With student loans now topping credit cards as the largest source of consumer debt in the U.S., the Consumer Financial Protection Bureau (CFPB) is gathering information to develop options for policymakers to make repayment of private student loans more manageable for struggling borrowers.
The CFPB says while private student loan borrowers wish to pay their loans, they face high payments, lack alternative repayment and refinance options.
“Too many private student loan borrowers are struggling with unwieldy debt that prevents them from climbing the economic ladder,” said CFPB Director Richard Cordray. “We will be analyzing plans for policymakers to consider that might help avoid a repeat of the mortgage meltdown for today's student loan borrowers.”
In October 2012, the CFPB Student Loan Ombudsman released a report noting that consumers had trouble negotiating affordable repayment plans with their lenders and servicers for private student loans -- loans that are not designed with income-based payment options. This report to the Secretary of the Treasury, the Secretary of Education, the CFPB Director, and Congress recommended that policymakers explore options to spur the availability of alternative repayment and refinance options.
In July 2012, Director Cordray and Secretary of Education Arne Duncan submitted a report to Congress on the private student loan market. The study indicates there are more than $8 billion in defaulted private student loan balances, representing 850,000 distinct loans, with even more in delinquency.
Unlike distressed borrowers with federal student loans, private student loan borrowers generally do not have long-term forbearance, income-based repayment, or rehabilitation options if they default. The study concluded that many borrowers are struggling to pay off private student loans, especially in tough economic times.
The CFPB has released a Notice and Request for Information in the Federal Register. With the information gathered from that notice, the CFPB plans to explore more detailed recommendations to policymakers in order to facilitate greater repayment affordability of private student loans.
Flexible repayment options sought
The Bureau is looking for ways that private student loan borrowers can have more flexible repayment options and is seeking input on a variety of issues related to repayment affordability, including:
- How student loan burdens might affect the broader economy and hinder access to mortgage credit and automobile loans;
- How distressed borrowers manage their student loan obligations;
- What options currently exist for borrowers to lower their monthly payments on private student loans;
- Examples of successful alternate payment programs in other markets and which features could apply to this market; and
- The most effective mechanisms for communicating with distressed borrowers.
Members of the public, including financial institutions, colleges and universities, professional associations representing health professionals and educators, housing finance experts, students, and families are encouraged to submit comments.
Comments will be accepted until April 8, 2013.