This week, North Dakota Senator Heidi Heitkamp introduced the Private Education Loan Refinancing Act of 2015, which would provide relief to students burdened with risky or expensive loans. The bill would create incentives for lenders to work with borrowers to refinance and modify loans to help borrowers avoid default. In the mortgage market, loan modification and refinancing has helped many people avoid foreclosure or save money. There would be no net cost to taxpayers.
Maura Dundon, Senior Policy Counsel at the Center for Responsible Lending, issued the following statement:
This bill should get an A+ from students and taxpayers. It would reduce the burden of private student loans and protect borrowers who fall victim to predatory student loans without increasing federal spending. Just like homeowners can refinance mortgages, students should be able to refinance student loans and have their loans modified if they are unable to repay.
The economic benefits of widespread student loan refinancing could be substantial. Almost a million Americans have taken a significant hit to their credit scores and financial futures because they defaulted on unaffordable private student loans, and many more are at risk.
The federal Consumer Financial Protection Bureau (CFPB) has identified troubling practices in private student loan servicing and origination, which can make these loans very risky for borrowers. Private student loans may have high interest rates, and borrowers have no access to relief opportunities offered on federal student loans, such as income-based repayment programs. During the run up to the financial crisis, private student loans, like mortgages, were made using questionable underwriting, trapping borrowers in unaffordable debt. For-profit colleges, in cooperation with financial institutions, have a track record of making harmful private loans to their students.
For more information, or to arrange an interview with a CRL spokesperson on this issue, please contact Andrew High at Andrew.High@responsiblelending.org or 919-313-8533.