Keynote Q&A

NOVEMBER 18, 2013

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   Julie Stackhouse, Federal Reserve Bank of St. Louis (4:20)

   Rohit Chopra, Consumer Financial Protection Bureau (30:08)
now playing  Keynote Q&A (8:06)
   Interview with Rohit Chopra (6:40)

Resources for Managing Student Loans
   Introductions (2:12)
   Paul Combe, American Student Assistance (7:02)
   Interview with Paul Combe (12:58)
   Vicki Jacobson, Center for Excellence in Financial Counseling (5:46)
   Marilyn Landrum, Missouri Department of Higher Education (3:58)

Resources for Economics and Personal Finance
   Mary C. Suiter, Federal Reserve Bank of St. Louis (3:10)

Research Panel:
What We Know About Student Loans in the Eighth District and Nationwide
   MODERATOR: William R. Emmons, Federal Reserve Bank of St. Louis (4:14)
   Bryan J. Noeth, Federal Reserve Bank of St. Louis (13:53)
   Kelly D. Edmiston, Federal Reserve Bank of Kansas City (9:17)
   Caroline Ratcliffe, Urban Institute (14:22)
   Research Panel Discussion (35:46)

The Future of Student Loans and Financing Higher Education
   MODERATOR: Ray Boshara, Federal Reserve Bank of St. Louis (7:32)
   Sandy Baum, Urban Institute and George Washington University (11:06)
   Interview with Sandy Baum (7:23)
   William Elliott III, University of Kansas (13:12)
   Jen Mishory, Young Invincibles (8:37)
   Interview with Jen Mishory (8:01)
   Gary A. Ransdell, Western Kentucky University (11:35)
   Roundtable Discussion (40:21)


Rohit Chopra: We have time for a couple—very few—questions. Yes, sir. And if you could say your name and affiliation.

Pete Smith: I’m Pete Smith, working for the Center for Responsible Lending. I was very interested to hear about the analogy between subprime mortgage lenders and the for-profit colleges and universities that you made. I’ve been looking into this a little bit, and I’m curious as to what you think. Is it the profit motive itself—adding the profit motive into the financing of education, and the granting of education—or is it bad actors within the sector?

Rohit Chopra: I think, of course, there’s some enforcement issues about existing law. But I think, as we saw in the mortgage market, where a loan originator could offer a product but not have much skin in the game no matter how that borrower fared, there may be some similar issues for schools that generate revenue or profit by enrolling students without necessarily having any incentive to determine whether those students complete.

I think this is a particular issue for the large number of veterans who have returned, and who we really owe a duty, I believe, to make sure that they’re getting a quality education for their benefits that they receive, and ultimately good work afterwards. But unfortunately, we hear many instances of veterans who are subject to some aggressive recruiting, only to find that they’ll drop out and find a program that works better for them; but then, they’ve used their benefits and now need to borrow.

Yes, sir.

Matthew DeBeau: My name is Matthew DeBeau. I’m from the UNCW. If you Google “Does it help your credit score if you pay off your student loan debt?” They suggest not paying it off, because I guess it looks good and could possibly make your score worse. Do you agree with that?

Rohit Chopra: Credit scores are proprietary models, which the public doesn’t have a good understanding always of how it works. But what that may be suggesting is that having a longer credit history for each of your loans may provide some benefit. But I think credit score is one issue; but really the thing we have to think about is, what is the right pace of paying off your debt? Do you want to pay as little as possible, so that you can accumulate savings and maybe put money aside for retirement or save for a down payment, or do you want to pay it off more quickly? It really depends on the individual.

I think the problem is that we don’t know what people are doing. The data is quite weak, and we don’t really know what’s actually happening in the market. That makes it troubling to really figure out, one, how to educate people better, and two, where there might be some trouble spots.

Yes, sir.

Bob Hildreth: Bob Hildreth, the founder of FUEL Education in Boston. It’s estimated that colleges get about half of their tuition now from student loans and grants, like Pell Grants. Would you care to speculate, when that amount of dependency is so high, how that might change college financial behavior?

Rohit Chopra: No, I would not want to speculate on that. But there’s no question that the share of revenue that colleges are receiving from Federal aid programs are largely a result of not just cuts to public higher education at the State level, but also deteriorating family wealth and income situations at home, so there’s just more families who are now more dependent on it.

That being said, that presents a really unique challenge for the financial services industry, who now is going to be dealing with a large amount of young people entering the mainstream credit system with a lot of debt, and not necessarily growing income. I think that’s fair to think about, where school incentives, in terms of adjusting tuition, might play when it comes to credit. I would say that, from the financial regulator’s point of view, we’re much more looking at the student debt problem as a repayment problem rather than a loan problem.

So, one last question.

Naser Humdi: My name is Naser Humdi and I’m with Equifax. Quick question, and it pertains to the analogy made with the mortgage industry and the securitization market. I think the consumer was also a culprit in that whole scenario. Think of the fact that the housing bubble caused individuals to believe that the value of a home will continue to grow. As such, everybody purchased homes that they probably could not afford. In other words, they thought the ROI was there because the home would appreciate over time. When that bubble burst, that ROI disappeared.

In the education market, does it not make sense to start thinking about the ROI that a student is going to get from a certain program or a certain college degree? When does it start making sense for the Federal government, when it’s basically subsidizing students to go to college, to think about “Are you ever going to be able to repay this money if you attend X or Y program or obtain X or Y degree?”

Rohit Chopra: Quickly, the Federal government on the Federal loan program will collect its money. They will garnish your wages; they will take your tax refund. And when you’re graduating at 22, with life expectancies for 22-year-olds approaching 80, that’s a lot of time to collect.

But I take your point; how should people think about return on investment? And I think that’s an important way that higher education is probably going to move, in that for a consumer to make a smart decision about what program will prepare them for adequate employment, and what they might expect to earn, they need a lot more information in a clear, simple format to do so.

That being said, on average, a college graduate is going to earn much more, on average. But when they graduate a year after the collapse of the financial system, those averages are meaningless. So that’s really a struggle, where people have to make some sort of prediction, but it’s very unclear what storms might lie five years down the road.

Thank you again. Enjoy the rest of the program.

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