In a conference call with credential reporters Thursday afternoon, an official with the Consumer Financial Protection Bureau (CFPB) said the agency will look into the development of a student loan affordability plan that will include alternative repayment options for private student loan borrowers.
CFPB, created by the Dodd-Frank Wall Street Reform and Consumer Protection Act, is the first agency with the primary responsibility of making consumer financial markets work for American families, responsible providers, and the economy as a whole.
Rohit Chopra, CFPB Student Loan Ombudsman, said that the student loan debt level, in 2011, had pierced the trillion-dollar level, and the difficulty of private student loan borrowers keeping pace with their repayments endanger their ability to purchase other assets like homes or cars, which have traditionally been hallmarks of advancing in their work and their life's ambitions.
CFPB announced today that it is gathering information to develop options for policymakers to make repayment of private student loans more manageable for struggling borrowers. The CFPB has found, Chopra said, that private student loan borrowers who wish to pay their loans, but 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, whose appointment by President Obama has been called into question by Congressional Republicans. Cordray, a former Attorney General for Ohio whose decision on whether he'll run as the Democratic candidate against first-term Republican Governor John Kasich in 2014, said, "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, Chopra told reporters that 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.
U.S. Secretary of Education Arne Duncan said, "Federal student loans remain the best option for borrowers, but we know some students have turned to private student loans and are struggling to repay. We're glad to see the CFPB is taking steps to help create options for those who are having trouble managing their private student loan debt."
Over the past few years, the U.S. Department of Education has taken action to help millions of federal borrowers stay on track with their loan payments, such as providing flexible repayment options like Income-Based Repayment and the new Pay As You Earn plan, as well as providing better loan counseling resources, Duncan said in prepared remarks.
CFPB released a Notice and Request for Information in the Federal Register today. 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.
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 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 alternate payment programs in other markets and which features could apply to this market; and
· The most effective mechanisms for communicating with distressed borrowers.
Chopra said that information gathered may be released as soon as early April.
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