By Cheryl D. Cook, Esq.
Student loan debt was recently identified as the “leading source of U.S. household debt outside of mortgages,” approximately $150 billion of which represents private loans. At $904 billion as of the end of March 2012, the total amount of student loan debt is more than the amount of credit card debt in the United States, according to the New York Fed Quarterly Report (May 2012). Of the total amount of student loan debt, more than $8.1 billion is in default.
Richard Cordray, Director of the Consumer Financial Protection Bureau (“CFPB”), and United States Secretary of Education, Arne Duncan, recently presented their findings to various Congressional committees, concluding that a significant number of student loan borrowers “simply did not understand what they signed up for.”
At a July 24, 2012, hearing before the U.S. Senate Banking subcommittee, Rohit Chopra, student loan ombudsman for the Consumer Financial Protection Bureau, testified that borrowers struggling with private student loan debt would benefit from refinancing options.
The CFPB’s “Know Before You Owe” program (discussed in the Winter 2012 Newsletter) includes a project to help consumers “Know Before You Owe” about private student loans. In connection with this project, they have developed a new online tool called the Student Loan Debt Collection Assistant, along with a Financial Aid Shopping Sheet, that can be accessed on the CFPB website. The goal is that colleges and universities will use the tools, especially the Financial Aid Shopping Sheet, to assist student loan borrowers in understanding and evaluating the types of loan products available, based on their own qualifications.
The CFPB has asked for feedback about the tools, asking responders to rank items in their order of usefulness. Both the CFPB and the Department of Education plan to use the feedback to improve the tools. In addition, the Department of Education plans to publish a model form that schools could use to provide clear student loan and financial aid information to prospective students. International credit rating agency, Fitch Ratings, also pointed out that analysis of post-graduation outcomes may prove useful in underwriting, as borrowing and earning potential tend to influence default and delinquency rates.
While declining to speculate about what the CFPB may do to regulate private loan terms, Cordray, Duncan and Chopra emphasized greater transparency in the lending process, greater coordination between schools and lenders to educate student loan borrowers, and mandatory school certification of private student loans.
 Report to the Senate Committee on Banking, Housing, and Urban Affairs, the Senate Committee on Health, Education, Labor, and Pensions, the House of Representatives Committee on Financial Services, and the House of Representatives Committee on Education and the Workforce., July 20, 2012, CFPB.
 Fitch Report, July 20, 2012.