By Elvina Nawaguna
WASHINGTON, Feb 21 (Reuters) – The U.S. consumer watchdog
said on Thursday that it is seeking suggestions on how to
develop a policy plan that would help borrowers of private
student loans find more affordable repayment options.
The Consumer Financial Protection Bureau said it is studying
the issue because millions of young Americans graduate from
college with huge amounts of student loan debt every year.
Those who borrowed from private lenders find repayment even
more challenging because they don’t have the kind of flexibility
or negotiating power that the federal government offers
borrowers, such as income-based plans or extended repayment
options.
Also, tuition prices keep rising, while wages, when adjusted
for inflation, keep dropping, the agency said.
The CFPB said it is inviting the public, including financial
institutions, colleges and professional associations, to make
suggestions it will use to make recommendations to policy
makers. The agency itself has limited power to develop and then
enforce a new framework for private market student loan
oversight.
The CFPB said it is taking comments through its website
until April 8, and will make the information public soon after.
“Too many private student loan borrowers are struggling with
unwieldy debt that prevents them from climbing the economic
ladder,” said CFPB Director Richard Cordray in a statement. “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.”
According to the CFBP, student loan borrowing has already
crossed the $1 trillion mark, with more than $150 billion of it
in private loans. The agency issued an October 2012 report that
found there are more than $8 billion in defaulted student loan
balances.
Rohit Chopra, the student loan ombudsman at the CFPB, said
heavy debt from student loans has a domino effect on the economy
and could affect borrowers’ ability to access credit, or
purchase homes or cars.
“If you think everything in this market is hunky-dory,
you’re missing the warning signs. Waiting any longer is just not
an option,” Chopra said during a press briefing.
The agency was formed as part of the 2010 Dodd-Frank Wall
Street reform law to protect consumers from exploitation by
financial institutions. This call for information is part of a
larger effort by the agency to address the student loan crisis.
Last year, the agency recommended that borrowers with stable
jobs be allowed to refinance their private student loans, just
like homeowners.
“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,” said U.S. Secretary of Education
Arne Duncan in a prepared statement after the press briefing.
“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.”
