Friday, March 29, 2024

CFPB’s Cordray at field hearing on student loan debt

CFBPAfter receiving comments from nearly 30,000 Americans urging Washington to find the will and way to resolve the nation’s burgeoning student loan debt, the Consumer Financial Protection Bureau (CFPB) convened a public forum on May 8 in Miami. In opening remarks to the gathering, Richard Cordray, CFPB Director spoke of the risk this trillion dollar debt is to the economy as well as his proposals for financial relief.

“Identifying emerging risks to consumers and our economy is an important part of our mission” said Cordray. “So we are concerned that unmanageable student loan debt may be harmful to recovering consumer markets and may be dragging down borrowers’ lives. In February, we asked the public how student debt is affecting individual consumers as well as the broader economy. . . The response was overwhelming.”

Convened during National Teacher Appreciation Week, educators were among those that earlier told the CFPB of the risks imposed by heavy student loan indebtedness and the specific ills wrought by private student loans that typically come with higher interest rates and little if any room for flexible repayments or refinancing.

For the American Federation of Teachers (AFT), with 3,000 affiliates nationwide that represent 1.5 million members, Randi Weingarten, spoke to how broad an impact this issue really is.

“At the AFT”, remarked Weingarten, AFT president, “we have heard from many of our members, students and parents about the difficulties they face financing their educations. They come from all walks of life and from across a range of life circumstances and they are all ages. While each has his or her own unique story, a common theme prevails – for far too many Americans, higher education is no longer affordable.”

Addressing private student loans, Lauren Asher, president of the Institute for College Access & Success said, “Private loans are not a form of financial aid any more than a credit card is when used to cover college expenses, but private loans are treated much more harshly in bankruptcy than credit card debt.”

In Miami, Director Cordray proposed three solutions to the growing financial concern, each offering a different approach for consumers at different stages of financial stress.

For borrowers who have managed to make their monthly payments on high-interest private student loans, Cordray proposed a “refi relief” option. This approach would enable responsible borrowers to refinance their debt at market interest rates, thereby reducing the monthly loan repayments.

A second option termed “road to recovery” would help borrowers who are delinquent on private loans. By adding incentives for lenders to work with borrowers feeling trapped in debt, Cordray advocates a transparent, step-by-step process with affordable monthly payments tied to a reasonable debt-to-income ratio.

The third option proposed, “credit clean slate” would be designed to help defaulted borrowers with severely damaged credit. Critical to this proposal would be the ability to limit negative credit effects of default and reasonable repayment.

These three initiatives represent an addition to a recent rule from the CFPB that enables the Bureau to monitor servicers that engage in unfair or deceptive acts or practices toward student loan borrowers. Working in conjunction with the U.S. Justice Department, the Bureau will also hold accountable those who violate the rights of military personnel.

For the CFPB, widespread and growing ills of student loan debt are reminiscent of what happened with the housing crisis.

“Consumers were trapped in exotic mortgages with few options” said Cordray, “and the repercussions were felt throughout the economy. We learned a hard lesson in the wake of the mortgage meltdown. We cannot just sit by and watch this happen to people again.”

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