changes during the year, you need to update your income on your income-driven plan in order to calculate the proper monthly payment.
If you do not renew your IDR plan, you could wind up with higher student loan payments you cannot afford and you may risk falling into delinquency again. What’s more, you have to be enrolled in an income-driven repayment plan in order to qualify for federal student loan forgiveness. If you let your enrollment lapse, you could derail your eligibility for future loan forgiveness.

Unfortunately, millions of student loan borrowers fail to renew their income-driven repayment plans each year. The CFPB is working to crack down on student loan companies that do not properly inform borrowers about the deadline to renew, but it’s also up to borrowers to stay on top of their enrollment status. In order to renew your plan, contact your student loan company directly and ask them to re-enroll you. Alternatively, you can download the application and fill it out yourself here: Income-Driven Repayment Plan Request.

Before you enroll in an income-driven repayment plan, know the cons as well as the pros. You may reduce your monthly payment but pay more in interest over the long term. Also, if your loans are ultimately forgiven, you may owe federal tax on that forgiven amount. Use this student loan repayment calculator to find out if IDR is the right plan for you.

3. “We’re happy to allocate your payment to whichever loan you want.”

Student loan borrowers often have multiple loans to manage. Let’s say you’ve got five student loans. One month, you realize you have an extra $200 to put toward those loans. Theoretically, you should be able to ask your loan company to take that extra $200 and apply it to the loan with the highest interest rate. It is generally considered wise to allocate extra payments toward whichever loan has the highest interest rate. This way, you are working to reduce the loan that is accruing the most interest each month and avoiding spending more on interest than you have to.

In the case of Navient, the CFPB alleged that the company’s representatives repeatedly misallocated borrowers’ payments. In order to fix the issue, the borrowers themselves had to keep a close eye on their monthly payments and alert the company.

It’s important to review your loan statements carefully each month to be sure your payments are allocated the way you desire. Some student loan servicing websites make it fairly simple to allocate your payments manually, without having to rely on the help of one of their loan specialists. Even so, play it safe and double-check your loan statements to be sure your payments are being applied according to your wishes.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.