Federal consumer protection officials are looking for options to make private student loans easier for struggling borrowers to repay.
The federal Consumer Financial Protection Bureau announced plans Thursday to find ways to increase flexibility in repayment plans offered to private student loan borrowers, said Rohit Chopra, the agency's student loans ombudsman.
As part of that effort, the bureau is seeking comments from borrowers, higher education officials and financial institutions through the bureau's website — www.consumerfinance.gov. The bureau will accept comments until April 8.
Part of the problem, Chopra said, is that private student loan borrowers don't have repayment options as flexible as those offered under federal student loans. Borrowers who take out federal loans can use income-based repayment options to cap their payments.
Although some private student loan companies offer more flexible repayment options, those options aren't consistently available industrywide, Chopra said.
Student loan borrowers who find work after graduation typically aren't able to refinance their loans to take advantage of lower interest rates, Chopra said. In many cases, those borrowers are less of a credit risk today than when they took out their loans, simply because they're older.
“Many borrowers feel that they're stuck in loans that they got freshman year and are unable to refinance to lower rates,” Chopra said.
U.S. Secretary of Education Arne Duncan said the bureau's action could help borrowers who are having trouble managing their private student loan debt.
“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,” Duncan said.
Thousands in default
In July, the bureau and the U.S. Department of Education released a joint report on the issue of private student loans. The market for private student loans in the mid-2000s was marked by aggressive marketing and relatively lax consumer protection standards, much like the market for subprime mortgages, according to the report.
According to the study, about 850,000 student loans are in default, with balances totaling more than $8 billion. Even more loans are in delinquency, according to the report.
The bureau released a second report in October outlining complaints made to the agency by private student loan borrowers. Among other issues, borrowers reported having trouble understanding how much they owed and being unable to find out who owns a loan once it's been sold.
Chopra said he hoped to see that report serve as the first step in a more comprehensive review of the private student loan industry.