WASHINGTON The U.S. consumer watchdog said on Thursday that it is seeking suggestions on how to develop a policy plan that would help borrowers of private student loans find more affordable repayment options.
The Consumer Financial Protection Bureau said it is studying the issue because millions of young Americans graduate from college with huge amounts of student loan debt every year.
Those who borrowed from private lenders find repayment even more challenging because they don't have the kind of flexibility or negotiating power that the federal government offers borrowers, such as income-based plans or extended repayment options.
Also, tuition prices keep rising, while wages, when adjusted for inflation, keep dropping, the agency said.
The CFPB said it is inviting the public, including financial institutions, colleges and professional associations, to make suggestions it will use to make recommendations to policy makers. The agency itself has limited power to develop and then enforce a new framework for private market student loan oversight.
The CFPB said it is taking comments through its website until April 8, and will make the information public soon after.
"Too many private student loan borrowers are struggling with unwieldy debt that prevents them from climbing the economic ladder," said CFPB Director Richard Cordray in a statement. "We will be analyzing plans for policymakers to consider that might help avoid a repeat of the mortgage meltdown for today's student loan borrowers."
According to the CFBP, student loan borrowing has already crossed the $1 trillion mark, with more than $150 billion of it in private loans. The agency issued an October 2012 report that found there are more than $8 billion in defaulted student loan balances.
Rohit Chopra, the student loan ombudsman at the CFPB, said heavy debt from student loans has a domino effect on the economy and could affect borrowers' ability to access credit, or purchase homes or cars.
"If you think everything in this market is hunky-dory, you're missing the warning signs. Waiting any longer is just not an option," Chopra said during a press briefing.
The agency was formed as part of the 2010 Dodd-Frank Wall Street reform law to protect consumers from exploitation by financial institutions. This call for information is part of a larger effort by the agency to address the student loan crisis. Last year, the agency recommended that borrowers with stable jobs be allowed to refinance their private student loans, just like homeowners.
"Federal student loans remain the best option for borrowers, but we know some students have turned to private student loans and are struggling to repay," said U.S. Secretary of Education Arne Duncan in a prepared statement after the press briefing. "We're glad to see the CFPB is taking steps to help create options for those who are having trouble managing their private student loan debt."
(Reporting By Elvina Nawaguna; Editing by Chizu Nomiyama)