Rohit Chopra is the student loan ombudsman at the Consumer
Financial Protection Bureau. He spoke to senior editor Jane Clark
about defaults, the "student loan bomb," and how Chopra's agency
hopes to help.
Lighten the Burden of Student Loans
Some interest groups have predicted a "student loan debt
bomb," in the form of heightened defaults, in the next few years.
Is this a threat to the economy?
We're definitely worried about the broader implications of high
levels of student loan default. Too much student loan debt has an
effect on all parts of the economy, including the housing market.
An important part of that market is the first-time home buyer, and
when a generation of young people has a large amount of student
loan debt, that means delaying their first-time home purchase,
sometimes quite significantly.
Are most of the defaults on private student loans rather
than government-backed loans?
We've seen defaults accelerate on student loans of all types.
Defaults on private loans are more worrisome because many of those
loans lack the protections of federal student loans, such as
income-based repayment options, which cap payments based on income
and family size for people who qualify.
Your agency has just started taking complaints and
questions about student loans. What are you hearing?
We're finding that borrowers often don't understand the
difference between federal and private student loans, that many
didn't realize the difference between variable and fixed interest
rates, and that many did not know that income-based repayment
protections do not extend to private loans.
What is the CFPB doing to help?
With the Department of Education, we have launched a
financial aid shopping sheet
that brings information about student debt into a clear,
easy-to-compare format. We also have a tool called the
Student Debt Repayment Assistant
for both federal and private student loans. We can tell people
about repayment options for government loans, such as deferment and
income-based repayment. For private loans, some of those
arrangements don't exist, so we help student borrowers understand
how they can negotiate with lenders. The key is not to avoid a
problem but to attack it head-on.