NOVEMBER 18, 2013
Rohit Chopra, Consumer Financial Protection Bureau (30:08)
Keynote Q&A (8:06)
Interview with Rohit Chopra (6:40)
Resources for Managing Student Loans
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)
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)
Q: Hello. We’re here at the St. Louis Fed today for a conference sponsored by the Center for Household Financial Stability titled, “Generation Debt: The Promise, Perils and Future of Student Loans.” Joining me today is Rohit Chopra from the Consumer Financial Protection Bureau. Hi.
Rohit Chopra: Thanks.
Q: So first question for you: We’re here today to discuss student loan debt. So in your opinion, what is a key issue today facing this industry?
Rohit Chopra: Well, everyone is well aware that the price of college continues to go up and up and up. And that’s something that obviously needs to be addressed. But it can’t be the only thing we look at. There are around 40 million Americans who owe around 1.2 trillion dollars in student loan debt. And addressing college costs doesn’t really do anything for those tens of millions of people who already owe that debt. So we need to figure out a way to address what is a large amount of burden on many household balance sheets, particularly younger households. What is the impact on the housing market? What’s the impact on people starting small businesses? All of these factors need to be addressed so we can figure out how young people can be part of a growing economy.
So the financial crisis had a huge impact on households across America. So many people dealt with unemployment. They saw their homes fall in value. They saw their retirement savings go away. And that meant they had less money to devote to their child’s education. So it isn’t just a matter of a shift from the public to the family when it comes to the costs of higher education, but within the family, there’s been a shift from parents to children. And all of that has led to more and more and more debt. But unfortunately, starting wages for college graduates haven’t really increased. In fact, when adjusting for inflation, they’ve been flat or even declining. So that means people are leaving with similar incomes, but more debt. And that means they may be less qualified to take on a mortgage or start a small business. And that can have real impacts on the rest of society.
So one of the key problems that student loan borrowers face today is that their interest rates factor in the risk that they won’t graduate or that they won’t get a job. But most borrowers are able to graduate and get a job. And they wonder why they’re not able to take advantage of their improved credit profile or today’s historically low interest rates. And without the ability to refinance their debt with few refinance products available on the market, they’re not able to take advantage of today’s unusual interest rate environment. And that means that they’re having a tougher time getting back on their feet.
In the years leading up to the financial crisis, we saw some unusual trends in the mortgage market. In some cases lenders weren’t even checking basic documentation to determine if a borrower could repay. And that’s because modern structured finance has allowed lenders to package those loans and ultimately securitize them. And we saw some of the same style of lending in the private student loan market. And while some of those practices have gone away, that debt hasn’t gone away. And many of those borrowers are struggling to find a repayment plan that works for them. Many of them graduated in a very challenging economy. They aren’t earning as much as they expected to. And so they are struggling, just like struggling homeowners did, to work with their servicer and find a repayment plan so that they can avoid default. But in many cases, the incentives of servicers may not match up with either the borrower or the investors in those securities.
Q: So let me ask, as well, we are coming up on 2014. New class of college graduates, you know, for the most part getting graduated in May. What advice do you have for folks that are going to graduate in May kind of looking at college, looking at job prospects? And then also, we’re going to have a round of graduates coming out of high school. So what advice do you have for those going into college and then taking on debt?
Rohit Chopra: For people who are graduating, it’s so important to make sure that you stay on top of your student loans. Defaulting on a student loan can have serious consequences. It can make it tougher to even pass an employer verification check. It can make it tougher to get an apartment. And even tougher if you one day want to qualify for a mortgage. So for your federal student loans, if you think you’re not going to be able to make those payments, look into the Income-Based Repayment or Pay As You Earn plans which can have a payment that’s very reasonable and a percentage of your income.
When it comes to your private student loans, those options generally don’t exist. So it’s important that you speak to your servicer as early as possible to figure out if you even have any options. Now, for people who are about to go to college, it’s really important to think about what the tradeoffs are if you’re going to take on a lot of debt. Taking on a lot of debt can mean that you may need to move back home after graduation. You may not be able to live on your own for some time. And so understanding how what you borrow translates into a monthly payment and what that monthly payment really means is very important. The CFPB and the Department of Education worked together on a Financial Aid Shopping Sheet. And already, nearly 2,000 colleges have voluntarily adopted it. And this single Shopping Sheet allows a student to understand, how much might they owe after graduation? What might the monthly payment be? And what are the graduation rates and default rates at that school? And it helps students make an apples to apples comparison so that they can make a really good choice.