The new agency is creating a one-stop shopping sheet to help students better understand the type and amount of financial aid they qualify for so they know how much they’ll owe before choosing a college. The proposed sheet will detail the total loan amount borrowed, including the estimated monthly payment for federal and private loans.
And now, as part of the Dodd-Frank financial reform act, the bureau is looking closer at the private student-loan industry. The agency and the Education Department are required to produce a report on private student loans by next summer.
Private education loans carry higher variable interest rates and have fewer protections against economic hardship than federally guaranteed loans, which carry fixed interest rates and have a variety of repayment options, such as unemployment deferment and loan-forgiveness programs. If you have a federal loan, you might qualify for the income-based repayment (IBR) program, which allows borrowers to have their monthly payments set at a reasonable amount based on their income and family size. Monthly payments can be capped at 15 percent of borrowers’ discretionary income.
Here’s one problem with private loans: There is no reliable source for exact information on total borrowing in the private loan market, according to the College Board, which tracks college cost trends. The board conducts an annual survey of private lenders to compile an estimate of this lending. This year, it was able to collect more data because of assistance from the Consumer Bankers Association and major credit unions. Using this information, the board estimates that private loans made up $6 billion of education borrowing.
A just-released national bipartisan survey found that while young adults believe a college education is more important now than it was for their parents’ generation, they believe it has become less affordable in the past five years. It also found that students are leaving school with more debt than they can manage. College seniors who graduated with student loans in 2010 owed an average of $25,250, a 5 percent jump from 2009, according to a new report from the Project on Student Debt at the Institute for College Access and Success.
Private loans made up at least 22 percent of all student debt for the class of 2010 at public and private nonprofit four-year colleges, the report found.
The consumer bureau is asking students, families, the higher-education community and the student-loan industry — lenders and servicers — to address a number of issues, including:
●Why aren’t families exhausting their federal loan options, including those that require filling out a Free Application for Federal Student Aid (FAFSA) form, before turning to private loans?
●Where are students and their families getting information about private education loans?
●How effective are the disclosures provided by private education lenders? Among other things, the bureau is looking for comments that address whether students and their families understand the terms and conditions of their private loans.
●What approaches would best assist recent graduates facing (or about to face) difficulty making payments on private loans?
●In the wake of the financial crisis, have private lenders adopted repayment programs in response to the high unemployment rate among recent graduates?
●The bureau is particularly interested in hearing about schools with specific programs or practices that educate students about their debt loads and ability to afford their loan payments, as well as any evidence concerning the impact of such initiatives.
You may submit comments by e-mail to cfpb_studentsfedreg@
cfpb.gov. Or mail them to Monica Jackson, Office of the Executive Secretary, Consumer Financial Protection Bureau, 1500 Pennsylvania Ave. NW (Attn: 1801 L St.), Washington, D.C. 20220. Include Docket No. CFPB-2011-0037.
By the way, the bureau has named Rohit Chopra to serve as its ombudsman for private education loans. Chopra most recently worked as a fellow at the McKinsey Global Institute, where he focused on student debt and other consumer credit markets.
If you’ve got a gripe about private education loans, share your story. It could assist the bureau in finding and fixing problematic practices. Your input could greatly help families avoid taking on private loans that aren’t suited for them.
Readers can write to Michelle Singletary at The Washington Post, 1150 15th St. NW, Washington, D.C. 20071. Her e-mail address is . Questions are welcomed, but because of the volume of mail, personal responses may not be possible.