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CLLA NEWSWIRE | FROM THE CLLA NEWSWIRE
Consumer Financial Protection Bureau (CFPB) and Dept of Education Release Report on Student Loan Debt
David Goch, Washington Legislative Counsel | July 30, 2012
On July 20th, the Consumer Financial Protection Bureau (CFPB) and the U.S. Department of Education released a report on the “risky practices and debt that stemmed from the boom and bust of the private student loan market in the past ten years.”
The report’s analysis was prefaced by the fact that in the last decade, the private student loan market exploded from less than $5 billion in 2001 to more than $20 billion in 2008; with underwriting standards loosened and the a 30% increase in loans made without school involvement or certification of need.
The report concluded private student loans are typically riskier for borrowers than federal student loans because they lack repayment flexibility, fixed interest rates, and other protections offered by federal loans.
In 2005 BAPCPA made private student loans exempt from discharge. Nevertheless, according to the report, many debtors with private student loans are turning to bankruptcy. The report speculated they may be seeking temporary relief from collections activity or may be looking to discharge other forms of debt.
The report concluded that based on the available data, BAPCPA did not result in lower prices or wider access to credit for student borrowers. However, the report also cited an analysis conducted by Moody's that concluded “allowing private student loans to be discharged in bankruptcy could reduce future origination volume and lead lenders to adjust their pricing to account for the greater risk.”
The report said that previous studies by the GAO “did not find any systematic abuse of the bankruptcy system for student loan discharge”; however, the report did note these findings may not reflect current economic conditions.
“If Congress should find that the 2005 change did not provide the expected market benefits, there may be a range of legislative improvements available, other than complete and immediate discharge in bankruptcy,” the report suggested; making the following recommendations:
Congress reexamining the standard for bankruptcy discharge;
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