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CFPB Recognizes Dangers of Student Loan Debt. Works to Forgive More Loans.

Written by Steve Rhode

After an announcement today there can be no confusion that the Consumer Financial Protection Bureau takes the dangers of looming consumer debt seriously. I am encouraged by the focused effort by the CFPB to help more students to have their student loans forgiven after ten years.

Director Rich Cordray gave a presentation in which he said, “Student loan debt is one of the most significant burdens facing our young people, and it certainly hits close to home for a growing number of Americans.”

He went on to say the domino effect of student loan debt is real, and it is spreading. It is hard to erase this debt quickly – paying it back may take many long years and prevent people from achieving other financial milestones.

Tuition costs have risen rapidly. Student loan debt has risen even faster, and default rates have increased in tandem. Graduates are facing a job market that has not fully recovered from the recession. It is clear that a weak labor market and rising student debt are putting the squeeze on young people. The Bureau estimates that more than 7 million Americans are in default on over $100 billion in student loan balances. For those who default early in their lives, the hit to their credit report makes it harder to pass background checks to get a job, let alone to buy a home.

At the same time, household formation is a key driver of economic growth. Yet young people today are not forming new households at the same rate they once did. Many live with their parents or share space longer with their peers. The homeownership rate for young people peaked before the financial crisis and by the first quarter of this year was down more than 15 percent. This is very troubling because most first-time homeowners are young people who drive the market for home purchases.

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These spillover effects are not limited to the housing sector. Student debt burdens can get in the way of young people buying a car, starting a small business, or saving for retirement. The CFPB is deeply concerned about how debt influences career choices by acting as a barrier to public service for a rising share of student loan borrowers. This may cause shortfalls in key roles such as teachers, healthcare workers, public safety personnel, and other public service professions. In underserved rural and urban communities, shortages in critical skills hamper the local workforces. By some estimates, the country will need over 400,000 new teachers, 150,000 new social workers, and 1,000,000 new nurses by 2020 – a daunting task even under the best of circumstances.

Ensuring that the next generation of African American college graduates is in position to help address these shortages is a big piece of the puzzle. In this country, many people of color work in the public sector as teachers, social workers, first responders, healthcare providers, and other critical areas of responsibility that improve our overall quality of life.

But African American college graduates are also more likely to carry above-average levels of student debt. More than four in five have to borrow to pay for college, taking on nearly 15 percent more debt than their peers. So rising levels of student debt may hit communities of color the hardest, keeping some of our best and brightest young people from giving back to society and denying our country the benefits of their public service. – Source

With the cooperation of both the Peace Corps and Americorps, these two groups will work closely with the CFPB to help educate participants about how their time and experience with those groups can help lead to or count towards the forgiveness of their student loans under the Public Service Loan Forgiveness program.

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For those entering some form of public service, as defined here, or facing a mountain of student loan debt after school and have been smart enough to avoid private student loans, the Public Service Loan Forgiveness program from the U.S. government has the power to allow student loan payments to be as low as zero dollars per month and to be completely forgiven after 120 zero dollar payments.


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About the author

Steve Rhode

Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.

2 Comments

  • While I appreciate the CFPB’s efforts regarding public service forgiveness, I wonder how effective the agency will ever be without bankruptcy, financing, and consumer protection laws– especially regarding private student loans. I have multiple complaints against my loan servicer logged with CFPB, but they never resolved my case. It has been two years, and the loans have already been written off, sold off, and have been bouncing around between collection firms. I have so much evidence logged in my CFPB case that I think any lawyer worth his/her salt would be able to win some sort of FDCPA suit. I have everything from multiple ignored cease and desist letters,a threatening letter from bank/servicer VP, collection calls to relatives who aren’t even the loan cosigner, and records of 5-6 calls a day after cease and desist letters. What has the CFPB done for me?Nothing. When the loans were defaulted and written off, the calls went back up to multiple times a day, rendering the ‘cease and desist’ and CFPB process useless. Completely useless.

    With all of this, the agency is still toothless, and I have to scrape up money I don’t have to pay an attorney I can’t afford $350 an hour to either find a loophole in dischargeability or pay him upwards of what- $5-10,000 to litigate an adversary proceeding?? I’m already in a Chapter 7-Maybe I should duck into Chapter 13 afterwards, even if there will be no discharge. I will be changing lawyers, because my current one knows nothing about student loans (other than the word “NO!”) , and I eventually found one lawyer who seems to know what he is talking about… I just wish I could afford him- or the adversary proceeding. I’ve already gotten enough help from my sister to pay for this current one.

    Will the student loan bankruptcy exemption ever get changed??

    • All the points you raised are excellent.

      On the return to dischargeability I think we have to consider the number of years it took for expensive bank lobbyists is change it in 2005. Will there be equal efforts to change it back?

      I’ve seen some token efforts but nothing that can stand up to the power of big business who does not want the return change.

      A vast number of FDCPA attorneys will take on cases on contingency. Check out NACA.net and talk to a local consumer advocate attorney in your area.

      The Chapter 13 approach is a type of solution.

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