Federal Watchdog Agency Seeks Ways to Ease Private Student Debt

February 21, 2013

The federal government's consumer watchdog is seeking ideas for making private student debt more manageable for borrowers, the agency announced on Thursday.

In a notice the Consumer Financial Protection Bureau said it was looking for ways to offer distressed borrowers more-flexible repayment and refinancing options. The bureau will use the information to develop policy recommendations for Congress and federal agencies, the bureau's director, Richard Cordray, said in a written statement.

"Too many private-student-loan borrowers are struggling with unwieldy debt that prevents them from climbing the economic ladder," he said. "We will be analyzing plans for policy makers to consider that might help avoid a repeat of the mortgage meltdown for today's student-loan borrowers."

The notice comes four months after the bureau's student-loan ombudsman released a report describing almost 3,000 borrower complaints the bureau had received since the prior March. A majority of the complaints dealt with loan servicing, with roughly two-thirds related to repayment, including fees, billing, deferment, and forbearance.

The report recommended that Congress explore ways to allow borrowers to modify their loans and urged the bureau and the Departments of Education and the Treasury to consider adding checks to improve the quality of student-loan servicing.

Last July, Mr. Cordray and the secretary of education, Arne Duncan, submitted a report to Congress on the private-student-loan market that found that more than $8-billion of the loans are in default. The report likened the rise in private student lending during the last decade to the mortgage bubble and concluded that many borrowers were now struggling to repay their debt.