Earlier today, the federal Consumer Financial Protection Bureau (CFPB) held a press conference to discuss the government's response to increasing student loan debt and the difficulty of re-financing loans. Rohit Chopra, Ombudsperson for the Bureau, said, "Nearly a year ago, the CFPB uncovered that the student loan market had pierced the trillion-dollar threshold in 2011, more than others had estimated, and in the past year, the Department of Education reported that federal loans had jumped another hundred billion dollars. Outstanding student debt exceeds credit card and auto debt. With household and state budgets battered from the financial crisis, students have increasingly shouldered more and more of the cost of college."
The CFPB is calling for public input on options to be presented to policymakers to combat this debt burden that not only affects students, but the overall US economy. Today, Chopra reported that 10% of young adults with private student loan debt are paying 25% of their income toward debt repayment and are postponing becoming new homeowners, buying cars, or making other investments in their communities. Chopra said, "The current federal loan program includes options such as graduated repayment and extended repayment. Some of these repayment programs were and are offered by private student lenders as well, but there is no consistency across lenders for a number of reasons. There have been in other contexts, in other consumer financial markets, different types of repayment options, such as temporary offers of interest-only payments or temporary repayment schedules where interest rate reductions are offered. These and other types of options may or may not be applicable to this market, and that's a key goal of what we want to learn in this information request."
While the CFPB is examining possible solutions to affordable repayment options, a non-profit agency in San Francisco is expanding its interest-free loans to low-income students of all backgrounds, building on its 115- year history of providing interest-free loans to the Jewish community. Dana Cappelloni, Communications Manager at the Hebrew Free Loan Association (HFLA) in San Francisco, reported that HFLA is currently raising $250,000 in private funds to provide interest-free loans to undergraduate, graduate, and vocational students. HFLA currently provides $7 million dollars in loans to 954 borrowers--including students, new immigrants, and individuals needing business or personal loans. The new pilot non-sectarian student loan program has raised about 70% of the funds needed to begin lending money to low-income students who have been receiving academic support and mentoring in community-based programs.
Undergraduates will be able to borrow $6,000 per year. Loan checks are written in the student’s name and can cover tuition, books, dorm and living expenses.
While the CFPB explores the options for new repayment structures with policymakers, HFLA borrowers have repayment schedules that are designed to be paid off in two to five years. Repayment begins 30 days after receiving an interest-free loan beginning with payments of $185/month. Once the student has graduated, the payment schedule increases to a higher monthly rate.
Loans are secured by a co-signer or other collateral, but HFLA said their loan default rate is .05%. Cappelloni attributes the almost 100% repayment rate to the borrowers' “sense of ownership and trust, and knowing that the money they are borrowing comes from community dollars. When you re-pay, you know you are offering that loan to someone else. It’s your way of respecting and honoring the community’s investment in you and that’s why the repayment rate is so phenomenal.”
The Hebrew Free Loan Association is a 501(c) 3 non-profit organization and invites interested donors to contribute to the student loan program.