Federal regulators at the Consumer Financial Protection Bureau are continuing to work on solutions for the growing student debt crisis, which experts say could have a long-term impact on economic growth and the financial health of the country. There is more than $1 trillion in outstanding student loans in the United States, about 15 percent of which is held by private banks. One suggestion in the recent CFPB report is to create a program that allows borrowers to refinance private debt with public loans.
Borrowers who are struggling to pay off their student loans and who go into default could face serious consequences, including wage garnishment, if a judgment is entered against them. That is why it is so important to take proactive steps once it becomes clear that the debt is unmanageable.
While the Consumer Financial Protection Bureau is focusing on government and regulatory solutions to the student debt crisis, banks are insisting that the private sector can also create solutions for students. Some are calling for the development of a refinancing market, which could help introduce competition among banks for refinancing of all different types of debt.
Still, as anyone who has tried to work with their bank on a loan modification knows, this is often easier said than done. Banks can be difficult to work with and may refuse to offer a modification even for qualified borrowers. In those cases, it is important to have a dedicated advocate to help hold the banks accountable and secure the loan modifications that are necessary to avoid default.
Source: Bloomberg, "Private Student Debt Refinancaing Could Help Economy, CFPB Says," Carter Dougherty, May 8, 2013.