The Looming Threat of Student Debt

By Jane Bennett Clark, Senior Editor, Kiplinger's Personal Finance, Jane Bennett Clark, Senior Editor,

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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.

SEE ALSO: 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.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Personal Finance College
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