Director Cordray spoke at the Boulder Summer Conference on Consumer Financial Decision Making this week, addressing student loan debt as a “pressing problem and a matter of grave importance to public policy in America.” Student loan debt is the second largest debt category after the mortgage market, and has reached $1.2 trillion. According to Director Cordray, the “overhang of high student loan debt” is affecting not just borrowers, but the housing market, small business development, retirement savings, household formation, and rural communities. For example, he referenced a recent survey by the National Association of Realtors, which stated that 49 percent of Americans cited student loan debt as a “huge obstacle” to homeownership. Despite Director Cordray’s alarming sentiments, the contention that student loans are creating problems in other markets throughout the economy is by no means universally accepted. As an article in The Atlantic recently pointed out, studies have found that young borrowers with student loans are more likely to have mortgages than other young adults, and for households under 40, student borrowers are just as likely to have a mortgage and are actually more likely to have a car loan.
Although we have never understood what market offers customers the opportunity to shop for independent servicing for their accounts when purchasing consumer goods or services, Director Cordray went on to decry the inability of borrowers to choose the company that services their loans, in order to mitigate any alleged damages regulating from a servicer mistake or lack of quality. To rectify that perceived problem, Director Cordray stated that the CFPB is taking action to improve accountability in the student loan servicing market. Using its “potent authority” over most of the student loan servicing market, the CFPB is sending examination teams into both larger banks and the larger non-bank servicers to ensure that student loan servicers “play by the rules and treat borrowers fairly.” Director Cordray also revealed that the CFPB is working closely with other regulators to incentivize student loan servicers to provide more modification and refinancing options for private student loans. However, the exact nature of those incentives remains unclear.
Finally, Director Cordray touted the CFPB’s “Financial Aid Shopping Sheet,” which applies the same “Know Before You Owe” approach that the CFPB applied to mortgages and other consumer financial products. The Financial Aid Shopping Sheet gives college-bound students a model of what all financial aid award letters should look like, and provides a uniform way for students to understand the true costs of higher education before they commit to a school. Using a format developed by the CFPB, the form lays out the total cost of attendance, including tuition, fees, and other expenses, and differentiates between loans and scholarships. The aim of this tool is to allow students to make an informed choice about which college to attend from a financial standpoint. So far, over 2,000 schools have adopted the Financial Aid Shopping Sheet, and further tools called “Paying for College” are available on the CFPB’s website.