The Consumer Financial Protection Bureau announced Thursday that it is taking another dive into the student debt crisis. The agency will focus on refinancing options for private student loans, which represent roughly $150 billion, or one-eighth, of the overall $1 trillion education lending market.
In what the CFPB called a "first step" towards making policy recommendations to the Obama administration's Education and Treasury departments, as well as Congress, the consumer watchdog agency is soliciting input on what might make private student loan repayments more manageable and how to better assist distressed borrowers.
"If you think everything in this market is hunky-dory, you are completely missing the warning signs," CFPB Student Loan Ombudsman Rohit Chopra said in a call with reporters on Thursday. "Many of us have raised questions about the student debt domino effect on the economy."
The average student debt load grew 58 percent from 2005 to 2012, from $17,233 to $27,253, according to a recent analysis from Fair Isaac Corp. (FICO). A growing number of graduates are struggling to make their payments, and the percentage of loans more than 90 days past due continues to grow, according to FICO. Andrew Jennings, FICO chief analytics officer, recently declared the situation to be "simply unsustainable."
The CFPB believes the growing student debt burden is holding back a full economic recovery. Chopra reiterated that sentiment Thursday, and said the bureau is particularly concerned with the role student debt might play in preventing young adults from purchasing a home or car, dragging down the economy as a whole.
The rate of adults in their late twenties who own homes has slipped since 1980, The Atlantic reported. A study from the Federal Reserve found that from 2009 to 2011, only 9 percent of 29- to 34-year-olds took out their first mortgage, Bloomberg Businessweek reported. Fewer young adults are buying cars too: According to new data released from the Pew Research Center Thursday, 32 percent of households headed by an adult younger than 35 were paying off auto loans in 2010, down from 44 percent in 2007.
The burden of private student loans -- with rates often between 8 and 15 percent -- is "one piece of the broader student debt puzzle that must be solved," Chopra said.
"Many borrowers who have obtained employment and are making good money are not able to refinance and lock in a good rate," he added.
In previous reports, the CFPB has characterized private student lending as having an "uncanny resemblance" to the subprime housing market. The bureau also has suggested that Congress revisit a 2005 change in bankruptcy laws that makes it nearly impossible to discharge private student loans in bankruptcy.
"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," CFPB Director Richard Cordray said in a statement.
However, the options the federal government might pursue are more limited than the ones available for students with federal loans, where income-based repayment plans and options for debt forgiveness have already been instituted.
Chopra said solutions for private loan programs might include offerings available to those taking on other kinds of debt, like temporary offers of interest rate reductions or interest-only payments. Those ideas may or may not be applicable in this market, Chopra said.
A call by the CFPB in 2012 for public input on problems with private student loans resulted in more than 2,000 comments, which were released in June. The CFPB will be accepting comments about refinancing private student debt until April 8, 2013.
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