Rohit Chopra, the CFPB’s assistant director and student loan ombudsman, testified before a Senate committee on Tuesday on the impact of rising student loan debt.
“Understandably, many policymakers across the country are seeking to address some of the underlying drivers of growing student loan debt, including the rising cost of tuition, as well as interest rate structures on federal student loans,” Chopra said. “However, it will also be prudent to address the large pool of existing debt owed by millions of Americans.”
Student loan debt in the U.S. has risen to nearly $1.2 trillion, surpassing all other forms of consumer credit, except for mortgages.
Chopra said approximately $600 billion in student loans was funded using private capital, and nearly 75 percent of privately-funded debt met the criteria for a government guarantee through the Federal Family Educational Loan Program. He likened the student loan market to the mortgage market in the years leading up to the subprime housing crisis.
“In the mortgage market, many borrowers were unaware of some core features of their mortgage obligation, such as rate resets and other surprises,” Chopra said. “In a report by the Bureau and the Department of Education to Congress on private student loans, the agencies found that many student loan borrowers were also unaware of what type of loan they had and that their private student loans did not have many options for them in times of distress.”
Chopra said “unmanageable student debt may have a broader impact on the economy and society.”
“Like mortgage borrowers, many private student loan borrowers want to repay their obligations, but simply need an alternative payment plan to weather tough times in the labor market,” Chopra said. “In addition, borrowers with both federal and private student loans have been frustrated with the inability to refinance fixed-rate loans to take advantage of today’s historically low interest rates and their improved credit profile. If these issues are not addressed, there may be a negative impact not just on consumers, but also on the broader economy.”