In an effort to help more Americans get a better handle on their debts, the nation may soon see the federal agency tasked with protecting consumers’ finances get more involved in the private student lending market.
The Consumer Financial Protection Bureau may soon take a larger role in the ways in which Americans deal with private student loans, which traditionally carry higher interest rates and less flexible repayment allowances than those from the federal government, according to a report from Bloomberg Businessweek. Currently, about 15 percent of the more than $1 trillion in outstanding student load debts held nationwide are controlled by private lenders.
The problem is that these loans tend to have variable interest rates that can be as much as double those offered by the federal government, the report said. As such, the CFPB recently issued a statement earlier this summer saying that it considered those with sizable private education debt balances to be sucked into a “subprime-style” lending market.
“Regulators and agencies and the Fed may have a role to play to ensure that the market is working well and is liquid and that risk really reflects a price appropriately,” Rohit Chopra, student loan ombudsman at the CFPB, told Bloomberg Radio in a recent interview. “Certain low-risk borrowers probably don’t need to be paying such high rates and paying those high rates is leading them to delay a lot of economic milestones, which have really large consequences and ripple effects for the entire economy, including the housing market.”
Numerous studies have shown that in many cases, students may take on private education loans despite still being eligible for government-backed loans. This could end up costing them significant amounts of money, and as such some lawmakers are trying to pass laws that require colleges and universities to make greater efforts to educate students about all their options – including other forms of financial aid – before they begin going to these higher-cost lenders.
Adding to debt unnecessarily is often problematic for college students, as studies have shown that the average graduate leaves school with tens of thousands of dollars in outstanding balances in not only student loans, but also on their credit card accounts, auto loans and other types of credit.