Transcript: Testimony of CFPB Student Loan Ombudsman Rohit Chopra before Senate Banking Committee

Edited by Jenny Jiang

Senate Banking, Housing, and Urban Affairs Subcommittee hearing on July 24, 2012

Transcript of testimony of Consumer Financial Protection Bureau Student Loan Ombudsman Rohit Chopra:

Consumer Financial Protection Bureau Student Loan Ombudsman Rohit Chopra. SOURCE:

“Chairman Brown, Ranking Member Corker, and members of the subcommittee, thank you for holding this hearing today.

“To prosper in today’s global economy, our workforce needs skills to innovate in highly competitive environment. But the rapid growth of student debt raises concerns that warrant attention of policymakers. Student loan debt has now crossed the $1 trillion mark.

“Now, college is still a great investment. Graduates have lower unemployment rates and earn higher wages.

“But there is another side to this story. Over the past decade, real wages for college graduates have declined. The growing college wage premium is largely explained by faster falling wages of non-degree holders.

“But the cost of college has not been following, rising faster than inflation, wage growth, and health care costs. Growing costs, declining wages, and job market uncertainty have led to more debt and more risk.

“The stories of distressed borrowers reveal the impact of the financial crisis and the significant work that lies ahead.

“Prior to the crisis, private student lending rapidly increased. Like mortgage industry, lax lending practices are much less common today. Loans are co-signed and often have significant disclosure requirements. But like the mortgage market, there are still opportunities to make improvements.

“Private loans often lack re-payment flexibility. In 2007, Congress and President Bush enacted the College Cost Reduction and Access Act, which allowed student loan borrowers to remain current on the loan in the income-based repayment program. But this does not impact private student loans.

“Private loan borrowers experience challenges when attempting to restructure their loans. Due to capital markets conditions and an usual status in the bankruptcy code, even the most responsible borrowers have sought to better manage their debt burden. We see that many borrowers feel stuck with high monthly payments because they cannot easily refinance.

“In March, the CFPB launched a student loan complaint system where many borrowers have sought and received help, and lenders have learned more about their borrowers’ experience.

“We also work closely with the Department of Education on a ‘Know Before You Owe’ financial aid shopping sheet released this morning.

“And we’ve developed online tools used by tens of thousands of consumers on how to navigate their student loan repayment options, avoid default, and honor their commitments.

“The CFPB hopes to continue our work with other agencies that might play a critical role in addressing road blocks to facilitating repayment flexibility and a robust refinance market.

“While student debt might not pose systemic risks like with mortgages, it would be imprudent to dismiss that growing indebtedness can act as a drag on economic recovery.

“Consider borrowers facing high rates and high payments who are dutifully meeting these obligations. Without a refinance option, they struggle to reduce their payments even though they have built a solid credit history.

“So what might be the consequences of this? Take the housing market. First-time homebuyers are an important source of demand, and data reveals that adults in prime home-buying age cohorts are living at home with their parents and seeing reductions in their homeownership rates. In addition to home ownership, data also reveals low participation and contribution rates to employer retirement plans among young graduates, which can challenge their future retirement security.

“Congress and federal agencies have taken steps to increase liquidity and the functioning of the credit markets in recent years. But the current conditions in student loan markets may have a long-term impact on the economic vitality of many borrowers today. Many borrowers are unable to secure adequate credit accommodations to manage their debt burden.

“Policymakers have paid significant attention to conditions in the mortgage market. But given the potential impact of student debt on the broader economy, the situation demonstrates the need for attention. The CFPB will continue its work to make the loan marketplace work better for borrowers, schools, and honest lenders.

“We look forward to working with Congress and policymakers to ensure that economic mobility is still within reach for those who borrowed to invest in education.

“I look forward to your questions.”



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