[Federal Register Volume 78, Number 39 (Wednesday, February 27, 2013)]
[Notices]
[Pages 13327-13329]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-04419]
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BUREAU OF CONSUMER FINANCIAL PROTECTION
[Docket No. CFPB-2013-0004]
Request for Information Regarding an Initiative To Promote
Student Loan Affordability
AGENCY: Bureau of Consumer Financial Protection.
ACTION: Notice and request for information.
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SUMMARY: This notice requests information from the public to determine
options that would increase the availability of affordable payment
plans for borrowers with existing private student loans. Section 1035
of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-
Frank Act) establishes an ombudsman for student loans (Ombudsman)
within the Consumer Financial Protection Bureau (Bureau). Among other
things, the Ombudsman is responsible for making ``appropriate
recommendations'' to the Director of the Bureau, the Secretary of the
Treasury, the Secretary of Education, and Congress.
In October 2012, the Ombudsman presented a report, which
recommended that policymakers identify opportunities to spur refinance
and modification activity in the private student loan market. This
notice seeks information from market participants, consumers, and other
stakeholders in order to provide more detailed information on ways to
encourage the development of more affordable loan repayment mechanisms
for private student loan borrowers.
DATES: Comments must be received on or before April 8, 2013.
ADDRESSES: You may submit responsive information and other comments,
identified by Docket No. CFPB-2013-0004, by any of the following
methods:
Electronic: http://www.regulations.gov. Follow the
instructions for submitting comments.
Mail/Hand Delivery/Courier: Monica Jackson, Office of the
Executive Secretary, Consumer Financial Protection Bureau, 1700 G
Street NW., Washington, DC 20552.
Instructions: The Bureau encourages the early submission of
comments. All submissions must include the document title and docket
number. Because paper mail in the Washington, DC area and at the Bureau
is subject to delay, commenters are encouraged to submit comments
electronically. Please note the number associated with any question to
which you are responding at the top of each response (you are not
required to answer all questions to receive consideration of your
comments). In general, all comments received will be posted without
change to http://www.regulations.gov. In addition, comments will be
available for public inspection and copying at 1700 G Street NW.,
Washington, DC 20552, on official business days between the hours of 10
a.m. and 5 p.m. Eastern Time. You can make an appointment to inspect
the documents by telephoning 202-435-7275.
All submissions, including attachments and other supporting
materials, will become part of the public record and subject to public
disclosure. Sensitive personal information, such as account numbers or
Social Security numbers, should not be included. Submissions will not
be edited to remove any identifying or contact information.
FOR FURTHER INFORMATION CONTACT: For general inquiries, submission
process questions or any additional information, please contact Monica
Jackson, Office of the Executive Secretary, at 202-435-7275.
Authority: 12 U.S.C. 5511(c).
SUPPLEMENTARY INFORMATION: There are more than 38 million student loan
borrowers with over $1.1 trillion in outstanding debt. The majority of
the market consists of loans originated under Title IV of the Higher
Education Act. The remainder of the market consists of private student
loans. In July 2012, the Director of the Bureau and the Secretary of
Education submitted a report to Congress detailing the private student
loan market. The report \1\ found that, as of the end of 2011, there
were more than $8 billion in defaulted private student loan balances,
with even more in delinquency. Federal student loans frequently provide
for income-based repayment options for borrowers with partial financial
hardship, as well as rehabilitation options for borrowers in default.
In general, private student
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loans do not offer similar modified repayment options.
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\1\ Consumer Financial Protection Bureau and Department of
Education: Report on Private Student Loans (2012).
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The Dodd-Frank Act requires the Secretary of the Treasury to
designate an Ombudsman within the Bureau. The Dodd-Frank Act requires
that the Ombudsman present an annual report describing the activities
of the Ombudsman during the prior year, compile and analyze data on
borrower complaints regarding private educational loans, and make
appropriate recommendations to policymakers. In October 2012, the
Ombudsman released an annual report.\2\ The report, among other things,
analyzed complaints and other input from private student loan
borrowers, and noted that many consumers reported difficulties
negotiating repayment plans with their lenders and servicers in times
of financial difficulty, as well as challenges finding refinance
options. Included in the report was a recommendation that policymakers
identify options to spur the availability of loan modification and
refinance options for student loan borrowers.
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\2\ Consumer Financial Protection Bureau: Annual Report of the
CFPB Student Loan Ombudsman (2012).
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Some policymakers have sought changes to the treatment of private
student loans in the bankruptcy code. This policy option is not the
primary subject of this Request for Information. Rather, this request
seeks information on options to increase the level of affordable
repayment options for both pre-default and post-default borrowers in
distress who wish to repay their loans but may be lacking near-term
ability to service their obligations.
Loan Modifications
For the purposes of this request, a loan modification refers to a
restructuring of a debt obligation agreed to by the creditor and debtor
where the creditor agrees to a concession. In recent years, many
homeowners have sought more affordable repayment options for mortgage
obligations to avoid foreclosure. In such situations, some creditors
may have an economic incentive to modify the loan, as the net present
value (NPV) of the restructured debt may be greater in value than the
value of the collateral after foreclosure costs. However, in other
situations, with respect to securitized debt obligations secured by
residential real estate, subordinated note holders might be unwilling
to approve a change in terms. Given the potential impact foreclosures
can have on the financial system and local economies, many policymakers
pursued policies designed to encourage alternative repayment options
for mortgage borrowers.
The private student loan market might also benefit from further
loan modification activity. Even with concessions, creditors might
increase the NPV of distressed loans through such modifications.
However, the market for private student loans differs from the market
for residential mortgages. Private student loans are not secured by
collateral and have generally lower outstanding balances relative to
mortgages. These differences might fundamentally impact creditors'
economic calculus for determining whether to offer a change in
repayment terms.
There are also some important similarities between the two markets.
As with mortgage origination, student loan originators often access
funding through the asset-backed securities (ABS) market. In 2012,
public filings reveal that more than $4 billion of private student loan
asset-backed securities were issued. Like in the mortgage market,
private student loan underwriting practices have significantly improved
since the economic downturn, which may limit the level of distress for
future borrowers. Another notable similarity is the employment of
third-party loan servicers unaffiliated with the original lender,
though this practice is less prevalent in the private student loan
market than in the mortgage market.
Borrowers of federal student loans have a number of options to
modify the terms of their obligations to ensure an affordable payment
plan. For example, borrowers with a partial financial hardship can
elect the Income-Based Repayment plan, which caps payments on eligible
student loans as a percentage of income above 150% of the poverty line.
Borrowers in default can rehabilitate many federal student loans by
making ``reasonable and affordable'' payments in a consistent, timely
fashion for a specified period. There are also provisions to adjust the
status of a rehabilitated federal student loan on a consumer's credit
report.
Available data indicate that, in recent years, there has been
limited modification activity in the private student loan market. There
are a number of potential impediments to offering alternative repayment
options. Some of these may include: (a) Accounting guidelines that add
complexity when offering alternative repayment options without charging
off the loan; \3\ (b) operational and information technology
limitations among loan servicers; and (c) incentive mismatch among
trustees, administrators, and/or noteholders in ABS trusts and loan
servicers.
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\3\ See, for example, CNBE Policy Guidance 2010-02, issued by
the Office of the Comptroller of the Currency in August 2010.
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Impacts on Individual Borrowers and the Public
Policymakers have employed various measures to prevent foreclosures
among American homeowners and to mitigate resulting risks to the public
and the broader economy. Examples of these risks include increased
stress on insured depository institutions and decreased home values of
properties proximate to foreclosed homes--both of which can lead to
further distress. Given the relative size of the private student loan
market and the nature of the product, private student borrower distress
is unlikely to contribute to similar, significant systemic risk.
However, distress among borrowers with all types of student loans may
cause other negative effects in the broader economy. For example, the
Department of Treasury's Office of Financial Research described in its
recent annual report that student loan debt might dampen
consumption.\4\ Changes in the household headship rates, automobile
sales, and homeownership by younger Americans might also be impacted by
student debt levels. Should these risks be significant, policymakers
may wish to consider partnerships between the federal government and
the private sector to increase the availability of alternative
repayment options and reduce the levels of delinquency and default.
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\4\ Department of the Treasury, Office of Financial Research:
Annual Report to Congress (2012).
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The Ombudsman seeks information in order to provide policymakers
with further details on potential ways to increase payment
affordability for private student loan borrowers in distress and on the
risks of failing to do so. The deadline for submission of comments is
April 8, 2013.
The Bureau encourages comments from the public, including:
Consumers;
Financial institutions, including lenders and loan
servicers;
Nationally recognized statistical rating organizations
(NRSROs);
Private student loan asset-backed trust administrators;
Institutions of higher education;
Credit reporting agencies;
Debt collectors;
Housing finance professionals;
Manufacturers of automobiles and other financed goods;
Brokers and service providers in the residential real
estate industry;
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Professional associations, such as those representing
health professionals and teachers;
Providers of financial counseling; and
Other interested parties.
The Bureau is interested in responses in the following general
areas, as well as specific questions below. Please feel free to respond
to any of the questions outlined below.
Scope of Borrower Hardship
1 What are the primary drivers of private student loan borrower
distress?
a What characteristics might predict distress at loan origination?
b What characteristics might predict distress for borrowers who
complete a program of study?
c What characteristics might predict distress during repayment?
d What are typical debt-to-income ratios of borrowers in distress?
2 How do borrowers in distress typically stay current with their
private student loans? To what extent do borrowers reduce consumption
or adjust living arrangements to meet obligations?
a Do borrowers seek to reduce payments on federal student loans in
order to make payments on private student loans?
b To what extent do borrowers in distress accrue other debt (credit
cards, family loans) to meet private student loan obligations?
c To what extent do borrowers in distress forego ``other
nonessential expenses'' to meet private student loan obligations?
Current Options for Borrowers with Hardship
3 What options currently exist for borrowers to permanently or
temporarily lower monthly payments on private student loan obligations?
To what extent have these affordable repayment options cured
delinquencies?
4 How do lenders typically evaluate whether or not a borrower
qualifies for these affordable repayment options? If lenders make use
of financial models, what are the key drivers of these models?
5 Do lenders work directly with co-signers to modify terms? If so,
how?
6 What is the incidence or expectation of re-default rates among
restructured private student loans?
Past and Existing Loan Modification Programs for Other Types of Debt
7 What are some examples of loan modification programs sponsored by
a public entity or the private sector that have been successful? Which
features of these programs might be applicable to a student loan
affordability program? Which features of these programs might not be
appropriate for a student loan affordability program?
Servicing Infrastructure
8 Is the servicing infrastructure utilized by major lenders
flexible enough to process loan modifications at scale? What are the
limitations of these servicing platforms? Are those limitations capable
of being overcome? What are the estimated costs of overcoming those
limitations?
9 What are the key differences between servicing of student loans
compared to servicing of residential mortgages that must be considered
when crafting an affordability program?
Consumer Reporting and Credit Scoring
10 How are payments plans for defaulted private and federal student
loans currently reported to consumer reporting agencies? How are
rehabilitated federal student loans reported by consumer reporting
agencies, and how does that reporting affect credit scores?
Lender Participation
11 How might an affordability program sponsored by a public entity
mitigate moral hazard and selection bias?
Borrower Awareness
12 What are some examples of modification or refinance initiatives
that successfully made borrowers aware of a new program? Which features
of these programs are applicable in the private student loan market?
13 What are the most effective communication mechanisms to reach
borrowers in distress?
Spillovers
14 How do student loan payments impact access to mortgage credit?
How does student debt impact a consumer's ability to accumulate a down
payment? How does student debt impact a consumer's ability to meet
debt-to-income requirements for FHA-insured and private sector
mortgages?
15 To what extent does student loan debt impact the market for
automobiles? How does student loan debt impact a consumer's ability to
secure an auto loan?
16 What evidence exists about the impact of student loan debt on
consumption, savings, homeownership, household formation,
entrepreneurship, and other indicators of economic health?
Dated: February 20, 2013.
Garry Reeder,
Chief of Staff, Bureau of Consumer Financial Protection.
[FR Doc. 2013-04419 Filed 2-26-13; 8:45 am]
BILLING CODE 4810-AM-P