Bucks Blog: A Look at Repayment Options for Private Student Loans

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2:45 p.m. Updated / To correct a statistic on households with student debt and to correct the date by which comments are due.

The federal government is looking into ways to help consumers burdened with private student loans — including potential ways to help them refinance their debt at lower interest rates.

The Consumer Financial Protection Bureau recently published a formal request for information from consumers, lenders and others involved in the student loan market, seeking “more detailed information on ways to encourage the development of more affordable loan repayment mechanisms for private student loan borrowers.”

Rohit Chopra, the agency’s student loan ombudsman, said in a recent call with reporters that the request is an “important first step” in the agency’s quest to make student-loan repayment more flexible and easier for borrowers.

The request follows a report last fall from Mr. Chopra about complaints the agency had received from borrowers of private student loans.

Student debt, Mr. Chopra reiterated, is no longer an exception but the norm: 40 percent of households headed by someone under 35 have student debt. Student debt tops $1 trillion, and some policy makers are concerned that it may affect the ability of young people to qualify for other loans, like those for cars and for buying first homes.

While the bulk of student debt is made up of federal student loans, more than $8 billion in private loans are in default, according to the agency’s research. Private loans are those made outside the federal student loan program. Most private loans are more expensive than federal loans, and lack certain borrower protections offered by federal loans, including income-based repayment plans for borrowers facing financial difficulty and options for borrowers in default to get back on track.

Some borrowers have expressed frustration that there are limited options for refinancing their student debt at currently low market rates, as borrowers can often do with home loans. Unlike a mortgage, however, which is secured by a home, a student loan is not secured by specific collateral — so interest rates tend to be higher.

But while student loans may never be available at rates as low as those available for mortgages, there are ways to measure relative risk with such loans that could still lower their cost, Mr. Chopra said. For instance, he said, while a loan made to a college freshman may be considered one level of risk requiring a certain interest rate, that risk level decreases after the student graduates, gets a job and demonstrates a steady repayment record — and that person may be then eligible for a lower rate.

Responses to the request for information will be accepted until April 8.

Do you think it makes sense to offer refinance options for student loans?

Article source: http://bucks.blogs.nytimes.com/2013/02/28/a-look-at-repayment-options-for-private-student-loans/?partner=rss&emc=rss