Learning from student loan borrowers

03/29/2013 3:42 PM

05/20/2014 10:41 AM

Maybe federal regulators studying ways to make college loans more affordable can learn a few things from the experts on the front lines — borrowers who are piling up the debt.

That’s the goal of the federal Consumer Financial Protection Bureau, which reached out earlier this year to people and education organizations for advice on reshaping the market for student loans from private lenders, such as banks and other financial institutions.

Not surprisingly, interest has been high, with more than 500 responses filed with the consumer bureau through late March. The comment period ends April 8. (Email your thoughts to

studentloanaffordability@cfpb.gov

.)

Most of the mammoth student loan market consists of federal student loans, such as Stafford loans and Pell grants, which allow more affordable repayment options to most borrowers trying to avoid defaults and get on their feet in the work world.

But private loans, which have been quite popular, especially for attending for-profit institutions, generally aren’t quite as accommodating.

Many of the comments submitted to the consumer watchdog agency have been posted on its website and provide a welcome perspective on the issues.

Straight off the bat, many respondents talked about how student debt affected their family situation.

Here’s one of them: “It’s a hard situation to be in, especially if your debt is high and jobs are not paying what you expected to earn with a master’s degree. ... It has come to the point that either I provide for my family or pay these student loans with a part-time job.”

Several borrowers described problems with obtaining lower interest rates from private lenders.

“I think one of the major flaws in student loan affordability is the uniform interest rate that all students pay, regardless of their ability to pay back the loan in the future,” said a Columbia University medical student in New York.

“For instance, doctors, nurses, physician assistants and other health care professionals are almost guaranteed employment after they graduate, yet astonishingly they have to pay back loans at interest rates that are far higher than their risk profile should be.”

A school district administrator pitched this idea: “If the same or similar payment reduction plans and loan forgiveness programs were available for private loans as are currently available for federal loans, student loans would be much more affordable for our teachers, and our teachers would stay in the classroom longer and positively impact the lives of thousands of students.”

Another suggestion: “Require lenders to issue monthly statements to the student from the date of disbursement of the loan. The statements should show the current outstanding balance and the interest which has accrued that month. Students should have the option to pay the monthly interest at any time. ... By keeping this information in front of students and giving them an easy option to pay toward the accumulating interest might keep them from borrowing as much and at least ensure they know what to expect at graduation.”

Several people also noted that it’s bad policy to let borrowers off the hook on past-due loans.

“Students that are creative in funding their college education should be rewarded, not the people who skip out on their loans,” one person said. “AP classes, community college, working while attending school are all good options to reduce costs.”

Finally this perspective: “I appreciate recommendations that people should work and pay for school, but when in-state tuition ranges nearly $17,000, in addition to living expenses and a few thousand for books each semester, this is not always a practical option. ... It is essential that Americans continue to receive higher education because (we) must compete for jobs with other countries. Educating all walks of society means that people will be given the tools to be independent and earn a living for themselves.”

There’s no doubt that college student debt is rising, and the financial consequences can ripple through a household like tremors from the San Andreas Fault. That’s why this is the time to come up with solutions. Later this year, the Consumer Financial Protection Bureau will release its recommendations for the private loan market.

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