Rohit Chopra: Refinancing Loans May Be the Way to Save the Economy


As a student, it's hard to put into words how frustrating it is to watch the painful stagnation of the American government when it comes to issues of student debt. While it's nice to see the issue of government loan refinancing earn some more attention, it doesn't have nearly the intensity, outrage, and priority mindset needed to effectively tackle such a massively long term problem.

But the simple fact is this. Students are being run into the ground. With no money to start with, no work, banks, and government loans that loom like a predator, there seems to be no light at the end of the tunnel. However, Rohit Chopra, the official responsible for student loans at the Consumer Financial Protection Bureau, is one of the few taking an active step forward. He is due to tell lawmakers that if harmful market practices such as poor loan servicing or structural impediments such as a concentrated credit sector are not addressed, "There may be a negative impact not just on consumers, but also on the broader economy."

You think this would be obvious. But based on the fact that interest rates have only been rising and refinancing is a nearly hopeless option, Americans are letting the ball drop when it comes to our kids. Not to mention that record student debt levels, about $1.2 trillion, is the second-largest source of debt after mortgages. They threaten economic growth, depress consumption, investment, savings, and entrepreneurship.

Most of the frustrations stem from the "inability to refinance fixed-rate loans to take advantage of today's historically low interest rates and their improved credit profile," Chopra said, in reference to the assumption that borrowers who graduate and land well-paying jobs are viewed by lenders as more creditworthy than students. In reality, the 6% student loan interest rate has yet to wreak its havoc on future job opportunities for students.

In an attempt and stimulating the economy once more, the Fed has been trying to engineer cheap borrowing to facilitate debt restructuring and increased consumption and investment. Chopra added that "policymakers might now focus" on spurring loan modifications and refinancings to help borrowers, since this would attract private capital and improve the functioning of the market.

Just like any mortgage borrowers who refinance when interest rates plummet, in Chopra's opinion, "Responsible student loan borrowers should have this option, too,"

Despite five years of Fed policy specifically designed to reduce borrowing costs, refinancing is still a time and money-consuming monster that even President Obama says  "holds back our entire middle class."

The moral of the story is: the less financial pressures placed on students, and the more they can work around them, the better. But, like anything that needs to go through miles of policy creation and debate, based on the current state of the congressional ecosystem, this plea for help will likely go unanswered for a long while. Students of America, I wouldn't hold your breath.