College debt"I'm from the government, and I'm here to help."

Those nine words may terrify many people, but to today's ex-students -- some of whom feel helplessly crushed under a mountain of student loan debt -- those words may be the most reassuring thing they've ever heard.

The Consumer Financial Protection Bureau announced last week that it will be soliciting comments from the public about how best to alleviate the crushing loan burden some students are facing in this post-financial-crash economy, one without without the jobs they counted on to make good on that loan burden.

You're on your own, kid
"Too many private student loan borrowers are struggling with unwieldy debt that prevents them from climbing the economic ladder," CFPB Director Richard Cordray said in the release announcing the plan.

Indeed. Having tens of thousands of dollars in debt hanging over your head from the get-go -- with no employment in sight -- means buying a car or getting a mortgage is most likely out of the question.

With this call for comments, the CFPB is looking to address private student loan debt in particular. Out of the $1 trillion in total outstanding student debt, 15 percent of it is private, not backed by the federal government.

For those with government-backed student loans, there's a hardship option that at least lets students avoid default through an income-based repayment scheme. So if you don't make a lot, you don't have to pay a lot. But if you have private student loans, you're on your own with the bank you borrowed from.


Trying to avoid Financial Crisis 2.0
Aside from the personal pain this mountain of private student-loan debt is causing, the other concern the CFPB has is the effect it could have on the economy as a whole.

Alongside the mortgage-lending boom of the 2000s, there was also a private student-lending boom. As with the mortgage-lending boom, there was an excess of lending to people who never should have gotten loans in the first place. And again as with the mortgage-lending boom, a lot of this private student-loan debt was packaged into asset-backed securities for sale to investors.

Five-plus years ago, when homeowners started defaulting en masse on their mortgages, the securities these mortgages had been packaged into also began to default, triggering the financial crisis.

If private-student-loan borrowers begin defaulting on their loans now, the thinking goes, the securities their loans were packaged into could also default, potentially triggering another financial crisis -- this one generated by defaulting private student loans instead of defaulting home loans.

United we're solvent
One of most interesting aspects of the CFPB's comment solicitation project is that the agency is looking for help in solving this problem not just from distressed borrowers, but also from banks and other vested parties.

"We want to hear from borrowers, lenders, schools, and everyone with a stake in the success of this market," Rohit Chopra, the CFPB's student-loan ombudsman, said in a statement announcing the plan.

This makes sense. The banks who made these loans -- even if they lent in a predatory manner -- have as much of a vested interest in working out a payment scheme with defaulting borrowers as the borrowers themselves do.

So whether you're a debt-soaked ex-student, a banker, or even just a concerned citizen, you have until April 8, 2013, to make your voice heard to the CFPB on this issue. Who knows? Your comment may be the one that makes the student-loan debt burden for you or someone you know far more bearable, and keep the country on a far more stable financial footing.



John Grgurich is a regular contributor to The Motley Fool. Follow his dispatches from the bleeding heart of capitalism on Twitter @TMFGrgurich.

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mrsstarkloans

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July 26 2014 at 6:41 AM Report abuse rate up rate down Reply
William Roundtree

Here at Student Debt Relief we are able to get your student loans out of default within 4-6 weeks through several government programs you may qualify for, this will allow you to file your taxes this year and receive a monthly payment that can go as low as $25. This will clear up your credit report and you will then be able to qualify for additional finical aid please give us a call 1-855-429-9577 http://www.wehelpstudentloans.org/

September 02 2013 at 4:27 PM Report abuse rate up rate down Reply
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July 05 2013 at 2:56 PM Report abuse rate up rate down Reply
aphrodottie12

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February 27 2013 at 8:43 PM Report abuse rate up rate down Reply
jhrooney

If you can't buy a car or get a mortgage because of student loan debt have you been paying on it at all? If you had been making some kind of a payment you could buy a car. A mortgage maybe a different matter. If you are that far underwater and not paying you have no business getting a home loan since you are not responsible anyway.
What is the default rate on these loans, the author doesn't say. How many debtors have good jobs that are indefault, the author doesn't say. Nobody held a gun to your head to take these loans.
As usual we get the same old story, forgive the debt of all the loan holders so the merry go round starts all over again.

February 27 2013 at 7:00 PM Report abuse -1 rate up rate down Reply
1 reply to jhrooney's comment
J

If you think its just another story, than you are clearly the one living in the dark. Your right no one forced people to take student loans out, but how else do you expect people to become productive in society. Not everyone is born with a silver spoon in their mouth and can afford to pay for education out of pocket. The merry go round is this bullshit system that tells you to go to school get a decent education, without so much of a guarantee to even get a job working in the field you studied. The rise in tuition every year, the rise in student loan interest rates, not to mention this piss poor economy. So it has nothing to do with being responsible, because evidently most of us took the responsible approach to get off our asses and get a higher degree. Tell someone making 8.50 an hour or someone working 2 or 3 jobs how they are suppose to afford to pay student loans and live just above the minimum of poverty in today's society.

September 16 2013 at 11:13 PM Report abuse rate up rate down Reply
vlady1000

At the hard to get into Universities, the kids seem to watch how much they borrow and understand to keep it as low as possible. But at the more easy Universities, many of the kids look at it as a "gift" and would shock you on what they spend it on, with no reguard of thinking of the future problems. They really need to have good personal finance classes manadtory in high school (maybe even start them earlier), just like math and english are.

February 27 2013 at 6:55 PM Report abuse +1 rate up rate down Reply