The Consumer Financial Protection Bureau (CFPB) is requesting information about ways to provide relief for private student loan borrowers. Comments must be received on or before April 8, 2013. This is a critical opportunity for borrowers and their advocates to provide input on student loan debt burdens and recommendations to help borrowers.
Our experience is that private lenders have been generally inflexible in trying to assist financially distressed borrowers. Unlike the federal student loan programs, there is no federal law requiring private student lenders to offer particular types of relief or flexible repayment. Private student loan borrowers are generally at the mercy of their creditors.
Restoring bankruptcy relief is essential, but not the primary topic of this request for comments from the CFPB. The CFPB is specifically asking for comments about the scope of borrower hardship, current options for borrowers with hardship, past and existing loan modification programs for other types of debt, servicing infrastructure, consumer reporting and credit scoring, lender participation, borrower awareness, and spillover effects of private student loan burdens.
NCLC has previously commented and testified about the need for borrower relief. We have urged the CFPB to encourage and, where appropriate, require loan modifications for financially distressed borrowers and discharges in case of death or disability. Loan modifications that enable a student borrower to make payments on a loan rather than completely defaulting are in both the students’ and the lenders’ best interests, but as we have seen in the mortgage market, sometimes industry needs the push of a regulator to come up with a win-win solution. Regulations that require private student lenders to have workable repayment programs for those who have gotten in trouble may be necessary to jump start this process.
Regulations requiring loss mitigation can be justified both as a matter of ability to repay and as a safety and soundness issue. From a safety and soundness perspective, lenders need to anticipate the possibility that the loan debt may prove unsustainable for some borrowers and to put in place programs to turn those loans into performing loans rather than write-offs.
We will expand on our prior recommendations in the comments we submit in April. We urge those of you struggling with debt to submit your own comments and let the agency know your experiences. The CFPB also has a complaint system for borrowers experiencing problems with their private student loan servicers, lenders, and collectors.
In addition, you can find our 2013 “Promoting Equal Access to Higher Education Priority Agenda” here.