The Consumer Financial Protection Bureau, newly empowered to oversee private college-loan providers, wants to develop easier repayment options on these hard-to-manage debts.
The CFPB has found that borrowers indebted to private student-loan providers face higher payments and 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 released a report finding 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 is in sharp contrast to federally-subsidized student loans, which offer ways to manage the debt through various repayment options. These apply to federally backed loans which include Perkins and Stafford loans and Direct PLUS loans (usually taken out by parents) – that usually must begin to be repaid six months after the borrower finishes school or drops below half-time status.
There are various repayment options based on the type of loan initiated by the more than 36 million borrowers with federal student debt.
However, the CFPB report to the Secretary of the Treasury, the Secretary of Education and Congress recommended that policymakers explore options for alternative repayment and refinance options on privately-available student loans..
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 collected from that notice, the CFPB plans to come up with more detailed recommendations to policymakers.
The CFPB said it is further examining:
- How student loan burdens might impact 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 alternative 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.
The notice, along with information on how the public will be able to electronically submit comments, is located on the CFPB’s website. Comments will be accepted until April 8, 2013.