Editorial Policy

New CFPB Project Could Help Those Crushed by Private Student Loans

Kristin McGrath

February 22, 2013

Paying off tens of thousands in student loans isn’t going to be easy for any recent grad, unless they win the lottery or land a high-paying job (which may seem as likely as winning the lottery these days). But some, namely those with federal loans, have it a bit easier than those with private loans.

Federal loan repayment generally has some flexibility. You can defer payment, ask for forbearance or even adjust your payments based on how much (or how little) you earn. When it comes to private loans, however, that kind of flexibility is rarer and varies widely, putting students at the mercy of their particular lender.

The Consumer Financial Protection Bureau (CFPB) is therefore trying to even the field when it comes to private loans. The consumer watchdog agency announced Feb. 21 that it’s taking suggestions for developing a framework for the regulation of private student loans. While the CFPB doesn’t actually have the power to create and enforce rules for private lenders, the plan is simply to gather suggestions from the public, colleges and financial institutions to make recommendations to policy makers. Anyone with skin in the student loan game can submit their ideas here.

So why would lenders be interested in helping those who borrowed too much for degrees and are now having a hard time repaying those loans? The CFPB’s news release points out that it aims to help those “willing to make good on their debts but seeking a more affordable payment, especially when navigating tough times.” In other words, the idea is to give borrowers more negotiating power so they can pay repay their lenders in a way that works for them, rather than simply defaulting.

And, these days, student debt and defaulting aren’t always a choice. Low-level jobs (such as file clerks and receptionists) that used to require a high school education are increasingly open only to those with bachelor’s degrees, according to this New York Times article. This means that skipping the college degree (and the debt that comes with it) before entering the workforce is less of an option.

Even after racking up debt for the requisite B.A., grads still may not be able to earn an income. The Washingtonian recently covered the phenomenon of the “permatern” (or, permanent intern). Recent grads, ready to work, are hitting big cities only to find unpaid (or barely paying) internships waiting for them. As a result, they find themselves working full-time hours for no income for years on end.

Another reason to help? The CFPB argues that, by helping struggling grads, we are helping ourselves. Young consumers floundering in private student loan debt can’t start businesses, buy homes, get car loans and start families — and help give the economy a much-needed jump start.

If you’re struggling with student debt — or any debt — check out our roundup of this week’s best personal finance blogs for inspiration.

Young Adult Money explains how to be indispensable at whatever job you have.

Boomerang Buck shows how a “money buddy” can help motivate you in reaching your debt repayment goals.

Work Save Live describes how an addiction to a certain lifestyle can leave you trapped in the debt cycle.

We Only Do This Once points out that you could probably survive on only half of what you earn.

The Free Financial Advisor provides some motivation for getting ahead when you’re behind on bills.

My Money Design has a beginner’s guide to Roth IRAs.