Mounting student loan debt can be a "roadblock to a full financial life" for borrowers, according to a report from the Consumer Financial Protection Bureau. The agency held a field hearing Wednesday in Miami to find ways for student loan borrowers to manage their debt.
Academic and financial experts, representatives from consumer groups and the financial industry, and community members addressed the challenges that many student loan borrowers face.
2 loan types: Federal and private
To cope with rising tuition, American families depend on both federal and private student loans. Outstanding student loan debt has reached more than $1 trillion; private student loans account for more than $150 billion of that debt, according to the CFPB's annual student loan report.
The most-cited problem among borrowers is the lack of repayment plan options for private student loans, says Rohit Chopra, CFPB student loan ombudsman.
"If you have federal student loans -- let's say you graduated at a tough time in the economy, you couldn't get the job you wanted -- you actually have a number of options," he says. "You can lower your payment as a percentage of your income, you can do hardship deferments, unemployment benefits. But with private student loans, the lender doesn't necessarily have those options and many students were surprised by that."
Student loans crowd out other spending
One of the main concerns raised during the hearing was the negative effect that student loan debt has on the economy, including homeownership levels.
The number of young, first-time homebuyers is dwindling; 25- to 34-year-olds made up only 27 percent of homebuyers in 2011, the lowest percentage during the past decade, the National Association of Realtors reports.
Student debt hinders consumers from starting small businesses and limits their ability to save for retirement.
Making student borrowing more affordable
Proposed solutions to private student loan affordability issues -- based on commentary the CFPB has received after soliciting public input -- range from more-affordable repayment options to a "road to recovery" for distressed borrowers.
"Student loan borrowers are looking for refinance options. When mortgage borrowers increase their income or when they see interest rates go down, they go look for a refinance option," Chopra says. "But student loan borrowers who took on high-rate loans, they graduated, they got a good job, they've been paying; but they're still stuck in that high-rate loan and they want to refinance to take advantage of the low rates today and their lower credit risk, and that market isn't very active."
Treating private loans like federal loans
Overwhelmingly, the commentary suggests that borrowers desire to have some of the same options they're given with federal student loans.
The CFPB proposed a rule in March that would allow it to oversee nonbank student loan servicers and ensure they comply with federal consumer financial legislation. Comments are being accepted on the rule, and the agency is aiming to have a final rule within the coming year.
The CFPB's Miami hearing was one of several events the agency has held to engage with communities nationwide to discuss financial products and services.