As the national student loan debt crisis continues, the Consumer Financial Protection Bureau is calling on private student loan industry leaders to do more to meet the repayment needs of struggling borrowers.
There are many such borrowers. Approximately 850,000 private student loans are in default right now, and the CFPB has received thousands of complaints from private student loan borrowers, many of which cited unaffordable repayment plan options.
The CFPB began to address those complaints last year, but the most recent call for repayment plan reform came Jan. 29, when it sent letters to major private student loan industry players asking for more information about what is being done to modify private student loan repayment options. The letters also ask for information about borrower repayment education, private student loan delinquency rates and the number of borrowers enrolled in income-driven repayment plans.
Income-driven loan repayment plans, which cap a borrower’s payments as a portion of their current income, have become increasingly popular among federal student loan borrowers. More than 1 million of them have signed up for the plans in the past year, which is a 64 percent increase over previous years, according to Rohit Chopra, the CFPB’s student loan ombudsman.
Only a handful of major private student loan lenders, such as Discover Financial Services and Wells Fargo, have changed student loan repayment options to give borrowers more flexibility during hard financial times. “If lenders and servicers offered lower payments during a tough time, borrowers could avoid default and lenders could get fully repaid over the long run — a “win-win” for all,” Chopra expressed in his CFPB blog post.
In addition to the letters directly requesting information from private student loan lenders, the CFPB issued another document Jan. 29 encouraging lenders to amend private student loan terms to accommodate flexible repayment options, such as income-driven repayment plans, if a borrower needs help.
The document is a joint release with several other financial bureaus: The Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration and the State Liaison Committee.
The suggested guidelines echo many of the sentiments expressed in the CFPB’s information request letter: keep private student loan payments fair, offer clear repayment guidelines and give borrowers a chance to understand and pay their debt before sending it into default.
While the recipients of the letters are not required to respond, the CFPB is asking for voluntary participation by February 27 and plans on anonymizing and sharing the data received with the public shortly thereafter.
Until more flexible repayment options become the norm adhered to by all student loan lenders, struggling borrowers are advised to send a letter to their loan servicer to learn what options — if any — exist to avoid falling behind on payments or going into default.