Students on campus at UCLA. (Los Angeles Times )
Borrowers with student loans from private lenders need more flexible repayment plans and should be able to refinance at lower rates once they establish a solid record of making payments, a key advocate told the Consumer Financial Protection Bureau.
Private student loans account for about $150 billion of the $1 trillion in educational loans that are being paid off – or not (see chart below) – by borrowers.
The loans often carry variable interest rates that are significantly higher than federal loans, Consumers Union noted Friday in a letter to the Consumer Financial Protection Bureau, which has asked for comment on the topic.
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Besides being more costly, private student loans “don’t offer the same repayment options that come with federal loans,” Consumers Union staff attorney Suzanne Martindale said.
“The CFPB can bring relief to struggling borrowers by working with private lenders to develop income-based repayment plans and options for refinancing loans at lower rates.”
Deferments, forbearance and repayment plans based on income are available for federal loan borrowers stuck in part-time or low-wage jobs, Consumers Union noted.
It called for:
--Flexible repayments: "Borrowers who demonstrate financial hardship, due to high debt balances and modest wages, should be allowed to repay a reasonable percentage of their income in order to stay current."
--Refinancing options: "When borrowers demonstrate a pattern of responsible behavior, they should have the opportunity to shop around for lower interest rates as they become available."
US Student Loan Seriously Delinquent Balances data by YCharts
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