At the Consumer Financial Protection Bureau, we are working to understand the impact of the recession on young consumers and to learn more about what increasing levels of student debt mean for the economy as a whole. But we also know that millions of borrowers are struggling and need help now.
Today, the Consumer Financial Protection Bureau has partnered with the U.S. Department of Education to release a new web tool for borrowers who have fallen behind on their student loan payments. Our tool should help borrowers understand their options, communicate effectively with their servicer or debt collector, and work to bring their loans out of default or delinquency. Addressing the problems of delinquency and default – problems too often ignored – provides these borrowers with opportunities to rebuild their credit, go back to school, or buy a home.
Delinquency and default are an often-overlooked, but quickly growing, segment of the student loan market. Over a quarter of all student loan borrowers are at least one monthly payment behind. Millions of federal student loan borrowers have defaulted on their loans.
These borrowers, like so many other young Americans, were hit hard by the recession. The unemployment rate among young college graduates is more than twice the rate of their older counterparts. Of those who have found work, more than a third of college graduates under age 25 have taken jobs that do not require a college degree. These young adults will feel the impact of graduating into a recession for a decade or more – it will take 10 to 15 years for their salaries to catch up to those who had the benefit of graduating into a healthy job market.
Over the past decade, student debt has grown to an average of over $22,000 for graduates of public colleges and universities and over $28,000 for private school grads. That’s a 20% increase. A growing number of borrowers – greater than one in eight – have debts of $50,000 or more. For too many, this grim economic reality makes making each loan payment in-full and on-time a monthly struggle.
The consequences are serious and the stakes are high. Default can result in thousands of dollars in penalties and fees, damaged credit and can even get you hauled into court. This is a concern for young student loan borrowers, because, unlike virtually all other types of consumer debt, student loans generally cannot be discharged in bankruptcy. That can make a fresh start all but impossible.
For millions of federal student loan borrowers, curing default has an added benefit. A loan in default cannot qualify for income-based repayment, an alternative payment plan that can have a monthly “payment” as low as $0 for extremely low-income borrowers.
The CFPB is working on a number of fronts to help make the student loan market work better for consumers. Working with the Department of Education, the CFPB launched a Know Before You Owe project to solicit input on a “financial aid shopping sheet.” The initiative should help students understand the debt implications of their college choice. And the CFPB set up a student loan complaint system to help ensure that private student lenders and servicers are responsive to potential mistakes and problems that borrowers encounter.
Repaying student debt can be challenging; but, for millions of young Americans, college remains a great investment and the surest path to future financial security. By knowing your rights and options, you can take control of your student loans and get back on track – it may be easier than you think.