Inevitable – feds look at private student loan modifications after feds help inflate student loan bubble
Student loan debt, which now exceeds credit card debt, is creating a heavy fiscal burden on Millenials.
Washington D.C. is now awakening to the problems associated with easy credit combined with stringent pay-back requirements. Inside Higher Ed writer Libby Nelson reports on an agency’s request for comment on how to resolve this enormous problem.
In the next move for a federal agency ratcheting up its oversight of student loans, the Consumer Financial Protection Bureau is asking borrowers, lenders and others for feedback on what can be done to ease the burden of private student debt.
The request for information is the latest indication that the bureau is interested in stepping up regulation of private student loans. Private loans make less than 15 percent of all outstanding student loans. But because interest rates are higher and repayment options less flexible than for federal loans, they’re frequently a source of consumer complaint.
Last year, the agency collected more than 2,000 complaints from private loan borrowers (as well as some confused commenters with federal loans, since many borrowers have difficulty telling the difference) and published a report recommending new regulations for private loans. Among the recommendations: that Congress reconsider a 2005 law that made it much more difficult to discharge private loans in bankruptcy.
Today’s notice suggests that the bureau wants to change borrowers’ options before bankruptcy as well. The private student loan market could benefit if borrowers are given the option to refinance, bureau officials wrote in the notice. They pointed to similarities between private loans and mortgages, including that underwriting practices have improved since the financial meltdown and the fact that loans can be sold to third-party servicers. But they also noted differences, most notably that — unlike a mortgage — private loans include no asset that can be repossessed if borrowers default.
The notice includes questions about the interplay between federal and private loans in repayment; characteristics that predict delinquency or default; options for borrowers in distress to lower monthly payments; the effect student loans have on the ability to obtain mortgages and auto loans; and servicing infrastructure. It also asks about examples of past, successful loan modification programs sponsored either by a public entity or the private sector — a clear signal that the bureau is weighing recommendations on a refinancing program.
Agency officials would not speculate on how a private loan modification program might work. But Campus Progress, a branch of the Center for American Progress that last week issued a report calling for refinancing for both federal and private student loans, offered a few ideas.
Federal agency requests comment on private loan modifications (Inside Higher Ed | News)