The Consumer Financial Protection Bureau on Thursday unveiled a new initiative to help the nation’s 37 million former college students who are struggling to pay off a combined $1 trillion in student loans.
In a press release, CFPB Director Richard Cordray said he is instructing his agency to begin drafting possible proposals aimed at lowering monthly loan payments through refinancing and income-based payment models. As the cost of attending college has risen steadily over the last few decades, student loan payments have grown just as fast, surpassing credit card payments as the nation’s largest single contributor to household debt.
The CFPB’s new campaign on student loan payments comes less than two weeks after President Obama expressed concern over the issue during his State of the Union address. “Today, skyrocketing costs price way too many young people out of a higher education, or saddle them with unsustainable debt,” he said at the time.
A recent campaign launched by Campus Progress, (which, like ThinkProgress, is a project of the Center for American Progress) calls for Congress to pass legislation giving student borrows the ability to refinance their outstanding student debt in much the same way homeowners can refinance their mortgage payments or drivers refinance car payments. Doing so, says Campus Progress and the CFPB, would increase the likelihood of borrowers repaying their loans:
The CFPB has found that private student loan borrowers who wish to pay their loans, but face high payments, lack alternative repayment and refinance options.
“Too many private student loan borrowers are struggling with unwieldy debt that prevents them from climbing the economic ladder,” said CFPB Director Richard Cordray. “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.”
Currently, the federal government backs roughly 85 percent of all student loans. The existing 6.4 percent interest rate levied against most borrowers is far higher than the typical rates for a 30-year mortgage, and higher still than the cost incurred by the federal government as well. As Time Magazine explains:
In other words, the government—standing behind these loans anyway—could refinance them at a lower rate without losing money on the loans. That doesn’t mean there wouldn’t be a cost. The government will show a profit this year of nearly $34 billion on these loans, the Center reports. This is a tough budget environment to ask Congress to kiss off a cash cow.
Refinancing typical interest rates down by less than 2 percentage points — to 5 percent from 6.8 percent — would save borrowers a cumulative total of $14 billion and inject more than $20 billion into the economy, Campus Progress estimated in its report.