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Student loan borrowers need flexible payments

Charlene Crowell

Earlier this year, the Consumer Financial Protection Bureau (CFPB) asked for public comments on private student loan debt affordability.

By the April 8 deadline, over 4,300 organizations and consumers answered. The volume of these requests suggests that the more than $1 trillion of debt already incurred by student loans is on the minds of many Americans.

Clearly, consumers want repayments to be manageable, but there are also concerns for fairness and, when needed, enforcement.

As a nonpartisan organization dedicated to protecting family wealth and working to eliminate abusive financial practices, the Center for Responsible Lending (CRL) had strong advice to offer CFPB.

According to CRL, “First, no student loan modification or refinancing program should take the place of enforcement actions against predatory private student lenders. Some lenders have engaged in a variety of unfair, deceptive and abusive practices, trading on students’ hopes to better themselves through education.”

In its call for strong oversight and enforcement action against private student lenders, CRL noted that Sallie Mae recently issued private student-loan backed securities. This publicly traded corporation originates, services and collects on student loans. It now manages accounts for more than 10 million borrowers and $180 billion in related debt.

CRL reminded CFPB that mortgage-backed securities — the secondary market’s purchase and bundling of sub-prime loans — was a major contributor to the housing crisis and the lingering Great Recession.

“This demand could drive increased originations of student loans and degrade underwriting standards, similar to mortgages in the early-and mid-2000s. The Bureau should stay vigilant as the private student loan market grows,” added CRL.

In CFPB’s own October 2012 report, the bureau independently found that as with problematic mortgages, private student loan borrowers were complaining about servicers who placed their loan accounts in default — even though they were continuing to pay what they could.

Further, if servicers of student loans are unable to process the volume of distressed borrowers — as in mortgage servicing — student loan borrowers will suffer again.

For communities of color, the specter of a second major financial dilemma does not bode well. With a trillion-dollar loss of wealth due to foreclosures and unemployment double that of the rest of the nation, consumers of color in many cases turn to student loans to finance much of their college education costs.

In many instances, students are encouraged to take out a higher-cost private loan even when they have not fully utilized their eligibility for cheaper federal student loans. In other instances, for-profit schools target low-income and minority students and steer them towards the higher-cost private loans.

If private student loans follow the same secondary market trends as that of mortgages, i.e. sold, packaged and serviced similarly to mortgage loans, it is conceivable that two generations of the same family will suffer long-term financial stress, shortchanging the older generation’s preparation for retirement, and delaying — if not denying — the younger generation’s ability to buy a first home.

Add to that looming likelihood a recent research report funded by the Bill and Melinda Gates Foundation indicating that public colleges will find it difficult to keep raising tuition in response to reduced public funding of public institutions. Statistics from the Center on Budget Policy Priorities recently found that state spending on higher education from 2008-2013 declined 28 percent nationwide. Additionally, the states of California, Florida, Washington and Georgia had public tuition rates rise from 60 to 72 percent.

In a March address before the National Newspaper Publishers Association, Arne Duncan, the U.S. Secretary of Education, noted that black college enrollment had grown by 15 percent from the fall of 2008 to the fall of 2011.

It would be an agonizing loss if these young peoples’ pursuit of higher education only brings a lifetime of debt.

Charlene Crowell is a communications manager with the Center for Responsible Lending.