Student loan loads block home, car purchases

• Consumer agency is working on several ideas to help students with expensive private loans
• A refinance program could help ease burden with lower rates
• Lack of employment after graduating is the biggest problem facing many borrowers

Should college students get a re-do on their student loan debt? Maybe be offered a way to refinance high-price private college debt to a lower rate? What about some options for cleaning up a credit history after running into trouble with college debt?

The Consumer Financial Protection Bureau outlined a few ideas last week at a field hearing in Miami on student loan debt. The potential help would apply to private college loans, which are offered by banks and other financial institutions.

Private loans amount to about $150 billion of the college debt out there; billions, yes, but still a fraction of the $1.1 trillion in outstanding student loans. Most student loans are federal loans. Yet, private student loans are quite costly, and regulators are reviewing various ways to help consumers tackle that debt.

Just getting a look at some of the consumer comments about student debt proves insightful.

One interesting fact: The high cost of student debt is stopping many young consumers from buying big items, such as new cars, homes and furniture.

Nearly 30,000 Americans commented to the federal consumer watchdog agency on the student debt issue, and many discussed day-to-day struggles.

One borrower, Debra, told the CFPB, "I can't buy a house because of my student loan. I have to rent." Another borrower, Daria, said: "These loans are stunting my growth as a citizen. No car. No home."

While a college education is an important step on a pathway to prosperity, it's turning into a financial sinkhole for some borrowers who aren't able to find stable paychecks.

Samantha told the CFPB she feels like she's "trying to put out a forest fire with a garden hose."

Richard Cordray, director of the CFPB, noted in prepared remarks that U.S. Census data show nearly 6 million Americans ages 25 to 34 lived with their parents in 2011. It's estimated that this age group made up 27% of all home buyers in 2011, the lowest share in the past decade, according to the National Association of Realtors.

"Young consumers bowing under large debt loads may be unable or unwilling to buy a car or a home," Cordray said.

Ideas for easing the problem include finding a way that students could refinance their expensive private student loans if they've managed to regularly make their monthly payments on the high-interest student loans.

Students often apply for private student loans when they're "young, have scanty credit history, and have little or no income," Cordray said in the statement.

Under some sort of refinance program, the federal consumer agency noted, the rates could be lowered to reflect that the student has graduated, found a job and isn't as big of a risk as when a student, the CFPB said. Responsible borrowers would be able to receive a break under the proposal.

Mark Kantrowitz, a student loan expert and publisher of Edvisors Network, about two dozen websites on planning and paying for college, said there are no prepayment penalties on private student loans, so there's nothing to stop refinancing, except for a lack of lenders offering loans with better interest rates.

"One would think that there should be more refinancing activity a few years after graduation, when the borrower becomes a proven asset," Kantrowitz said. But non-bank lenders aren't re-entering the student loan marketplace, he said.

One newer firm, Social Finance, is using social communities and offering refinancing of student loans. But there are not many major refinancing programs now for private student loans.

The Consumer Bankers Association, which represents some private student lenders, said it's working with banking regulators, including the FDIC, to allow private lenders the ability to offer additional options that would create more student loan repayment flexibility. But it has no proposal regarding refinancing student debt.

Pace Bradshaw, vice president of congressional affairs at the CBA, said the group is focused on discussing some new temporary modifications that could assist some borrowers during a three-year period after graduation. The idea is to give student borrowers help early so they can avoid default, he said.

The major problem that troubled borrowers face, he said, is a lack of employment.

The banking group's letter to regulators in March stressed that not all or even most past-due borrowers can be helped by flexible repayment options.

"In many cases, prolonging the inevitable only makes things worse," the letter said. "But there are a significant number of cases where borrowers can avoid default and bring their loan payments current if lenders have more regulatory flexibility to work with them."

Other proposals by the consumer watchdog group call for offering more help to borrowers in distress, including those who have fallen behind on private loans.

It's essential, of course, that regulators and lenders put ideas on the table and take action to address the student debt problem. Too many with private student loans are likely to be caught in financial crises of their own.